Interview with Martin Upton about financial crisis

Martin Upton

Martin Upton has a background in financial markets and risk management.

1) Where did you study and where are you teaching now?

I studied at the University of East Anglia and the University of Leeds. Now I am Head of the Centre for Accounting and Finance at the Open University Business School.

2) On summer 1992 Bank of England and Bank of Italy were "fighting" against traders not to devalue british Pounds and italia Lira; since summer 2011 ECB is "fighting" against traders in order to keep low interest rates for government bonds; do you find any similarities between the 2 situations?

The similarity is that in both cases traders and investors took the view (in 1992/3) that the GB Pound and the Italian Lira were over-valued (at the ranges set for these currencies against the DM in the ERM) and that in 2011/12 traders and investors took the view that the bonds issued by the governments of Spain, Italy and Greece were over-valued (i.e. their yields were too low - and, by inference, their bond prices too high - given the background economic fundamentals of those countries). In both circumstances the view was taken by traders/investors that it was financially rational to sell Pounds & Lira in 1992 and to sell Spanish, Italian and Greek government bonds in 2011/12 since the market view was that in each case these assets were over-valued.

3) At the end of summer, on 16 th september 1992, british government decided to withdraw the british Pound from ERM (followed by italian government doing the same with italia Lira); do you think that the lesson learned is that it's useless (and a waste of money) to "fight" against traders on specific circumstances?

(Note that membership in ERM was not withdrawn but only "suspended"). I think both episodes – particularly the ERM debacle - show that trying to maintain the price of a currency or of bonds (or indeed other assets) above the levels perceived by the market as being their ‘correct market price’ is ultimately doomed to failure. The history of the UK provides plenty of examples of how the government and the Bank of England tried to defend the value of the Pound against economic logic only, in the end, to have to give way to market forces. The ERM debacle was only one such episode – see also the periods up to the devaluation of the Pound in 1949 and 1967.

4) In Europe there's a lot of talking about a anti-high yield mechanism (the ECB will buy government bonds when they reach very high yield), do you think it could solve the problems? I personally think it will be even worse: the traders could bet even more easily if they are 100% sure that the ECB will buy government bonds when they lose value.

Well such a mechanism would put a ‘floor’ on the bond prices (or ‘cap’ on the bond yields) so it would to a degree discourage those trying to make money by short-selling. Investors will also draw some comfort if they know of the maximum downside to their investments in such bonds.

5) It's been more than 2 years of talking of "saving the Euro", do u think that one currency can work with one central bank, 17 different ministries of finance and 17 different public debts?

My view has always been that you can’t have a stable single currency zone if you don’t have a single fiscal zone. The problems faced by the Euro zone show that you can’t have a single interest rate environment in a zone where member counties go ‘solo’ on their fiscal policies. Hence the rescue of the Euro has seen a move towards a greater centralization of fiscal policy decision making. Additionally the different nature of the member counties’ economies (particularly the differential importance of the housing market to them) weigh against the workability of a single currency.

6) The ECB decided to help some governments (like italian and spanish one) buying government bonds in the secondary market. Understarding that help is help, why not buying straight in the primary market ? Buying in the primary is giving money straight to the state, while buying in the secondary is giving money to the traders! So, ECB wants to "fight" traders (who bet against Italy and Spain) ... buying their devalued bonds! Don't you think that the ECB could avoid the hypocrisy and buy bonds straight from the primary market?

I suspect that the ECB only wants to act as the ‘buyer of the last resort’. If it bought primary issues the expectation in the markets would be for the ECB to be the ‘buyer of the first resort’ – and the size of the investments made by the ECB would potentially balloon. Buying in the secondary market maintains a defence against falling bond prices and helps underpin confidence in the primary market.

7) If there is a break up of the monetary union, what do you think it will happen? In the transition time, do you think people will try to use foreign currency (if there is enough of it for an area of 330 million of people) ?

Hard to speculate on this one. I suspect that the support of Germany and pressure from the US will continue to ensure that the Euro remains patched up. The worry is though that the crippling economic consequences of the budgetary restraint being applied to Greece, Spain and Italy – and Portugal and Ireland too – will create growing political and social strains. If a country does leave the euro zone its new currency (or restored legacy currency) would trade at levels implying a massive devaluation against other currencies. Additionally further support would be needed for the banking system – and not just within the country leaving the zone.

