Stephan Roach: Huge Setback for US-style Capitalism
Part I
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Part II
Part III
Monday, October 06, 2008 | 03:00 AM | Permalink
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When do you sleep, Barry?
I woke up in the middle of the night, checked on the markets, and saw Dow futures down 186. Now comes the interesting post-bailout vote portion of the program.
Posted by: CNBC Sucks | Oct 6, 2008 4:11:19 AM
Roach had, to me, a few notable things to say: "Risk of 'regulatory overreaction' that could make SarBox look like 'child's play", on one hand, and his call for a "Global Financial Infrastructure", on the other hand..
I was quite surprised by his subdued tone, he may be, though, hopefully not, a prime example of the old adage: "With the Beast, you get the Tusk."
His earlier writings/warnings were invaluable..
Posted by: Mark E Hoffer | Oct 6, 2008 4:21:11 AM
When are we going to lose a 1,000 points on the DOW? Reality demands it...
From Yves via the Naked Capitalism, website: "As of August, before the credit crisis worsened, the US had suffered the greatest percentage fall in net worth EVER, worse than any comparable period during the Great Depression."
Posted by: JustinTheSkeptic | Oct 6, 2008 5:18:44 AM
I posted the following yesterday evening on another thread, but this ties in well with the general theme here as well.
Asia is taking (took) a dive and this could well be a sign for U.S. markets this week.
The Market realizes that over 50% of the $700B bailout will eventually go to buying back 'bad dollars with good dollars' from overseas banks and institutions. These CDO and CDS holders are none U.S. investors that are being bailed out with U.S. tax dollars.
The bottom line is that in one fell swoop we have increased our trade deficit by at least $350B. This is what happens when you bail out non U.S. investors. The chain reaction is that asset values at home go down and then these same institutions, now armed with 'good dollars', come back and buy U.S. assets at depressed prices.
Essentially, Paulson has sold out to the European banks, though few actually make the connection. This is his way of making good on his promises to the European investors that bought the CDO's and CDS's while he was at GS. I find it unbelievable that I am the only one connecting the dots.
Some estimates put the NON U.S. holding positions at around 80% of all outstanding debt, meaning that as much as 80% of the $700B will end up going to overseas investors. To date, I have no way of assessing the estimates as banks (such as CS) have not disclosed their holdings.
Let's keep a cool head about this and scrutinize every deal that Paulson makes using the $700B. Assuming the above is the entire game plan (perhaps there are a few twists yet to be unveiled), we can still mitigate the damage. Gaining press coverage and traction by calling the foul when it becomes more transparent is the key.
At first I didn't think that Paulson would do such a 'criminal act' (harsh, but this is how I now see it). The deceit is almost perfect, however, if he tries to purchase the "bad overseas dollars" directly, it will become too obvious. The CDO's and CDS's will have to be transfered from a European investor back home to a U.S. holder and then sold / swapped with Paulson.
One thing that we (the public) have going for us is that being that these are public funds as opposed to private money (publicly held corporations would be categorized as private as well), we can demand full disclosure. We will probably have to fight (injunctions, class action etc.) for Paulson to comply. Naturally, the information should be made public as a matter of proper procedure. Don't hold your breath! I can tell you now, this is not going to be the case. Paulson has already announced that he is creating another level of opacity, calling in private companies to manage the 'disbursements', that will slow down the disclosure process.
If it turns out otherwise and I totally misread the sequence of events, I apologize.
Saul C. Sterman
CEO
CrossProfit
Posted by: Saul Sterman | Oct 6, 2008 5:27:53 AM
>Huge Setback for US-style Capitalism
and this is a bad thing ?
Posted by: Marcello | Oct 6, 2008 5:59:18 AM
I may not read the nowdays financial events as the end of the capitalist system, but rather as an other demonstration of the failure of a Goskoplan involving the mis allocation of resources by the states.
We have been witnessing a depraved capitalism
Posted by: Philippe | Oct 6, 2008 6:07:07 AM
Posted by: Philippe | Oct 6, 2008 6:07:07 AM
no kidding Philippe, the idea that we've been traipsing, unmolested, through the Garden of 'Free-Markets' is as absurd as GHG-induced AGW.
Posted by: Mark E Hoffer | Oct 6, 2008 6:17:20 AM
I listened to those interviews last week and was surprised that Stephen seems somewhat aloof to what is happening. I really disagree with any premise that this is somehow an American problem or a blow to American capitalism. It's a blow to Wall Street but Wall Street is not representative of American capitalism in any way. It never has been. Ever.
I look at this as just the opposite. It reinforces how pathetic the rest of the world really is. Not the people of the world but the leadership. This hogwash of a disconnected world could never be true because of the fact of this very fact.
Roach is one of my favorites but he top-ticked the Chinese economy when he took his new job. China's party is over. He should have taken that job twenty years ago when China adopted more capitalism, trashed its currency and then later got admitted into the WTO. Now, he presides over a country that has likely peaked for the next ten to twenty years. Roach has missed it with a once in a lifetime mistake. Even though I really enjoy his commentary, ultimately he's still too close to the apparatus.
Posted by: bdg123 | Oct 6, 2008 9:38:35 AM
Seems to me that everyone's "capitalism" is getting whacked about equally in this market implosion... it's not strictly a U.S. thing, or even a "U.S.-style" thing.
And... the fact that the market is imploding (2 days running) after the biggest bailout in history even more strongly whacks the socialist interventions by government.
So, what's the alternative?
I think we just have to take our lumps (globally), let the chips fall at last, and then pick up the pieces. But the aftermath should be a new and improved capitalism, not expanded socialism, or things will not get better.
Posted by: Wisdom Seeker | Oct 6, 2008 9:56:29 AM
zzzzzzz......
Posted by: mary | Oct 6, 2008 11:11:48 AM
If Stephen Roach is so bloody brilliant then way didn't he (I'm assuming that he has some sway in the decisions made by the C-levels) and his company see the problems and did something about it? Did he oppose the 20-30x leverage that his employer actively lobbied for? Etc etc Or was he, along with all these other I-bank bastards just so blinded by greed?
The James Grant interview on the same FT page was much more interesting and honest. Not sure if Roach feels any the shame that Grant speaks of. I doubt it.
Posted by: JoJo | Oct 6, 2008 7:02:47 PM
