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“With the strengthening of the administration, the rescheduling of debt and a broad package of social and economic measures.  Dutch island governance should restart in a stronger position.  Because public finance is of crucial importance for residents and visitors alike, greater financial supervision is being implemented.”  - Els Croon

As you might have noticed, it has been a few months since my last entry.  This was largely due to the fact that I have been extremely busy with work but I must also confess that the depressing state of the world played a part.  There have clearly been more than a few rough periods in the history of mankind but for me this is a real low point.

Most of the countries around the globe are struggling to maintain their positions of power as their respective economies sputter toward recovery.  In the U.S., constant missteps by the administration and congress are very disheartening and it is all but certain that elections later this year will alter the political landscape once again.  Britain and Japan have just installed new leadership and both are desperate for something positive to happen from the bleakness.

As if all this isn’t enough, there is a hole in the Gulf of Mexico that has been spewing toxic oil at a rate of roughly 100,000 barrels per day since 20 April.

Quite frankly, it is all just too painful to think about - so if you don’t mind I will try to enjoy my family vacation and commit to a more inspired entry in July.  Hopefully I will have some good news by then. 

“Complex societies are focused on a center, which may not be located physically where it is literally implied, but which is a symbolic source of the framework of society.  It is not only the location of legal and governmental institutions, but is the source of order and the symbol of moral authority and social continuity.  The center partakes of the nature of the sacred.”  - Joseph A. Tainter, The Collapse of Complex Societies

It was a rather frantic month for me and most of the headlines missed my attention.  I did notice one rather curious article about JP Morgan Chase’s $1.4 billion tax refund.  Apparently JP Morgan Chase is capitalizing on a provision in the American Recovery and Reinvestment Act which allows the mega bank to take losses from 2008 and 2009 and apply them against taxes paid during the previous five years instead of the previous two.

And the train has departed from the station because according to an analysis of security filings by Wall Street Journal, more than 250 companies expect $12 billion worth of federal tax refunds under the provision.

Maybe I am foolish to be concerned that the provision (…gift, whatever) is expected to cost taxpayers $33 billion during its first year.  I suppose everything is relative and we are playing with trillions now - right?

“Tragedy is thus a representation of an action that is worth serious attention, complete in itself and of some amplitude E’ by means of pity and fear bringing about the purgation of such emotions.”  - Aristotle

…in the news that is - and it isn’t good.  It seems that Greece has a real financial crisis on her hands.  Greece’s budget deficit is twice what the Government reported as recently as mid-2009.  So once Moody’s downgraded the debt a few months ago, there seems to be serious concern that a sovereign European nation is at risk of default.

Greece, in the form of the Prime Minister George Papandreou, is asking for help from other EU countries and while the EU has indicated that it will assist to prevent default, details are sketchy for now.  We will soon find out if the EU will put the money where their mouth is come April and May when Greece has some 20 billion euros worth of bonds and T-bills maturing.

Let’s hope this gets sorted out or it could send other European countries like Spain and Portugal over the edge as well.  Interestingly, it has been reported that Goldman Sachs (our favorite investment bank at the center of the universe) helped the Greek government to mask the true extent of its deficit with the help of a derivatives deal that “legally” circumvented the EU rules.  Is there anything that Goldman Sachs isn’t involved in?

“For if the trumpet give an uncertain sound, who shall prepare himself to the battle?”  - 1 Corinthians 14:8

There are still many that believe the U.S. Government should have allowed the big banks along with Fannie and Freddie and AIG to go under.  I recall one colleague explaining to me that the “invisible hand” would have corrected the situation.  He went on to suggest that any institution responsible for this disaster should have to pay for their foolishness anyway.  Being somewhat of a Keynesian, I never believed the government should look the other way and now I am more convinced than ever that we were on the brink of complete global financial wipeout that would have truly changed the course of human history.  The current environment is unpleasant but it could be far, far worse.