Interview with Jason Manolopoulos

Jason Manolopoulos is a greek expert of economy, he wrote the book "Greece's odious debt" about the economic situation in Greece. He studied economics in UK (short bio) and he runs an alternative investment fund.

1) When and where were you born?

I was born in 1975 in Athens, Greece.

2) In your opinion, what went wrong in Greece?

Let us recap on how we got here in the first place. The PIGS were lent massive amounts of money by institutions during the era of Greenspan, when there was ample liquidity and low interest rates.There was pressure for free flow of capital under deregulation and free markets mantra. This capital was too great for the countries to productively absorb. (Look at how some of the National Lottery winners typically spend their windfalls – poorly). Politicians misled electorates and other institutions; either by lying on statistics, breaking the Stability & Growth Pact rules, overplaying the eurozone’s inevitability, or pursuing unsustainable fiscal policies.Investors and lenders did not conduct proper due diligence on whether these debts could be paid back. Hence there were numerous events that preceded some hedge funds taking opposing bets. Institutional investors did similar things, selling bonds and going on a buyer’s strike, for the same fundamental reasons – poor credit metrics.

3) When did you start writing the book "Greece's odious debt" ?

April 2009

4) What do you think it will be the solution for Greece and/or Eurozone? / 5) Do you think there will be a future for the Euro?

The questions we should initially focus on are: Should a low value-add production economy be lumped with a high value-add or upper-end economy? Does sufficient labour mobility exist in euroland? Do all countries have flexible product and services markets? The answer to these is no. In an ideal world, we wouldn’t start from here. Exiting the euro would be catastrophic, but staying in means many years of austerity and high unemployment, and difficult conditions in which to make essential economic and political reforms, because the exchange rate is so high relative to the productive economy. Either way, Greece has lost a huge amount of national sovereignty, because we cannot bear these huge debts without default and/or surrendering autonomy to investors or other rescuers who will be in a strong negotiating position.

Too much emphasis has been put on the currency aspect per se. A currency in itself, is no silver bullet. The UK had the British pound in the dismal 1970s and still does today, yet the country is a very different place, post Margret Thatcher’s sweeping reform. Turkey was a basket case over run by corruption in the 1990s and early 2000s, having to resort to IMF bailouts. Today post reform and its cleansing process, its economy is growing strongly and has become a strong regional player. It still has its national currency, as it did previously. Sweden and Zimbabwe have independent currencies un-pegged national currencies, with clearly widely differing economic results.

Number of failed banks from 2000 to 2009 in USA

The chart shows the number of failed banks from 2000 till 2009 in USA (source: FDIC)

We must not think that the financial crisis is over: in the first month of 2010, 15 banks have failed!!! The year 2010 may not reach the number of 139 failed banks (like 2009), but 15 banks in one month is a bad beginning...

Ownership and control of Google

In the last days i read this:

NYT: Google Founders to sell, but are not losing control

Paid Content: Google's Brin and Page to sell off shares; give up majority voting power over five years

Techcrunch: Google Co-Founders plan to sell up to 10 million shares over next five years

BBC: Google co-founders to sell shares


Everything started because there was a SEC filing (=communiqué from SEC) saying:

On November 30, 2009, Larry Page and Sergey Brin each adopted stock trading plans in accordance with guidelines specified under Rule 10b5-1 of the Securities and Exchange Act of 1934 and Google’s policies regarding stock transactions. In the future, they will begin selling a portion of their Google stock pursuant to these stock trading plans.

It means: onNovember 30, 2009 Larry Page and Sergey Brin told SEC that they are going to sell some shares of Google

Larry and Sergey currently hold approximately 57.7 million shares of Class B common stock, which represents approximately 18% of Google’s outstanding capital stock and approximately 59% of the voting power of Google’s outstanding capital stock. Under the terms of these Rule 10b5-1 trading plans, and as a part of a five year diversification plan, Larry and Sergey each intend to sell approximately 5 million shares. If Larry and Sergey complete all the planned sales under these Rule 10b5-1 trading plans, they would continue to collectively own approximately 47.7 million shares, which would represent approximately 15% of Google’s outstanding capital stock and approximately 48% of the voting power of Google’s outstanding capital stock (assuming no other sales and conversions of Google capital stock occur).

