May 22, 2009
China and catharsis in the words of Zhao
By Verna Yu
HONG KONG - Last week's publication of the memoir of former Chinese Communist Party chief Zhao Ziyang, who was ousted for supporting the Tiananmen pro-democracy movement in 1989, has no doubt sent shock waves through the top echelons of the party ahead of the June 4 anniversary of the crackdown.
Zhao, who was kept under house arrest for nearly 16 years after the events until his death in 2005, was someone the Chinese government wanted the world to forget about. When he died, state television and newspapers only carried a terse one-line obituary for "Comrade Zhao", without mentioning his former titles.
But four years after his death, and 20 years after the military crackdown on Tiananmen Square, the man the authorities thought they had silenced forever is speaking from the grave.
"On the night of June 3, while sitting in the courtyard with my family, I heard intense gunfire," Zhao says on one recording. "A tragedy to shock the world had not been averted, and was happening after all."
The memoirs, which were secretly recorded during his house arrest, have been published abroad and are certain to be banned in mainland China. In them Zhao condemns the killings of protestors as a "tragedy" and rejects the official verdict that they were "anti-revolutionary rioters". He also confirmed the widely held view that paramount leader Deng Xiaoping ordered the crackdown and said China must adopt democracy if it wanted to be a true modern society with the rule of law.
In the 30 hours of recordings, he also detailed the political tussles behind the Tiananmen crackdown, his battles with the conservative faction, how he and Deng differed in their principles - the conflict which eventually led to his downfall - as well as his views on market reform and democracy.
Zhao had made notes of his recollection of events in 1993, and urged by a few close friends, started to record his memoir in 2000, said Bao Pu, translator and editor of the details that have been put together into the book, Prisoner of the State: The Secret Journal of Zhao Ziyang.
"We can say for sure that he wanted his version of history to survive," said Bao, the son of Zhao's top aide Bao Tong, in a phone interview.
Zhao secretly recorded his words over music cassettes of children's songs and the Peking Opera without informing his family. He passed them onto a few trusted friends who kept them for him and the tapes were eventually taken out of the country. Zhao is said to have hidden his plan from his family to protect them.
Zhao's daughter, Wang Yannan, said her father clearly wanted to leave behind his version of history so people could learn the truth.
"He was [under house arrest] for more than a decade, he had reflected a lot about the past but he had no platform to speak out. I think he wanted to restore a truthful version of history and to put across his views for the record."
"I think he felt people had the right to know the truth ... and he had the responsibility to tell them," she said in a phone interview.
Although many of the facts from the Tiananmen crackdown in Zhao's memoir are now known to the outside world, analysts say the memoir nonetheless helped clarify some historical mysteries. It was also the first time that a Chinese official of his stature had spoken so candidly about his own political life and the struggles within the top echelons of the Chinese Communist Party.
"I think the most important thing about this memoir is that it is the first time that Zhao has given in his own words an account of important meetings and course of discussions ... some of which had been subjects of speculation," said Chris Yeung, a political columnist at the South China Morning Post.
"It's the first time we've seen Zhao's version, so it's obviously authoritative."
Contrary to most reports, which suggest that the decision to dispatch troops was the result of a vote of three to two by the powerful Politburo Standing Committee, Zhao revealed in his memoir that there was no such vote and that Deng was influenced by hardliners such as then-premier Li Peng, and was ultimately responsible for the crackdown.
"It sheds light on the decision-making process of the Politburo Standing Committee at the time ... amid the crisis situation, it was Deng Xiaoping who made the important decision at the end of the day," Yeung said.
Zhao also highlights that Deng and himself had very different ideas on political reform. What Deng had in mind was more of an administrative reform aimed at shoring up one-party rule rather than democratization. This division perhaps explained why Deng later decided to drop his plan to have Zhao as his successor, said Yeung.
Zhao also contested the widely held view that Deng was the architect behind the market reforms which transformed China into an economic power house.
Roderick MacFarquhar, a professor of Chinese history at Harvard University, wrote in the foreword to the book that Zhao rather than Deng should be credited as the originator of the reforms, as it was he who did much of the ground work.
For instance, it was Zhao who realized that the country's commitment to rural collectivization was outdated and embraced a national household responsibility system as the way to develop agriculture and raise farm incomes, MacFarquhar wrote. "Reading Zhao's unadorned and un-boastful account of his stewardship, it becomes apparent that it was he rather than Deng who was the actual architect of reform," MacFarquhar wrote.
But Zhao's central role in China's economic reforms could never be given any credit. When China celebrated its 30th anniversary last year, Zhao's name and images were banned from all state TV and publications. It is obvious the authorities were determined to airbrush him from their version of history.
To many China watchers, what was perhaps one of the most surprising and interesting revelations from the former Communist Party chief was his support for Western-style parliamentary democracy.
"If a country wishes to modernize, not only should it implement a market economy, it must also adopt a parliamentary democracy as its political system," Zhao says.
Otherwise, Zhao said, China would not be able to have a healthy and modern market economy but would see "commercialization of power, rampant corruption, a society polarized between rich and poor". As it turns out, his prediction proved to be sadly accurate.
Bao Pu believed this was one message that Zhao most wanted to put across.
"He acknowledged that whatever fault you can find with the Western-style [democratic] parliamentary system, there is no better system, that message came out quite clearly," Bao said.
Bao's father Bao Tong, who was Zhao's top aide, said current Chinese leaders should learn a lesson from Zhao's memoirs.
"[They should reflect] on many questions: how they should look at June 4 [Tiananmen crackdown], what policy should be implemented to avoid getting [further] into the current situation of a rich-poor gap and rampant corruption," said the senior Bao, who spent seven years in prison after the crackdown and still lives under tight surveillance.
"I think they can get the answer from this book."
But his message may fall on deaf ears. Responding to journalists' questions on Zhao's memoir, the Chinese Foreign Ministry this week reiterated the official position that China's economic success in the decades after the Tiananmen crackdown justified the act.
And Zhao's advice from the grave might not have come at the best time.
Ching Cheong, a veteran journalist who covered the pro-democracy movement in 1989, said since the collapse of the Soviet Union in 1991 and more recently the US financial crisis, China has been feeling increasingly justified about its so-called China model, which allows economic freedom but suppresses political freedom.
"Their opinion is that the Western way is not suitable for China," Ching said. "There is quite a gap between the conclusion of Zhao Ziyang and public opinion in China today."
"The chaos [in other countries] has been used to prove that the crackdown was necessary and that this system is good."
