Friday, 15 May 2009
U.S. Will Pay $2.6 Million to Train Chinese Prostitutes to Drink Responsibly on the Job
The National Institute of Alcohol Abuse and Alcoholism (NIAA), a part of the National Institutes of Health (NIH), will pay $2.6 million in U.S. tax dollars to train Chinese prostitutes to drink responsibly on the job.
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U.S. Will Pay $2.6 Million to Train Chinese Prostitutes to Drink Responsibly on the Job
By Edwin Mora
12 May 2009
(CNSNews.com) -- The National Institute of Alcohol Abuse and Alcoholism (NIAA), a part of the National Institutes of Health (NIH), will pay $2.6 million in U.S. tax dollars to train Chinese prostitutes to drink responsibly on the job.
Dr. Xiaoming Li, the researcher conducting the program, is director of the Prevention Research Center at Wayne State University School of Medicine in Detroit.
The grant, made last November, refers to prostitutes as “female sex workers”--or FSW--and their handlers as “gatekeepers.”
“Previous studies in Asia and Africa and our own data from FSWs [female sex workers] in China suggest that the social norms and institutional policy within commercial sex venues as well as agents overseeing the FSWs (i.e., the ‘gatekeepers’, defined as persons who manage the establishments and/or sex workers) are potentially of great importance in influencing alcohol use and sexual behaviour among establishment-based FSWs,” says the NIH grant abstract submitted by Dr. Li.
“Therefore, in this application, we propose to develop, implement, and evaluate a venue-based alcohol use and HIV risk reduction intervention focusing on both environmental and individual factors among venue-based FSWs in China,” says the abstract.
The research will take place in the southern Chinese province of Guangxi.
Guangxi is ranked third in HIV rate among China’s provinces – and is a place where the sex business is pervasive, Li said.
“The purpose of the project is to try and develop an intervention program targeting HIV risk and alcohol use,” Li told CNSNews.com. “So basically, it’s an alcohol and HIV risk reduction intervention project.”
The researcher outlined three components of the intervention program in the abstract for the project:
“(1) gatekeeper training with a focus on changing or enhancing the protective social norms and policy/practice at the establishment level; (2) FSW (female sex workers) training with a focus on the acquisition of communication skills (negotiating, limit setting) and behavioural skills (e.g., condom use skills, consistent condom use); and (3) semi-annual boosters to reinforce both social norms within establishments and individual skills,” wrote Li.
The doctor said the heart of the study involves “a community-based cluster randomized controlled trial among 100 commercial sex venues in Beihai, a costal tourist city in Guangxi.”
“We anticipate that the venue-based intervention program will be culturally appropriate, feasible, effective and sustainable in alcohol use and sexual risk reduction among FSWs,” says the NIH grant abstract.
Li said his study is being done in China rather than the U.S. because prostitution occurs with alcohol use in the United States like it does in China, Americans will be able to benefit from the project’s findings.
“We want to get some understanding of the fundamental role of alcohol use and HIV risk,” he said. “We use the population in China as our targeted population to look at the basic issues. I think the findings will benefit the American people, too.”
Li said minimal research has been conducted on the link between alcohol use and prostitution as it relates to HIV.
“Alcohol has been a part of the commerce of sex for many, many years. Unfortunately, both global-wise (and) in the United States, very few researchers are looking at the complex issue of the inter play between alcohol and the commerce of sex,” he told CNSNews.com.
The grant is one of several “international initiatives” sponsored by the National Institutes of Health.
Ralph Hingson, director of epidemiology and prevention research at NIAA, told CNSNews.com, “There are many Americans who travel to China each year and they should be made aware of the HIV problem.”
Hingson said that Americans will be able to apply the studies findings to the American situation because 1.2 million Americans are currently living with HIV.
Li’s research includes exploration, development, implementation and evaluation. Currently, the project stands at the exploration stage, which the doctor expects to last 18 months.
“The first phase is kind of an exploratory study just trying to get a good understanding of the phenomena in the population of female sex workers in China. The second phase is the program development,” the professor told CNSNews.com.
Phase two will be based on the first year of the study and on “field observations,” he added. The third phase will be the implementation and evaluation of the program.
“Prostitution is illegal in China but it exists in China,” Li told CNSNews.com, “but the Chinese government and the society’s attitude towards prostitution is complicated.”
According to Li, there may be as many as 10 million female prostitutes in China with the majority raging from teenagers to those in their 20s.
“We see a lot of governmental initiatives in China, like 100 percent condom distribution promotion programs, so they deliver condoms in those (prostitution) venues,” he added.
“The global literature indicates an important role of alcohol use in facilitating HIV/AIDS transmission risk in commercial sex venues where elevated alcohol use/abuse and sexual risk behaviours frequently co-occur,” Li wrote when introducing the project last November.
“We expect that the intervention will improve protective normative beliefs and institutional support regarding alcohol use and HIV protection,” he added.
The NIH proposal hypothesizes that the program will decrease “problem drinking and alcohol-related sexual risk” among prostitutes that participate.
“We hypothesize that the venue-based intervention will change and enhance the protective social norms and institutional policies at the establishment level and such enhancement, accompanied by individual skill training among FSWs, will demonstrate a sustainable effect within commercial sex establishments in decreasing problem drinking and alcohol-related sexual risk, increasing consistent and correct condom use, and reducing rates of HIV/STD infection among FSWs,” says the NIH abstract.
Malaysia confirms first case of A(H1N1) flu
May 15, 2009
KUALA LUMPUR: Malaysia on Friday confirmed its first case of the A(H1N1) flu, a 21-year-old student who recently returned from the United States.
A statement by the Health Ministry's director-general, Dr. Ismail Merican, said the young man was hospitalised on Thursday after suffering from fever, sore throat and body aches.
He had returned to Malaysia from the United States on Wednesday.
Tests confirmed that he was infected with the A(H1N1) virus, the statement said. He is receiving anti-viral treatment and is in stable condition, it said.
Ismail said the ministry was in touch with his family members to ensure that he did not infect them, but they have not been placed under quarantine.
He also urged all passengers on the Malaysia Airlines flight from Newark on Wednesday to contact the ministry.
Ismail said the public has no reason to panic as his department was taking steps to protect public health.
Globally, 70 people have died of swine flu, 64 of them in Mexico where the virus originated. Four deaths have been reported in the US, one in Canada and one in Costa Rica.
According to the World Health Organisation, some 6,672 people in 33 countries are confirmed to be suffering from the disease.
