What has really happened with our money?

Dear Followers,

One of the major topics this week in the international financial press was the arrest of yet another hedge fund owner, Helmut Kiener, for the suspicion of fraud and malpractice. He was arrested this week in Germany in his hometown Aschaffenburg for the suspicion of having misused funds obtained through agreements with a number of English and French banks and FBI as well as German officials are investigating. After what has recently happened in the world the question we should ask ourselves is
“Can we trust hedge funds and banks with our money?"


An article from the Wall Street Journal and therefore from America clearly states the story and the current assumptions of what has taken place. It also gives some brief explanation about Kiener himself and the assumptions of what has taken place including some figures regarding the investments and the losses from the fraud. Overall it is very brief though and doesn’t really go into depth, it is easy to read and every reader will easily be able to understand the story and the problems. In my opinion there is no bias of any form involved.

The article published in the German Die Welt is a lot more in depth and explanatory which is caused by the fact that the case and problems are far closer. It also involves the legal questions and the problems the German officials reportedly had with the case. The author clearly states that the officials try to declare themselves not responsible for what has happened and in my opinion he clearly doesn’t agree, which means he shows a clear bias against them. The article states facts and figures very clearly, but is in general more precise and more explanatory than the WSJ. Overall its easy to read and understand and seems to sum the whole story, background and scenario up very well.

The article released in the Financial Times is similar to the WSJ article a lot briefer and more or less only states some facts and numbers. It is easy-reading financial press that does not include any form of bias and is easily understandable for any reader with basic knowledge. Another point it has in common with the WSJ article is that it is written from a quite distant perspective and therefore completely different to the German Welt.

Overall comparing the three, one could say that the WSJ and FT articles are very similar whereas the Welt article is far more involved, in depth and biased which I see caused by the geographical distance to the problem. One thing that surprises me is that the figures in the three articles all vary and don’t really match. The volume for the hedge fund capital varies from €600 million to €800 million for example while possible losses vary from €220 million to €400 million.
“How severe is the damage really?”

As it can be read in the articles the banks and officials did not really want to comment on the problems and scenario, if they did it was very brief, which in my mind shows that they’re well aware that what happened was not just and also partially their fault.
Also with regards to the current Madoff case I think that there has been a lot of fraud and malpractice involved in the hedge fund industry which now comes to light in the financial crises where organisations and people demand their invested money back or some proof of where it went.
“What have funds and banks REALLY been doing with our money?”

I think it is very doubtful what some of the funds and investment vehicles did since they gamble or even steal people hard earned money they rely on. The problem is that due to special models they can still get around regulations and restrictions as done by Kiener’s K1 fund with the British Virgin Islands.
The situation we currently have with crashed global markets just reveals what has been going wrong for far too long. As Warren Buffet very correctly stated some time ago in an interview;
“Only when the tide goes out you learn who’s been swimming naked.”

Bankers should not get a "Government Bonus"

Dear Readers,

The distribution of bonuses for bankers and peoples resentment about it has been an upcoming topic in the international financial press this week. Hedge fund guru George Soros has commented on the situation in newspaper interviews and has given his opinion and concern.

The Financial Times Weekend as well as Reuters and City A.M have released articles about the situation and the concerns and comments Soros has made regarding the matter. All three sources are from the London base and therefore quite close to the market. The abroad press has at this point in time not really mentioned this subject, most likely cause it is about the London market and still very new. In my mind the topic is still very important, which is also underlined by the fact that the article was on the cover page of the FT Weekend, because it influences peoples behaviour and their belief in justice in the financial system.

Whereas Reuters and City A.M. just commented and reported on the Soros interview the FT Weekend actually added a little bit of background information about the matter and about Mr Soros, but still not a lot. All is very brief and needs to be read by someone who is already informed and in “the know” about the current situation. The FT and Reuters also write about Soros opinion regarding the dollar and stock market movement, which is not at all the case for City A.M. which just sticks to the bonus discussion. All three articles clearly report the statements Soros has given but there is no point of bias in any kind of way from their side.

As stated in all of the articles Mr Soros addressed that the funds which are now distributed to the bankers are actually not their own achievement and fruit of their hard work and risk taking, but hidden gifts from the government so he can understand why people see it unjustified.

People all over the world that were involved with the financial markets in any kind of way lost confidence in some of the institutions and the people working for them when they suffered from the financial crash which was mainly caused by them. The governments and tax payers had to stand up for the gamble some bankers and institutions took, which caused anger and broke trust. The question that arises for people now is “can we trust the governments and banks with our hard earned money”?