But Bao Tong, who was director of the Political Reform Bureau of the powerful Communist Party's Central Committee at the time of Zhao's leadership, warned that the failure to reflect on China's own mistakes would end in disaster.
"If we want to avoid another Cultural Revolution [1], we must learn from the West," Bao said. "To reject outright the Western political system is to say we want to keep alive the spirit of the Cultural Revolution, and this kind of thing will reoccur."
"If they did things Zhao Ziyang's way, solving problems through negotiations on a basis of democracy and rule of law, not only would the tragedy have been avoided ... it would have pushed China's political system to a new phase."
Note
1. The Cultural Revolution was a period of widespread social and political upheaval; nation-wide chaos and economic disarray engulfed much of Chinese society between 1966 and 1976. It was launched by Mao Zedong, the chairman of the Communist Party of China, on May 16, 1966, who alleged that liberal bourgeoisie elements were dominating the party and insisted that they needed to be removed through post-revolutionary class struggle by mobilizing the thoughts and actions of China’s youth, who formed Red Guards groups around the country. - Wikipedia
Verna Yu is a Hong Kong-based journalist.
http://forums.delphiforums.com/sunkopitiam/messages?msg=29545.1
Friday, May 22, 2009
Recession 'shape' points down
May 22, 2009
Recession 'shape' points down
By W Joseph Stroupe
We've heard a lot of talk about the shape of this "recession", especially for the United States. The optimists think it will be V-shaped and that we are even now seeing the bounce upward toward growth again. Those somewhat more in tune with the deeply worrying fundamentals think it will be U-shaped, and they think we've probably hit the bottom, or nearly so, but we have some months to go before growth begins again. Then there are the pessimists, who insist on being called realists, who think it will be L-shaped, with America's economy stagnating perhaps for an entire decade, or even more after it reaches the bottom of this recession.
Finally, there are those relative handful of so-called "prophets of gloom and doom", who continue to advise that this isn't merely a severe recession, but is rather the opening phase of a full-blown crisis, a financial/economic collapse centered in the US in which the severe recession is merely one of many repercussions to come.
They predict the crisis will be shaped like a series of steps going downward - in effect, a series of collapses with deceptive plateaus in between, with economic growth returning very slowly and painfully in the US and the UK several years off from today. They insist that we haven't even remotely seen the bottom yet, but have only experienced the first few steps downward so far, and that there are several more to come. They also warn that the worst for the US and the UK, by far, is yet to come.
Obviously, those in this last category of prognosticators aren't very popular, in spite of the fact that, by and large, they were primarily the ones who called this present dire crisis correctly, some of them doing so years in advance. Yours truly is proud to be in this last category.
At present, the optimists generally have the floor, as the media report multiple developments that are said to signal a turnaround, and the Wall Street rally that began on March 9, after US Treasury Secretary Timothy Geithner's US$1 trillion toxic asset removal plan was announced, continues. In the crucial housing sector, pending sales of previously owned homes jumped 3.2% after a 2% jump the previous month, for the first back-to-back jump in more than a year.
Foreclosure-driven housing price collapses and Federal Reserve-driven mortgage rate decreases are putting homes in reach for more first-time buyers, who accounted for at least 50% of the pending home sales contracts.
However, the continued losses in the weakening job market and soaring foreclosure rates, with foreclosures reaching a record 803,489 in the first quarter alone, are likely to overwhelm such "green shoots" of "recovery". Builders of new homes are struggling as buyers flock to foreclosed properties at bargain prices. Thus, a genuine recovery of the vital housing sector is not genuinely being signaled yet.
Bigger trouble looms, regardless of this Wall Street rally and other "green shoots". Geithner's toxic asset removal plan hasn't worked yet, and it and other government plans face huge obstacles. Fears over the size of US debt are swiftly mounting, while China has "cancelled our credit card", according to US Senator Mark Kirk, referring to the fact that China's investors have radically slowed their purchase of US Treasury bonds in the past three months.
While Kirk's statement may reflect a significant measure of jumping to conclusions before all the facts are in, we nonetheless are witnessing a meaningful deterioration in the quality of foreign financing of the US Treasury. This extremely important development must not be lost in the fog of the present crisis. We should not be distracted by fleeting "green shoots" that appear and then disappear as suddenly, but analyze the condition of the roots, from whence all else of consequence emerges.
So before we can intelligently choose what the most likely shape of this crisis will turn out to be for the US, we must first look at its root causes to determine if these are actually being remedied, and if not, what the impact will be of a crisis like the present one whose root causes are not adequately and accurately addressed soon enough.
If we find from our investigation that the present severe recession is indeed only a symptom of something much more serious, that efforts to deal with the crisis are not reaching the root causes, that many of these efforts are actually exacerbating the situation in very dangerous ways, and that the present global environment in which the US operates as an economic power has changed so radically that a resumption of US growth anytime soon can no longer be taken for granted, then our choice of the most likely shape for this crisis is made far easier, is it not?
Economists often speak about the boom-bust "cycle" and implicitly insinuate or explicitly state that this bust, though severe, is merely part of the perpetual boom-bust cycle, and that growth will inevitably (and almost automatically) return soon, once the bust portion of the cycle runs its course and resets the financial and economic parameters for a resumption of growth. Thus, a resumption of growth before long is taken for granted.
Is the present crisis merely part of such a perpetual cycle of growth followed by downturn followed by growth again? Or has this crisis arisen out of extraordinary root causes which have actually derailed economic growth for the foreseeable future, destroyed financial and economic viability and stability, and severely discredited America's models of capitalism and finance on fundamental levels? Are you open-minded enough to give fair hearing to the facts that point unmistakably in the direction of extraordinary root causes that are producing the present crisis?
Income-based model versus asset-based model
At fundamental issue here is the new asset-based economic/financial model (as contrasted with a traditional income-based model) which the US and Britain in particular have progressively adopted over the past couple of decades, and whether that new model is really workable and revivable in the light of its massive collapse that began with the emergence of the subprime crisis in late July of 2007.
The US economy has rapidly converted from a traditional, income-generating machine to a so-called "new economy", an asset-inflating one. An income-generating machine derives wealth from the production and sale of goods and services, while an asset-inflating one derives wealth from accelerated asset appreciation, or targeted inflation of assets - in other words, by the creation of serial asset bubbles. In this new model, traditional wealth generation takes a back seat to "paper" wealth generation via serial asset bubble creation.
In the traditional income-based economic model, the financial sector serves to support the real economy, where the vast bulk of real income is generated, by providing credit and other traditional financing services aimed at sustaining existing and fostering new income-generating business ventures, and supporting consumer spending via traditional credit services. The income generated in the financial sector is not of major proportions, but is a distant second to that generated in the real economy.