The WHO estimates that up to 2 billion doses of swine flu vaccine could be produced every year, though the first batches wouldn't be available for four to six months, AP reported
Meanwhile, Bernama reported that a man from Bukit Mertajam held under observation at the isolation ward of the Penang Hospital has been declared free of Influenza A (H1N1).
"We just got a report that the blood test on the 26-year-old man was negative," State Health, Welfare, Caring Society and Environment Committee chairman Phee Boon Poh said when contacted by Bernama Friday.
A test on a sample of his blood had been sent to Kuala Lumpur.
The man was kept for observation Thursday after he was found to have fever and symptoms similar to those of Influenza A (H1N1) on his return from the United States.
Two weeks ago, a New Zealand tourist was admitted to the isolation ward of the hospital for suspected Influenza A (H1N1) but a blood test also showed up negative. - Bernama
Man busts wife, mate in porn DVD
May 13, 2009
A TAIWAN carpenter bought a porn DVD only to find secretly taped motel footage of his wife having sex with his friend, whom the husband later stabbed.
The husband, identified only by his surname Lee, discovered the illicit sex on the DVD in 2002.
The sexual acts apparently had been recorded using a hidden camera and were on a pornographic DVD, titled Affairs with Others' Wives, which the husband bought from a vendor to watch at home.
Lee, who lives in Taoyuan County near Taipei, divorced his wife after viewing the DVD. His friend, a butcher, fled their village.
In August 2008, Lee spotted the butcher in Chungli City, returned with a knife and stabbed his former friend in the thigh.
The butcher sued Lee for causing bodily harm. Lee sought but was unable to countersue the butcher for adultery, because of a five-year statute of limitations.
Prosecutors urged the men to settle the case out of court, but they refused.
With the failure to resolve the case, Lee was indicted on Tuesday on a charge of causing bodily harm to another person, the Liberty Times reported.
Prosecutors were seeking a sentence of less than six months in prison, which can be converted into a fine.
Singapore’s Temasek Sells Stake in Bank of America
By Chen Shiyin
May 15 (Bloomberg) -- Temasek Holdings Pte sold its 3.8 percent stake in Bank of America Corp., reducing investments in U.S. and European financial companies that dragged down the value of the Singapore state-owned investment firm last year.
The sale of the shares, worth $2.14 billion at yesterday’s closing price, was completed by March 31, according to a U.S. securities filing. At the average price of $6.73 for the first quarter, the sale would have fetched $1.27 billion for Temasek, which had spent about $5.9 billion since 2007 buying shares in Merrill Lynch & Co., acquired by Bank of America this year.
Temasek earlier this week bought some of Bank of America’s stake in China Construction Bank Corp., and Chief Executive Officer Ho Ching yesterday said the fund would increase investments in emerging markets and reduce exposure to developed economies.
“The belief now is that the world is not so American- centric anymore,” said Melvyn Teo, associate professor of finance at the Singapore Management University. “It’s going to be driven more and more by the Chinese economy and consumer so might as well load up more on Chinese banks than American banks.”
The value of Temasek’s assets fell 31 percent to S$127 billion ($87 billion) in the eight months to Nov. 30 as the credit crisis drove down the value of stakes in Merrill Lynch, Barclays Plc and Standard Chartered Plc. The drop in the portfolio tracked a 38 percent retreat in the MSCI World Index.
The global stock benchmark has risen 0.5 percent this year, compared with a 45 percent gain in China’s benchmark Shanghai Composite Index.
Bank of America Stake
A Form 13F filing to the U.S. Securities and Exchange Commission yesterday from Temasek indicates that the fund no longer held shares in Bank of America or Merrill Lynch as of March 31. An earlier filing showed that the Singapore investment firm owned about 219.7 million shares in Merrill Lynch at the end of 2008.
Temasek confirmed it sold its Bank of America shares in an e-mailed response to Bloomberg News queries today. The company declined to say how much it sold the stake for or when the sale was conducted. Mark Tsang, a Hong Kong spokesman at Bank of America, declined to comment.
Since the end of March, when Temasek completed the sale, Bank of America has rallied 66 percent. The shares dropped 52 percent in the first quarter.
Merrill Lynch investors received 0.8595 Bank of America stock for each share held in the U.S. brokerage in the acquisition. The deal meant Temasek received about 188.8 million Bank of America shares, the equivalent of a 3.8 percent stake in the company, according to calculations by Bloomberg.
Standard Chartered, Barclays
The shares of Charlotte, North Carolina-based Bank of America, under pressure from U.S. regulators to raise $33.9 billion to boost its capital base, have tumbled 69 percent in the past year, outpacing the 37 percent decline in the Standard & Poor’s 500 Index.
The stock rose 2.7 percent to $11.31 in New York yesterday. It traded between $14.81 and $2.53 apiece in the first quarter.
Sovereign funds, mostly from Asia, have made “substantial losses” on more than $60 billion invested in U.S., Swiss and U.K. banks since the start of the subprime crisis, according to International Financial Services London, an industry lobby group.
Along with its stake in Merrill Lynch, Temasek also raised holdings in Standard Chartered, the London-based bank that gets almost all its profit from emerging markets, and bought shares in Barclays, the U.K.’s third-biggest bank. The company had earlier said it wants the Organization for Economic Cooperation and Development countries to account for about a third of its investment portfolio.
Reassessing the Portfolio
Temasek will cut its holdings in the so-called OECD countries to 20 percent as it expands in Asia and emerging markets from Latin America to Africa, Ho said in a speech posted on the company’s Web site yesterday.
“We have also been re-assessing our long term portfolio balance over the last two years,” Ho, 56, said in the May 12 speech. “As Asia continues to develop, it continues to de-risk. We are increasingly more confident of Asia’s future.”
Ho, the wife of Singapore Prime Minister Lee Hsien Loong, in October will step down as chief executive of the investment firm set up in 1974 with state assets such as shipyards and an airline, and which counts the city’s Ministry of Finance as its only shareholder. She will be replaced by Charles Goodyear, the 51-year-old former head of BHP Billiton Ltd.
China Construction
Temasek was among a group of investors including Hopu Investment Management Co., a private-equity fund run by Goldman Sachs Group Inc.’s China partner Fang Fenglei, that bought a HK$3.6 billion ($465 million) stake in Beijing-based Construction Bank, according to a document sent to fund managers and obtained by Bloomberg News this week.
“We’ve been very heavily overweight in Asia for some years now and leery of the Western financial institutions because Asia is where the growth is at,” said Hugh Young, managing director at Aberdeen Asset Management Plc, which has about $30 billion of Asian assets.