For those that think this was all some grand conspiracy to change the political landscape or that our leaders are really in control, a recent article by Laura Blumenfeld in the Washington Post about Neil Kashkari, former Interim Assistant Secretary of the Treasury for Financial Stability, and a book by Henry Paulson, Secretary of the Treasury during the darkest hours of the crisis, tell a different story.

“Seven hundred billion was a number out of the air,” Kashkari recalls.  “It was a political calculus.  I said, ‘We don’t know how much is enough.  We need as much as we can get [from Congress].  What about a trillion?’ ‘No way,’ Hank shook his head.  I said, ‘Okay, what about 700 billion?’  We didn’t know if it would work.  We had to project confidence, hold up the world.  We couldn’t admit how scared we were, or how uncertain.”

And according to Paulson, after he and Timothy Geithner failed to find a buyer for Lehman Brothers, “My stomach tightened up and it was one of those times during the crisis where I was momentarily overcome by fear.”  He then called home to his wife Wendy: “And I said, ‘Everybody’s going to be looking to me for answers, and I don’t have any.  Please help me, pray for me.’  But boy, that was, that was a dark, dark hour.”

We will never know what would have happened with a different group of leaders - but I for one am grateful it didn’t turn out worse.  The question is: did we learn from our dreadful mistakes?

“After the pact, the Royal Navy was required to scrap the Grand Fleet’s backbone.  The Admiralty pledged itself never to build a naval base in Hong Kong.  England’s absolute command of the seas, so vital to the Empire, was over.  Britannia no longer ruled the waves, not because world opinion objected, but because, having spent 5,000,000 pounds sterling during the war, it simply couldn’t afford to.” - William Manchester, The Last Lion

It might not be apparent why I included this passage which describes how dramatically Britain’s course was altered following World War I.  I would like to believe this isn’t indicative of where the U.S. is heading following the second Gulf War, but there are certainly parallels that should be considered.  While I don’t believe a diminished future is sealed for the United States of America quite yet, it should be clear that our current course could easily lead us to become a second-rate world power.  It is not possible for a single country, no matter how big and powerful, to please and/or protect all the humans on the planet.  Enough said.

I think most will agree that 2009 is ending with a slightly positive momentum compared to where we were a year ago.  Just for fun, here is my annual recap…and here’s to a better 2010 - because we all know there is plenty of room for further improvement.

January 2009 - 1.  The U.S. Congressional Budget Office estimates the federal government will run a $1.2 trillion budget deficit in fiscal year 2009 and that the enactment of the economic-stimulus plan would increase that deficit; 2.  The Bank of England cuts interest rates to 1.5%, its lowest level in its 315-year history; 3.  Icelandic prime minister Geir Haarde announces the collapse of his coalition government in the wake of the country’s financial crisis.

February 2009 - 1.  California’s government goes broke and issues IOUs on all expenditures not required by law; 2.  Bankruptcies in the United Kingdom rose during 2008 by 50% to an all-time high; 3.  The Dow Jones Industrial Average and S&P fall to their lowest levels since 1997.

March 2009 - 1.  The UK’s government increases its ownership stake in Lloyd’s Banking Group from 43% to approximately 60%; 2.  Japan’s economy posts a record deficit of 172.8 billion yen; 3.  Premier Wen Jiabao says China may introduce a new stimulus package if the current financial crisis intensifies and he also expresses concern over U.S. Treasury securities.

April 2009 - 1.  The Group of 20 announces a US$1 trillion agreement to combat the current financial crisis; 2.  China imposes pay limits for executive officers of state-owned financial institutions; 3.  China’s economy grows by 6.1% in the first quarter 2009, the lowest increase since 1999.

May 2009 - 1.  The Eurozone’s 16 national economies contract by 2.5% throughout the first fiscal quarter of 2009.

June 2009 - 1.  General Motors, once the largest and most powerful corporation in the world, files for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code; 2.  Iceland’s rate of unemployment reaches 11.8%.