The asset-based model is radically different. In this new model, innovative and grandiose opportunities arise for the generation of gigantic sums of "paper" wealth from within the financial sector itself, thanks to what can only be called the fostering of an incestuous relationship between government and Big Finance.
It is a relationship in which the state nurtures the negative real interest rate monetary environment and the "free" (inordinately unrestrained) market conditions wherein colossal asset bubbles can be grown, nurtured and capitalized upon by Big Finance, employing what has come to be known as "securitization" - the "innovative" process of the creation and marketing to global investors of cleverly packaged, deceptively credit-rated financial assets based upon, and secured by, the asset bubbles that have been fostered under the asset-based model.
That being the case, a huge financial services-based industry that is very tightly coupled to the wealth-generating core of the financial sector, Wall Street in America's case, proliferates its tentacles far and wide.
In this new model the entire economy takes on a decidedly finance/investment/asset-oriented complexion, with such ventures and operations coming to the foreground, while traditional income-based business tends to be eclipsed. When America's adoption of this new model is considered in conjunction with the decades-long trend of the withering of America's once-mighty traditional manufacturing sector, one can appreciate how America's "new economy" model has radically changed how it generates much of its $14 trillion of gross domestic product each year. A very large portion of that wealth is generated by, or is directly and considerably dependent upon, the new asset-based ventures and operations in the Wall Street core of the financial sector.
Catastrophic flaws in the asset-based model
Because the new asset-based model relies upon serial asset bubble creation (inflation) in order to thrive, the model simply chokes and suffocates when the environment of the massive credit excess needed to grow such bubbles is removed.
Hence, Washington's policies in attempting to deal with this crisis are all centered upon recreating the massive credit excess that it hopes will "reboot" the model and bring it back to life by re-inflating the assets whose values have collapsed in this crisis.
Therefore, Washington and Wall Street aren't interested in, nor are they attempting to revert to the traditional income-based model. Rather, they are committed to sinking all their efforts and all America's wealth into rebooting the new asset-based model. The salient question here is whether the model can be rebooted without triggering a cascade of much greater damage than it has already wrought.
One can easily see that the new asset-based model is an extremely dangerous trade-off between rapid and easy wealth creation on the one hand and acutely increased vulnerability and instability on the other hand, for the asset bubbles grown under the model inevitably rupture, leaving mountains of toxic rubble in their wake.
And when an economy subscribes to and adopts this new model to an excessive degree, as both America and Britain have done, thereby investing their future too fully in that model, then that economy invites catastrophe when all viable assets have been "bubbled and ruptured" and there's nothing left to feed the model to keep it breathing. That is precisely where America and Britain have now arrived.
Asset bubbles are not new. They have existed and they have ruptured before, as in the Great Depression. What is new about the asset-based model is that, under the tutelage of such slipshod architects as former Federal Reserve chairman Alan Greenspan, the perilous prospects for massive "paper" wealth generation afforded by asset bubbles (which would be calculatedly produced) were then consciously incorporated into a new economic/financial model actually intended to supersede the traditional income-based model, a new model that was deceptively and successfully hawked to the dim political leadership in Washington and London.
Additionally, what is also new about the asset-based model is the raft of revolutionary new financial instruments and assets it fosters that ingeniously leverage the foundational asset bubbles in order to magnify "paper" wealth generation many times over.
Finally, what is new is the swiftness with which new asset bubbles have been created, their unprecedented proportions, and the sheer number of bubbles that have been produced in such a compressed period of time - primarily in the past 10-15 years - and the severe damage that has been caused by their rupture.
Well, the architects and adoptees of the new asset-based model have gotten what they aimed for. Their brainchild has, indeed superseded the traditional income-based model. America and Britain are inordinately dependent upon that new model for economic growth. Look at the severe repercussions they are suffering as a result of the crash of the model. Neither can hope to return to economic growth any time in the foreseeable future without the successful rebooting of their asset-based model - a prospect whose chances are slim to none.
Full-blown collapse of the new model
This severe recession is much less about the business cycle and much more about the collapse of the new asset-based model, and the fact that the US and UK cannot simply revert to the traditional income-based model to resolve their self-made crisis. They've both become far too committed to the new model.
A reversion would take a decade or more to accomplish, even if it could be accomplished, and in the meantime the rest of the world (where the traditional income-based model survives and thrives) would not wait for the US and UK, but would unquestionably overwhelm the two. (If the new model cannot soon be rebooted to thrive again, then that is going to happen anyway).
Attempting to reboot the new model carries gargantuan risks, whether it sputters back to life or stays dead. The colossal sums of new debt being racked up, the hyper-inflationary forces, the inevitable era of high taxation, the eventual severe damage to the US dollar and the British pound that is being set firmly in place, the undermining of the creditworthiness of sovereign debt, are just some of the risks.
As severely as America's "new economy" has been discredited in this crisis, which has infected the entire globe, who's going to buy its collection of severely tainted dollar-denominated financial assets even if the model does sputter back to life? And how much would anyone be willing to pay for them? America and Britain are in colossal trouble.
The present crisis, which is not merely a recession fueled by the boom-bust cycle, actually signifies the asphyxiation of the asset-based model. Oh, it may for a time keep flailing its arms about while it suffers its death throes, and it might even sit up on the gurney once or twice to protest its own demise, but it cannot get up and promenade again. It is on total life support and must eventually be declared brain-dead.
There have been warning signs of this impending death, but these were largely ignored or misinterpreted as merely part of the perpetual boom-bust cycle. One such warning sign was the destructive rupture of the equities and dot-com bubbles in 1999/2001, which wiped out many trillions of dollars of wealth, cast American's pensions into an irresolvable crisis and savaged America's lead role in the IT technology sector. Catastrophe, like what we're now witnessing, was only avoided (temporarily) back then because the Fed and Wall Street quickly collaborated on the swift creation of new bubbles in real estate and stocks. Now that these are rupturing, there are no remaining virgin assets to feed to the asset-based model. That's why efforts are underway to attempt to reflate the old, previously ruptured asset bubbles and all the innovative financial assets coupled to them.
The shape of this crisis, then, is a series of steps proceeding downward into the gloom for the US and Britain. The two powers are guilty of massive over-reach, and now they are suffering the terrible consequences. Sooner or later, these ongoing events that were inevitable, and that should have been foreseen before the new asset-based model was so enthusiastically and wholly adopted, will force the two powers to make the gut-wrenching, long reversion back to a more traditional economic model.