To understand that, we need to understand the corporate governance of Google. At January 31, 2009, there were 240,289,354 shares of the Class A common stock outstanding and 75,004,353 shares of the Class B common stock outstanding. Class B shares are special shares: each one has 10 voting rights; Class A common stock has been listed on The Nasdaq Global Select Market under the symbol “GOOG” since August 19, 2004 and ; Class B common stock is neither listed nor traded.

If we read that: (annual report 2008; page 30)

Our board of directors may issue, without stockholder approval, shares of undesignated preferred stock. The ability to issue undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire us.

We can be sure that, with Brin and Page holding 48% of voting rights (Eric Schimdt another 10%), nobody can take away the control of Google

UN, Stiglitz and Blanchard about the economic crisis

Joseph Stiglitz

UN conference on the world financial and economic crisis and its impact on development
24-26 june 2009

From official site of UN:
"The United Nations is convening a three-day summit of world leaders from 24 to 26 June 2009 at its New York Headquarters to assess the worst global economic downturn since the Great Depression. The aim is to identify emergency and long-term responses to mitigate the impact of the crisis, especially on vulnerable populations, and initiate a needed dialogue on the transformation of the international financial architecture, taking into account the needs and concerns of all Member States."

In Italy the media coverage about this conference was close to zero but it's interesting to point out few things.

The Commission of Experts on Reforms of the International Monetary and Financial System, chaired by Joseph Stiglitz and informally known as the Stiglitz Commission, was convened by the President of the United Nations General Assembly, Miguel d'Escoto Brockmann, "to review the workings of the global financial system, including major bodies such as the World Bank and the IMF, and to suggest steps to be taken by Member States to secure a more sustainable and just global economic order". It presented its recommendations on March 20, 2009 and a preliminary draft of its full report on May 21, 2009. The draft is available here.

On August 18 2009, Olivier Blanchard (Economic Counsellor and Director of the IMF’s Research Department) wrote an article for IMF's F&D magazine:

Sustaining a global recovery

Blanchard on April 2009 wrote a paper called The crisis: basic mechanisms, and appropriate policies

Joseph Stiglitz (2001 Nobel Prize in economic sciences) is the chairman of the UN commission of experts and he wrote his view in an article on The Nation:

A global recovery for a global recession
---
These are the contents of the draft of that commission of experts:

chapter 1: introduction
the crisis: its origins, impacts, and the need for a global response
the institutional response to the crisis
policy responses to the crisis
a global crisis needs a global response
some basic principles
impact on developing countries

chapter 2: macro-issues and perspectives
the sources of the crisis
international responses: fiscal policy
monetary policy and restructuring financial markets
bail-outs
the role of central banks
risks and policy trade-offs
multiple and new objectives
impacts on developing countries
developing countries need additional funding
concluding remarks

chapter 3: reforming global regulation to enhance global economic stability
failure of the prevailing regulatory philosophy
the purpose of financial regulation
financial policy and regulatory policy
regulation and innovation
regulatory capture
boundaries of financial regulation
micro-prudential regulation
ring-fencing
some common principles of macro- and micro- prudential regulation
securitization
transparency
macro-prudential regulation
countercyclical regulations
capital market liberalization
capital account management for development
capital market interventions during crises
financial market liberalization
further issues in micro-regulation
lending and public banking to promote development
regulating other players
credit rating agencies (CRAs)
sovereign wealth funds
regulatory institutions
capture and voice
regulation and political processes
incentive structures
personnel
regulatory structure
global regulation
comprehensiveness
international banking centres and international tax cooperation
international cooperation on taxation
beyond financial regulation

chapter 4: international institutions
the challenges ahead - the need for new global economic governance
a global economic coordination council could lead the way forward
policy coherence for development also has to be improved on the national level
policies and instruments
the Bretton Woods institutions must support national capital account management
other international financial bodies
international lending and ODA
additional funding for developing countries is needed
aid effectiveness
expansion of resources by IFIs
the IMF needs an immediate expansion of its resources
review developing countries' debt sustainability in light of the financial crisis
establish a new credit facility
trade and investment
commodities trade and compensatory financing
appendix: the Doha round and development

chapter 5: international financial innovations
the global reserve system
sovereign debt default and restructuring
innovative risk management instruments
innovative sources of financing

Tiscali, the dream is over

Tiscali group on 2001

Tiscali has sold Tiscali UK to Carphone Warehouse Group for 255.5 million of GBP. After years of sales, the dream of a italian-based european provider is over.

