We may well see another dramatic weekend as the banking meltdown continues. It’s just a week since I wondered whether Citigroup might be the next bank to fail. It’s share price (already shredded) has halved again since then.
Now it seems on the verge of testing the nostrum that it’s ‘too big to rescue’. Felix Salmon wonders about a Goldman-Citi hookup, but thinks that nationalisation is the more likely option:
A Citi-Goldman merger would give Citigroup much more credible management, assuming that the Goldman guys took over most of the top jobs, and would give Goldman a much-needed deposit base, not to mention huge distribution capacity through Smith Barney. An enormous number of Citigroup investment bankers would surely lose their jobs, but that is probably going to happen anyway. Meanwhile, Goldman’s investment bankers would suddenly see their deal pipeline fill up with the job of selling off all the bits of Citi they had no interest in keeping.
Possibly more likely is the idea that Citigroup will be nationalized this weekend, with shareholders being wiped out. John Hempton today sketches out what might happen if bondholders got wiped out at the same time; I’m reasonably confident that in the wake of the Lehman debacle there’s no way that Hank Paulson would let that happen.
In any case, with Citi shares trading at less than $4 apiece, somethingneeds to be done. That’s one of the problems with having a public listing: everybody can see when you’re in distress, even if you stop displaying the stock price on the screens in your offices. The market is essentiallly forcing the board’s hand here — not to mention that of policymakers. Citi’s managed to muddle through this week. But my guess is that there will be some kind of major announcement over the weekend.
Update: Somali pirates in discussions to acquire Citigroup…
Update II: Cue inspirational music: “Ambitions never sleep. Aspirations never sleep. Goals never sleep. Hopes never sleep. Opportunities never sleep. The world never sleeps. That’s why we work around the world. That’s why we work around the clock. To turn dreams in realities. That’s why Citi never sleeps.” Insert your own snark here.
Blimey. I’ve written here before about the growing importance of security of supply concerns in agricultural trade, and the fact that some countries – notably China – are seeking to forge long term purchase agreements with third countries, or indeed to lease or buy land outright.
But the news that South Korea has just struck a 99 year deal with Madagascar to lease an area half the size of Belgium to grow palm oil and no less than half of South Korea’s corn demands, is arresting nonetheless. As Carl Atkin, one of the authors of the Bidwells report on competition for land at the start of the year, comments in the FT: “The project does not surprise me, as countries are looking to improve food security, but its size – it does surprise me.”
As with previous projects along the same lines, the big question is whether developing countries (and particularly their poor people) will really benefit from such projects. After initially making very enthusiastic noises about the potential for such projects to bring vital investment to bear, the World Bank and the FAO are now sounding a notably more cautious note about who benefits from them, as Javier Blas’s excellent in-depth piece on the trend a few months back noted.
In the case of South Korea’s project, it looks as though benefits for the poor may be very limited indeed: although fully half of Madagascar’s arable land is to be leased, the labour is to be shipped in from South Africa.
Update: unbelievably, it turns out that South Korea acquired the lease for free – see this later post for more.
In our paper on Bretton Woods II (pdf), Alex and I provide rather a gloomy assessment of financial crisis – which we suggest is going to last longer than many think…
Given that we now face what Gordon Brown has described as “the first truly global financial crisis of the modern world”, our bet would be that it takes as long as a decade to bring it fully under control.
Let’s unpack the assumptions behind our pessimism. We start from the premise that, six months back, experts were overly optimistic about how far-reaching the meltdown would be. This is based, in part, on April’s Progressive Governance summit, where heads of state were (a) clearly freaked out; (b) fairly sure they grasped the problem, if not the solutions; (c) not acting as if they expected any further big surprises.
Consider, too, what the IMF’s Dominique Strauss Kahn was saying at the time. He was as worried by inflation, as he was by economic slowdown. Although he was forecasting a “rather important, serious slowdown in economic growth” – the expected pain wasn’t really that bad:
Something around 0.5 percent as a rate of growth for the United States in 2008 and a slight recovery during 2009-an average of 0.6 percent for 2009, which is both linked to the financial turmoil, of course, but also the business cycle.
Next, we look at the lessons of earlier banking crises that, in developed countries, have tended to take four or five years to unravel, cost around 12% of GDP to resolve, and lead to a cumulative loss in output equal to almost a quarter of GDP. The figures are drawn from this useful chart prepared by PIMCO’s Michael Gomez:
Then add in what we know about the banking crisis that gripped Japan in the 1990s, which the IMF ascribes to “accelerated deregulation and deepening of capital markets without an appropriate adjustment in the regulatory framework”. Hiroshi Nakaso’s account is worth reading in full – seven years of crisis management and fire fighting as a senior manager at the Bank of Japan.