The longer their leaders resist this, the more profoundly painful and destructive the adjustment will become. Obviously, this situation provides a tremendous opportunity for the rest of the world, but especially for the increasingly wealthy and powerful states in the East, to capitalize in various ways. The ongoing crash of the US and UK liberal capitalistic incarnations of the asset-based economic/financial model also, therefore, signifies the collective rise of the Eastern managed-capitalistic (authoritarian) incarnations of the traditional income-based model.
W Joseph Stroupe is a strategic forecasting expert and editor of Global Events Magazine online at www.globaleventsmagazine.com
http://forums.delphiforums.com/sunkopitiam/messages?msg=29543.1
Recession 'shape' points down
By W Joseph Stroupe
We've heard a lot of talk about the shape of this "recession", especially for the United States. The optimists think it will be V-shaped and that we are even now seeing the bounce upward toward growth again. Those somewhat more in tune with the deeply worrying fundamentals think it will be U-shaped, and they think we've probably hit the bottom, or nearly so, but we have some months to go before growth begins again. Then there are the pessimists, who insist on being called realists, who think it will be L-shaped, with America's economy stagnating perhaps for an entire decade, or even more after it reaches the bottom of this recession.
Finally, there are those relative handful of so-called "prophets of gloom and doom", who continue to advise that this isn't merely a severe recession, but is rather the opening phase of a full-blown crisis, a financial/economic collapse centered in the US in which the severe recession is merely one of many repercussions to come.
They predict the crisis will be shaped like a series of steps going downward - in effect, a series of collapses with deceptive plateaus in between, with economic growth returning very slowly and painfully in the US and the UK several years off from today. They insist that we haven't even remotely seen the bottom yet, but have only experienced the first few steps downward so far, and that there are several more to come. They also warn that the worst for the US and the UK, by far, is yet to come.
Obviously, those in this last category of prognosticators aren't very popular, in spite of the fact that, by and large, they were primarily the ones who called this present dire crisis correctly, some of them doing so years in advance. Yours truly is proud to be in this last category.
At present, the optimists generally have the floor, as the media report multiple developments that are said to signal a turnaround, and the Wall Street rally that began on March 9, after US Treasury Secretary Timothy Geithner's US$1 trillion toxic asset removal plan was announced, continues. In the crucial housing sector, pending sales of previously owned homes jumped 3.2% after a 2% jump the previous month, for the first back-to-back jump in more than a year.
Foreclosure-driven housing price collapses and Federal Reserve-driven mortgage rate decreases are putting homes in reach for more first-time buyers, who accounted for at least 50% of the pending home sales contracts.
However, the continued losses in the weakening job market and soaring foreclosure rates, with foreclosures reaching a record 803,489 in the first quarter alone, are likely to overwhelm such "green shoots" of "recovery". Builders of new homes are struggling as buyers flock to foreclosed properties at bargain prices. Thus, a genuine recovery of the vital housing sector is not genuinely being signaled yet.
Bigger trouble looms, regardless of this Wall Street rally and other "green shoots". Geithner's toxic asset removal plan hasn't worked yet, and it and other government plans face huge obstacles. Fears over the size of US debt are swiftly mounting, while China has "cancelled our credit card", according to US Senator Mark Kirk, referring to the fact that China's investors have radically slowed their purchase of US Treasury bonds in the past three months.
While Kirk's statement may reflect a significant measure of jumping to conclusions before all the facts are in, we nonetheless are witnessing a meaningful deterioration in the quality of foreign financing of the US Treasury. This extremely important development must not be lost in the fog of the present crisis. We should not be distracted by fleeting "green shoots" that appear and then disappear as suddenly, but analyze the condition of the roots, from whence all else of consequence emerges.
So before we can intelligently choose what the most likely shape of this crisis will turn out to be for the US, we must first look at its root causes to determine if these are actually being remedied, and if not, what the impact will be of a crisis like the present one whose root causes are not adequately and accurately addressed soon enough.
If we find from our investigation that the present severe recession is indeed only a symptom of something much more serious, that efforts to deal with the crisis are not reaching the root causes, that many of these efforts are actually exacerbating the situation in very dangerous ways, and that the present global environment in which the US operates as an economic power has changed so radically that a resumption of US growth anytime soon can no longer be taken for granted, then our choice of the most likely shape for this crisis is made far easier, is it not?
Economists often speak about the boom-bust "cycle" and implicitly insinuate or explicitly state that this bust, though severe, is merely part of the perpetual boom-bust cycle, and that growth will inevitably (and almost automatically) return soon, once the bust portion of the cycle runs its course and resets the financial and economic parameters for a resumption of growth. Thus, a resumption of growth before long is taken for granted.
Is the present crisis merely part of such a perpetual cycle of growth followed by downturn followed by growth again? Or has this crisis arisen out of extraordinary root causes which have actually derailed economic growth for the foreseeable future, destroyed financial and economic viability and stability, and severely discredited America's models of capitalism and finance on fundamental levels? Are you open-minded enough to give fair hearing to the facts that point unmistakably in the direction of extraordinary root causes that are producing the present crisis?
Income-based model versus asset-based model
At fundamental issue here is the new asset-based economic/financial model (as contrasted with a traditional income-based model) which the US and Britain in particular have progressively adopted over the past couple of decades, and whether that new model is really workable and revivable in the light of its massive collapse that began with the emergence of the subprime crisis in late July of 2007.
The US economy has rapidly converted from a traditional, income-generating machine to a so-called "new economy", an asset-inflating one. An income-generating machine derives wealth from the production and sale of goods and services, while an asset-inflating one derives wealth from accelerated asset appreciation, or targeted inflation of assets - in other words, by the creation of serial asset bubbles. In this new model, traditional wealth generation takes a back seat to "paper" wealth generation via serial asset bubble creation.
In the traditional income-based economic model, the financial sector serves to support the real economy, where the vast bulk of real income is generated, by providing credit and other traditional financing services aimed at sustaining existing and fostering new income-generating business ventures, and supporting consumer spending via traditional credit services. The income generated in the financial sector is not of major proportions, but is a distant second to that generated in the real economy.
The asset-based model is radically different. In this new model, innovative and grandiose opportunities arise for the generation of gigantic sums of "paper" wealth from within the financial sector itself, thanks to what can only be called the fostering of an incestuous relationship between government and Big Finance.
