Capitalism is under the spotlight but still retains its audacity. Legg Mason, a US fund manager, is setting up closed end funds designed to participate in the buying up of toxic assets as part of Geithners PPIP plan. Interestingly, they are working with regulators to approve targeting the funds at retail investors, yet these are the very instruments that brought down the financial system and whose value remains deeply uncertain, hence the need for massive state intervention to encourage the private sector to go anywhere near them. How can such risky assets can be considered appropriate for the broader public when large swathes of the average Americans wealth has evaporated alongside the cult of equity? Is this perhaps an extension of Obamas new found status as financial adviser to the masses following his wisdom regarding p/e ratios?
So not only is the financial system looking to its most unsophisticated participant, the retail investor, for help, but the message was broadcast on CNBC, capitalism’s unashamed flagbearer (If you havent watched Jon Stewart destroy Jim Cramer on the daily show I highly recommend it). Mr Mark Fetting, Legg Mason CEO, appeared on the show and instead of being grilled about the suitability of retail investors for toxic assets, he was asked simple open ended questions, similar to those asked by Washington journalists at an Obama press conference, which allowed the CEO to market the fund with ease. It was product placement at its best and clearly highlighted CNBC (with its maxim, welcome to NYC, the financial capital of the world) as a vacuous show with potentially harmful affects on its less informed viewers. The program’s showbiz format is at odds with the more adversarial environment prevalent in dealing floors across financial centers and is symptomatic of the highly polarized quality of financial analysis pumped into the media sphere.
Several weeks ago I read that Sir Keith Mills, an entrepreneur who helped run the 2012 Olympics bid, is contemplating suing Coutts, the private bank, due to misadvice on AIG investments. Whilst it may be the case that Coutts failed to foresee the problems at AIG and got their risk appraisal wrong, we are informed that Sir Keith plonked GBP 160m into one set of AIG premier life bonds despite a net wealth not much bigger at around GBP 200m. 80% of your net wealth in one financial product! I cannot believe Coutts advised this, indeed Sir Keith’s main anger appears to stem from Coutts labelling the investments low risk. He needs a lesson in basic asset allocation before firing off lawsuits. Like any investor he needs to take more responsibility for a stupid decision.
Off finance and onto politics. My political trade of the month would be long a Labour majority at the next election at odds of 12:1 on online betting shop betfair whilst it seems ever such a remote possibility, one has to remember a year is plenty of time for a fickle electorate to change opinions. I believe opinion polls failed to accurately predict the 1992 election and think that the story is not as clear cut as so many think, especially with regards to perceptions of economic competence. Cameron and the relatively inexperienced George Osbourne have failed to fully capitalise on the dire economic situation. I cannot recall any Tory opposition leader once questioning light touch regulation, the UK’s dependence upon financial services or the excessive rise in house prices, and I believe we would be in the same mess if the Tories were in power. In the same way that bank executives were systematically goaded towards risky investments by impetuous shareholders who would squirm at first sign of lower earnings growth (even the dullest of government bond funds were told by pension fund clients to buy more structured credit), today’s statesmen are not as free to steer the countrys direction as they may appear. When so much of the electorate is piling into property it becomes very difficult for a political party to challenge their stupidity without risking their popularity. Browns credentials remain stronger than Camerons. When Brown was 19 he was elected rector of Edinburgh University and was writing heavyweight policy letters to the Dean. What were Cameron and Osbourne doing at that age? They were members of a drinking society which more recently was warned by the police that some of its members were close to receiving asbos due to they behaviour.