Recession storm sinks Europe
15 May 2009
PARIS (AFP) – The global recession stormed into Europe with a vengeance in the first quarter, data showed Friday, pushing the economy deeper into the mire and casting a shadow over predictions the worst may soon be over.
The 16-nation eurozone economy contracted a record 2.5 percent in the first three months of the year, the deepest slump ever going back to 1995, after shrinking 1.6 percent in the last quarter of 2008, the Eurostat agency said.
Compared with a year earlier, the eurozone was down 4.6 percent while the wider 27-nation European Union economy shrank 4.4 percent.
Analysts had been expecting a contraction of 2.2 percent on the quarter and 4.1 percent on the year.
Eurostat figures also showed that the worst global slump since the 1930s Great Depression was now hitting Europe harder than the United States, the epicentre of the storm, whose economy shrank 1.6 percent in the first quarter and 2.6 percent over one year.
National data showed that Germany, Europe's biggest economy, registered its worst performance since modern records began in 1970 with a contraction of 3.8 percent in the first quarter,
The quarterly contraction in Germany, the world's biggest exporter, was even steeper than the 2.2 percent fall recorded in the final three months of 2008 and topped analyst forecasts for a drop of 3.2 percent.
The dismal German outcome was followed by other figures showing a first quarter contraction of 1.2 percent in France and 2.4 percent in Italy.
Despite the dire situation, economists said the recession may have bottomed out in the first quarter -- although that did not mean that a quick recovery could be expected.
"At least though, this should mark the nadir in the eurozone's recession as there are mounting signs that the rate of contraction is now moderating," IHS Global Insight economist Howard Archer said.
"Nevertheless, we suspect that actual growth remains some way away with the result that eurozone GDP (gross domestic product) could well contract by as much as 4.5 percent this year," he added.
At the same time, the weaker and more exposed economies of Central and Eastern Europe were sinking further into the mire, prompting the European Bank for Reconstruction and Development (EBRD) to say it would invest billions of euros (dollars) there in an effort to hold the line.
The regional economies were expected to shrink by a collective 5.2 percent this year before staging a slight recovery with growth of 1.4 percent in 2010, the EBRD said.
The EBRD said it had invested 2.3 billion euros in the region so far this year and aimed to invest a record 7.0 billion euros by the end of 2009 to help it avoid the worst of the global slump.
Data from the region on Friday showed Romania and Austria the latest countries to officially slide into recession while Hungary and Slovakia also registered sharp falls in economic output.
International Monetary Fund chief Dominique Strauss-Kahn was at pains to play down the plight of the eastern European economies, saying their problems were neither bigger nor smaller than for other emerging countries.
The IMF was already bailing out four countries in the region -- Hungary, Latvia, Romania and Serbia -- as well as Ukraine, Strauss-Kahn told reporters in Vienna, "and maybe we will have some more programmes in the coming weeks or months."
On the global outlook, Strauss-Kahn said the IMF was still confident that there should be a recovery early next year although efforts had to be kept up to ensure that came about, especially on repairing the stricken banking system.
"We still see a recovery in first semester of 2010 and the beginning of the turning point in October, November or December" this year, he said.
Meanwhile, there was a glimmer of light in Japan, whose export dependent economy, like Germany's, has been badly hit by the global recession.
Central bank figures showed wholesale prices fell 3.8 percent in April from a year earlier, the steepest drop in 22 years, but core machinery orders were down 1.3 percent in March from February, less than expected.
Japanese Finance Minister Kaoru Yosano said these figures suggested the recession was abating in Japan.
Dealers not alone in Chrysler-closing pain
By TOM KRISHER & KIMBERLY S. JOHNSON
15 May 2009
DETROIT (AP) - In tiny Millerstown, Pa., the owner of the only car dealership in town found out yesterday he was on Chrysler's hit list - one of 789 the troubled automaker wants to eliminate.
"It's really, really a blow," said Jeff Potter, whose family owns the dealership. "When you talk about being here 34 years, it's my life."
Chrysler disclosed in a bankruptcy filing yesterday that it wants to close a quarter of its dealers in a matter of weeks, a strategy that might help save the company but would wipe out thousands of jobs.
With General Motors Corp. expected to announce that it will close about 1,100 dealerships, the crisis in the auto industry is reaching the front doors of Americans who live far from Detroit.
Millerstown Chrysler will try to survive by selling used cars.
Otherwise, the town of 700 on the east bank of the Juniata River west of Harrisburg, will lose one of its largest employers and a major source of tax revenue.
And in other communities that depend on dealers for everything from newspaper advertising to Little League sponsorships, the ripple effect could be devastating. Dealerships on the closing list are in every state but Alaska.
The National Automobile Dealers Association says that about 40,000 people work at the affected dealerships. Many will keep their jobs, but their dealerships will be left to sell only the other brands in their showrooms, or used cars.
Chrysler said in its filing that sales are too low at many of the dealerships. Half its dealers account for 90 percent of its sales, and the company is trying to cut poor-performers that compete for the same customers.
Dealers learned their fates in letters yesterday morning. The effects will go much further than their bottom lines.
Bart Wolf, the general sales manager at Wolf's Motor Car Co. in Plymouth, Wis., estimated that he donated an average of $10,000 a year for local high-school and middle-school events, supporting band trips and athletic activities.
"The way things are going now, that could be cut down to under $2,000," he said. "It's hard to say no to anyone, but this could make things tough."
Local media will feel the pinch, too. The average car dealer spent $341,000 on advertising last year, said Paul Taylor, NADA's chief economist. About a quarter went to newspapers, which are already struggling.
The average dealer spends $16.5 million a year in the community, including sales, payroll taxes and charitable contributions, Taylor said. On top of that, laid-off workers will spend less, and towns will suffer from lost tax revenue.
NADA's chairman, John McEleney, himself an Iowa auto dealer, said that the group understands that dealers have to be consolidated. "We just think the process needs to be slowed down."
Chrysler Vice Chairman Jim Press called the cuts difficult but necessary. He said that the list of dealers is final.
"This is a difficult day for us and not a day anybody can be prepared for," Press told reporters during a conference call.
A hearing is set on June 3 for the bankruptcy judge to determine whether to approve Chrysler's motion. Chrysler said that it wants to shed the dealerships by June 9.
Chrysler executives said that the company is trying to preserve its best-performing dealers. More than half the dealerships being eliminated sell fewer than 100 vehicles per year.
The company is also trying to reduce the number of single-brand dealerships to bring all three Chrysler brands - Jeep, Chrysler and Dodge - under one roof.
The 3.5 million customers who bought cars and trucks from the affected dealers will be notified about the closures, and their warranties will still be honored, said Vice President Steven Landry.