It is a relationship in which the state nurtures the negative real interest rate monetary environment and the "free" (inordinately unrestrained) market conditions wherein colossal asset bubbles can be grown, nurtured and capitalized upon by Big Finance, employing what has come to be known as "securitization" - the "innovative" process of the creation and marketing to global investors of cleverly packaged, deceptively credit-rated financial assets based upon, and secured by, the asset bubbles that have been fostered under the asset-based model.
That being the case, a huge financial services-based industry that is very tightly coupled to the wealth-generating core of the financial sector, Wall Street in America's case, proliferates its tentacles far and wide.
In this new model the entire economy takes on a decidedly finance/investment/asset-oriented complexion, with such ventures and operations coming to the foreground, while traditional income-based business tends to be eclipsed. When America's adoption of this new model is considered in conjunction with the decades-long trend of the withering of America's once-mighty traditional manufacturing sector, one can appreciate how America's "new economy" model has radically changed how it generates much of its $14 trillion of gross domestic product each year. A very large portion of that wealth is generated by, or is directly and considerably dependent upon, the new asset-based ventures and operations in the Wall Street core of the financial sector.
Catastrophic flaws in the asset-based model
Because the new asset-based model relies upon serial asset bubble creation (inflation) in order to thrive, the model simply chokes and suffocates when the environment of the massive credit excess needed to grow such bubbles is removed.
Hence, Washington's policies in attempting to deal with this crisis are all centered upon recreating the massive credit excess that it hopes will "reboot" the model and bring it back to life by re-inflating the assets whose values have collapsed in this crisis.
Therefore, Washington and Wall Street aren't interested in, nor are they attempting to revert to the traditional income-based model. Rather, they are committed to sinking all their efforts and all America's wealth into rebooting the new asset-based model. The salient question here is whether the model can be rebooted without triggering a cascade of much greater damage than it has already wrought.
One can easily see that the new asset-based model is an extremely dangerous trade-off between rapid and easy wealth creation on the one hand and acutely increased vulnerability and instability on the other hand, for the asset bubbles grown under the model inevitably rupture, leaving mountains of toxic rubble in their wake.
And when an economy subscribes to and adopts this new model to an excessive degree, as both America and Britain have done, thereby investing their future too fully in that model, then that economy invites catastrophe when all viable assets have been "bubbled and ruptured" and there's nothing left to feed the model to keep it breathing. That is precisely where America and Britain have now arrived.
Asset bubbles are not new. They have existed and they have ruptured before, as in the Great Depression. What is new about the asset-based model is that, under the tutelage of such slipshod architects as former Federal Reserve chairman Alan Greenspan, the perilous prospects for massive "paper" wealth generation afforded by asset bubbles (which would be calculatedly produced) were then consciously incorporated into a new economic/financial model actually intended to supersede the traditional income-based model, a new model that was deceptively and successfully hawked to the dim political leadership in Washington and London.
Additionally, what is also new about the asset-based model is the raft of revolutionary new financial instruments and assets it fosters that ingeniously leverage the foundational asset bubbles in order to magnify "paper" wealth generation many times over.
Finally, what is new is the swiftness with which new asset bubbles have been created, their unprecedented proportions, and the sheer number of bubbles that have been produced in such a compressed period of time - primarily in the past 10-15 years - and the severe damage that has been caused by their rupture.
Well, the architects and adoptees of the new asset-based model have gotten what they aimed for. Their brainchild has, indeed superseded the traditional income-based model. America and Britain are inordinately dependent upon that new model for economic growth. Look at the severe repercussions they are suffering as a result of the crash of the model. Neither can hope to return to economic growth any time in the foreseeable future without the successful rebooting of their asset-based model - a prospect whose chances are slim to none.
Full-blown collapse of the new model
This severe recession is much less about the business cycle and much more about the collapse of the new asset-based model, and the fact that the US and UK cannot simply revert to the traditional income-based model to resolve their self-made crisis. They've both become far too committed to the new model.
A reversion would take a decade or more to accomplish, even if it could be accomplished, and in the meantime the rest of the world (where the traditional income-based model survives and thrives) would not wait for the US and UK, but would unquestionably overwhelm the two. (If the new model cannot soon be rebooted to thrive again, then that is going to happen anyway).
Attempting to reboot the new model carries gargantuan risks, whether it sputters back to life or stays dead. The colossal sums of new debt being racked up, the hyper-inflationary forces, the inevitable era of high taxation, the eventual severe damage to the US dollar and the British pound that is being set firmly in place, the undermining of the creditworthiness of sovereign debt, are just some of the risks.
As severely as America's "new economy" has been discredited in this crisis, which has infected the entire globe, who's going to buy its collection of severely tainted dollar-denominated financial assets even if the model does sputter back to life? And how much would anyone be willing to pay for them? America and Britain are in colossal trouble.
The present crisis, which is not merely a recession fueled by the boom-bust cycle, actually signifies the asphyxiation of the asset-based model. Oh, it may for a time keep flailing its arms about while it suffers its death throes, and it might even sit up on the gurney once or twice to protest its own demise, but it cannot get up and promenade again. It is on total life support and must eventually be declared brain-dead.
There have been warning signs of this impending death, but these were largely ignored or misinterpreted as merely part of the perpetual boom-bust cycle. One such warning sign was the destructive rupture of the equities and dot-com bubbles in 1999/2001, which wiped out many trillions of dollars of wealth, cast American's pensions into an irresolvable crisis and savaged America's lead role in the IT technology sector. Catastrophe, like what we're now witnessing, was only avoided (temporarily) back then because the Fed and Wall Street quickly collaborated on the swift creation of new bubbles in real estate and stocks. Now that these are rupturing, there are no remaining virgin assets to feed to the asset-based model. That's why efforts are underway to attempt to reflate the old, previously ruptured asset bubbles and all the innovative financial assets coupled to them.
The shape of this crisis, then, is a series of steps proceeding downward into the gloom for the US and Britain. The two powers are guilty of massive over-reach, and now they are suffering the terrible consequences. Sooner or later, these ongoing events that were inevitable, and that should have been foreseen before the new asset-based model was so enthusiastically and wholly adopted, will force the two powers to make the gut-wrenching, long reversion back to a more traditional economic model.
The longer their leaders resist this, the more profoundly painful and destructive the adjustment will become. Obviously, this situation provides a tremendous opportunity for the rest of the world, but especially for the increasingly wealthy and powerful states in the East, to capitalize in various ways. The ongoing crash of the US and UK liberal capitalistic incarnations of the asset-based economic/financial model also, therefore, signifies the collective rise of the Eastern managed-capitalistic (authoritarian) incarnations of the traditional income-based model.
