Malta can recover its paper losses

As expected, UBS has expressed interest in its Malta connection by making friendly noises by e-mail regarding my article last Sunday on Bloomberg's exposure of its financial situation.

An investment bank like UBS is soon punished for its errors, as clients withdraw their money. What can an individual do against the power of the state? The National Bank of Malta lawsuit is well over 30 years old. It is blocking the privatisation of Bank of Valletta which the MSE badly needs for vigorous trading on the stock exchange. There can be no stock exchange without bank shares, whether in Malta or abroad.

Two banks which the Maltese know extremely well are Barclays and HSBC. When Lehman Bros was in trouble, Barclays saw a opportunity and snatched it up. It was worth it. According to Fortune, Barclays now has problems of its own. Its leverage ratio is 60, while that of HSBC is a mere 19. It is no wonder that HSBC has been leading the pack in every world stock exchange revival these days, while Barclays is spoken of by Bloomberg as having bought 32 stories of Lehman Bank anxiety on Wall Street. A Rothschild connection has penetrated Wall Street. Goldman Sachs is now king of world investment banking, but it had better take note.

Le Figaro wrote a powerful editorial about the world capitalist economies in December 2006. The Observer made the same point last Sunday. The difference between the Andrew Rawnsley article and Le Figaro's statements is that it contained an element of econometric knowledge, which though it sounded simple in its final conclusion, can only be computed and interpreted thoroughly by a mathematical economist. The public cannot master money supply figures in a few minutes.

Rawnsley wrote: "This side of the Atlantic, Tony Blair and Gordon Brown took a short spoon to supper with the devil. He seemed such a seductive fellow when the financial sector was growing four times as fast as the rest of the economy." Bankers are now running to the state for help and have become miserable supplicants to those very politicians who had caused the trouble in the first place.

Those money men, whether brokers, bankers or just rich, who knew enough economics to realise that the sword of Damocles was hanging on the world economy during these last 18 months, have made money by selling short (that is selling to buy later at a cheaper price). These people are buying now that the market has fallen to disastrous levels. The biggest harm has been made by derivatives. Warren Buffett, the most successful investor in the US, has called derivatives 'weapons of mass destruction'. He has been amply vindicated because one of most obvious causes of this crash has been that US bankers had gone 'derivatives mad'.

Financial Times veteran journalist John Plender had long been campaigning against malfeasance in the City. In his book The Square Mile, he speaks of Arab money being diverted into South America in 1973, and not even being monitored. So people are completely wrong when they say there has been nothing like this crisis. It is an almost exact replica of what happened 80 years ago in the Great Depression; the difference is that since then the science of economics has advanced prodigiously.

All the world is now capitalist-oriented, whether it is the extreme liberal brand of capitalism on Wall Street or the unabashed state capitalism of supposedly communist China, which has accumulated trillions of dollars in foreign reserves.

In the great surge forward of the world economy in the last decade, a massive dose of 'hubris' was generated, especially in the banker class - but not only. 'Hubris' is a keyword in these last events; another is 'leverage', which is a neologism coined on Wall Street that is rapidly acquiring multiple meanings. It by no means refers only to the debt of a bank or company.

The present world financial turmoil has more of a psychological than an economic dimension. A collective flurry of 'hubris' seems to have seized the minds of bankers in key financial world centres, and while the investments of lesser mortals are having the worst of times, those of Buffett-types are enjoying the best of times. Buffett made a profit of $647 million within 24 hours of buying $5 billion of Goldman Sachs stock.

What Buffett did in a big way with Goldman Sachs, Maltese investors can now do with our ridiculously undervalued stock exchange, or possibly with the Barclays and HSBC they know so well. A great bank which has now a significant British connection is Santander, under the direction of the redoubtable Bontin Financial Group, a bank destined for honour.

Maltese who would like to recoup their present paper losses must devote some time to the study of the economics of bank shares. It is they who will be leading any stock exchange recovery. Present losses are paper losses, for those who can afford to ride out this storm.

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

johnazzopardivella@hotmail.com