Kissinger's Victory

Here are some comments from across the Irish Sea about BP’s woes, from Paddy Power, which collects bets made with Irish bookies:

Troubled oil giant BP have today been cut from 10-1 to 4-1 to file for bankruptcy before the end of the year according to leading bookmaker Paddy Power.

The cost of the ongoing disaster in the Gulf of Mexico is growing daily and recent demands by the US government for BP to set aside billions to service potential claims could hasten its path towards potential bankruptcy.

Tony Hayward remains odds-on to step down as BP CEO before the end of the year but has eased slightly in the betting from 1-2 to 8-11 on the back of some large bets, including one of £10,000, favouring the Englishman to weather the storm.

Paddy Power are also quoting odds of 10-1 for Hayward to serve any jail time as a result of the oil spill.

Henry Kissinger won. Saturday was a great day for all first generation Americans (including me) whose daddies played and cheered for hands-free European football (soccer) rather than the USA version of the game. The US team at the World’s Cup tied in its opening game against England. We play Slovenia next, on Friday.

Kissinger in the 1980s advocated that our country prepare to compete in soccer, a game I suspect the Secretary of State had learned during his boyhood in Fuerth, Germany, as my father had learned it in Bad Hersfeld.

Thanks to his sharp eyes and quick reaction, my father was a goalie, and more successful playing against the Greek team in Inwood than the poor English goalie who fumbled a let the USA score. (For some reason England, which is not a country, has a team along with Scotland and Wales; other teams represent countries.)

The soccer victory is another dreadful comeuppance for the Brits, along with the mess caused by former British Petroleum, now BP, in the Gulf of Mexico. The Mayor of London, Boris Johnson, deplores “anti-British rhetoric” by Americans over the oil disaster spewing out as much as 40,000 barrels per day onto our fragile coastline. If the ultra-jingo Brits were confronted by a similar horror perpetrated by an outfit called American Petroleum off their shores, I suspect the rhetoric would be much nastier.

There is however a serious mid-Atlantic split in our alignment with Britain over budget deficits. The new British Prime Minister, David Cameron (like Boris Johnson, a Conservative and Old Etonian) is calling for austerity and budget cuts to reduce the deficit. Meanwhile, US policy calls for delaying counter-cyclical budget balancing moves because the recovery is still fragile. This is not the right time to imperil economic growth by reducing deficit spending, our USA economists are saying (of course they are quoting a British theorist, John Maynard Keynes.)

But the White House-Treasury line is being opposed by our own native-grown Congressioanl Republican pre-Keynsians who want to cut spending and stimulus measures now. The new austerity advocates here are ignoring the fact that unemployment is still excessive. They are preaching here as in Britain in favor of a virtuous cycle, whereby cutting spending and taxes revives confidence. I have to confess that I do not see how this can happen.

Injecting money into the economy, cutting interest rates, buying government debt stopped the 2007-9 economic collapse from turning into a repeat of 1929. This was the policy not just of the Democrats, not just of Labour in Britain, but of both parties.

Tax-cutting has become a knee-jerk reaction to every problem in the eUS conomy for some. But in the present situation, cutting taxes also means cutting benefits for people and programs funded by Washington (even if administered by states). This salve-the-rich Old Etonian rhetoric ignores real suffering, real need, among some less privileged lower-class Americans who are not paying taxes because they are out of work.

The one thing we should not bring over from Britain is its devisive class divisions.

More for paid subscribers from Singapore, Britain, Brazil, Greece, Canada, Panama, Israel, China follows.

Sincerely, Vivian Lewis Global Investing

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Reader Comments & My Replies

Subscriber SR wrote:
Am I wrong that sometime during the Clinton administration they decided that banks needed to lend to “people of color in the less desirable parts of the cities?”

This then forced the banks to make loans which they knew could not be paid. They had to figure a way to make it safe for them, hence the packaging and sub-prime debacle.

That to me makes it a government created problem which financial people solved in the only way possible: they packaged it and sold it to suckers. Where would we be if the government had not mandated those loans to people who only deserved them because they were minorities?

I agree private enterprise is certainly capable of evil on their own. It is just that government does it worse and with less recourse.

I replied:
You are entitled to your opinion. But I disagree. Nobody forced the banks into this tactic. They did it because they thought it would pay.

The US government subsidizes mortgages through the tax code. It created Fannie Mae and its rival Freddy Mac to encourage home ownership. Both of these goodies predate Bill Clinton’s administration.

So did rules against “red-lining” which cuts lending to people of color in less desirable neighborhoods. All this has been part of US policy for ages, backed by both parties.

As FNMA was a big source of funding for the Democrats, the Republicans finally got it “so-called ha-ha” privatized.

How do you get from this to blaming the government for the practices by the banks over mortgage backed securities, a market they voluntarily entered in order to compete with FNMA? This seems to me to be a reversal of the reality.

Banks went in for NINJA lending because they figured they could always repossess the homes of people of color in lousy neighborhoods because real estate prices would rise forever.

They were wrong. so were the borrowers, those who lied and those who told the truth. So were those who sliced and diced the mortgages for the banks, So were those agencies which rated them AAA. So were those who bought the CDOs which were so safe and paid so well.

But why do you think the government is at fault except based on some prejudice? There is plenty of blame to go around and not hit poor Mr. Clinton, who has so many other things feel guilty about.

We have readers across the political spectrum. In contrast to SR, here is what reader SF wrote.

Bravissima for this email!

President Reagan promised fiscal responsibility. At the end of his terms there were a trillion dollars of new federal debt; far more millionaires and some billionaires created, thanks in part to lower income taxes; tens of thousands of good factory jobs exported, many with help from USAID funding; a bigger, not smaller federal government; EPA gutted; the costs of the deregulation-instigated savings and loan crisis; and federal deficits as far as the pre-Clinton era eye could see.

As for ‘too big to fail’, in the financial sector that really means: too big for us to afford.

Oliver Wendell Holmes said it right: taxes are the price of civilization.

My business does not gain from political controversy. I had two cancellations this week, one from a Californian named Mohammed over my alleged support of Israel, and another from a disgruntled standard American over politics.

While I know bashing unions and strikes has become something of a shibboleth among Americans, I’m reminded of the Polish Solidarity movement and Lech Walesa when I read about Chinese workers picketing and demanding a union.

They work for Japanese and Taiwanese firms seeking cheap, abundant, and docile labor. What these foreign companies are getting is The Weavers:

Oh you can’t scare me; I’m sticking to the union

I’m sticking to the union, till the day I die.

To keep in business, I will stop getting into US political debates until I cannot resist commenting again. More on British, Argentine, Spanish, Singaporean, Korean, Swiss, Brazilian, and South African shares, and a ‘sans-commentaire” note regarding a controversy in France. Become a paid subscriber to read the full version of Global Investing.

Sincerely, Vivian Lewis Global Investing

Death Panels