2008 – III

September came and went, and the world would be shaken up to a stake of hype and anxiety that hadn’t been seem for some 80 years. It’s a huge month for the world, and will be the whole of this post. Above all, the world financial crisis contributed to this, but for a few days the prospect of a gun-toting (again) Republican VP had people sitting up and alert. America was the centre of attention for this month, and probably deserved to be. That’s not to say nothing else happened around the world. A lot of people thought that we’d be sucked into a man-made black hole when the Large Hadron Collider was turned on. Instead, nothing happened, then it broke – meaning even more expenditure on the machine beyond the €6.4 billion already spent on the machine.

It was a bad month for political leaders: Prime Minister of Japan Yasuo Fukuda is pressured to resign, and The Diet of Japan (their bicameral legislature) elects Taro Aso to the post; after Thailand’s PM Samak Sundaravej declares a state of emergency for the city of Bangkok, the Constitutional Court orders that he stand down for getting paid to appear on … a cooking show, all kick starting the political troubles that would stretch into 2009, and; President of South Africa Thabo Mbeki is forced to resign after taking a phone call from the African National Congress (a no-no in that country), with Kgalema Motlanthe being elected by the National Assembly. That only one of these countries fell into serious problems is probably some testament to the other two’s population, and their restraint.

There was false hope given to the world on this front too. “President” Robert Mugabe and opposition leaders Morgan Tsvangirai and Arthur Mutambara sign a power-sharing deal after weeks and weeks of negotiating, and months and months after the first election that was split by a hair’s bredth of a percent (even in teh face of a corrupt government doing what they do best). Tsvangirai would become the new Prime Minister of Zimbabwe. It was false hope in that we thought maybe a step in the right direction had happened in Zimbabwe – it hadn’t. It’s still a mess, and the arrangement wouldn’t work.

True hope came when Asif Ali Zardari was elected the President of Pakistan – finally bringing an end to the rule of Pervez Musharraf. The country would have a long path the recovery, and they haven’t got there yet, but it was probably the country’s most promising sign.

On the final frontier, China had a man spacewalk from their shuttle the Shenzhou 7, and in doing so became only the third country to ever do this. Little fanfare was given to this, much to my disappointment. When the US and Russia were battling it out for space, that was all that dominated the news for a decade. Now there’s a third country acquiring space technology and no one made a big thing about it. Perhaps one of the under-reported news stories of the year. Also to do with space, the SpaceX Falcon 1 became the world’s first privately developed space vehicle to make it into orbit.

The month, for me, was quite a down one. I had a falling out with Diana from New York, I had a falling out with another friend, and I had problems with that girl. While only trivial to look back on, they really did drag me down because I let them. I would sort the first two out before the end of the month, but, in a repeated trend, the third problem didn’t go away. I really hit a low in the month, which wasn’t helped by my lack of free time to catch up with my other friends. To cheer myself up, I brought a laptop – and can’t imagine a time when I didn’t have it. Spending big, I brought a pretty whiz-bang one, and introduced myself to the world of Blu-Ray movies. I find it difficult to watch regular DVDs now – the quality on Blu-Ray is unbelievable. I also started to think about where I might holiday to next year … but  that thinking quickly died in the month too.

I had to balance work, which I was getting an increase in rostered hours, and placement at a special needs school. I had to do 20 hours, which would amount to 5 Fridays on the trot, as part of my Special Education subject this semester. I wasn’t exactly looking forward to it because it would take up whole days where I could be working, doing university work, or catching my breath with a day off. However, I can honestly say that in doing these 20 hours I was made aware of a world totally different to anything I had imagined. I was introduced to some of the greatest people I might ever meet – both teachers at this special school and the students. I completed my hours and have put onto my table of future options a job at a special school. I found the job both demanding and satisfying – the sort of job I want. In as much as the holiday back in June/July changed my life, this placement changed the way I saw my future – it made it less definite, and opened up more options.

I’ll turn to Australian politics before the big two topics of the month. The Liberals, and Brendan Nelson in a last ditch effort to save his neck, introduced a Bill to raise the pension for Australian seniors. It failed in the end. Nelson then called a leadership election – and lost. Malcolm Turnbull, who had been performing better than Nelson in the polls, won. He kept Julie Bishop as his deputy, but shook up the shadow ministry. It looked promising – for a Liberal bench. It wasn’t long, however, before Turnbull began to lose his ground in the polls, and started to slip. It’s a long way to fall, as we would find out a couple of months later.