July 2009 - 1.  General Motors emerges from bankruptcy protection after 40 days under court supervision; 2.  China’s foreign exchange reserves reached a record US$ 2.13 trillion; 3.  The Dow Jones Industrial Average closes above 9,000 for the first time since January.

August 2009 - 1.  Hong Kong posts 3.3% growth over its previous quarter, far exceeding predictions, signaling an end to its recession; 2.  The U.S. budget deficit will reach $1.6 trillion, the highest ever recorded; 3.  The Democratic Party of Japan wins 308 seats in the 480 seat House of Representatives, ending nearly 50 years of control by the Liberal Democratic Party.

September 2009 - 1.  The G-20 Finance Ministers outline plans for banking reform, including tougher regulation of financial institutions.

October 2009  - 1.  The International Monetary Fund states that the global economy is “recovering faster than expected”, raising its forcast for global growth to 3.1% for 2010, up from 2.5%; 2.  The Dow Jones closes above 10,000 points for the first time in more than a year.

November 2009 - 1.  Dubai World, the state-owned real estate and ports giant, asks for a moratorium on its US$59 billion in debt until at least May 30, 2010; 2.  The Central Bank of the United Arab Emirates announces it will provide liquidity to Dubai banks.

December 2009 - 1.  The FDIC, which insures deposits in U.S. commercial banks, runs a deficit of US$ 8.2 billion; 2.  Japan unveils a 7.2 trillion yen stimulus package to strengthen the country’s economy amid signs it is weakening; 3.  140 U.S. banks failed in 2009.

And so…raise your glass to a better 2010 for all.  Cheers!

“Gratitude unlocks the fullness of life.  It turns what we have into enough, and more.  It turns denial into acceptance, chaos to order, confusion to clarity.  It can turn a meal into a feast, a house into a home, a stranger into a friend.  Gratitude makes sense of our past, brings peace for today and creates a vision for tomorrow.”  - Melody Beattie

From now until the New Year we are expected to contemplate the good things in our lives and hopefully bring some happiness to those we care about.  If this is not on your agenda then you are certainly missing out.  There is plenty of time for striving and dissatisfaction - so make the most of this gift.  Be grateful and generous every chance you get.

Much has changed since the financial meltdown began in September 2008, just over a year ago.  And while it remains less than rosy, I think most will agree that recovery has come sooner than expected.  This is not to suggest that the millions of people around the world that are unemployed, bankrupt, or both are feeling good right now - but it could easily be far worse.  I predict it will be a long time before we get back to an easy time of prosperity for nearly all.  In fact, I seriously doubt real estate will be the same in my lifetime - but overall it will be better for most.  In the meantime (especially during this Season), I suggest you thank God for the good things in your life and be a source of encouragement for others.

“We are business partners who share material interests rather than common values.  Obama wants us to become strategic partners or friends but we aren’t either of those.” - Yan Xuetong

I am not convinced anyone really knows what China is up to - maybe not even China.  Is China now suddenly a peaceful giant more focused on improving the standard of living and quality of life of her billion-plus citizens or are the leaders strategically positioning the country for world domination?  We do know more about the current position than where the Chinese actually want to be.  For example, we know China has bailed out the U.S. to the tune of over a trillion dollars (in treasury securities, etc.) and the two countries are mutually dependent to a large degree.  We also know China is aggressively building military strength and developing advanced technologies for space exploration.

Rather than surmise what China’s real intentions are, I thought it would be more useful to include a few interesting points from lecture recently presented by the former Chinese Ambassador Ma Zhengang at the London School of Economics and Political Science (15 Oct 2009).  According to Ambassador Zhengang:

1.  “China is the third largest economy and the third largest trade power in the world with the largest foreign reserves.”

2.  “With the end of the cold war between the two superpowers, people all over the world were expecting of peace and development in real earnest.  But their fond dream was frustrated by the hegemonical ambitions of the United States.”

3.  “As the only superpower in the world, the U.S. cherished a blind belief in unilateralism and tried to build up an international order dominated by itself.  They failed to see the world trend towards multi-polarity and the development of globalization, and announced arrogantly that the U.S. could go it alone”.