Renato Soru created Tiscali on January 1998.

October 1999: IPO (Tiscali enters the stock market during the dot-com bubble). People pay 46 euro for 1 share of Tiscali.
May 2009: (after the stock split 10:1 of april 2000) the same investor would have 10 shares of the value of 0.416 euro each, never a dividend.

Tiscali, son of the dot-com bubble, victim of bad management.

Chief executive officer
1998-2004 Renato Soru
2004-2005 Ruud Huisman
2005-2008 Tommaso Pompei
2008-incumbent Mario Rosso

as roma for sale - no future for Sensi group

If you look at financial statements of Compagnia Italpetroli (owned by 51% by Sensi sisters and by 49% by Unicredit bank), it's difficult to understand how the group can keep going.

ebitda is getting worse (14.431 million of euro on 31-12-2006; 4.365 million of euro on 31-12-2007)

ebit is getting worse (-1.718 million of euro on 31-12-2006; -8.497 million of euro on 31-12-2006)

debt is huge and is growing (381.208 million of euro on 31-12-2006; 396.715 million of euro on 31-12-2007)

The only solution (to try to survive) will be the sale of as roma, it's only a matter of time.

Zuckerberg and the future of Facebook

26th October 2005, Zuckerberg explains how you can monetize users "pretty easily"; today he would have said different things...

Mark Zuckerberg was 19 years old when he created Facebook, with Dustin Moskovitz and Chris Hughes. It was February 4th 2004 and nobody could imagine that after 5 years Facebook has almost 200 million active users worldwide.

Zuckerberg & friends moved to Silicon Valley during the summer of 2004 (the world is NOT flat, Mr. Thomas Friedman!) and they looked for investors.

October 2008: Zuckerberg says: "What every great internet company has done is to figure out a way to make money that has to match to what they are doing on the site. I don't think social networks can be monetized in the same way that search did. But on both sites people find information valuable. I'm pretty sure that we will find an analogous business model. But we are experimenting already. One group is very focused on targeting; another part is focused on social recommendation from your friends. In three years from now we have to figure out what the optimum model is. But that is not our primary focus today."

3 years can mean October 2011! Does Zuckerberg think he has such a long time?

The future of Facebook doesn't depend only on Zuckerberg but it depends on its investors too:

- Microsoft put $240 million

- Li Ka-shing put $120 million

- TriplePoint Capital put $100 million

and others (full list here)

According to Techcrunch (article of October 2008):

"The company is likely spending well over a $1 million per month on electricity alone"
[...]

"With 750 employees and growing, Facebook is spending at least another $10 million per month on payroll."
[...]

"It costs a couple of hundred million dollars a year just to keep the lights on at Facebook. But the real problem is keeping up with growth, particularly storage needs. Add another $100 million or more per year for capital expenditures, and you’ve got a company that’s doing exactly the opposite of printing money."

Time is running out for Zuckerberg, it's going to be "Facebook must make money or sell Facebook"

It would be nice to have an etiquette for Facebook, how long do we have to wait for?

The Economist asked "Cameron Marlow, the “in-house sociologist” at Facebook, to crunch some numbers. Dr Marlow found that the average number of “friends” in a Facebook network is 120" and "women tend to have somewhat more than men"[...] "Thus an average man—one with 120 friends—generally responds to the postings of only seven of those friends by leaving comments on the posting individual’s photos, status messages or “wall”. An average woman is slightly more sociable, responding to ten."

1st phase Feb 2004-Aug 2005 Facebook only for US university

2nd phase Sep 2005-25 Sep 2006 Facebook only for US university and high schools

3rd phase 26 Sep 2006-today Facebook is open for everyone of ages 13 and older with a valid e-mail address

What would Jeremy Bentham (1748-1832) think about Facebook? He could think it's the Panopticon of the XXI century with important diffences:

- in Panopticon there are prisoners and observers; prisoners don't choose to lose privacy.

- in Facebook people do choose to lose part of privacy

- in Facebook everybody can be an observer

Hedge Funds and the Financial Market

George Soros (from Flickr)

The Committee on Oversight and Government reform held a hearing titled, “Hedge Funds and the Financial Market” on Thursday, November 13, 2008.

