Financial stories of the unexpected
The turmoil in the financial sector has thrown up some striking revelations. In particular those made in the United States, where it all started with the amazingly bad loans made by American institutions to borrowers who, in serious circumstances,...
The turmoil in the financial sector has thrown up some striking revelations. In particular those made in the United States, where it all started with the amazingly bad loans made by American institutions to borrowers who, in serious circumstances, would not have been allowed to step on the doorstep of those institutions, let alone walk out with loans which any junior bank clerk knew they would not be able to service.
These loans were then packaged into securities, presented to credit rating agencies that did not really analyse them and did not hesitate to give them a high investment grade rating, and offloaded to other financial institutions. In turn these held part of those securities in their own asset portfolios, and sold a good chunk of them to unsuspecting institutional and individual investors.
The charade took place because of greed at every turn of the game. In particular it took place because regulation of financial institutions in the US had grown lax. Alan Greenspan, the former chairman of the US Federal Reserve Bank, was forced to beat his breast and admit that he had been wrong to attribute to the financial institutions he should have overseen far more tightly a high degree to which they could regulate themselves.
When greed takes over, nothing can be taken for granted and nothing can be excluded. The number of first class names which, it turned out, had amassed unbelievable amounts of what came to be known as sub-prime securities was incredible. It led to a number of governments which abhorred state interference to conclude that the only way to stave off a far deeper disaster was for state institutions to put up astounding sums of money to bail out institutions in distress.
Failure to do this in the case of Lehman Brothers and the resulting horrific ripple effect was the spur which governments could not help but feel. They acted, at times independently, at others in a concerted fashion, but in a manner that may not have been timely enough, as the financial crisis accentuated the problems that had already been arising in the real global economy, as recession reared its vicious head, sparking a rush to another evil - deflation.
No country has proved immune from the effects of the collapse in confidence and asset values. Not even Switzerland, long recognised as the foremost financial centre managing trillions of dollars, Swiss francs and euro of assets. Recognised also as the ultimate safe haven in times of trouble.
A fortnight ago the Swiss Pension Funds reported a fall of 6.9 per cent in the value of their investments during the third quarter of the year. The President of the Swiss Association of Pension Funds said that their position now was the worst since 1985 but all would be able to pay out the same moneys at least in the short and medium term. Meanwhile, the pensioners' lobby asked the Swiss Federal Prosecutor to charge the directors of UBS, one of the two leading Swiss banks, with criminal negligence.
At the same time, it has been revealed that UBS and Credit Suisse (the other leading Swiss bank) have been donating 500,000 francs annually to the far-right political party, the SVP. They have also been donating to other right-wing parties.
In Switzerland there was doubt whether their federal government was more concerned with a frontal attack which the German finance minister has launched against the country as a tax haven. The minister was reported to have called the attitude of the Swiss government and banks criminal. The Swiss government was terribly offended and called in the German ambassador to register a formal protest.
There was a prologue to this. Some months ago German sources revealed that they had bribed a Swiss bank official and obtained details of several German citizens with secret accounts in Switzerland. They said at the time that they had cracked the Swiss banking secrecy. They hadn't. Swiss elements say that, so far, the only group to have succeeded in doing that were the Jews. When they brought a class action against UBS in New York, they bribed a night security guard and turned him into a star witness. They then got him a green card and shipped him to the States.
Switzerland was hit by other reports which may turn out to be more damaging to the country's reputation as a safe haven for private assets deployment. The report claimed to make an earth-shattering revelation. It said that Swiss banks use the Swift network SWIFT (Society for Worldwide International Financial Transactions) to effect transfers between themselves within Switzerland. The Swift database is stored partly in Belgium and partly in the US. The revelation was that the data base was accessible to the US Central Intelligence Agency.
The Swiss media immediately began asking whether Swiss banking secrecy wasn't really only a show. But it may be that Switzerland is not the only country tainted by these allegations. The Swift is used by thousands of banks the world over. Leading American newspapers reported the names of scores of alleged American tax evaders with accounts with UBS which were allegedly passed on to the US government.
Amazingly, leading Swiss authorities confirmed the report, but hours later the Swiss government officially denied everything. All this has cast a cloud on the Swiss banking system which was not eased by much when the head of UBS agreed to reduce bonuses in future.
