Risk Rap

Rapping About a World at Risk

How Many Zeros Are In $53 Trillion?

Paul O’Neill just finished jabbering away on Bloomberg TV. Great stuff.

O’Neill declared the death of the private equity industry, opined on the evils of Sovereign Wealth Funds, stressed the need for banks to be better capitalized and raised a warning flag about the $53 trillion in unfunded liabilities lurking in the future federal government spending commitments.

I believe he also said “that government is broken.”

Was this guy actually the Treasury Secretary in W’s administration?

From his perspective it appears that Paulson is just rearranging the chairs on the deck of the Titanic.

Risk: Political, Banking, Deficit Spending

You Tube Video: Tennessee Earnie Ford, 16 Tonnes

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April 16, 2008 Posted by | Bush, sovereign wealth funds, Treasury | , , , , | Leave a comment

Seven Lost Years

The World Bank ended its spring conference with a clarion call for world leaders to take urgent action to deal with the “Rice Crisis”; the dramatic rise in food prices and the political instability it is causing.

World Bank President, Robert B. Zoellick called for a “New Deal on Global Food Policy.” Zoellick is urging governments to provide $500 million in emergency funding to deal with the Rice Crisis. Failure to find a solution to the problem will result in “seven lost years” in our fight against world hunger. The prospect of New Dealers emerging from Bush’s inner circle is a bit ironic and may cause the Neo Cons to express dismay, but the urgent need to act is clear. The Rice Crisis is the greatest threat to global stability. Aligning and mustering the resources of the G7 Group, United Nations, IMF and World Bank to deal with the Rice Crisis is the best use of their institutional power.

Neo Cons can find some comfort in Zoellick’s proposition that funding to achieve forgotten Millennium Development Goals be provided by Sovereign Wealth Funds (SWF). Governments won’t have to add to the burden of future taxpayers by employing a Keynesian deficit spending strategy to fund their commitment to stabilizing the global production and distribution of food.

The mammoth SWFs are becoming the lender of last resort as they again are asked to ride to the rescue to salve the world’s economic wounds. It’s almost like a form of world communism has emerged to support the stability of state capitalism practiced by the developed world. A portion of the surplus value accumulated in the SWFs are now being returned to maintain fluid markets and political stability.

Risk: Political; Social; Economic; Inflation

You Tube Video: Hunger Awareness Video

April 16, 2008 Posted by | Millennium Development Goals, social unrest, sovereign wealth funds | , , , , , , | Leave a comment

Risk Funding and the Beijing Boogie

Our heads continue to spin as events unfold in the global credit crisis. Investment and central bankers are doing a two step tango to temper reeling capital markets, restive politicians and the growing concern and confusion of citizens.

The corporate emissaries of Merrill Lynch, Morgan Stanley, UBS and Citibank goes hat in hand to the Sovereign Wealth Funds of Singapore, Abu Dhabi, Kuwait and The Peoples Republic of China. They dive head first into these giant liquidity pools to refresh their credit worthiness in the hope that by pouring many billions of dollars of equity capital into their porous balance sheets corporate solvency and national prosperity will be assured.

Remember how Lou Dobbs howled when the Emirates tried to buy the service contract for American shipping ports. I don’t believe I’ve heard a negative word from any of the isolationists about the same interests cornering the American banking market. I’m scratching my head.

The bluest of blue, blue chip private equity firm Carlyle gets a margin call from its broker while Fed Chairman Bernanke arranges a shotgun wedding between Bear Stearns and JP Morgan offering JP a sweet dowry of loan guarantees to take the plunge. I thought the world was ending.

By yesterday things were looking up a bit. Charlie Schumer gave Bernanke high marks for tempering his comments during his testimony to the Senate Banking Committee for his discretion on failing to betray confidences culled from secret discussions and brokered deals going on in the world’s central banks boardrooms. It was our Head of the Fed’s high point of the day and only chance to smile in an otherwise trying day as he squirmed a bit when asked about recession, moral hazards, sub prime mortgage bailouts and other central banking boog -a-lous.

I thought I even saw him shudder a few times as he considered his lonely position as the lender of last resort and grew a bit miffed as he pondered what an activist Fed entailed and how the US is slowly adopting the model of Chinese State Capitalism brought to our shores in the belly of a Trojan horse ordered by Walmart. Why its getting so crazy it almost fills you with nostalgia for the relative stability of the good old Long Term Capital Management days.

Ironically this is all transpiring while the major global banking institutions are preparing to implement the capital accords of the Basel II agreements prior to looming deadlines that never seem to arrive. Basel 2 has been in the works for the better part of this decade and if this current crisis can teach us anything it’s the need to take the funding of risk seriously.

Risk funding is an amorphous and complicated subject. It requires the honesty of objective assessment; unclouded by perceptions and methodologies that are prejudiced by pedestrian transactional, political and cultural interests.

The duality of risk- half opportunity half threat -always dances in a real time dialectic. It’s choreographed by algorithmic tempos noted in the scale of C++. It needn’t be so alien to our business practices nor anathema to unregulated egos of America’s uber free marketers who extol Milton Friedman during times of plenty but are the first ones at the federal trough when the markets are mean. Brother can you spare a dime to fund my misplaced risk, after all I’m too much of a fat cat to fail.

A great example of the failure to fund risk is The Peoples Republic of China. The PRC had a great opportunity to not repeat the historical mistakes the western capitalist economies made during their phase of rapid industrialization. But China seems to be following the same path as the west. They have not made an accurate accounting of the social and environment risks associated with its industrialization and the bill will soon arrive in the form of environmental remediation, health care for its citizen’s and dealing with political and social unrest.

I wonder if this was on Paulson’s Beijing agenda today. This along with scoring some great box seats for him and President Bush for this summers Olympic Games and secure a pledge to up their purchase of govies at the next US treasury auction.

Music: Yo Yo Ma “Brazilian Tango”

April 4, 2008 Posted by | China, hedge funds, Paulson, risk management, sovereign wealth funds | , , , , , , , , , , | Leave a comment