We had local council elections and state Labor’s incompetence in recent times meant that the ALP would suffer. They did, but probably not as bad as was expected. I guess it went to show that Australians only pay real attention to federal elections.

Ok, the big news for September: John McCain announced his vice presidential candidate. It was a huge surprise and gripped the media, in one form or another, from the announcement to well after the end of the election. Little know Sarah Palin, whose name had been floated around this blog as a dark-horse, was vaulted to national prominence as McCain’s choice. It wouldn’t take long before the leaks indicated that McCain wanted to pick Demcorat/Independent Joe Liebermann as his VP but the base had forced him to pick McCain. We waited to see how this would unfold.

Before we would find out, there was the Republican National Convention to get through. Four days was reduced to three as McCain cancelled the first one to allow Republican to go back to their homes to help in the wake of Hurricane Ike. This also meant that the unfortunate speeches by President George W. Bush, U.S. Vice-President Dick Cheney and Senator Joe Lieberman were canceled – probably to the relief of McCain and his campaign. They would all speak later on, but no one really cared by that point. The biggest speech to come out of the convention was from the little-know VP candidate. Palinhad to build herself an image, and she crafted it on that stage: a reformer and a fighter for change. I watched it and thought that someone had forgotten to give her the memo that Obama had campaigned on these two fronts, and won them from Clinton first and McCain second, for two years now. Then she moved onto her family. They had received a lot of media attention when news broke of Plain’s teenage daughter being pregnant. Not exactly the image of a pro-family party candidate. I felt that the family got treated unfairly, and certainly didn’t deserve the coverage that they got. But politics in America can get dirty, and that was always going to happen. She finished up attacking Obama for having (what Republicans called) no experience, but somehow defended her own lack of experience. We saw what we got: A cardboard cutout that had no been vetted, had not been prepared, and was waiting to be cut down by the media and Democrats alike. But we didn’t know how bad it would get then.

The remarkable difference that we all noticed between the Democratic convention and the Republican convention was that while the Democratic convention was aligned with Obama’s campaign message, hope and change, the Republican convention was all over the place, and no where near what McCain had been saying for the months he had the head-start, nor the month leading up to the convention season. The only common thread between everyone was that they attacked Obama: Lieberman said Obama isn’t ready to lead, Fred Thompson called Democrats elitist, attacked perceived right-wing liberal-media bias; Rudy Giuliani said Democrats and Obama are in denial on terrorism, called into question Obama’s judgment and experience with comments like “John [McCain] has been tested. Barack Obama has not. Tough times require strong leadership, and this is no time for on-the-job training” and “He’s the least-experienced candidate for President of the United States in at least the last 100 years”, and then inadvertently started off the critical analysis of Palin as VP with this: “One of the most successful governors in America—and the most popular… She already has more executive experience than the entire Democratic ticket”; Mike Huckabee appeared to be the most human of the lot when he commended Obama for winning nomination, but reverted back to mud politics when he hammered him for on experience and judgment in foreign policy, taking aim at his campaign of hope with “I don’t believe his preparation or his plans will lift America up”, and; Mitt Romney, who also took aim at Obama’s messages of hope and change with something that no one could really understand after an 8-year Republican presidency, and a 6-year Republican Senate, with “We need change all right. Change from a liberal Washington to a conservative Washington. We have a prescription for every American who wants change in Washington—throw out the big-government liberals and elect John McCain,”, while the good ‘doctor’ Romney continued with his prescriptions and diagnosis when he said that Obama “ducked and dodged” terrorism and Islamic extremism questions.

By the end of the conventions, you could see that we had polar opposite parties, and anyone who had been reading polling numbers, weighing up the race state-by-state, and gauging a feel for general sentiments knew that a negative campaign was the road to a defeat. I held on to an Obama win, and pegged it at a convincing 300 electoral vote total for Obama off this. Little did we all know what we were in for.

First presidential debate came at the end of September, and was won by Obama. It wasn’t all that great, not interesting. The highlights of the campaign would come with the campaigning proper, and how it played out in the media.

I wrote a little post about how Nebraska’s electoral college votes are distributed, and how history could be made if Obama split them and won won. I was the only person who floated the idea and stuck to it the whole election. Not even some of the best pundits out there thought it could happen. The election validate my hypothesis.