These developments and allegations in Switzerland, in the context of the global financial crisis, will be of interest to various individuals who reportedly parked undeclared assets with institutions in that country. They also further highlight the fact that Malta's efforts to become a financial centre of repute have been well structured and have managed to prevent the island from being buffeted and tainted like even leading centres have been.
These loans were then packaged into securities, presented to credit rating agencies that did not really analyse them and did not hesitate to give them a high investment grade rating, and offloaded to other financial institutions. In turn these held part of those securities in their own asset portfolios, and sold a good chunk of them to unsuspecting institutional and individual investors.
The charade took place because of greed at every turn of the game. In particular it took place because regulation of financial institutions in the US had grown lax. Alan Greenspan, the former chairman of the US Federal Reserve Bank, was forced to beat his breast and admit that he had been wrong to attribute to the financial institutions he should have overseen far more tightly a high degree to which they could regulate themselves.
When greed takes over, nothing can be taken for granted and nothing can be excluded. The number of first class names which, it turned out, had amassed unbelievable amounts of what came to be known as sub-prime securities was incredible. It led to a number of governments which abhorred state interference to conclude that the only way to stave off a far deeper disaster was for state institutions to put up astounding sums of money to bail out institutions in distress.
Failure to do this in the case of Lehman Brothers and the resulting horrific ripple effect was the spur which governments could not help but feel. They acted, at times independently, at others in a concerted fashion, but in a manner that may not have been timely enough, as the financial crisis accentuated the problems that had already been arising in the real global economy, as recession reared its vicious head, sparking a rush to another evil - deflation.
No country has proved immune from the effects of the collapse in confidence and asset values. Not even Switzerland, long recognised as the foremost financial centre managing trillions of dollars, Swiss francs and euro of assets. Recognised also as the ultimate safe haven in times of trouble.
A fortnight ago the Swiss Pension Funds reported a fall of 6.9 per cent in the value of their investments during the third quarter of the year. The President of the Swiss Association of Pension Funds said that their position now was the worst since 1985 but all would be able to pay out the same moneys at least in the short and medium term. Meanwhile, the pensioners' lobby asked the Swiss Federal Prosecutor to charge the directors of UBS, one of the two leading Swiss banks, with criminal negligence.
At the same time, it has been revealed that UBS and Credit Suisse (the other leading Swiss bank) have been donating 500,000 francs annually to the far-right political party, the SVP. They have also been donating to other right-wing parties.
In Switzerland there was doubt whether their federal government was more concerned with a frontal attack which the German finance minister has launched against the country as a tax haven. The minister was reported to have called the attitude of the Swiss government and banks criminal. The Swiss government was terribly offended and called in the German ambassador to register a formal protest.
There was a prologue to this. Some months ago German sources revealed that they had bribed a Swiss bank official and obtained details of several German citizens with secret accounts in Switzerland. They said at the time that they had cracked the Swiss banking secrecy. They hadn't. Swiss elements say that, so far, the only group to have succeeded in doing that were the Jews. When they brought a class action against UBS in New York, they bribed a night security guard and turned him into a star witness. They then got him a green card and shipped him to the States.
Switzerland was hit by other reports which may turn out to be more damaging to the country's reputation as a safe haven for private assets deployment. The report claimed to make an earth-shattering revelation. It said that Swiss banks use the Swift network SWIFT (Society for Worldwide International Financial Transactions) to effect transfers between themselves within Switzerland. The Swift database is stored partly in Belgium and partly in the US. The revelation was that the data base was accessible to the US Central Intelligence Agency.
The Swiss media immediately began asking whether Swiss banking secrecy wasn't really only a show. But it may be that Switzerland is not the only country tainted by these allegations. The Swift is used by thousands of banks the world over. Leading American newspapers reported the names of scores of alleged American tax evaders with accounts with UBS which were allegedly passed on to the US government.
Amazingly, leading Swiss authorities confirmed the report, but hours later the Swiss government officially denied everything. All this has cast a cloud on the Swiss banking system which was not eased by much when the head of UBS agreed to reduce bonuses in future.
These developments and allegations in Switzerland, in the context of the global financial crisis, will be of interest to various individuals who reportedly parked undeclared assets with institutions in that country. They also further highlight the fact that Malta's efforts to become a financial centre of repute have been well structured and have managed to prevent the island from being buffeted and tainted like even leading centres have been.