Bonello and a world banking trail

The role of a central banker like our Michael Bonello has been pushed to imaginable heights, not only in his function of international banking representative of the government, but because it has become evident that the European Central Bank (ECB) has made him, for practical purposes, the ambassador of its policy.

During the past week, Bonello has been presented by Bloomberg as the European Central Bank's main spokesman on the European Union's stand on the gigantic credit crisis engulfing the US. This crisis cannot fail to mightily lap the shores of the European continent.

Before analysing his stand on the current crisis and what I believe to be his self-evident leadership in the ECB, I shall integrate his statements with the financial coup of Warren Buffet as regards Goldman Sachs, and with the words of Mark Mobius, the famous money magician. These refer to the advisability of investors seizing the present investment opportunities as they materialise. The seasoned observer of the world stock exchange scene notices a degree of regularity in share movements. These provide the easiest of investment opportunities.

In the current meltdown, there are in many cases, but by no means in all, an observable pattern. One of them is the behaviour of Barclays and HSBC shares. During the past three months, they have moved up and down within an easily identifiable range. They have provided a surefire money trading opportunity. As usual, money is made on the stock exchange when blood is on the streets, so to speak. Singapore-based Mobius built an enormous fortune by stock exchange speculation on emerging markets. Bloomberg has reported him saying that this financial crisis will probably be short and that it offers an enormous investment chance. Bloomberg has fished out Mobius because, in the current crisis, it is the words of money men who have demonstrated practical ability in making a fortune practically out of nothing, which count more than that of any other.

Bonello's optimism is founded on facts as they present themselves to the vigilant observer. In Malta, the cruise liner boom continues. The downturn in the world economy does not seem to be powerful enough to make people cut down on their holidays. Mobius has spoken about the opportunity which exists for serious investors in buying in companies which have come to appear outrageously undervalued. A recent example was Kazakhmys which recovered 40 per cent in just one day, not to mention Lloyds TSB and many others. The trouble is that few have the nerve of Buffet, who became America's richest man by being able to buy and sell the stock exchange at the right time.

Seeing the Bush administration's thawing of debt markets with his $700 billion injection, Buffet decided he could not miss his chance of further flattering his ego. In pleasing himself, Buffet gave a boost to Goldman's bank. This was done in the nick of time, when Wall Street was reeling from the unexpected collapse of Lehman Brothers.

Michael Holland, a well-known money manager on Wall Street, has said of Buffet's Goldman investment: "It's a vote of confidence which is gold-plated: you don't get better than this." Shares in Goldman rose 6.5 per cent following the announcement, while Standard and Poor's 500 futures gained 16 points.

There are snags in the $700 billionn for bank bailouts. George Soros would like to say that Treasury Secretary Henry Paulson's record certainly does not inspire the confidence necessary to give him discretion over $700 billion. Paulson is an ex-Goldman chairman and it used to be said that it ran the US economy. Now we all know that it does.

America can easily afford the Paulson (Keynesian) injection. Its public debt ratio is only 65 per cent, Japan has 95 per cent, and Italy 100 per cent. Economist Ambrose Evans Pritchard of The Daily Telegraph stated with deep pessimism that the ECB would not - if required - be able to do what the dollar has done for US banks, as the euro is not backed by a treasury. It is well known that some great banks in Europe are living on borrowed time. Deutsche Bank has a leverage ratio over 50 and Barclays about 60.

AIG, the great US insurer, collapsed because its leverage was close to 30. (Leverage refers to the number of times a bank's capital is traded). The total liabilities of Barclays are equivalent to the GDP of the UK; while those of Deutsche Bank are more than 80 per cent of GDP of Germany.

Financial columnists Daniel Gross and Stefano Miconi have said in the Financial Times that the ECB is the only institution which can issue unlimited amounts of a global reserve currency, which is in this case the euro and not the dollar. If no Treasury backs the euro, it is backed by an economy which has no Iraq war to pay for.

Mr Azzopardi Vella, economic consultant with DBR Investments Ltd, has promoted the Malta Development Fund and advised S&P.

johnazzopardivella@hotmail.com