Both Chrysler and GM have dealership networks that were built when they had a much larger share of the U.S. market. As both lost market share to Japanese and other overseas brands, GM and Chrysler ended up with too many dealers. Many are barely getting by and can't afford to upgrade their facilities or hire the best personnel.
Still, some dealers say that the firings make no sense because they will ultimately cost the company sales. Some have hired lawyers to fight the decision.
Millerstown would be devastated if the Potter family had to close up shop, said Billy Roush, borough council president.
The borough, which provides fire, ambulance and other services to the area, had an annual operating budget of $158,805 last year, a big chunk of it from the Potter dealership.
"In our town," Roush said, "we have very little employment."
Industry crisis sees US car dealerships cut loose and left with nothing to sell
The shrinkage of General Motors and Chrysler's dealer networks is putting more than 100,000 jobs in doubt at car yards in towns and cities across America
Andrew Clark in New York
15 May 2009
The stricken car manufacturer General Motors has written to 1,100 US dealerships telling them that they are to be severed from the company's distribution network, leaving them with no vehicles to sell and an uncertain future.
GM sent out the letters in the first stage of a streamlining that will eventually cut its network of US car showrooms from just under 6,000 to fewer than 4,400. Its move came a day after rival Chrysler announced it was shedding 789 of its 3,181 dealerships as it restructures its operations under bankruptcy protection.
Taken together, the two Detroit manufacturers' shrinkage of their franchised dealer network put more than 100,000 jobs in doubt at car yards traditionally viewed as a staple part of the landscape in towns and cities across America.
GM's US sales chief, Mark LaNeve, said shedding dealers was a "difficult process", pointing out that he knew many of the victims personally.
"People could argue these actions should have been taken years ago but certainly, the management team today has no choice," said LaNeve, on a conference call with the media.
Of GM's axed dealerships, about 500 specialise in Hummer, Saturn and Saab brands which the company has pledged either to sell or shut down. A further 400 to 500 car yards have negligible trade, shifting fewer than 35 vehicles annually, while the rest have fared poorly against performance benchmarks.
Manufacturers argue that there are simply too many dealers fighting for shrinking demand from the US public, making the network inefficient. LaNeve said: "Dealers are not a problem to GM - they're an asset to GM. Too many dealers, in actuality, are a problem."
End of an era
For those cut loose, the options are limited. They can shop around for an alternative brand franchise, although few are available in the middle of the steepest slump in car sales since the second world war.
Some will switch to selling used cars which, typically, are less profitable and support fewer jobs. Or they can shut down.
One dealer, Mike Beattie of Dunlop Pontiac in Bay City, Michigan, was left pondering the prospects for his 27 staff.
"It's a very difficult situation for all of us here - it's the end of an era," he says. "It's something we'd seen coming but we're still trying to wrap our heads around it."
Beattie's dealership has dealt exclusively in sporty Pontiac cars since the nameplate was established in 1926. But cash-strapped General Motors recently axed the brand, long known for its "muscle car" image, as it slashed costs in a desperate effort to stave off bankruptcy. The outlook for Dunlop's 27 staff is cloudy because next year, the showroom will soon have nothing to sell.
"I grew up with this business. My father had it before me," says Beattie. "We're a small organisation. I've been walking round, talking to my employees. We've got people who've worked here 40 or 50 years."
Dealers are the latest to feel the pain from the struggles of Detroit's carmakers to stay afloat. Despite billions of dollars in emergency aid from the US government, Chrysler slipped into bankruptcy last month and GM has until the end of May to find a way to avoid a similar fate.
The National Automobile Dealers Association said GM's cuts alone would hit 63,000 employees. The trade organisation said it viewed GM's move with "sadness and disappointment" and that "GM's decision comes through no fault of the dealers, who are, in many cases, family-run businesses that have been loyal partners with GM - through good times and bad - for multiple generations."
Experts say that fewer retail outlets will ultimately mean less choice for consumers and, potentially, fewer discounts.
Aaron Bragman, an automotive analyst at IHS Global Insight, said: "No longer will people be able to shop between three or four different dealers within 15 minutes of each other for the best cut-throat price."
Three trillion dollars later...
There is no single big remedy for the banks’ flaws. But better rules—and more capital—could help
May 14th 2009
From The Economist
COULD there be a better time to be a bank? If you have capital and courage, the markets are packed with opportunities—as they well understand at Goldman Sachs, which is once again filling its boots with risk. Governments are endorsing high leverage and guaranteeing huge parts of the financial system, so you get to keep the profits and palm off the losses on the taxpayer. The threat of nationalisation has receded, reinvigorating the banks’ share prices. Money is cheap, deposits plentiful and borrowers desperate, so new lending promises handsome margins. Back before the crash, banks’ profits just looked big; today they might even be real.
The bonanza is intentional. Governments and regulators want the banks to make profits so that they regain their health faster after roughly $3 trillion of write-downs. It is part of the monstrous bargain that bankers have extracted from the state (see our special report this week). Taxpayers have poured trillions of dollars into institutions that most never knew they were guaranteeing. In return, economies look as if they have been spared a collapse in payment systems and credit flows that would probably have caused a depression.
In an ideal world any government would vow that, next time, it will let the devil take the hindmost. But promises to leave finance to fail tomorrow are undermined by today’s vast rescue. Because the market has seen the state step in when the worst happens, it will again let financiers take on too much risk. Because taxpayers will be subsidising banks’ funding costs, they will also be subsidising the dividends of their shareholders and the bonuses of their staff.
It should be obvious by now that in banking and finance the twin evils of excessive risk and excessive reward can poison capitalism and ravage the economy. Yet the price of saving finance has been to create a system that is more vulnerable and more dangerous than ever before.
The great purge
Some argue that only draconian re-regulation can spare taxpayers from the next crisis. The structure must be changed. Governments should purge banks that are big enough to hold the system to ransom. Or they should seek to slice through the entanglements, cordoning off the dangerous bits. New “narrow” banks would be guaranteed a seat in the lifeboat by the state and heavily regulated for the privilege. The rest of the industry would be free to swim—and to sink.
Yet this search for a big, structural answer runs into two problems. One is that the reform is not as neat as it first appears. Nobody wants to have banks that are so big that they stifle competition (itself a source of stability), but breaking big banks up into tiny bits that pose no systemic risk would be a horribly complex and lengthy task. As for narrow banks, precisely which bit is too important to fail? People’s idea of a systemic risk can change quickly. Today’s rescues have included investment banks and insurers, neither of which used to be regarded as system-threatening.