W Joseph Stroupe is a strategic forecasting expert and editor of Global Events Magazine online at www.globaleventsmagazine.com
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Malaysia Proposes Third Bridge Link To Singapore
May 22, 2009 14:50 PM
Malaysia Proposes Third Bridge Link To Singapore
By Zakaria Abdul Wahab
SINGAPORE, May 22 (Bernama) -- Malaysia has proposed to Singapore that a new bridge be built to link the eastern side of Johor to the island republic.
The new bridge will help to further facilitate the movement of people and goods and services between both countries, Malaysian Prime Minister Datuk Seri Najib Tun Razak said at a joint media conference with his Singapore counterpart Lee Hsien Loong here today.
Najib, who is here since yesterday for a two-day official visit to the city-state, said the new bridge would also help to develop the eastern side of Johor such as areas in Pengerang, including Desaru, which were still less developed and had huge economic potential.
He said the current linkages, such as the Johor Causeway, were having a high volume of traffic and had affected the smooth movement of people and goods between both the neighbouring countries.
Both sides agreed to look at the proposal in the medium and long term and also agreed to commission a study to look at the bridge viability, Najib said, adding that the new bridge proposal was one of the outcomes of their bilateral meeting to further enhance the close cooperation between Malaysia and Singapore.
Currently, the southern tip of Peninsular Malaysia is connected to Singapore by the ageing Johor Causeway and the Second Link crossing in Tuas.
In 2006, Malaysia dropped a plan to build a second bridge replacing the Johor Causeway after it hit a dead-end following some disagreement between the two neighbours.
Lee also suggested that the Johor Causeway be broadened and the rail link connecting both sides of the causeway be improved to further ease traffic movement.
Earlier, upon his arrival at the Istana, Najib inspected a military guard-of-honour before proceeding straight to a four-eyed meeting with Lee.
The two leaders later joined the bilateral meeting involving the top official delegations from both sides.
The Malaysian delegation included Foreign Minister Datuk Anifah Aman, Transport Minister Datuk Seri Ong Tee Keat, International Trade and Industry Minister Datuk Mustapa Mohamed, Minister in the Prime Minister�s Department Tan Sri Nor Mohamed Yakcop and Johor Menteri Besar Datuk Abdul Ghani Othman.
Najib also said he proposed that a wellness centre be set up in the Iskandar Malaysia development area in Johor as an iconic investment that would showcase the growing cooperation between the two countries.
The prime minister said the wellness centre would appeal to not only Singaporeans but also Malaysians and foreign visitors as going for spas, medical treatment, homeopathy and herbal treatment was the "in" thing to many people now.
Najib said that as part of another iconic investment, Lee proposed that a new township for mixed development be opened so that Singaporeans could have more flexibility to invest or relocate their businesses in Singapore to Iskandar Malaysia.
Saying that Iskandar Malaysia had progressed so much since it was launched in 2006 and had attracted about RM42.6 billion in investments, Najib said he hoped to see more participation from Singaporeans in the southern development corridor.
Najib also said that Malaysia had agreed to Singapore's request to open a counsellor's office in Johor Baharu to assist Singaporeans in need of assistance there.
Lee had said that an increasing number of Singaporeans were now going to or passing through Johor and there was no one to assist them if they were in trouble as he personally experienced it when Singaporeans started calling him for help when they were stuck there.
Najib also said that to further enhance their relations, both governments had agreed to encourage more air linkages between the two countries, especially by the low-cost carriers.
On security, Lee again thanked the Malaysian authorities for recapturing Singapore's most wanted fugitive Mas Selamat Kastari, the suspected leader of the Jemaah Islamiah militant group, in Johor last month.
However, to a question, Najib said there was no timeline as to when Mas Selamat would be returned to Singapore but the authorities here would be kept abreast of the information or intelligence gathered by the Malaysian side.
Najib also said that Malaysia had agreed to Singapore's request to open a consulate office in Johor Baharu to assist Singaporeans in need of assistance there.
Lee had said that an increasing number of Singaporeans were now going to or passing through Johor and there was no one to assist them if they were in trouble as he personally experienced it when Singaporeans started calling him for help when they were stuck there.
Najib also said that to further enhance their relations, both governments had agreed to encourage more air linkages between the two countries, especially by the low-cost carriers.
On security, Lee again thanked the Malaysian authorities for recapturing Singapore's most wanted fugitive Mas Selamat Kastari, the suspected leader of the Jemaah Islamiah militant group, in Johor last month.
However, to a question, Najib said there was no timeline as to when Mas Selamat would be returned to Singapore but the authorities here would be kept abreast of the information or intelligence gathered by the Malaysian side.
Najib said his discussion with Lee today was good and it was another step in the Malaysia-Singapore relationship.
Both Najib and Lee hoped that the old legacy of problems they inherited in the last 18 years could be solved as soon as possible.
"We don't have to wait for another 18 years to solve these problems," Najib said referring to the Points of Agreement that deals with the issue of the future of railway land owned by Keretapi Tanah Melayu in Singapore.
Najib said the foreign ministers of both countries would meet to study further the matter and hoped that it could be solved in a "win-win situation" for both sides.
After the news conference, Najib left for Friday prayers at the Sultan Mosque, Singapore's oldest, in Arab Street.
-- BERNAMA
http://forums.delphiforums.com/sunkopitiam/messages?msg=29465.1
Malaysia Proposes Third Bridge Link To Singapore
By Zakaria Abdul Wahab
SINGAPORE, May 22 (Bernama) -- Malaysia has proposed to Singapore that a new bridge be built to link the eastern side of Johor to the island republic.
The new bridge will help to further facilitate the movement of people and goods and services between both countries, Malaysian Prime Minister Datuk Seri Najib Tun Razak said at a joint media conference with his Singapore counterpart Lee Hsien Loong here today.
Najib, who is here since yesterday for a two-day official visit to the city-state, said the new bridge would also help to develop the eastern side of Johor such as areas in Pengerang, including Desaru, which were still less developed and had huge economic potential.
He said the current linkages, such as the Johor Causeway, were having a high volume of traffic and had affected the smooth movement of people and goods between both the neighbouring countries.
Both sides agreed to look at the proposal in the medium and long term and also agreed to commission a study to look at the bridge viability, Najib said, adding that the new bridge proposal was one of the outcomes of their bilateral meeting to further enhance the close cooperation between Malaysia and Singapore.
Currently, the southern tip of Peninsular Malaysia is connected to Singapore by the ageing Johor Causeway and the Second Link crossing in Tuas.
