LETTERS FROM THE GLOBAL PROVINCE

GP 5 March 2008: Tipping Points II

All the News that Never Gets Printed.  The New York Times used to proudly claim that it captured “All the News that’s Fit to Print.”  Having authored a poorly written story about all of John McCain’s alleged sins, which turns out to be a warmed over porridge, it has lost this distinction.  We are stunned, however, when we cotton onto all the high impact stories the Times and all the major broadcast media don’t even know about.  It seems they have gotten down in the weeds and missed the trees.

1929 All Over Again.  Yes, Yogi Berra was alive in 1929, so he could now allow that it’s “Déjà Vu All Over Again.”  UBS AG Chairman Marcel Ospel conjectured that we’re experiencing the worse financial crisis since 1929 in an angry meeting with his shareholders.  He was referring, of course, to the Great Depression when the financial markets put America’s economy into a stall, and it crashed and burned.  UBS has had to write down $13.7 billion, and just got the nod to raise $12 billion to try to keep afloat.  It has revealed that its direct subprime-related exposure stood at $27.6 billion at the end of 2007.  Ospel is only the most visible of a host of banking leaders who have had to reveal gross mismanagement in their empires and to own up to the immense turmoil in our financial markets that is taking us down a bottomless black hole.  Wall Street, the City in London, and other financial markets have been granted a blank cheque by their respective governments for a quarter of century, and now we are paying the piper.

Forked Tongues on Wall Street.  One of the most important and certainly the best-written letters out of Wall Street is The DeVoe Report.  Ray DeVoe, an old and extraordinarily pleasant Wall Street hand, parts the kimono better than anyone we know, revealing not only the foolishness of financiers and financial regulators, but also laying bare their financial turpitude. We point you especially to his letter of January 17, 2008. While Goldman Sachs “was substantially short the subprime backed market, their mortgage department was still packaging subprime mortgages into CDO’s and selling them to their clients.  With the firm substantially short, the mortgage department was still pumping the toxic waste out to clients.  Goldman was not the only firm doing essentially the same thing.”  Put another way, the venerables in Wall Street were not putting their money where there mouths were.  This is not a usual circumstance: when financial markets are solely troubled, it usually means the leaders are morally tainted.  Not since Paul Volcker led the Federal Reserve, have we had moral clarity in Government or the Street.

GE Knocks China Business.  GE, in case you missed it, took a long time to get its international act together, but now it is a tremendous player overseas.  Even Warren of Omaha (Warren Buffett) has bestirred himself and is making more and more of his profits overseas.  But it is not all smooth sailing in the wide, wide world.  GE’s Jeffrey Immelt and his international chief Nani Beccalli-Falco decry the Chinese business environment as not a “Win-Win,” but as a ‘You Take; We Give.”  They both fall over themselves singing India’s praises.  Read “Jeffrey Immelt: India versus China—Trust Is a Global Issue for GE.”  However, this is not the whole story, and we shall be writing in the future about the relative merits of China and India for foreign investors.  Both Washington and our large multinationals have failed to act in our national and our economic interest in their dealings with the developing nations such as China and India, leaving us and the world diminished as a result.  With our concentration on our vast domestic market, we still are not sophisticated international players.  The turnaround of America’s economy is much more dependent on global agility than wonkish mini-moves on the domestic front.

One Tough Cookie.  We are mightily impressed with Neelie Kroes, the European antitrust chief from Holland, who is not anti-business, far from it, but anti-shenanigans.  She has just slapped Microsoft with a $1.4 billion fine for failing to comply with past judgments against it.  She noted that this is the first time in the history of the EEU that it has had to come down hard on a company for past noncompliance with its rulings. Though she comes from a pro-business party, she clearly brooks no flimflam from scofflaws.  As she says, “Talk is cheap, flouting the rules is expensive….  We don’t want talk and promises.  We want compliance.”  She, incidentally, has had to take up the slack for the U.S. since antitrust enforcement has fallen apart during the Bush-Clinton era.  In this decade, she sets the standard for women who would be tough and effective.

On another front, we are led to believe that the Europeans now intend to be tough on the Chinese, who now send more exports to Europe than to the U.S.  Our Beltway leaders have been taken to the cleaners by the Chinese on trade during the Bush-Clinton era. Europe may show us how.

Acorns of Hope 2007.  You won’t hear much about it, but Bob Thibodeaux’s Acorns of Hope is trying to put trees back big time where Katrina denuded the land.  A whole bunch of live oaks (1,000 or so) are already in the ground.  As we remember, he hopes to plant 10,000.  Some of the bicycle people have turned this mission into a whole lot of fun.  We see that several old friends are getting it done.

Garden of Flowing Fragrance.  We’ve been mightily annoyed at ourselves for not getting to the wonderful Huntington when we’ve been lecturing in the precincts of Pasadena.  We did minor work on a wonderful book—Ray Kelch’s Newcastle, A Duke Without Money.  The multifaceted author did some of his research at this library.  Now the reasons have multiplied for visiting there with the recent completion of the Garden of Flowing Fragrance (Wall Street Journal, 27 February 2008, p. D10).  Upon viewing it, the reader is struck by the depth of the cultural bonds between China and the U.S. that is probably only equaled by our closeness to a very few countries in Europe.  Creations such as this are giving the lie to the nativism that is temporarily creeping into American politics.

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