The worry some of the banks mention is that they do not think they can keep and maintain some of their most talented risk-takers without giving them their high bonuses which would make them loose out on an important sources of income if they change companies and go to hedge funds. Soros answer to this is that this would only be the best option due to the fact that there they deal with own capital and not customer deposits or taxpayers money. People know what they’re dealing with when investing in hedge funds and they do it by choice.

Especially at this point in time where trust in markets, institutions and their drivers has to be regained and recovered this is a very delicate situation. Investors and the people in general feel tricked by the system since they lost out from the behaviour and decisions of bankers while many of them still won and earned big with far lower consequences.

Many of the institutions and their members only survived the situation as a result of government and therefore taxpayer support and therefore we should ask ourselves

“should this be rewarded with another round of bonuses”?

At the current point in time with a lot of disbelief in justice in the financial systems and on top of that a lot of people and organisations in severe financial trouble, it is important to regain the trust and the belief in the systems to create and support investment. I can, as Soros, understand the resent and anger people have, since it just seems like they’re loosing again while the people that caused the misery win. The question arises “Is there justice in the financial markets?”

As it can be concluded from the articles banks see themselves forced to give those bonuses in order to keep their most important employees satisfied and loyal. They do not see the option of making the “just” decision since the risk for them loosing out in the scenario is too high.

As I see the situation there should be government intervention in this to create a higher level of satisfaction for investors and taxpayers and to restrain the banks in their way of acting.

The current situation has shown, that there are too little regulations, which has caused the crash and the misery. The government has distributed those funds and should therefore also have the power and a say in terms of their distribution. In the end of the day there has to be a certain level of justice and the adequate distribution of funds. The trust by people and investors in governments, markets and institutions has to be rebuild and regained. In my eyes bankers can get a bonus for their success and work, but taxpayers money and government support should by no means be used as bonuses for people that caused this global financial distress.

Sources:

http://www.cityam.com/news-and-analysis/qzp2vdhqgz.html

http://www.reuters.com/article/businessNews/idUSTRE59M5K720091023?feedType=RSS&feedName=businessNews

hardcopy of the FT weekend 24.10.2009

“Can the Germans beat fear and pessimism to create growth?”

Dear Followers,

If we can believe what the Bild, the Deutsche Welle and Die Welt, three German news mediums of different intellectual level report, the German economy has reached the troph and will come back and return to growth in 2010. The question regarding current circumstances is if they are trying to create a more positive vibe about the future of Europe’s biggest economy or “Is Germany actually coming back?”

According to an article from Die Welt which is a very serious and intellectual German business newspaper that could be compared to the financial times on an international level, there are factors that would cause upswing as well as there are problematic influences. They also report that according to leading German business institutes one can expect an economic growth of 1.2% in 2010 after a decline of over 5% in 2009.
The factors that make economic growth more difficult are that unemployment will continue to increase over 2010 and that they expect an increase in energy prices which will make households expenditure more cautious.
On the other hand there still are low interest rates and cheaper credits which will encourage business and spending. The worldwide economy is expected to grow again which in the long run will have a positive influence on German exports which are still of very high importance for the national economy.
On their homepage Die Welt also has a poll where the readers can vote if they believe in the return to growth in 2010 where the result for 68% of the readers was negative.
This in my opinion is not really helpful since the growth of an economy is caused by the people in it.
“Don’t we have to believe in growth to cause it?”

http://www.welt.de/wirtschaft/article4855242/Regierung-rechnet-mit-1-2-Prozent-Wachstum-2010.html

The Deutsche Welle which is a purely informative radio station and homepage about news for Germany published an online article which is a lot more pessimistic.
They report that the major factor for Germany being in this “sharp recession” is the high, increasing, unemployment which currently is at 8.5% but expected to increase by another 2%.
They say that the decline will be of more than 6% for 2009 but they also give a prediction from the German Central Bank which is 0.5% growth in 2010.
Overall the situation according to them seems difficult regarding the main factor unemployment but the long run outlook is better which is also caused by a falling level of inflation.
What they are very realistic about, is the worry I have as well reading the article because the question;
“Can we have a change from negative to positive growth when the unemployment rises another 2%?”

http://www.dw-world.de/dw/article/0,,4306735,00.html


Die Bild which is more comparable with the English Sun and could therefore better be described as a tabloid paper reports that leading business institutes predict a growth of 1.3%. They also make very clear that we have not made it yet and that this is a prediction in a very uncertain and shaky situation which makes it hard to predict anything at all. The major problem as stated by them is also the level of unemployment in the economy which they see with continuous growth. The advantage they see for the German economy is that the Asian countries will recover soon which will help the level of Exports which still is the strongest level of income for the German economy.
One point they also have mentioned which has to be taken into account is that the German State as such will have to deal with extremely high deficits this year which also causes difficulties and will spread a kind of “sour” mood in the business environment.
“Can we somehow think positive?”

http://www.bild.de/BILD/politik/wirtschaft/2009/10/12/diw-prognose-1-komma-3-prozent/wachstum-2010-kein-grund-zur-euphorie.html


All three articles more or less share the same opinion. They report that institutions are projecting and expecting a small level of growth and therefore a return of the German economy in 2010, but they also clearly address that there is a number of problems that cannot be underestimated. Whereas Die Welt and the Bild are real descriptive and story like articles, which are on completely different intellectual levels though, the Deutsche Welle article is more of a factual report.
There is no form of bias in any of the articles but in every single one of them the reader can identify a very high level of doubt about the information that is being reported.