The second drawback is inefficiency. Limiting banks’ size could stop them from attaining the scale and scope to finance global business. Confronted with restrictions, financiers innovate—in recent years, for instance, risk was shifted to non-banks such as money-market funds, which then needed rescuing. Regulators can stop innovation, some of which has indeed been abused, but Luddites in finance would do as much harm to the economy as Luddites in anything else.
Capital solution
Instead, it is better to focus on two more fiddly things that could produce fairly radical results: regulation and capital. By any measure, regulators need help. That help does not mean creating a new global authority to match the global scope of finance: the money for bail-outs ultimately comes from nation states. But there is plenty of sensible reorganisation to be done—America’s system is a chaotic rivalry of conflicting fiefs, Britain’s an ambiguous “tripartite” regime—and there is a useful general principle to enforce. Regulators should focus on function: if an outfit behaves like a bank, it should be regulated as one, whatever it says on the brass plate. Ideally each jurisdiction will incorporate a set of broad global principles, which establish a benchmark of prudent finance.
Regulators can also use markets. Banks’ solvency depends on a bedrock of capital. Regulators could monitor how this trades, or use markets that gauge the risk of insolvency, to help decide when banks must raise more capital (see article). Regulators could get managers to watch for systemic risks by linking their bonuses to the bank’s bonds. If managers identify with shareholders, as they do now, then they worry only about shareholders’ losses. Catastrophic losses bigger than that are all the same to them. Incentives matter: with higher risk charges on banks’ trading books, bankers would become more discerning about how they put their money to work, and less prone to make dangerous bets in pursuit of huge bonuses.
Smarter regulators and better rules would help. But sadly, as the crisis has brutally shown, regulators are fallible. In time, financiers tend to gain the advantage over their overseers. They are better paid, better qualified and more influential than the regulators. Legislators are easily seduced by booms and lobbies. Voters are ignorant of and bored by regulation. The more a financial system depends on the wisdom of regulators, the more likely it is to fail catastrophically.
Hence the overwhelming importance of capital. Banks should be forced to fund themselves with a lot more equity and other risk capital—possibly using bonds that automatically convert to equity when trouble strikes. Higher capital requirements would put more of the shareholders’ money at risk and, crucially, enable banks to absorb more losses in bad times. Think of it as a margin for regulatory error.
Regulation cannot prevent financial crises altogether, but it can minimise the devastation. Loading banks with equity slows the creation of credit, but the reward for a healthy financial system is faster growth over the long term. There are three trillion reasons to think that the trade-off is worth it.
Singapore firms turn to bartering
By Mariko Oi
16 May 2009
In northern Singapore, among many residential flats, there stands a huge six-storey building called Northlink.
It houses more than 500 small to medium sized businesses, or SMEs.
They are the backbone of Singapore's economy, and yet they are the hardest hit by the current recession.
Since the global credit crunch spread to the city state, banks became nervous to lend - especially to SMEs.
Alarmed by the situation, the government has announced that it will spend almost $4bn (£2.6bn) to stimulate bank lending in the budget.
But Singapore is experiencing its worst downturn in its history, with the economy forecast to shrink by much as 10% this year. And the freeze in credit markets is not yet thawing.
So businesses are turning to alternative methods to pay their bills, a tactic once considered a last resort, namely the age old practice of barter trade.
Last resort
On the top floor of Northlink building, manager Malvin Khoo is busy finalising deals with his clients. He owns a Singapore based printing and packaging firm that employs 15 people.
"The greatest thing about bartering is I could be ordering a jumbo jet, or a yacht tomorrow," he quips.
Obviously, that is "quite unlikely", he laughs, though he has managed to use a property in Malaysia to barter with.
"It is the cheapest way to expand my business."
Mr Khoo joined Barterxchange, a network of 600 businesses in Malaysia and Singapore, 18 months ago.
Instead of simplistic one-to-one direct exchange of goods and services, members go online.
Forget cash. They have their own universal currency.
Companies earn credits by offering their services and skills. They can then use them to get what they need from other members.
"I had some customers that I did packaging for, who had surplus plates," explains Mr Khoo. "So I structured to trade $20,000 worth of plates to restaurants. Some of them were just opening up so they needed new plates."
In return, Mr Khoo scored free meals at various restaurants.
One of them is Megumi Japanese restaurant, which has sold dining vouchers worth more than $10,000.
"Not only did we get free webpage design and printing services by bartering, we also got some tremendous exposure to the business community," says managing director Hazel Hok.
"We used to be a local neighbourhood restaurant, but we have seen a significant increase in corporate functions."
New members
And there is no geographical boundary.
Asia's biggest barter trade site is connected to more than a dozen global websites, where half a million companies participate.
"We have even sent electronic goods to Nigeria," says Lee Oi Kum, executive chairman of Barterxchange.
The industry is now worth over $8bn annually, according to the International Reciprocal Trade Association.
And its popularity is rising.
Barterxchange has seen a 30% jump in its membership since 2007.
Companies cannot operate solely by bartering. But it definitely offers alternative methods to make things a little easier.
Europe in deepest recession since War as Germany suffers
German economic policy is "bankrupt", economists have said.
By Edmund Conway and Angela Monaghan
15 May 2009
The declaration was made as it emerged that Europe's biggest economy has now suffered a worse "lost decade" than Japan and is deeper in recession than any other major economy.
On a day of dismal news for the European economy, official figures also showed that Italy, Austria, Spain and the Netherlands are facing their biggest combined slump in post-war history, sparking warnings about the potential for social unrest throughout Europe.
Within hours, the managing director of the International Monetary Fund (IMF) warned that the global recession is far from over and that people must prepare themselves for more financial shocks. Dominique Strauss-Kahn said the world remains in the grips of a "Great Recession" and played down talk of "green shoots".
Germany's economy shrank by 3.8pc in the first three months of the year - a record contraction that is almost double the fall of Britain's gross domestic product in the first quarter. The figures sparked attacks on Germany's government, which has repeatedly shown reluctance to bail out either its economy or financial system.
In figures described by economists as "disastrous", Eurostat also reported that Italy shrank by 2.4pc, Austria and the Netherlands by 2.8pc, Spain by 1.8pc and France by 1.2pc. The statistics underline the fact that although Britain's financial system was badly hit in the early months of the crisis, the UK's economy has not fared as badly as its continental rivals, contracting by 1.9pc in the first quarter.
The sharp German contraction - the worst since the Second World War - follows news that the bill for bailing out its economy is likely to exceed the cost of re-unification in the years of austerity after the fall of the Berlin Wall. Economists said that the country's reluctance to move quickly to cut taxes and raise spending was largely to blame.
