Thursday, 20 September 2018

On Lagarde, Cretans and the logic of FIFA

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  • Peters 475px June 2014
  • Christine Lagarde

Peters caps the week with a global spin on Greece, China, the Fed and football.

Did she or didn’t she say it? The FT this morning quotes Christine Lagarde, Managing Director of the IMF, as having told the Frankfurter Allgemeine Zeitung (FAZ) that a Grexit is perfectly within the realm of the possible but that she does not see that as necessarily spelling the end of the euro.

The FAZ, on the other hand, has now declared that it was a misquote and it, itself, is not publishing such a statement. Where there is smoke there is fire and sending copies of the transcript of the interview around the world, but can I, especially in the age of online editing and redacting, believe anything I read?

What is not in dispute, though, is that the IMF has given the Greeks three weeks of grace on their June 5th payment and it has also permitted them to bundle other payments due over the coming weeks to the same later date. I was touched yesterday when a member of the professional press corps thanked me for having listed Greece’s brewing repayments schedule in Wednesday’s column which I shall, for those who might have missed it, repeat:

“… needs to find €310 million to pay to the IMF on June 5th with a further €348 million due to the IMF on June 12th, €581 million on June 16th and €348 million on June 19th. On June 30th, the four month extension of the bailout package expires and Athens has yet to present anything approaching a credible programme for fiscal reforms. I could go on but the big hurdle, should it survive that long without defaulting, comes on July 20th when it faces a redemption of €3.5bn of government bonds plus a mere snip of €130 million of interest on the redemption as well as interest payments on a number of other outstanding bond issues. That is, of course, not until after July 13th when it should have already paid out €465 million to the IMF.”

The payments haven’t changed since then and, as far as I can tell, other than Yanis Varoufakis, nobody seems to think that any further, meaningful progress has been made towards an agreed settlement. All we know now is that if Greece is to default, it won’t be next Friday.

The extension, offered by the IMF and not requested by Greece, pushed the repayments closer to the expiry of the extension of the comprehensive bail-out package which means that the IMF would not be perceived to have borne sole responsibility for pushing Athens over the edge, should it end up floating, belly-up, in the Aegean Sea.

Doesn’t Aegeus, Theseus and Cape Sunion spring to mind? Who do we cast as the Cretans? Mutti Merkel as Minos, King of Crete, and Wolfgang Schaeuble as the Minotaur? So much material for the imaginative mind….

Chinese correction

Meanwhile, after their sharp drop yesterday, Chinese equity markets have stabilised. My thanks to my old chum Marcus Ashcroft of BESI for putting me right. I yesterday connected the massive correction in stock prices to the PBOC’s draining activity in the money markets. I had myself noted that the brokers had also tightened margin requirements and had assumed that the latter was a function of the former.

Marcus corrected me in that the margin adjustments had been announced long before the monetary authorities had undertaken their intervention. Although both were surely aimed at tightening short term lending conditions and checking the rampant bull run on the exchanges, they were entirely separate actions. Markets dropped further on the open today but they have since recovered.

Just to add some context to the story, the Shenzhen index of mid-caps traded at just a few points above 1,000 points on April 28 last year. That’s 13 months ago. By year end it was at 1,450 points. On Wednesday of this week, just two days ago, it hit the high close of 2,918 points. Before it turned yesterday, it hit 2,967 points in intraday trading. After the “rout”, it is now at 2,781 points. In the greater scheme, the 6½% fall yesterday is nothing but a blip and the index is still up by 97%, year-to-date.

Fed fissures

Back to the US where the public debate is still being led by members of the FOMC, both voting and non-voting. Narayana Kocherlakota, chief dove and head of the Minneapolis Fed is still militating against an early rate hike and yesterday called for three years of jobs growth before the easy money policy ought to be reversed. He is not a voting member and his view is beginning to sound lonely. James Bullard of St Louis, also a non-voter but of the middle of the road group, is far closer to favouring early tightening, not least of all because of the risk he sees of an asset price bubble forming.

If the key cause of the great Global Financial Crisis was Alan Greenspan’s fatal error of keeping rates too low for too long, how can the current FOMC risk making the same mistake. Simply removing risk from the banks’ balance sheets has not made it go away.

It is still out there, somewhere. It might be less leveraged and less repackaged than it was in 2007/2008 but it is also now held largely out of the sphere of influence of the central banks. The ongoing disintermediation process has not yet, one might contend, been accounted for in the regulatory framework. Celebrating the lower risk run by the banks and only be accompanied by the sound of one hand clapping.

Sepp, tick

Finally, to FIFA. Do we shine a light on Sepp Blatter and point to all the bank chairmen who either fell on their swords or had them thrust through their torsos in the aftermath of the banking crash, or do we give him the benefit of the doubt and compare him to Jamie Dimon of JP Morgan who has been Chairman, President and CEO since 2006 (and who has survived every and any scandal and every twist and turn which has hit the happy house of Morgan).

I laid a bet this time last year that Dimon would be spending more time with his family by Christmas. I could not have been more wrong and “Chapeau!” not only to him but also to all of my chums who thought I was barking up a tree that wasn’t there.

The vilification of Blatter by the Europeans and the Americans along with their near certain failure to unseat him in today’s presidential poll speaks for him and against them. Standards of behaviour and ethics are, in other parts of the world, not the same as those we assume to be right. They are not better, they are not worse, they are just very different.

The West must learn to live with non-binary ethical measures. Blatter, like him or loathe him, has learnt to play to the whole audience and not only to one section which thinks itself to hold the sole code of acceptable conduct.

The West’s failed interventions on Afghanistan, Iraq and Libya as well as its stuttering isolation of Russia, speak volumes and, in some respects, its failure to capture the hearts and minds (and some may say bank accounts) of the rest of the FIFA members falls into the same category. In fact, I wonder whether Blatter’s re-election might not be carried by some votes which are cast in his favour simply as a Romanian peace sign to the West?

In a nutshell, I think bankers should be the last in line when it comes to criticising Blatter’s dubious ethical positioning and subsequent refusal to accept that it is at his desk that the buck stops.


Alas, it is that time of the week again. All that remains is for me to wish you and yours a happy and peaceful week-end.

We are coming to the end of the first week of the French Open and I am still sitting here in a jumper and with the heating on. The forecast is for cold and rain through the week-end. Thus, please let me suggest that you take the barbecue charcoal back to the shop and maybe trade it for some meths for the fondue set.

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