Angels and devils
What just happened? That's the question Washington's Financial Crisis Inquiry Commission (FCIC) will be seeking to answer as it collects testimony from the experts and the protagonists in America's spectacular economic meltdown – a year-long process that kicked off this week.
The opening session featured some of the GFC's top villains – Goldman Sachs CEO Lloyd Blankfein, JPMorgan Chase CEO Jamie Dimon, Bank of America CEO Brian Moynihan and Morgan Stanley Chairman John Mack – and was long on statements of general understanding ("We understand the anger felt by many citizens.” – Moynihan; "We did make mistakes and there were things we could have done better." – Dimon; "Whatever we did, it didn't work out well." – Blankfein), but short on actual apologies.
Commission chairman, Phil Angelides – the US Democrat and former California State Treasurer who ran (and lost) against Arnie for governor – came out with his dukes up, comparing Blankfein to a used car salesman ("selling a car with faulty brakes and then buying an insurance policy" on it) and comparing the market meltdown to an Agatha Christie murder mystery: "maybe this is like Murder on the Orient Express – everybody did it."
Blankfein, meanwhile, continued his tradition of inappropriately referring to higher powers, when he compared the market meltdown to being hit by a series of hurricanes. Angelides, who obviously doesn't appreciate Lloyd's poetical manner, had this response: "Mr Blankfein, I want to say this. Having sat on the board of the California Earthquake Authority, acts of God will be exempt. These were acts of men and women." .
But according to The Business Insider's John Carney, Angelides just doesn't get it. While "there’s a sliver of plausibility to Angelides view," says Carney, "[it] cracks in the presence of thought. A structured credit product – whether its as simple as a mortgage backed security or a complex CDO – is not necessary flawed if it produces losses. Even enormous losses. Indeed, it might be perfectly well-designed but still deliver the buyers losses."
Angelides, he continues, "just has too much of a paternalistic world view to understand that it is possible to sell a financial product without believing the buyer’s rationale for buying it... As long as Goldman wasn’t lying to clients or over-hyping the financial products – and so far, no one has shown any evidence of this – there’s nothing really wrong with what Goldman was doing."
And then there's the testimony that Alphaville's Paul Murphy thinks the FCIC should be hearing, from veteran Wall Street analyst Harley Bassman, who compares bankers to serial killers... in a good way:
"Everybody acts rationally from their own point of view... [Asked] why he did it... the psychotic [serial] killer calmly replies: 'The voices told me to do it, what would you have done?' When professional investors were liquidating senior bank loans, short-maturity high grade credits and convertible bonds at silly prices, it was never a vote on the credit worthiness of the issuer; it was a panic driven effort to keep their jobs... So the answer to the question of how to avoid a repeat of the recent past is not to ask people to act against their nature but rather to create a set of rules where the participants improve their lot by reaching for the proper carrot." Indeed.
The other, other casualty of the GFC has, of course, been marriage, with more than a few high profile corporate couples losing that loving feeling and, more often than not, a great deal of money along with it. As they seek solace via the courts, Judge Judy-style, the theme tends to be – as with the FCIC – the apportioning of blame for lost fortunes; a fact which, however incorrectly, makes for fascinating spectator sport.
Locally, WA property tycoon Warren Anderson made headlines this week, in court defending claims he pushed his estranged wife, Cheryl, across the room when she returned to their house to collect some "personal belongings". The trouble is said to have started when Anderson accused his ex-wife of stealing a computer containing information about his collapsed fuel-pill technology company, Firepower. He has also accused her of taking glass and ivory ware worth $160,000. One needs to eat, after all.
In Brisbane, Le Neve Groves who, with her former husband Eddy Groves, founded the ABC Learning Centres empire before it went into receivership with $1 billion in debts – is suing Eddy for $44.2 million alleging her signatures were forged on documents used to guarantee margin loans. Eddy, who is clearly the more sentimental of the pair, recently revealed he wants elements of the lawsuit transferred to the Family Court and is also pitching for mediation. Le Neve, for her part, seems to have her litigious groove on – she's also suing Citigroup, BT Securities and Citi Singapore, claiming they "unjustly enriched" themselves at her expense, selling millions of her ABC Learning shares without permission.