In 2006, Malaysia dropped a plan to build a second bridge replacing the Johor Causeway after it hit a dead-end following some disagreement between the two neighbours.
Lee also suggested that the Johor Causeway be broadened and the rail link connecting both sides of the causeway be improved to further ease traffic movement.
Earlier, upon his arrival at the Istana, Najib inspected a military guard-of-honour before proceeding straight to a four-eyed meeting with Lee.
The two leaders later joined the bilateral meeting involving the top official delegations from both sides.
The Malaysian delegation included Foreign Minister Datuk Anifah Aman, Transport Minister Datuk Seri Ong Tee Keat, International Trade and Industry Minister Datuk Mustapa Mohamed, Minister in the Prime Minister�s Department Tan Sri Nor Mohamed Yakcop and Johor Menteri Besar Datuk Abdul Ghani Othman.
Najib also said he proposed that a wellness centre be set up in the Iskandar Malaysia development area in Johor as an iconic investment that would showcase the growing cooperation between the two countries.
The prime minister said the wellness centre would appeal to not only Singaporeans but also Malaysians and foreign visitors as going for spas, medical treatment, homeopathy and herbal treatment was the "in" thing to many people now.
Najib said that as part of another iconic investment, Lee proposed that a new township for mixed development be opened so that Singaporeans could have more flexibility to invest or relocate their businesses in Singapore to Iskandar Malaysia.
Saying that Iskandar Malaysia had progressed so much since it was launched in 2006 and had attracted about RM42.6 billion in investments, Najib said he hoped to see more participation from Singaporeans in the southern development corridor.
Najib also said that Malaysia had agreed to Singapore's request to open a counsellor's office in Johor Baharu to assist Singaporeans in need of assistance there.
Lee had said that an increasing number of Singaporeans were now going to or passing through Johor and there was no one to assist them if they were in trouble as he personally experienced it when Singaporeans started calling him for help when they were stuck there.
Najib also said that to further enhance their relations, both governments had agreed to encourage more air linkages between the two countries, especially by the low-cost carriers.
On security, Lee again thanked the Malaysian authorities for recapturing Singapore's most wanted fugitive Mas Selamat Kastari, the suspected leader of the Jemaah Islamiah militant group, in Johor last month.
However, to a question, Najib said there was no timeline as to when Mas Selamat would be returned to Singapore but the authorities here would be kept abreast of the information or intelligence gathered by the Malaysian side.
Najib also said that Malaysia had agreed to Singapore's request to open a consulate office in Johor Baharu to assist Singaporeans in need of assistance there.
Lee had said that an increasing number of Singaporeans were now going to or passing through Johor and there was no one to assist them if they were in trouble as he personally experienced it when Singaporeans started calling him for help when they were stuck there.
Najib also said that to further enhance their relations, both governments had agreed to encourage more air linkages between the two countries, especially by the low-cost carriers.
On security, Lee again thanked the Malaysian authorities for recapturing Singapore's most wanted fugitive Mas Selamat Kastari, the suspected leader of the Jemaah Islamiah militant group, in Johor last month.
However, to a question, Najib said there was no timeline as to when Mas Selamat would be returned to Singapore but the authorities here would be kept abreast of the information or intelligence gathered by the Malaysian side.
Najib said his discussion with Lee today was good and it was another step in the Malaysia-Singapore relationship.
Both Najib and Lee hoped that the old legacy of problems they inherited in the last 18 years could be solved as soon as possible.
"We don't have to wait for another 18 years to solve these problems," Najib said referring to the Points of Agreement that deals with the issue of the future of railway land owned by Keretapi Tanah Melayu in Singapore.
Najib said the foreign ministers of both countries would meet to study further the matter and hoped that it could be solved in a "win-win situation" for both sides.
After the news conference, Najib left for Friday prayers at the Sultan Mosque, Singapore's oldest, in Arab Street.
-- BERNAMA
http://forums.delphiforums.com/sunkopitiam/messages?msg=29465.1
Singapore's Temasek defends costly Bank of America exit
Singapore's Temasek defends costly Bank of America exit
By Kevin Lim and Saeed Azhar
SINGAPORE (Reuters) - Singapore's Temasek defended its money-losing exit from Bank of America (BAC.N: Quote, Profile, Research, Stock Buzz), saying the U.S.-centric bank did not fit its investment criteria and the risk was perceived to be greater than the expected return.
The explanation, a rarity for the state investor, came in a letter to major Singapore newspapers after the loss on BofA attracted fierce criticism from the usually muted pro-government local media, investors and independent blogs, which noted BofA shares have rallied more than 70 percent after Temasek's exit.
The losses are also expected to be discussed when Singapore's Parliament convenes next week.
Temasek, which is headed by Ho Ching, the wife of Singapore's prime minister, sold its 3 percent stake in BofA in the first quarter after converting its Merrill shares into BofA in January. Temasek has not said how much it lost in the process, but Reuters estimated the loss was more than $3 billion.
Temasek announced in February that Ho will step down and be replaced by Chip Goodyear, the former CEO of BHP Billiton (BHP.AX: Quote, Profile, Research, Stock Buzz), on October 1.
"Our investment thesis had changed from Merrill's specific businesses to the more diversified BoA linkage to the broader U.S. economy. The risk-return environment had also changed substantially," Myrna Thomas, managing director for corporate affairs, said in the letter.
Temasek's aim is to ensure that its portfolio delivers returns that are higher than the cost of capital employed on a risk-adjusted basis, Thomas said.
"We may choose to divest an investment, even at a loss, to optimize our risk or portfolio exposure, or if there are better opportunities elsewhere or later," she added.
Temasek, which like other sovereign wealth funds, plowed billions into Merrill Lynch in the early phase of the credit crisis, saw the value of its portfolio plunge 31 percent to S$127 billion between March 31 and Nov 30 last year during the severe market turmoil.
KEY QUESTION UNANSWERED
Financial investments accounted for 40 percent of its portfolio.
"The letter doesn't give the answer that everybody is asking. How much did they lose?," Leong Sze Hian, president of the Society of Financial Services Professionals, told Reuters.
The exact losses are difficult to quantify because Temasek had also offloaded about 30 million Merrill shares last year in smaller lots, reducing its exposure to the investment bank by the time BofA took over Merrill.
Conraj Raj, editor-at-large at the Today newspaper in Singapore, threw the spotlight on the sovereign wealth fund's stated strategy of taking a long-term view of its investments.