Here you can read some interesting excerpts:

Testimony of Professor David Ruder (Professor of Law Emeritus, Northwestern University School of Law, Former Chairman, U.S. Securities and Exchange Commission 1987-1989)

The definition of hedge fund is unclear. The SEC has acknowledged that the term has no "precise legal or universally accepted definition". The President's Working Group on the Financial Markets has called a hedge fund "any pooled investment vehicle that is privately organized, administered by professional managers, and not widely available to the public".

[...]

Hedge fund managers do not want their investment strategies to become known.

[...]

Although hedge funds have been active participants in the financial markets during the past years, they do not seem to have played a major role in the events precipitating the crisis. [...], the market participants central to the credit crisis were loan originators, investment banks, rating agencies, and sellers of credit default swaps.

Testimony of Professor Andrew Lo (Director, MIT Laboratory for Financial Engineering, Massachusetts Institute of Technology, Sloan School of Management)

If hedge funds are forced to reveal their strategies, the most intellectually innovative ones will simply cease to exist or move to other less intrusive regulatory jurisdictions.

Testimony of Houman Shadab (Senior Research Fellow, Mercatus Center, George Mason University)

First, hedge funds did not cause the financial crisis and are in fact helping to mitigate its damage and save taxpayers money. [...]

Second, hedge funds' short-selling activities have helped draw attention to the poor management and investment decisions of financial companies in recent years. [...]

Finally, existing laws and regulations should be strictly enforced against hedge funds and their managers, but changing how hedge funds are regulated could actually undermine the interests of investors and increase economic instability.

Testimony of Philip Falcone (senior managing director and co-founder of Harbinger
Capital Partners Funds)

Our investment philosophy is very simple; we study, often for months, the fundamentals of companies to identify those that are undervalued or overvalued, and we act decisively when opportunities present themselves. We are not momentum traders, nor are we day traders; we are investors. It is not magic. My analists perform thorough due diligence, rather than relying on ratings agencies or other research reports -- like many of the reports that improperly valued securitized mortgage products over the past few years.

Testimony of Kenneth Griffin (founder and CEO of Citadel Investment Group)

I am proud that in the 18 years since I founded Citadel, it has grown into a financial institution of great strenght and capability, with a team of over 1,400 talented individuals. Citadel manages approximately $ 15 billion of investment capital for a broad array of institutional investors, endowments, high-net-worth individuals and Citadel's employees.

Testimony of James Simons (chairman and CEO of Renaissance Technologies LLC)

Renaissance's investment approach is driven by my background in mathematics. Before I ever entered the business world, I was a mathematician. I have a PhD from Berkeley, won the 1975 Veblen Prize of the American Mathematics Society (given every four years for work in geometry and topology), and taught mathematics at the MIT and Harvard before becoming the chairman of the Mathematics Department at the State University of New York at Stony Brook. Along the way, I spent four years as a code cracker for the National Security Agency. Renaissance, an SEC-registered Investment Adviser since 1998, manages what are termed quantitative funds - funds whose trading is determined by mathematical formulas designed to predict market behavior. Individual trades are generated by computers, based on work continually developed by our researchers. Naturally, human beings carefully monitor the trade execution process, making sure that all parts of the system are behaving properly. We operate in only highly liquid, publicly listed securities, such as stocks, bonds, currencies, and commodities, and do this on exchanges throughout the world. This means, for example, that we do not trade in credit default swaps or collateralized debt obligations, neither of which satisfies the above criteria. In the stock trading of our Medallion Fund, we hold balanced portfolios in each country, i.e., portfolios very close to being equally long and short. Our trading models tend to buy stocks that are recently out of favor and sell those recently in favor.