The export-reliant country has been hit hard as world trade nose-dived in the latter months of last year. Charles Dumas of Lombard Street Research said: "German economic policy is bankrupt, and the Mediterranean countries stuck in EMU are also condemned to ongoing economic collapse.
"Already we have real GDP levels that are up only about 3pc from 2000 in Germany and Italy – ie growth has been only a little over ¼pc a year – making this a lost decade for much of continental Europe on a worse scale than Japan in the 1990s."
Mr Strauss-Kahn, who was speaking in Vienna, said that although there were early signs of improvement in some of the economic surveys, the global downturn is not finished, with more financial shocks likely.
"This crisis is not yet over, and there will, in all likelihood, be further tests ahead," he said.
However, Mr Strauss-Kahn said the global economy would "almost certainly" avoid a crisis as severe of the 1930s Great Depression because of the co-ordinated action taken by world leaders.
"World leaders embraced multilateralism, and are reaping the rewards. Vehicles like the G20 were used to coordinate policies and deliver a unified message," he said.
The IMF has called for a global fiscal stimulus equal to 2pc of the world's gross domestic product.
China’s Stock Bubble Passes Stiglitz Acid Test
By William Pesek
May 15 (Bloomberg) -- China’s stock-market boom is as clear a bubble as you will find, the conventional wisdom says.
When might it burst? Nobody knows if it will.
The Shanghai Composite Index has surged 45 percent this year. Just because China has deep pockets in this time of global crisis doesn’t mean its economic health supports this rally. Resources of China’s magnitude are a nice thing to have at the moment. And while probably too late to buy into the market, investors who are already there won’t be disappointed.
In a sense, buyers are betting on China’s socialist tendencies rather than its success in fostering free markets. Cash-rich China has simply built a better bubble. Rather than boding well for China’s long-term outlook, this rally serves as a reminder of risks facing the world’s third-biggest economy.
The strength of China’s fiscal position got a headline- grabbing endorsement this week from Nobel Prize-winning economist Joseph Stiglitz. At a May 13 forum in Beijing, Stiglitz said China “has taken very rapid action to address the crisis” and may emerge as “a winner.”
In the same address, though, Stiglitz undermined that argument in the long run. “We are at the end of the beginning, rather than the beginning of the end,” Stiglitz said. “The global economy may be declining at a slower rate and we may see a bottom soon, but it doesn’t mean a full recovery.”
Global Downshifting
The rapid growth rates of the mid-2000s are a thing of the past. The downshifting of global expectations is taking place from New York to Shanghai. Even with the trillions of dollars of stimulus the U.S. is pumping into markets, American households face a multiyear process of saving more and spending less.
That transition will prove painful for a world that relies heavily on the $14 trillion U.S. economy. The $4.4 trillion Japanese economy isn’t much better off. Gross domestic product contracted an annualized 16 percent in the first quarter, following a fourth-quarter drop of 12 percent, according to the median estimate of economists surveyed by Bloomberg News.
With the U.K., Germany and much of the euro area in recessions, feel free to engage in the fiction that China’s $3.2 trillion economy will save the world. Far from that happening, global trends will increasingly close in on export-driven China.
Stiglitz isn’t wrong to think China will have a better 2009 than other major economies. Its 4 trillion yuan ($585 billion) stimulus plan and record bank lending are helping to fill the void left by plunging exports. The trouble is, that’s a void too far, even for an economy that’s as top-down as China’s.
Flawed Assumptions
Be afraid when just about every economist agrees on something. Just about everyone seems to think China can pull this off, that it can artfully influence a vast, underdeveloped economy of 1.3 billion people without many of the policy tools at the disposal of the Federal Reserve or European Central Bank.
The flaw in this assumption is that it takes for granted that all those stimulus yuan will be spent wisely and productively on worthy projects and companies. It assumes that those investments, much of them funded with debt, will morph into well-paying jobs that generate wealth for China’s people.
An even more fantastic assumption is that little of China’s stimulus efforts will be squandered by corruption. It’s hard to know how China can avoid vast amounts of public money being siphoned off by local government officials to speculate on stocks or property or to make luxury-good purchases.
At What Cost?
Even if China ekes out healthy growth this year, the question is what it will cost. China may be setting the stage for a Japan-like bad-loan crisis a few years from now. One also has to wonder if China is moving fast enough to rebalance its economy away from exports toward domestic demand. It’s the “quality” of the growth that China produces that is the focus of economists such as New York University’s Nouriel Roubini.
China’s public-relations machine is working overtime to spin this story. Its success in getting the global media to play along explains why investors are rushing into Chinese shares. Just because China has built a more sustainable bubble, supported by the promise of ever more government largess, doesn’t explain away the challenges facing the fastest-growing major economy.
Government-directed bank lending has pretty much reached its full-year target and is poised to slow. The global export slump will increasingly take its toll. If China is a winner this year, as Stiglitz says, it’s a point that has many caveats.
Officials in Beijing will be hard-pressed to replace the role of the U.S. consumer. China’s stimulus efforts are no substitute for demand from American households, which are entering into a rare period of thrift. If you are sitting on big paper profits in China, it may be time to take them.
What Would You Do With $100,000 of Family Money?
By Dr Steve Sjuggeruud
14/05/2009
In 1993, my father did something incredibly nice for me...
He entrusted me to manage $100,000 of his money.
This was far from pocket change... My dad was a career Navy man, and my mom a schoolteacher – not exactly get-rich-quick professions. And neither of them came from money.
I was just starting out as a stockbroker. I have the full academic education in finance, all the way to a PhD. But looking back, the biggest financial education I ever received was from that $100,000...
The money was an enormous weight. This was my dad's IRA money... What if I screwed it up? I was determined not to lose it.
So in my dad's portfolio, I was conservative. I only bought "deep value" stocks and safe income plays. And I only bought once they'd fallen to the point where it seemed we couldn't possibly lose money. (And then they'd go down!)
I wish I could tell you I doubled or tripled his account in a few years. The reality is, it crept forward. And if I didn't have the "tailwind" of a slight uptrend in the market, it might have crept backward.
Meanwhile, I had a client in New York whose account was the same size as my dad's. Ellen was probably 70 years old. But she was not afraid of the markets...
The importance of the “exit strategy”
"My dear, what's Malaysia Fund doing today?" she'd ask.
"It's around $16," I'd tell her. The stock was up from where she bought it.
"Buy me some more of it," she'd say.