4.  ”The world balance of power is undergoing changes of great significance.  This has begun to reshape gradually the whole international landscape, politically, economically and socially.”

5.  “The development of globalization has made countries in the world much more linked and connected, and interests are increasingly interwoven.  Under such circumstances, any action from selfish motives with an aim of profiting at the expenses of others would often bring harm to oneself.  There is less and less room for zero-sum games.  Mutual cooperation for win-win results has become a universal concept and a new catch word of the time.”

6.  “The global financial crisis begun in the United States swept rapidly over the world and almost in an instant took the world economy from boom to bust.  Many parts of the world have plunged in a grave depression.”

 7.  “The present international system, including the international financial system, is in for major changes.  Reform is imperative.”

8.  “As the largest developing country with one fifth of the world’s population, China’s emergence as a global power is certainly the most influential event in the present epoch.”

9.  “The total purpose of China’s development is for the continuous raising of quantity and quality of the Chinese people’s life, material and cultural, and contribute to the progresses of the world, but not for world domination and hegemony.”

10.  “China’s development is mainly relying on China’s own human and material resources, but not on external expansion and plunder.”

11.  “China stands for common development and common prosperity.  China cannot develop in isolation from the rest of the world, nor can the world enjoy prosperity and stability without China.”

12.  “China is promoting building a harmonious world of lasting peace and common prosperity.  The key concepts are: Peace, Cooperation, Win-win Results, Diversity and Tolerance.”

What do you think - do you buy it?

“Lehman’s fall over a nerve-racking weekend a year ago pushed the financial crisis, which had begun months earlier with the subprime mortgage meltdown and the rescue of Bear Stearns Cos., to a terrifying new level.  Lehman’s bankruptcy, the largest in U.S. history, shocked investors who had expected the federal government to step in with a Bear-like 11th-hour rescue.  Its fall unleashed fears of a depression triggered by a domino-like toppling of battered financial institutions.” - Walter Hamilton

Having been born when I was, I missed the Great Wars, the first Great Depression, and the Cuban Missile Crisis.  My memories actually begin during the war in Vietnam and except for a few bumps here and there, I have enjoyed a relatively stable and secure life.  I took much for granted in my progressively improving life until exactly September 11, 2001 - and suddenly it was all so interrupted and uncertain.  I wasn’t personally impacted.  I didn’t lose any family or friends, nor was my career in jeopardy - but no matter how hard I tried to convince myself everything would be fine again, I couldn’t get back to where I had been.  Gradually over the next five years or so, despite growing turmoil around the world, I started to feel more settled once again.  Then in the summer of 2008, it was apparent we were in for a rough ride.  Once again the month of September delivered a world-altering event.  This time it fortunately didn’t bring physical death and destruction but it did bring the end of several storied financial institutions along with hundreds of banks around the globe - and no one will ever know just how close we came to a complete financial collapse.

Here we are a year later and I would be very interested to learn how others feel.  I have been doing my best to focus on work and family without dwelling on all the troubling news.  On one hand I recognize that the economy has stabilized and the stock market is recovering quite steadily, but on the other hand it seems many of us are quite apprehensive and anything but confident or carefree.  There is no silver bullet to fix all our economic woes.  In fact, many organizations and individuals will be forced to deal with the de-leveraging process for years to come.  Our governments can only do so much and it scares me to think of the growing deficits around the globe.  At the same time, everything seems to move faster in the Internet age, so just maybe the recovery will quickly gain traction.  I predict that we are two years away from real recovery (significant job and economic growth) - but I would be happy to be wrong as long as it happens sooner.  What do you think?

“When [unpopular governments] appear in other countries, there are movements in which people express their anger and demand change.  But this doesn’t happen in Japan because the LDP has held power for so long that the people have abandoned the possibility of standing up.”  - Yukio Hatoyama, 2001

I just spent the last two weeks in Asia, first in Japan and then in South Korea.  When I arranged the business trip several weeks prior, it certainly didn’t occur to me that I would have the opportunity to experience first hand such a significant moment in the history of both countries - and especially in Japan.