“When the bubble burst in the early 1990s, no one expected it was going to usher in such a prolonged period of weak growth in Japan,” he writes. Policy makers underestimated the seriousness of the problem, while banks lacked the ‘foresight and courage’ to confront their predicament head on.
At the time there was considerable schadenfreude in the West about Japan’s failure to get to grips with its crisis. It was eight years or so before its policy makers even found the levers that would begin to inch the crisis towards a solution. Are we right to assume that we’ll now do better? (more…)
– The summit is unlikely to be able to live up to its billing. Leaders do not yet understand the nature of the problem well enough to be able to implement viable solutions. However, the problem is more fundamental than a simple lack of shared awareness.
– History suggests that leaders will only think the unthinkable on institutional reform once the challenge they face has really hit rock bottom. But history also suggests that we are wrong to think that the worst of the crisis is now past, given that many past banking crises have taken five years or more to unravel.
– Bretton Woods 1 looked across the whole international economic waterfront in 1944, while this weekend’s summit will be much more narrowly focused. Leaders will make a big mistake if they try and tackle finance in isolation, given the growing impact of resource scarcity, and that 2009 is supposed to see another ambitious global deal – on climate.
– We need to recalibrate what we expect from globalization through a serious debate about subsidiarity. Where has globalization gone too far, too fast? Where do we need more integration at a global level? These were exactly the questions that preoccupied Keynes in 1933, when he weighed the relative benefits of global versus local across a range of variables. We need a similar debate today as a precursor to serious international economic reform.
– Leaders need to extend their horizons in (at least) five directions: onto longer time scales; beyond financial regulation into wider resource scarcity challenges; into other international processes, especially climate; towards grand bargains with emerging powers; and beyond government, to non-governmental networks.
Full version after the jump, or better yet here’s the pdf.
How many malaria cases does Nigeria have every year? And how many deaths? You would think the obvious place to find out would be the World Health Organisation’s website, which has a whole section dedicated to the Roll Back Malaria Program. What you are met with when you get there, however, is a blizzard of different numbers. The Nigeria Country Profile in the 2005 World Malaria Report says there were 2.6 million reported malaria cases in 2003, a similar figure to the previous three years (in a country where malaria is endemic you’d expect incidence to remain roughly similar year on year). Sounds OK so far then. Despite nearly half of those infected being aged under 5, however (and therefore, you would think, weak and at high risk of death from such a dangerous disease), there were only 5,343 reported malaria deaths in 2003.
Perhaps Nigerian children are unusually robust, and therefore better equipped than kids in other countries to fend off a disease that (reportedly) kills hundreds of thousands of their peers each year worldwide. Alas, probably not, or at least not according to data posted elsewhere on the WHO site. The “country info” on Nigeria claims that there were 5.3 million reported malaria cases in Nigeria in 2007 – double the number four years earlier, and 10,000 reported deaths. OK, maybe an extra battalion or two of foreign mosquitoes has been called in by their fully sated Nigerian cousins to join in the bloodfest, or maybe reporting has improved or become more sensitive (not the same thing) over the past four years.
But then, on the same page, we are told that malaria accounts for “approximately 300,000 annual deaths.” So not the 10,000 “reported” deaths a few inches down the page, nor the 5,000 reported in the country profile, but 300,000. You might think the difference lies in the low figures being “reported” and the high ones extrapolated, but on closer inspection, the 5.2m cases in 2007 are described as “probable and confirmed”, and the 2.6m in 2003 “probable or clinically diagnosed.” Can’t tell the difference? Nor me.
Even if it is extrapolated, WHO has guessed that 10,000 reported deaths means 300,000 actual deaths – a thirtyfold difference. But if you do the same multiplication for the number of cases, you’d get 159 million cases – more than one bout of malaria per Nigerian per year, and nearly 50 million more even than the government (which is seeking aid to fight the disease so has an interest in inflating the numbers) claims on the World Bank website. It’s also almost triple the estimate of annual malaria cases in – wait for it – WHO’s latest country profile, released in 2008, which puts the number of cases at 57m and the number of deaths at, er, 225,000.
After all this, needless to say, I am no nearer to answering my two initial questions.
Update: It’s not just on malaria that the data are shaky, of course. David railed at even worse incompetence by UNAIDS a year ago.
