Shameful European Leaders

In today’s news: “AP - The chief of Europe's bailout fund visited Beijing on Friday to discuss possible terms for a bond sale aimed at raising money from China and other non-European investors”.

After months of protracted squabbling over how to solve the Greek problem, all that Sarkozy and Merkel could come up with was a convoluted scheme that involves begging support from one of the remaining communist dictatorships – China.

To realize how outrageous their incapacity was, one must recall that the haircut or debt forgiveness that Greece, Ireland and Portugal needed at the start of the crisis was about 140 billion Euros, that is, the equivalent to the European Union budget for one year.

To understand how shameful it is to rely on the support of a non-democratic country, it is important to remember that China does not have a fully convertible currency, ranks 7 and 6 respectively in terms of political rights and civil liberties in the Freedom House index (a classification worse that of Iran and Rwanda) and according to Amnesty International is by far the country with the worst record in terms of executions which remain a state secret (again worse than Iran).

This is a dark episode in the history of European integration, and a shaking foundation for the future of the Euro as a currency.

Judged by the media or the mob: will the IMF Director have a fair trial?

To be fair justice must be blind but balanced. The treatment given to Dominique Strauss-Kahn charged with the sexual assault of a hotel maid in New York seems to lack both.

Let me begin by stating that I dislike the man, not only for being a socialist, but also for his past behavior in relation to women. I am also inclined to believe that he is probably guilty of sexual harassment in relation to the maid in question. Whether he was set up by his political adversaries, a possibility given the rare speed with which the police intervened and the fact that the security of the French hotel where he was staying did not cover up the occurrence as it would normally do is not relevant for the point I want to make.

The point is that trying to make him an escape goat or symbol of an American tough justice system for Public figures is as absurd as was the decision to deny him bail.

The fact that an act of aggressive (violent?) sexual advances between a 62-year old man and a 32-year old woman can be treated as a crime without bail and punishable with as much as 20 years in jail is proof of how far the media and political correctness have gone to make a mockery of justice.

In a country where the violent killer of his wife (OJS) goes free due to media pressure, where same-sex relations are recognized by law, where one night-stand sex is common and the divorce rate is rampant the fact that ‘forced’ sex between older and younger people is treated as a crime comparable to murder reveals double standards.

So, the real issue here is how America ended up developing such an unbalanced notion of justice? Public figures should not be singled out for special treatment (punishment or escape) just because the media or the mob asks for that. That is the real meaning of justice.

Should you bet your life on a sinking ship?

Friday the Irish Times published some interesting facts about the tale of the Quinn group receivership. Mr. Quinn, a 63-year-entrepreneur, was a typical self-made millionaire who started in 1973 using a £100 loan to extract gravel he sold at a profit to local contractors and rose to become Ireland’s richest man in 2007.

In the summer of 2008, in the middle of the financial crisis, he was building up a stake of 28.5% in the Anglo Irish Bank, financed by the bank itself, and aimed at propping up the bank’s stock price. The attempt was futile and the bank ended-up being nationalized in early 2009. Quinn’s shares become worthless and he was left with €3 billion in debt secured by his business and family holdings. Anglo has now executed those guarantees and has taken over his entire group and family estate.

Similar bets were made by investors in Lehman Brothers which cost them dearly or by Warren Buffet on Goldman Sachs which made him a $3.7 billion profit. There is nothing wrong with betting on troubled companies. They are high risk investments, and as such they generate either a large pay-out or a large loss. The fundamental rule to follow is that investors must diversify their bets and should not bet more than they can lose, i.e. you should not bet your life on such investments.

So why, an experienced investor like Mr. Quinn, committed the stupid mistake of betting his fortune on Anglo? Was he blinded by greed? Or was he blinded by the lender of last resource argument that views banks as too important to go bankrupt? Probably both.

The important lesson here is not about Mr. Quinn. The important lesson here is why the Anglo was bailed out at a huge cost to the taxpayers in order to partially save some of the lenders to Anglo. This action by the Irish authorities not only left a serious burden on future generations but, most importantly, jeopardizes the future of market capitalism in Ireland by discriminating between bondholders and shareholders. Both should have suffered the full extent of their losses (100% for shareholders) and the percentage of losses incurred by bondholders and depositors. Once you start on this slippery road of saving some but not others there is no going back. Politics becomes a game of privatizing gains and socializing losses and capitalism is in danger.