Testimony of John Paulson (president and founder of Paulson & Co. Inc)

Paulson & Co. Inc is an investment advisory firm that was founded in 1994 and has been registered with the SEC since 2004. We currently manage assets of approximately $ 36 billion using event-driven strategies. We are based in New York and also have offices in London and Hong Kong. We have approximately seventy employees. Prior to founding the firm, I was a Managing Director in Mergers & Acquisitions at Bear Stearns. I am a summa cum laude graduate from New York University and graduated with high distinction, as a Baker Scholar, from Harvard Business School in 1980. Our investors include pension funds, endowments, banks, insurance companies, family offices and high-net-worth individuals in the U.S. and around the world. All of the investment funds we manage are open only to "qualified purchasers", which are highly sophisticated investors with $5 million in investable assets if they are individuals, and $25 million in investable assets if they are institutions. Our investors look to us to protect their capital, and to show positive returns in both good and bad markets. We do this by going long securities that we think will rise in value and going short securities that we think will decline in value. By constructing a diverse portfolio of both long and short positions, we have been able to operate profitably in 14 out of the last 15 years, including this year and the 2000-2002 periods when the NASDAQ index lost 78% of its value. [...] We share profits with our investors on an 80/20 basis where 80% of the profits go to the investors and 20% remains with us. We only earn performance allocations if our investors are profitable. All of our funds have a "high water mark", which means that if we lose money for our investors, we have to earn it back before we share in future profits. Some of our funds also have a "claw back" provision, requiring us to return profits earned in prior periods if we lose money in subsequent periods. In addition, we invest our own money alongside that of our clients, so we share investment losses along with gains.

We are a private company and have no public shareholders. We receive no taxpayer subsidies. All of our investors invest with us on a voluntary basis. We also use very little leverage. Over the past five years, for over half the time our base portfolios were not funded with any borrowed money, and our maximum borrowing as a percentage of equity capital over this period was 33%.

In February 2004, we voluntarily registered with the SEC as an investment advisor.

Testimony of George Soros

The crisis was generated by the financial system itself. This fact - that the defect was inherent in the system - contradicts the prevailing theory, which holds that financial markets tend toward equilibrium and that deviations from the equilibrium either occur in a random manner or are caused by some sudden external event to which markets have difficulty adjusting. The severity and amplitude of the crisis provides convincing evidence that there is something fundamentally wrong with this prevailing theory and with the approach to market regulation that has gone with it.

Investment banks and financial crisis 2007-2008

Leverage ratios of investment banks (from Wikipedia)

US Gross Federal Debt, unadjusted for inflation (from Wikipedia)

If we want to try to understand the global financial crisis going on now, we need to try to understand the role of investment banks in USA.
There is an interesting paper about investment banks, the paper was written and it's called
The Demise of Investment-Banking Partnerships: Theory and Evidence
written in 2004 by Alan D. Morrison (University of Oxford-Said Business School; University of Oxford-Merton College) and William J. Wilhelm Jr (University of Oxford-Said Business School; University of Virginia-School of Law)

Abstract:
Until 1970, the New York Stock Exchange prohibited public incorporation of member firms. After the rules were relaxed to allow joint stock firm membership, investment-banking concerns organized as partnerships or closely-held private corporations went public in waves, with Goldman Sachs (1999) the last of the bulge bracket banks to float. In this paper, we ask why the Investment Banks chose to float after 1970, and why they did so in waves. In our model, partnerships have a role in fostering the formation of human capital. We examine in this context the effect of technological innovations which serve to replace or to undermine the role of the human capitalist and hence we provide a technological theory of the partnership's going-public decision. We support our theory with a new dataset of investment bank partnership statistics.

This is a very important issue: before 1970, the New York Stock Exchange (the famous Wall Street) prohibited investment banks from going public (in USA "going public" means starting an IPO in order to enter the stock exchange).

We can read from the official site of NYSE:

Public Can Own Member Firms
March 26 1970
Public ownership of member firms is approved for the first time

And, maybe, it was the beginning of the end...

James Surowiecki wrote (29 September 2008; The New Yorker):

[...] All, then, seemed good. But, for Wall Street firms, going public was a deal with the devil, because it meant exposing themselves to what was, in effect, a minute-by-minute referendum, in the form of the stock price, on the health of their operations. This was fine as long as things were going well—the higher the stock price, the richer everyone got—but, once things started to go bad, that market referendum started to look like a vote of no confidence. And that made the problems that the companies were already facing much, much worse. [...]

and

[...] All companies, of course, worry about how their stock is doing. But for most the stock price is a product of performance, rather than a cause of it. If Procter & Gamble’s stock plummeted tomorrow, people would still keep buying Tide. By contrast, if an investment bank’s share price tumbles, it not only wrecks people’s confidence but also can lead to credit-rating downgrades, which provoke a further decline in the stock price, and so on. The downward spiral can be stunningly fast and near-impossible to escape. [...]