As of this morning, Yukio Hatoyama’s Democratic Party of Japan (DYP) has taken control of the Lower House and is now the ruling party.  In case you don’t know, this is major news considering the more conservative Liberal Democratic Party (LDP) has ruled for over five decades!  When I was in Japan, most people I talked to seemed to already know what the outcome of the election would be - and by our standards were acting quite blase.  Of course it is unlikely that a Japanese person would show too much emotion to a foreigner such as myself.  Several did admit that they doubt the DPJ will make significant progress, but they also acknowledged the LDP must take credit for too many squandered opportunities.

It is interesting to note that Mr.  Hatoyama comes from a wealthy, accomplished family, and has an interesting background, but this will be his first significant leadership role.  Not unlike the Democrats in the U.S., the DPJ promises to restore the anemic economy.  The problem is - there are no easy solutions.  Along with record public debt (greater than U.S.), Japan has one of the world’s worst demographic problems.  The low birthrate will create an environment in the next several decades where there will only be two working people per each pensioner.  This, of course, is a completely unsustainable situation.  I believe many average Japanese people are aware of the problems and this largely explains why the overall mood is less than uplifting.

A short distance over the Korea Strait, conditions are not so good either.  South Korea’s exports fell for a tenth consecutive month as demand for the country’s cars, electronics and materials continued to slide.  However, as reported by Bloomberg, “A weaker currency has helped South Korean exporters perform better than their Asian neighbors during the deepest global recession since the Great Depression.  Exports in Japan fell 36.5% in July from a year earlier, compared to Korea’s 21.8% decrease.”  Clearly, as bad as the economy is compared to a couple of years ago, it could be worse…and the Koreans seem to be taking it in stride.  From what I could determine, they continue to act rather upbeat and I found it quite remarkable to hear the public cheers and exuberance when they finally managed to launch a satellite - even if it did overshoot its orbit and fail to function properly.  Maybe one of my business contacts put it best, “The South Koreans are considered the Irish of Asia for good reason - they always recognize opportunity and they will work tirelessly to create a better future for themselves.”

As a final comment, regardless of where I have travelled this year, everyone is hopeful that the U.S. economy recovers quickly and remains strong in the future.  This is probably such a universal theme because - for as the U.S. economy goes - so goes the world…or so it would seem.

“If America is circling the drain, Goldman Sachs has found a way to be that drain - an extremely unfortunate loophole in the system of Western democratic capitalism, which never forsaw that in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy.”  - Matt Taibbi

While many companies and individuals have been devastated and are only beginning to recognize encouraging economic signs, Goldman Sachs reported record 2nd-quarter earnings of $3.44 billion, or $4.93 a share, blowing away the analysts’ consensus forecast of $3.54 a share.  If you work for Goldman, you are probably feeling pretty good right now - at least about your compensation.  It is just possible that Goldman will come to regret achieving this remarkable profitability when the rest of the world is suffering.  It is as though they have suddenly reached the pinnacle and in the process they have drawn the wrath of the masses.  Many are suggesting that Goldman Sachs is playing with a stacked deck, and from what I have read I tend to agree.  But…I also recognize that most companies and individuals would gladly game the system (the way Goldman apparently does) if it meant they would enjoy the same remarkable success.

Let’s be honest - it’s easy to sit on the sidelines or from an unfavorable position and take potshots at Goldman.  We should really ask ourselves if we would actually slack up on our potential if we were in the same position.  I think the answer is no…we would not.  We would ride the wave until we could ride it no longer!  I only wonder if Gordon Gecko (Stanley Weiser’s brilliant character in Wall Street) was correct when he said, “…greed, for lack of a better word, is good…and greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the USA.”  The rest of the world is wondering too - and only time will tell…