"But Ellen, you've already got a big stake in this one, and you can't lose this money. Are you sure?"
"Buy me some more of it."
"OK."
A few weeks would go by. Then we'd have the same conversation, only the fund was $2 higher...
"Where's Malaysia Fund today?"
"It's around $18." "Buy me some more of it."
"Are you sure? This is really getting to be a big stake here..."
"Buy me some more of it."
Ellen's account was going up in nearly every position. Meanwhile, my dad's account was just treading water. My main goal was not to lose his money. I was scared to take a risk. So I wasn't making him much money.
A couple more months went by. I got the same call from Ellen. With the Malaysia Fund at $23, she bought even more.
At this point, I didn't really protest. I didn't tell her this... but it seemed to me she was better at this than I was. Heck, she'd been at it longer than me.
When a stock my dad owned went up 20%, we sold it. I could hardly wait to lock in a profit. Meanwhile, this little old lady from New York was doing the opposite... When a stock Ellen owned went up 20%, she was buying more. And she was making real money.
I wish this story had a happy ending. But like most individual investors, Ellen didn't have any "exit strategy." She didn't use trailing stops or anything else. Instead, she made the all-too-human error of hanging on too long.
In other words, she only got it half right.
Cut your losers and let your winners ride
Nobody taught us this in business school. But around the time I was working with Ellen, I read the book Market Wizards, by Jack Schwager. The guys in the book made their fortunes in various ways... but there was one common thread: These successful traders simply tried to catch the majority of an uptrend (let their winners ride) and avoid the big downtrends (cutting their losers using things like trailing stops).
I hope that – as a reader of The Right Side – trailing stops have helped you ride the big uptrends and avoid the big downtrends. (And if you haven't been using them, I hope the experience of the last few years is proof of their value...)
If you want to make a lot of money in the markets... and not lose much when your stocks go down... then you need to follow the Market Wizards and Ellen and let your winners ride. More importantly, you need an exit strategy to cut your losers early so you can always keep your account heading in the right direction – up.
Crouching tigers
Asian economies are likely to be the first to pull out of the global recession
May 13th 2009
From The Economist
ASIA’S tiger economies have suffered some of the sharpest declines in output during the global recession, and some fear that, because of their dependence on exports, they will not see a sustained recovery until demand rebounds in America and Europe. However, their doughty resilience should not be underestimated. They came roaring back unexpectedly fast after the Asian crisis of the late-1990s. They could surprise again.
Across the region as a whole, the slump has been as bad as it was in 1998. China and India have continued to grow, but in the rest of emerging Asia GDP plunged by an annualised 15% in the fourth quarter of 2008. Only three economies have published first-quarter figures. China’s GDP growth accelerated to an annualised rate of over 6%, up from around 1% in the previous quarter. South Korea’s GDP expanded by 0.2%, after plunging 19% in the previous three months. But Singapore’s GDP fell by 20%, even more than in the fourth quarter.
More timely export figures suggest that the worst may be over. Although the headline numbers show that South Korea’s exports fell by 19% in the year to April, they rose by a seasonally adjusted annualised rate of 53% in the three months to April compared with the previous three months, Goldman Sachs estimates; Taiwan’s grew by an annualised 29% over the same period. China’s exports over the last few months have only managed to stabilise, but its industrial production jumped by an annualised 25% in the past three months.
Economists are revising up their forecasts for China’s GDP growth this year: 8% may now be possible even if American consumers continue to be frugal. There is a widely pedalled myth that China’s growth depends on American consumers. In fact, if measured on a value-added basis (to exclude the cost of imported components), China’s exports to America account for less than 5% of its GDP.
There is more argument, however, over the smaller, more export-driven economies, such as Hong Kong, South Korea, Singapore and Taiwan. Robert Subbaraman, an economist at Nomura, offers several reasons why they are likely to remain sluggish for the time being. The recent rise in exports and production, he argues, largely reflects the fact that firms are no longer running down stocks. This will provide only a temporary boost unless global demand picks up. Firms’ spare capacity also means that investment will continue to fall, while rising unemployment threatens to dent consumer spending. Nor is China’s stronger growth likely to save the region. Over 60% of China’s imports come from the rest of Asia, but about half of these are components which are assembled in China then sold to the rich world.
In its economic outlook on Asia published this month, the IMF forecast that the region excluding China and India would grow by only 1.6% in 2010, largely because it expects the American economy to be flat. However, Peter Redward, of Barclays Capital, argues that Asia can recover earlier and more strongly than elsewhere. In 2010 he reckons that the smaller Asian economies could grow by almost 4%, or close to 7% once faster growing China and India are added in.
One reason for his optimism is his explanation for why the Asian economies were hit harder than other parts of the world. Asians are often blamed for saving too much and spending too little, but Mr Redward argues that the main reason for their plight was that manufacturing accounts for a much larger share of GDP than elsewhere. Industries such as cars, electronic goods, and capital machinery are highly cyclical. A comparison across rich and emerging economies shows that GDP fell furthest last year in countries with the largest share of manufacturing. But this, in turn, could imply a sharp recovery.
A second reason for expecting a stronger bounce is that fiscal stimulus in Asia is bigger than in other regions. China, Japan, Singapore, South Korea, Taiwan and Malaysia have all announced fiscal packages of more than 4% of GDP for 2009, twice as large as America’s stimulus this year. The pump-priming should also work better in Asia than in America or Europe, because modest corporate and household debts mean that tax cuts or cash handouts are more likely to be spent than saved. Banks, moreover, are in much better shape and so have more freedom to support an increase in domestic spending.
As the world’s largest importer of oil and other commodities, the tiger economies have also benefited hugely from the fall in prices over the past year. This has acted like a tax cut, boosting real incomes and profits. Asia has enjoyed a gain from cheaper oil of almost 3% of GDP this year. Add in lower prices for food and raw materials and the total gain could match the governments’ stimulus (though the danger remains of a renewed spike in oil prices).
Pessimists maintain that Asia has always been pulled out from previous recessions, such as the 1998 financial crisis, by strong exports to the West. However, a recent analysis by Frederic Neumann and Robert Prior-Wandesforde, both of HSBC, finds that, contrary to received wisdom, Asia’s recovery from its 1998 slump was led not by exports, but by consumer spending. Exports to the West did not surge until 2000. The region’s current-account surplus actually shrank between 1998 and 2001.
Thanks to a large fiscal stimulus and the healthier state of private-sector balance-sheets in most economies, domestic spending (consumption and investment) should revive earlier in emerging Asia than elsewhere, rising by perhaps 7% next year, up from 4-5% this year. America’s domestic demand is expected to remain weak in 2010 after falling sharply this year. Indeed, add in Japan and total Asian domestic spending (at market exchange rates) looks set to overtake America’s next year.