And one last bit of US political news: John McCain suspended his campaign to ‘save’ the US economy. He stopped campaigning, threatened to boycott the first debate, and flew back to Washington to take part in the rescue package negotiations that we will read about later. He failed, and failed miserably. Looking back now, this move was where he started  to go right down the hill in a bad way. His negative media attention through his Palin pick (which had started by now) turned to wider negative attention for McCain in general. He panicked, he rushed, and Obama prevailed with his cool and calm approach. The economic debate was won by Obama without even saying a word.

Ok, the final big story of September took up the headlines near enough to the start, and kept going into Octomber. The world financial crisis really started in 2007, but neglect and incompetence meant that it all came to ahead in this month. While I had heard word that AIG was in serious trouble, it came as a huge shock that the US government sponsored enterprises of Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation), were taken over by the Federal Housing Finance Agency – effectively, two of the biggest housing loan companies in the US were nationalised (a bad word in the US). This happened September 7.

One week later, on the 14th, Lehman Brothers, a 158-year old holding company, filed for Chapter 11 bankruptcy. This would be the largest bankruptcy in US history. If the stock market took a tumble after AIG, it really went to the melt with this one. The Dow Jones closed more than 500 points down on the day, a huge fall that people thought might be a one off, though further smaller falls were expected. They were very wrong.

Also on the 14th, Merrill Lynch was sold to the Bank of America. The merger of these two companies, and the negative outlay that Merrill Lynch had, saw further drops in market on Monday 15th and Wednesday 17th. What happened on the 16th? Well, that giant national insurer AIG, one of the largest stakeholders and participants in the credit default swaps markets, went into a liquidity crisis when its credit rating was downgraded. The AIG begged the government to help it out financially after it would find any lenders that would keep it from insolvency.  The Federal Reserve started up a credit line for the company to US$85 billion for an 79.9% equity interest in its operations, as well as the clause that it had the right to suspend dividends to previously issued common and preferred stock. AIG was nationalised then and there. On the 15th, the Reserve Bank of Australia injected nearly $1.5 billion into the financial system here to mute the affects from overseas changes. This was three times the amount that the industry needed, which significantly boosted investor confidence here, and helped keep the country calm. On the 17th, the RBA injected a further $3.45 billion.

For the first half of September, while the US stock markets were tumbling, the world was feeling the affects. After the 17th, as a result of pure profit gaining by investors, short selling of all financial stocks was suspended indefinitely by the Financial Services Authority in the UK, and then by the Securities and Exchange Commission in the United States. Australia would follow suit too by the end of the month. The Rudd government handled the problems it found in financial markets, I feel, very well. It didn’t panic and it didn’t go ballistic. The Opposition did both of these things, and that’s why the latest polls on the parties had the ALP at 59% favoured for government.

Americans might have though their government had gone to the extreme left when the Troubled Assets Relief Program (TARP) was introduced to Congress. In it was the outline that the United States government was allowed to purchase illiquid assets, called toxic assets, from financial institutions that were in trouble. It didn’t get too far before meeting opposition, but would later be part of the Emergency Economic Stabilization Act that would be passed by Congress.

With only two remaining investment banks, there was some stability returned to the market. The idea in free market economics that only the strong survive made people think that these two remaining companies, Goldman Sachs and Morgan Stanley, were safe as houses. Well, they might have been as safe as houses, but houses were no longer safe at all. On September 21, the two companies were approved by the Federal Reserve to convert to bank holding companies. Two effects of this change is that they are subject to much more government regulation (a bad thing for US investors prior to this disaster) and they now have readier access to capital from the government (an obvious sign of weakness – it’s what Fannie Mae, Freddie Mac, AIG, and Lehman Brothers all needed and did).  In an attempt to ensure confidence, on the same day, Treasury Secretary Henry Paulson changed his proposal in the TARP from excluding foreign banks to now include foreign financial institutions with a high presence in the US. A condition of this was that the US administration would pressure other countries to set up similar bailout plans as the US – especially if they were going to bail out their companies for them. Investors around the world panicked and the markets tumbled all week. Foreign investors helped to slow the slide on international markets with this news. But it wouldn’t hold the tumble back for much more than a few days.