After 1970, investment banks could enter the stock exchange, and theese are the dates when they decided to do so (NYSE):

1971 Merrill Lynch
1985 Bear Stearns
1986 Morgan Stanley
1994 Lehman Brothers
1999 Goldman Sachs

What happened to the 5 investment banks that we can see from the first image?

Merrill Lynch: acquired by Bank of America
Bear Stearns: acquired by JPMorgan Chase (with the help of the Fed)
Morgan Stanley: changed its status from investment bank to bank holding
company
Lehman Brothers: bankruptcy
Goldman Sachs: changed its status from investment bank to bank holding
company

On 23rd September 2008 we heard:

The FBI is investigating Fannie Mae, Freddie Mac, Lehman Brothers Holdings Inc and insurer American International Group Inc and their senior executives for potential mortgage fraud, CNN reported on Tuesday.

Well, who is going to investigate the role of the Sec about the subprime crisis??

Telecom Italia in trouble

ownership of Telecom Italia on August 2008

value of Telecom Italia stocks from january 1998 to 5th september 2008

Telecom Italia entered in Milan stock exchange on 27th October 1997, when the government (Prodi was PM) decided the privatisation. The highest

value was on 13th March 2000, during dot-com bubble. The last trade on 5th september 2008 was made at 1.037 Euro per stock, the lowest value since 12th January 1998 (1.009 Euro). Somebody thinks the Telefonica isn't unhappy about this: they'll be able to buy Telecom Italia at a cheap price... Anyway, something is going to happen soon...

Much rumour about nothing

above: the last 12 months of AS Roma stocks

UPDATE about globalization of football (soccer) ownership post

On 1st May i wrote:

"There are several rumours that George Soros (hungarian-born US speculator and philanthropist) is going to buy Roma ; Steven Horowitz of Inner Circle Sports has been recently seen in Rome more than once, therefore someone does want to buy the club. Some newspapers wrote Soros offered about 210 million Euro for 67% of shares, which is 2,37 Euro per shares, more than double the current price. Will it be enough for the family that now owns the club?"

I was wrong because on 3rd June MF-Dow Jones (one news agency for italian stock exchange) wrote that Michael Vachon [director of communications at Soros Fund Management (SFM). Mr. Vachon serves as spokesperson for the Fund and for Mr. Soros personally] told them that Soros isn't interested about buying that team.

It might be usefull to ask some questions:

1) Was it true that George Soros (before June) wanted to buy As Roma?

If not, who started the rumour? If it was true, what went wrong?

2) Why don't the current owners (Sensi family) explain what happened in the past months?

3) The current owners need to pay back (reports talk about 370 mil of euro) some banks. Do they know how to do that without selling the team?

Enron: huge failure for the press

The bankruptcy of Enron (Enron filed for bankruptcy on December 2, 2001) was a huge failure for the press. How is possible that journalists couldn't see what was happening?

An interesting article (Open secrets; Enron, intelligence, and the perils of too much information; The New Yorker, January 8, 2007) written by Malcolm Gladwell tells us many things, including that in May 1998, six students of Cornell University wrote a 23 page report, at page 12 you can read:

"As shown in Table 2, the 8-variable Beneish model shows that that Enron may be manipulating its earnings."

On 5th March 2001, Bethany McLean wrote an article for Fortune Magazine: "Is Enron overpriced?" and in 2003 she was the co-author of the book "Enron: The smartest guys in the room"; in January 2005 the documentary (with the same title) was aired in the USA.

Here you can read "Enron: uncovering the uncovered story" (March 2002) from Columbia Journalism Review (an academic publication providing coverage and analysis of journalism).

If a CEO doesn't say the truth, you can charge him/her; but what can you do when "the truth" is hidden somewhere in million of pages?

New shareholders for Telecom Italia

After months and months of negotiations we have new shareholders for Telecom Italia.

The company Telco S.p.A. has 23.595% of shares of Telecom Italia.
Telco S.p.A. is:
- Telefonica S.A.                                42.3%
- Assicurazioni Generali S.p.A.        28.1%
- Intesa San Paolo S.p.A.                  10.6%
- Mediobanca S.p.A.                          10.6%
- Sintonia S.A. (Benetton)                  8.4%