But what of emerging Asia’s longer-term prospects? Much of the increase in Asian domestic demand this year and next will come from government investment. Unlike rich countries, emerging Asia has room to keep investing in infrastructure for several years but governments need to encourage more consumption to fill the gap after the infrastructure projects are completed. Asian households’ low rate of consumption and borrowing means that they have huge scope to spend more. Better social safety nets might encourage Asians to save less. Governments also need to lift households’ share of national income by reducing their bias towards capital-intensive manufacturing and encouraging more labour-intensive growth.
Looking ahead, relatively robust expansion in domestic spending should help most Asian economies to keep growing faster than the rest of the world. But the tigers are unlikely to return to their heady growth rates of recent years—nor would that be desirable given the impact on inflation and the environment. Suppose that net exports contribute nothing to growth, while domestic demand grows at roughly the same pace as in the past five years, then emerging Asia could see growth of almost 7% over the next five years (around 8% in China, a more modest 5% in the smaller economies). That might sound like a let down for economies that enjoyed average growth of 9% in the three years to 2007. But it would still be around three times as fast as in the rich economies.
Lessons the Teacher Forgot
By PETER S. GOODMAN
May 16, 2009
Back in what felt like the golden age of finance, before the fine print of mortgage documents suddenly became relevant and ordinary people in bars began sharing their worries about credit default swaps, American banking was celebrated as the envy of the world.
Blue jeans and electronics were arriving from factories scattered from China to Costa Rica, and even white-collar jobs were slipping overseas, but the sophisticated work of measuring risk and engineering investments remained the province of the geniuses running Wall Street. Their mastery was more lucrative than ever, and it was emulated around the globe.
So it registered as a comedown last week to read that Bank of America was selling part of its stake in the Construction Bank of China, as it scrambled to secure cash in the face of its real estate-related disasters.
Yes, it has come to this: The largest bank in the United States, putative citadel of free enterprise, must desperately unload shares in a bank controlled by the Communist Party of China. That, or risk the wrath of American regulators, newly concerned about how much money financial institutions have on hand.
Meanwhile, the Treasury last week outlined proposed new rules for derivatives, the exotic investments whose unsupervised trading was once offered up as a sign of the vibrancy of American financial innovation, only to become a prime example of how Wall Street set fire to the global economy.
Not four years ago, when Bank of America paid $3 billion for a 9 percent stake in Construction Bank as part of a wave of foreign investment into China, it was supposed to be a sign of Wall Street’s superior money management. American banks — not just Bank of America, but Citibank, Merrill Lynch and others — portrayed their purchases of Chinese institutions as savvy, strategic plays; a way to get a foothold in the world’s largest potential market for seemingly everything.
Still shaking off the cobwebs of its failed experiment in Maoist utopia, China was home to 1.3 billion people whose wallets awaited credit cards, 2.6 billion feet eager for Nike sneakers, and 13 billion fingers waiting to be licked in the thrall of KFC chicken.
American banking executives spoke paternalistically of their Chinese counterparts. Yes, China’s banking system was laced with corruption, but the American banks would bring their culture of modern finance and teach their new charges how to lend with a dispassionate eye on the bottom line.
“We see value in combining their local knowledge and distribution with our product expertise, technology and experience with size and scale,” Bank of America’s chief executive, Ken Lewis, said as he consummated the deal to purchase a piece of Construction Bank in June 2005.
Chinese leaders spoke of their great fortune in gaining Wall Street’s tutelage. “We have much to learn from our partner in serving customers and creating shareholder value,” said Construction Bank’s chairman, Guo Shuqing.
These days, of course, talk of Bank of America and shareholder value centers on how much of the company its newest shareholder — Uncle Sam — is destined to own, and whether the bank’s shares retain any value. Bank of America’s expertise with size and scale has expanded to encompass the management of $45 billion in bailout funds.
For much of Wall Street, the expertise that once was expected to elevate China’s financial system increasingly looks like sorcery, or a vast Ponzi scheme in which banks borrowed vast sums, lent to virtually anyone, and used incomprehensible models to convince markets that all was fine. They scattered low-interest credit cards and home equity loan offers like takeout menus, creating the illusion of prosperity by driving up home values.
In effect, American banks operated not unlike the Chinese banks they were supposed to modernize. They extracted profits by following a variation of the principle long pursued by their Chinese counterparts: lend without hesitation while extracting your cut, confident that the government is on the hook for the losses.
In China, ventures may be spectacularly unprofitable, yet enrich everyone lucky enough to get a piece. Developers, for example, construct vacant office buildings as an excuse to borrow from state banks. They rake off a cut for themselves, pay bribes to the party officials who deliver the land and reward bank functionaries with sumptuous banquets and trips to Macao. Soon enough, the trophy skyscraper descends into financial disaster, but the developers, bankers and party officials have already extracted their riches, and for long afterward they will still enjoy them.
Much the same can be said of Countrywide, the mortgage lender that sold itself to Bank of America last year in a fire sale, after many of its loans went bad. Shareholders were mostly wiped out. Homeowners suffered foreclosure. But the company’s executives made out brilliantly, cashing stock options amassed during the real estate boom, when Countrywide’s share price soared along with its loan volume. Ditto the Wall Street bankers who enabled Countrywide to lend with abandon by selling their mortgages to investors.
Now the easy money is gone. Wall Street’s financial alchemy has broken down, and bankers are freshly concerned about the creditworthiness of their borrowers. Bank of America is in such a fix that the investment it once portrayed as a helping hand to the primitive Chinese banking system must be sold off in haste just to stay alive.
Shorn of their auras as global paragons of excellence, American banks are even facing pressure to act more like the Chinese banks they were supposed to reform -- by lending in support of politically necessary projects.
The biggest criticism of Chinese banks has been that they lend not on the financial merits but in adherence to the wishes of party leaders. Fearful that a large state company may fail and disgorge angry, unemployed peasants onto the streets, local party officials pressure state banks to keep the credit flowing and spare the jobs.
In recent months, the center of the American financial system has effectively shifted from New York toward Washington, as taxpayer funds keep many institutions in business. Lawmakers and Treasury officials now implore the banks to use their bailout funds to increase lending, even as the banks themselves worry about the merits of making loans in a weak economy — the very conundrum Chinese bankers understand all too well.
Perversely, Bank of America is being forced to shrink its China stake just as it might actually have something to learn about banking from its Chinese partner.
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