September 25th was a strange day. Investors, and people in general, rejoiced when they heard that congressional leaders now agreed on the on the basics of the rescue package. however, general and vocal opposition to the proposal was voiced by the public. A meeting was held in DC on the same day, between the White House, congressional leaders and the presidential candidates, John McCain and Barack Obama (who didn’t have to suspend his campaign) and bad news leaked: there was no congressional consensus. Republicans would not be voting for the package, and the ranking member of the Senate Banking Committee, Richard C. Shelby, strongly opposing the proposal. The markets suffered. News broke, and investors panicked and sold.

Just when you thought there weren’t any more companies left to go belly-up, Washington Mutual, the US’ largest savings and loan company, was taken over by the  Federal Deposit Insurance Corporation. The FDIC transferred most of its assets to JPMorgan Chase (a company that had handled most of the other bankruptcy cases in this crisis). Then in the same week, Wachovia, another one of the largest US banks (the 4th largest), was reported to be in negotiations with Citigroup and other financial institutions to be bought out. In October, Wells Fargo would eventually acquire $15.1 billion of stock and ownership of the company.

Eventually, agreement in Congress was found on all major issues of the bailout, resulting in $700 billion available to the Treasury for bailouts, with provision for the option of creating a scheme of mortgage insurance. In Britain, a rescue plan had been crafted for the British mortgage lender Bradford & Bingley. In this package, Grupo Santander, the largest bank in Spain, was slated to take over the offices and savings accounts Britons, while the mortgage and loans business would be nationalised. Now the global severity of the US’ economic problems would be realised beyond just the stock markets. Reading these news pieces, investors cautiously rallied the market a little, but no where near enough to wipe of the past few weeks’ losses. It wouldn’t matter though.

Fortis, one of (if not the) the largest Benelux (BE-lgium, NE-therlands, LUX-embourg) banking and finance companies, was part-nationalised on September 28, 2008, with the Belgium, Netherlands and Luxembourg governments investing a total of €11.2 billion in the bank. Belgium purchased 49% of Fortis’ Belgian division, the Netherlands doing the same for the Dutch division, while Luxembourg agreed to a loan convertible into a 49% share of Fortis’s Luxembourg division. Nationalisation was in  the fashion around the world it seemed.

29th, and on the Monday the German finance minister announced a rescue of Hypo Real Estate, a Munich-based holding company comprised of a number of real estate financing banks. The package collapsed one week later, and the bank would eventually be bailed out by Bundesbank and some other smaller finance institutes. No nationalisation for the Germans. The same day, Iceland nationalized Glitnir, Iceland’s third largest lender.

On the back of all this, with investors seeing all sorts of previous blue chip companies being nationalised or brought out, there was panic and massive amounts of selling of stocks to get into other industries, commodities, or hard currency. Stock markets around the world plunged. In the US, despite injecting capital into the market for short term credit, the Dow dropped 777 points (or 6.98%). This was the largest one-day point-drop in history.

Remember that bailout plan that Congress has apparently agreed on? Well the plan failed after the first round of voting in the House of Representatives, 205 for the plan, 228 against. Hearing this, who do you think happened to the Stock Market? The Dow lost 300 points minutes (literally) after the announcement was made. It ended 777.68 down, the Nasdaq 199.61 points down and falling below the 2000 point mark, the S&P fell 500 off –  8.77% for the day. The Dow suffered the largest drop in the history of the index – larger than the 80s recession, and larger than the falls that triggered the Great Depression. The S&P 500 Banking Index fell 14% on 29th too. The markets had plummeted, and no one could see the bottom yet.

The 30th saw problems around the world though as governments tried to save their financial industries. €9 billion was made available by the French, Belgian and Luxembourg governments again to the to the French-Belgian bank Dexia. In little Ireland, after their banks found problems on the 29th, the government made a two year guarantee on all deposits, bonds, senior debt and dated subordinated debt of 6 Irish banks that were looking down the barrel of investor and consumer retreat: Allied Irish Banks, Bank of Ireland, Anglo Irish Bank, Irish Life and Permanent, Irish Nationwide and the EBS Building Society. The liability of the arrangement was in the area of €400 billion.

That’s not nearly the end of the financial crisis, but it is the end of September. One of the biggest months of the year (possibly the biggest month) deserved a fair bit of attention. The next few months will be in the next post.

Thomas.

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One thought on “2008 – III

  1. Pingback: 2008 - IV « Deus Lo Vult

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