"After all, it has been drummed into us ad nauseam that both Temasek and its cousin, the Government of Singapore Investment Corporation, invest for the long term with a time horizon that could stretch for as long as 50 years," he wrote on May 18.
"Whatever happened to the sovereign wealth fund's (SWF) strategy of taking a long-term view of its investments?"
Singapore's bigger sovereign wealth fund, GIC, on the other hand said it was a long-term investor in Citigroup (C.N: Quote, Profile, Research, Stock Buzz) and UBS (UBSN.VX: Quote, Profile, Research, Stock Buzz).
"It is difficult to understand why a long-term investor like Temasek was willing to stick with a dud like Australia's ABC Learning centers to the end, but did not try to exercise a little bit more patience with a U.S. government-backed entity like BofA," Png Eng Huat wrote in a letter to Straits Times forum.
"The U.S. government has stated clearly that it will not nationalize BofA even though it is technically the largest shareholder of the bank."
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What a secular organisation means in Singapore
What a secular organisation means in Singapore
YESTERDAY'S letter, "Challenging logic" by Mrs Carolyn Tan begs for a disagreement.
Mrs Tan had noted that the fact that the ousted executive committee of the Association of Women for Action and Research (Aware) came from the same church did not mean that there was a "grand design to gobble up Aware".
What is important is that the ousted exco comprised Christians from the same church and all of them are Chinese.
Aware ought to comprise leaders from different races and religions because it is a secular organisation which aims help all women in Singapore regardless of race, language, religion, nationality and profession.
If all its exco members were Christian and Chinese from the same church, I believe non-Christians and non-Chinese would be less comfortable in approaching Aware for help. Aware, which claims to be diverse, would therefore lose in its mission.
No secular organisation ought to have an exco comprising members from the same race and same religious background.
Ace Kindred Cheong
http://forums.delphiforums.com/sunkopitiam/messages?msg=28024.426
YESTERDAY'S letter, "Challenging logic" by Mrs Carolyn Tan begs for a disagreement.
Mrs Tan had noted that the fact that the ousted executive committee of the Association of Women for Action and Research (Aware) came from the same church did not mean that there was a "grand design to gobble up Aware".
What is important is that the ousted exco comprised Christians from the same church and all of them are Chinese.
Aware ought to comprise leaders from different races and religions because it is a secular organisation which aims help all women in Singapore regardless of race, language, religion, nationality and profession.
If all its exco members were Christian and Chinese from the same church, I believe non-Christians and non-Chinese would be less comfortable in approaching Aware for help. Aware, which claims to be diverse, would therefore lose in its mission.
No secular organisation ought to have an exco comprising members from the same race and same religious background.
Ace Kindred Cheong
http://forums.delphiforums.com/sunkopitiam/messages?msg=28024.426
Why Temasek sold its stake in BoA
May 22, 2009
REBALANCING PORTFOLIO
Why Temasek sold its stake in BoA
I REFER to recent reports and commentaries on Temasek's divestment of its Bank of America (BoA) stake. We would like to clarify some of the points raised.
Temasek invests with the objective of delivering sustainable returns over the long term. This means our investment strategy is not aimed at delivering target returns on a year-by-year basis. This is why we report our portfolio returns not just for a single year, but for various time horizons in our annual Temasek Review.
To achieve our investment objectives, we constantly review our portfolio and rebalance it from time to time. We may choose to divest an investment, even at a loss, to optimise our risk or portfolio exposures, or if there are better opportunities elsewhere or later. We may also choose to hold or increase our existing investments.
Ultimately, the aim is to ensure that our portfolio delivers returns that are higher than the cost of capital employed on a risk-adjusted basis, or what we call Wealth-Added.
Our investment in Merrill Lynch was made in December 2007. This was exchanged into BoA shares in January this year following BoA's completion of its September 2008 offer to buy Merrill.
Our investment thesis had changed from Merrill's specific businesses to the more diversified BoA linkage to the broader US economy. The risk-return environment had also changed substantially.
We decided to divest our BoA stake after considering all relevant factors.
This move to balance risks against opportunities is part and parcel of our discipline of investing and divesting to deliver sustainable long-term returns on our entire portfolio.
We are mindful of the risks we face as we invest. We reinforce this risk-return balance through a compensation framework which puts the institution above the individual, emphasises long term over short term, and aligns employee and shareholder interests for both the upside and downside, over the medium and long term.
While we do our best to mitigate risks, the reality is that not every one of our investments will be equally successful. We recognise that only time will tell if we have made the right decisions to deliver sustainable returns on our portfolio as a whole.
Myrna Thomas (Ms)
Managing Director,
Corporate Affairs Temasek Holdings
http://forums.delphiforums.com/sunkopitiam/messages?msg=29004.42
REBALANCING PORTFOLIO
Why Temasek sold its stake in BoA
I REFER to recent reports and commentaries on Temasek's divestment of its Bank of America (BoA) stake. We would like to clarify some of the points raised.
Temasek invests with the objective of delivering sustainable returns over the long term. This means our investment strategy is not aimed at delivering target returns on a year-by-year basis. This is why we report our portfolio returns not just for a single year, but for various time horizons in our annual Temasek Review.
To achieve our investment objectives, we constantly review our portfolio and rebalance it from time to time. We may choose to divest an investment, even at a loss, to optimise our risk or portfolio exposures, or if there are better opportunities elsewhere or later. We may also choose to hold or increase our existing investments.
Ultimately, the aim is to ensure that our portfolio delivers returns that are higher than the cost of capital employed on a risk-adjusted basis, or what we call Wealth-Added.
Our investment in Merrill Lynch was made in December 2007. This was exchanged into BoA shares in January this year following BoA's completion of its September 2008 offer to buy Merrill.
Our investment thesis had changed from Merrill's specific businesses to the more diversified BoA linkage to the broader US economy. The risk-return environment had also changed substantially.
We decided to divest our BoA stake after considering all relevant factors.
This move to balance risks against opportunities is part and parcel of our discipline of investing and divesting to deliver sustainable long-term returns on our entire portfolio.
We are mindful of the risks we face as we invest. We reinforce this risk-return balance through a compensation framework which puts the institution above the individual, emphasises long term over short term, and aligns employee and shareholder interests for both the upside and downside, over the medium and long term.
While we do our best to mitigate risks, the reality is that not every one of our investments will be equally successful. We recognise that only time will tell if we have made the right decisions to deliver sustainable returns on our portfolio as a whole.
Myrna Thomas (Ms)
Managing Director,
Corporate Affairs Temasek Holdings
http://forums.delphiforums.com/sunkopitiam/messages?msg=29004.42
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