I personally can only rely on the information I get from media since I have not been in Germany for quite some time and can therefore hardly experience the national economic climate myself. The problems and difficulties I just see is that, other than the British for example, the Germans are rather cautious about their spending and like to save up money and be financially secured. This is why another increase in the already high unemployment will cause further worries for members of the economy and will heavily discourage spending.
My personal judgement from how I see the situation is that Germany could have growth in 2010, but it would have to be caused from abroad and by exports since the level of negativity and discomfort for the German people are currently too high to change the situation themselves.
The question that remains in my opinion is not if Germany will have growth, but
“Can the Germans beat fear and pessimism to create growth?”

Soros goes large in green tech

This weeks blog is about the news that were released the weekend 10th of October 2009 announcing that US investor George Soros is planning to invest $1 billion (£625) in green technology.

The 79 year old with Hungarian roots who also lived in the UK for a period of his life and attended university here is one of the main individual players in global financial markets. He has managed to establish a big name and reputation for himself in the business world which is why these news will have an impact and an influence on markets and investments.

As sources the following 4 articles from the Financial Times, Yahoo Finance, Reuters and The National Business Review were analysed.
http://www.ft.com/cms/s/0/1407371a-b657-11de-8a28-00144feab49a.html
http://uk.biz.yahoo.com/10102009/325/soros-aims-invest-1-bln-green-tech.html
http://www.reuters.com/article/newsOne/idUSTRE5992BJ20091010
http://www.nbr.co.nz/article/soros-invest-1-billion-clean-tech-112967

The FT article only briefly mentions that Mr Soros is planning to invest $1 billion and provide a climate protection organisation with $10 million a year over the next decade. It goes more into depth and actually explains why he will do so and what his objectives are. It explains a little more about Mr Soros himself and his occupations and interests rather than the actual investment, which makes it very easy and interesting informative reading for anyone with the slightest interest in the business world.

The Yahoo Finance article is more of a simple report of facts. It gives clear information and answers all the important questions as in What, When, Where, Who but unlike the FT article it is not pretty to read. It just sums up what Mr Soros announced he is intending to make this investment over the next years and what his intentions are. It briefly describes the situation and the necessary facts around, but doesn’t go into depth or give any background information at all. It is more for the reader that browses through the news and needs factual business information, precise and quick, without any nice or pleasant reading.

The Reuters article gives a very good mix of actual news information and facts as well as background data. They explain what Soros announced he will do, who he is, and why this might be in his interest to do.
It is very nice to read since it describes the matter in an interesting but factual way; it is a very good mix between a story and just a list of facts.
One thing that has to be mentioned is that other media actually use Reuters as a source and reference for their own articles.

The National Business Review article can in my eyes not even be described as a real article but more of a quick “note”. It uses Reuters as their source and reference and more or less as briefly as possible wraps up the facts. For someone who just wants to read and know the minimum this could be described as sufficient but there is no background information of any kind. It is technical and not very interesting, not even from a factual point of view.

I personally like the Reuters article best since it describes the whole situation and gives some informative and interesting background data about both, the matter and the person behind it. It is very informative and interesting to read, without anything unnecessary that would be a waste of time, which I consider very important.

For this matter and this cause I think the media and the reporting are of enormous importance. I strongly believe that George Soros has a very big influence on international financial markets due to the reputation and name he has achieved from his actions over the past decades. There will be a lot of people following him and his investment, and even if that is not the case it will create higher awareness.

What he is trying to achieve here in my opinion is a move towards green technology. He wants to use his name and his power together with the media to make people invest and consider green technology and support it.
Green technology is a growing market, but Mr Soros, who is 79 years old and worth $11 billion, has a minor personal interest in this I think.
What he actually wants to achieve is raise investment and awareness for climate and green tech for the future of the world.

He is investing in a good cause and advertising it and making it public through the global news. He is using his money name and power for the good cause which I consider as a very clever and honourable move. On top of that he uses the international media to distribute his ideas and his aims to the people around the world, which once again shows their power, influence and importance.