Fortune Watch

It’s not really a surprise to see Abu Dhabi hand over another bunch of dollars to its wayward relative Dubai. It had to be so; it was just a matter of time. The bailout or handout or whatever one wishes to call this latest transfer of money was necessary to shore up the reputation of the Emirates.

Dubai Metro

It’s the second time that Dubai has had help from it’s more conservative and wealthier neighbour. In February 2009 Abu Dhabi pledged $10 billion to prop up the ailing Emirate in a move to assist Dubai’s $20 billion long-term bond program. The Central Bank of the UAE bought up the first tranche of the bond issue.

The highest Tennis court in the world

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In light of the current Keynesian-style government fiscal stimulus measures introduced to try to tackle the economic slowdown, the series looking at economic theories within the context of the present situation examines the work of Jean-Baptiste Say and classical economic theories.

Say’s Law, one of the core tenets of classical macroeconomics, states that “aggregate supply creates its own aggregate demand”. Classical economics emphasises the equilibrium between supply and demand as key for a balanced economy and suggests that recession and unemployment are caused by a mismatch between supply and demand rather than, for Keynesians, a lack of consumption.

Say (1767-1832) was a French economist who advocated saving rather than spending and a focus on production instead of consumption. In fact, he believed that  consumption destroyed wealth and only production could create it. Say’s Law makes supply a precondition for demand because, in order to buy something, he believed that you must first sell something.

This is crucial for economic growth, because the desire to generate purchasing power motivates productive effort and invention. It also has major implications for how governments respond to downturns and periods of high unemployment. While Keynes wrote that aggregate demand and the use of fiscal spending is the key to economic recovery, classical economists believe that spending capital on Consumption without saving and investing it in production could mean slower potential future growth.
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Five banks have repaid millions of dollars they received from the government’s $700 billion financial bailout pot, the Obama administration said Thursday.

The Treasury Department, which oversees the bailout program, said the banks returned a total of $353 million.

The banks are: Iberiabank Corp. of Lafayette, La.; Bank of Marin Bancorp of Novato, Calif.; Old National Bancorp. of Evansville, Ind.; Signature Bank of New York; and Centra Financial Holdings Inc. of Morgantown, W.Va.

They were the first banks to repay the government, wanting to escape the increasingly tough restrictions placed on participants in the rescue program.

In addition to the $353 million, the banks paid the government a total of $5.4 million in dividends, Treasury Department spokesman Andrew Williams said.

The program was enacted in early October after the financial crisis — the worst since the 1930s — intensified. The goal of the program was to inject capital in banks so that they would be in a better position to boost lending, a crucial ingredient to any economic recovery. Nearly $200 billion has been injected into banks thus far.

The five banks have 15 days to buy back warrants from the government. If they don’t, the government will sell them to private investors, Williams said.

Imagine how you might feel if you had entrusted all of your hard earned savings into a high-stakes investment, just to find out later that you had lost it all and had been taken advantage of! Well, that is exactly the sort of thing that often happens with a Ponzi scheme! But what exactly is a ponzi scheme and how can you avoid being duped by this dishonest business practice?

The Ponzi Scheme Definition:

A Ponzi scheme is a fraudulent investment operation that pays returns to investors from their own money or money paid by later investors rather than from actual earned revenue. The scheme is named after Charles Ponzi, who became famous for using this technique in the 1920s. He paid investors 50% interest on short-term investments with money from new investors. All the while, spending a good part of the incoming funds for personal purposes.

Ponzi did not invent the scheme, but his operation took in so much money that it was the first to become known throughout the United States. Years later, Ponzi Schemes are illegal but continue to operate on the “rob-Peter-to-pay-Paul” principle, as money from new investors is used to pay off the previous investors in a continuous and destructive cycle until the whole scheme eventually falls apart.

What to look for and how to avoid a Ponzi Scheme:
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President Barack Obama pressed Congress Monday night to urgently approve a massive economic recovery bill, using the first prime-time news conference of his presidency to warn that a failure to act “could turn a crisis into a catastrophe.”

With the nation falling deeper into a long and painful recession, Obama defended his program against Republican criticism that it is loaded with pork-barrel spending and will not create jobs.

“The plan is not perfect,” the president said, addressing the nation from the East Room of the White House. “No plan is. I can’t tell you for sure that everything in this plan will work exactly as we hope, but I can tell you with complete confidence that a failure to act will only deepen this crisis as well as the pain felt by millions of Americans.”

When the stimulus bill passed the House, not a single Republican voted for it. On Monday an $838 billion version of the legislation cleared a crucial test vote in the Senate by a 61-36 margin, with all but three Republican senators opposing it.

Obama said the federal government was the only power that could save the nation at a time of crisis, with huge spending outlays and tax cuts that he contended could save or create up to 4 million jobs.