Then there's the fascinating American case involving SAC Capital Advisors founder, Steven Cohen. Cohen's ex filed, then dropped, and is reportedly re-filing a case against her estranged husband claiming "a continuing pattern of racketeering activity". Reports BusinessWeek: "Patricia Cohen, who separated from Steven Cohen in 1988, claimed in her lawsuit that her ex-husband and SAC Capital hid assets from her and the New York state courts during their divorce proceedings and that they filed false court documents and engaged in insider trading." Lawyers for Steven Cohen have called the suit "frivolous" – frivolity being something their client seems to know a bit about. But Patricia, who has taken on new counsel, seems undeterred. You can see an excerpt from the fascinating/frivolous insider-trading part of the lawsuit at WSJ's Deal Journal.
But the doyenne of divorce dealings must, surely, be Manhattan billionaire Ron Perelman, who has been engaged in some seriously unsavoury battles with three of his four ex-wives, on-and-off for years. Most recently he was ordered to pay upwards of $4 million to a film development company he co-founded with ex-wife number four, Ellen Barkin. As Gawker tells it, the "corporate raider and 18th-richest person in the [US] Perelman met actress Barkin at the Vanity Fair Oscar party in 1999. They married in 2000, and promptly began fighting all of the time." Divorcing in 2007, Barkin sued when Perelman reneged on his promise to fund the production company Barkin was starting with her brother – an aspiring screenwriter. According to Reuters, Perelman counter-sued, also in 2007, "saying Barkin used the company to settle a personal score and to employ her brother, a former editor of High Times magazine."
Everything is aluminated
The continuing saga of Russian aluminium mining giant Rusal's mission to float on the Hong Kong stock exchange is interesting for various reasons. As The Economist pointed out last week, the heavily indebted and slightly desperate company has taken the unusual step of repeatedly warning potential investors that they could lose everything should they take the plunge in the IPO, which opened this week. "It also admits that the firm does not meet the profit test for listing on the Hong Kong stock exchange," says The Economist.
Also interesting is the fact that Hong Kong is, apparently, not bothered by this, waiving its normal requirement that listed companies maintain a 25 per cent free float. "The bourse is making a vigorous play for foreign listings from companies outside China, the source of its recent success but a stamping-ground that may soon be lost to resurgent local exchanges in Shenzhen and Shanghai," says The Economist.
And while there's plenty not to like about Rusal, there is also plenty to like, says FT's Lex. "The world’s biggest producer of aluminium and alumina also owns more than a quarter of Norilsk Nickel, the world’s largest nickel and palladium producer, giving it a leg-up in its quest to become, over time, the Russian BHP Billiton. Its cheap Siberian smelters, running on hydro power rather than coal, give it the best operating margins in the industry."
But if it's endorsements you're after, look no further than Hong Kong's richest man – and its answer to Warren Buffett – Li Ka-shing, whose company Cheung Kong Holdings has put in for $US100 million of shares in Rusal. Also getting in on the action are Nathaniel Rothschild’s private investment vehicle and Wall Street's current King Midas, John Paulson, via his hedge fund Paulson & Co, both of whom are matching Cheung Kong's pledge to buy $100 million worth of shares.
Hong Kong tycoon Robert Kuok has also pledged to buy $20 million-worth of shares. And Russian state bank Vnesheconombank – Rusal’s largest creditor, chaired by Vlad Putin – has agreed to subscribe to 477 million shares, or 30 per cent of the offering.
So, it's looking like this most unlikely of IPO's is not so unlikely after all. Indeed, at last check, those ubiquitous 'people familiar with matter' have said that it is fully subscribed. Which is good news for Rusal, good news for Hong Kong and great news for Clive Palmer.