“At this particular moment, with the private sector so weakened by this recession, the federal government is the only entity left with the resources to jolt our economy back to life,” Obama said.
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“Absolute Truth” well science maintains there is there is no such thing like that, but from the current global financial crisis it is evident that there is no absolute free market. Truth is always relative, just like freedom.

It is important to look for positive points to find a way out of the financial crisis, apart from philosophic controversy.

All countries, whether separately or collectively, are working hard to contain the crisis, or at least to reduce losses, despite the gloomy picture of the global economy and the pessimistic atmosphere blanketing the entire world.

Although it is difficult to speak about positive points while the entire world is facing such a crisis, there must be some positive aspects.

The first of these positive effects is that the financial crisis ushers in an end to the domination of the sole magnate in international financial relations, which was a major cause of the crisis.

Wall Street was the world’s most powerful investment house, just a few months ago, where investments used to pour from the East and the West. Now Wall Street means bankruptcy, and investors in fear of losing their money do their best to avoid it.

At present, there are regions in Europe and Asia, including the Gulf region, emerging as hubs of huge investments, which will bring about more stability to the world financial system. This shift is important for restructuring international relations in the post-crisis stage.
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As the growing number of foreclosures and the value of stock portfolios hit bottom, news reports from the US of the financial fallout are growing increasingly dire.

Layoffs, foreclosures, cutbacks – there are plenty of grim economic stats out there this holiday season. Here’s perhaps the grimmest one of all: Calls to National Suicide Prevention Lifeline hotline have soared by as much as 60 per cent over the past year.

Mental health experts say the sour economy has turned what usually manifests as seasonal blues into a full-blown crisis. The fear of losing one’s job and pressures caused by a downturn in business, demotion or pension plan cutbacks can be bad for mental health and therefore increase suicide risk.

“Fear is the No. 1 emotion we’re hearing. People are feeling hopeless and helpless because of the economic crisis, and many feel that things aren’t going to get better. Now many of the calls are from people who have lost their home, or their job, or who still have a job but can’t meet the cost of living.”

A 90-year-old woman in Ohio shot herself while being served an eviction notice. A 45-year-old businessman in Los Angeles murdered five members of his family before turning the gun on himself, saying in a suicide note that he had done so because of his troubling financial situation.

While these stories put a human face on the toll the financial crisis has taken, the Director General of the World Health Organization this may only be the tip of the iceberg. As people struggle to cope with losing their homes or livelihoods, she said, “It should not come as a surprise if we continue to see more stresses, more suicides and more mental disorders.”
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The global automotive depression has finally reached all the way to the top — to Japan’s Toyota Motor Corporation, which on Monday said it now expects to lose money in its automotive operations. This will be the first such loss in 70 years.

Toyota, like its Japanese counterparts, has been staggered by the yen’s stunning appreciation against the U.S. dollar — which makes Japanese exports more expensive overseas — as well as plunging vehicle sales in North America and other major export markets.

For the fiscal year that ends March 31, Toyota still expects to eke out a modest profit of $555 million, which looks pretty good in comparison to the billions of dollars of losses incurred already this year by Detroit’s beleaguered automakers.

But the world’s largest vehicle manufacturer by sales volume and market value said it now expects to post a fiscal-year operating loss of nearly $1.7 billion, a dramatic turnaround from the $13.9 billion operating profit Toyota had forecast earlier this year and revised operating profit of $6.7 billion that it released in November. Media reports in Japan said it would be the first operating loss since just after the firm was founded in 1937.

Executives also said total revenues for the fiscal year now are expected to fall about 18 percent, to around $239 billion, revised downward from the earlier projection of $256 billion.
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We know that there will always be swindlers in the world, particularly when money is at stake. What is surprising in the Madoff case is the magnitude and durability of the confidence game and the wealth and importance of many of the investors who went along for the ride, based largely on personal trust.

Madoff will go down in history along with Charles Ponzi, who gave his name to these pyramid schemes in the 1920’s. Ponzi may have been the first, but Madoff was the biggest. Look up Charles Ponzi in Wikipedia.

The US financial regulatory body will launch an in-house investigation into why it failed to detect Bernard Madoff’s massive alleged fraud, despite almost a decade of warning signs.

“The Securities and Exchange Commission, a once-proud agency with an impressive history as Wall Street’s top cop finds itself increasingly conducting autopsies of leading financial institutions after failing, in the first instance, to perform adequate biopsies.

The issue arises as to whether investors in such a fund should be insured in any way, not against losses resulting from market activity (those are business risks), but from losses through embezzlement, for example, if someone stealing the corpus of their fund, or if there is no fund.

Securities and Exchange Commission chairman Christopher Cox said the SEC “has learned that credible and specific allegations regarding Mr Madoff’s financial wrongdoing, going back to at least 1999, were repeatedly brought to the attention of SEC staff”.
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