Cluster Family Office Blog

When discussing figures on mortgage defaults or property repossessions in the US, it is important to bear in mind the wide variety of historical and statistical criteria that have been and continue to be used to quantify the problem. For this reason, a great deal of data is incorrectly compared over time, leading to conclusions that will distort the correct strategy to be followed.

When discussing sub-prime mortgages and the credit crisis that has arisen in recent times, many analysts seek to draw parallels that might shed some light on the bleak outlook that lies ahead. That is why it is necessary to clarify concepts that are often confused.

For example, the following chart shows the trend in the US mortgage default rate from 1979 to the present day. As we can see from the chart, the default rate currently stands at 7%, but we must bear in mind that at the height of the property bubble (second half of 2005) it was also significant, at around 5%. Therefore, although we believe that the peak of this figure is still some way off and that we are in the midst of an upward trend, it is curious, to say the least, that we find ourselves at levels «only» 2% above those of good times.

But here we can already start to qualify this: The National Delinquency Survey (NDS) also provides statistics on the «seriously delinquent mortgages» at 90 days, something akin to «seriously delinquent mortgages» (an unfortunate term), that is to say, those that are predictably heading straight for repossession and are no longer simply a temporary, one-off 30-day arrears. And within this group, they further distinguish between seriously delinquent mortgages prime y sub-prime. Whilst the prime had a coefficient of serious arrears In 2005, the figure stood at 1,82%; today it has risen to 2,87% – an increase that is greater than, but still comparable to, the rise shown in the previous graph. In contrast, the sub-prime have soared to 19.55%. In other words, whilst the ratios have already become rather complicated for us in recent years, if we also try to compare the figures from the last few decades with those from the The Great Depression of the 1930s (something many analysts have been doing recently), any parallels we might find will be the result of comparisons between figures, classifications and percentages that are so disparate that they will lead to highly misleading analyses.

As we can read in the The Federal Response to Home Mortgage Distress, at the height of the recession, around half of urban households with outstanding mortgages were bankrupt. But they struggled immensely to save their mortgages, and the number of repossessions was kept to the levels shown in the following graph, that is to say, reaching almost 14 annual repossessions per 1,000 mortgages.

Another crucial fact we need to be aware of before analysing the statistics is that mortgages taken out in the period leading up to the 1929 crash and in the years that followed were for only 50% of the property’s value and had a term of no more than 5 or 7 years. Therefore, the personal tragedies experienced by those households whose homes were repossessed almost 80 years ago were far more traumatic than the problems faced by a ‘Ninja’ (no income, no job, no assets) who hands over the keys to an estate agent this year or next. The situations are not comparable.

In those days, a repossession meant the loss of a whole lifetime’s financial savings and the effort put into buying a home. Today, however, in many cases it simply means having paid a somewhat expensive ‘rent’ for a few years in the form of a ‘designer’ mortgage instalment. And many will think that, as a result, the current social suffering will be less severe, but that would once again be merely a very superficial analysis. The fact that the social drama is less gruelling for the time being, this does not necessarily mean that the economic and financial situation is any less severe. Far from it. If a defaulting borrower merely loses a few thousand $ (or €) paid in instalments towards a house they bought off-plan at a price higher than its current value, and with a stifling employment situation, they will fight far less hard to save their home from repossession than did debtors in serious financial difficulty in the 1930s.

In other words, what at first glance might seem to be a qualitative advantage of our current situation compared with that experienced during the Great Depression is, in fact, quite the opposite. And we shall mention just a few of the aggravating factors that lead us to this conclusion:

• Today we are facing a multi-crisis situation, and it is not just that astronomical sums of money are being lost on the stock market, as happened during the crash of ’29.
• The credit bubble and the widespread abuse of credit have left almost all of us with levels of debt and leverage never seen before – and not just because of mortgages.
• The property bubble is causing the gap between the purchase price and the market price to be far greater than it was during the Great Depression.
• All of this has been exacerbated by the utter recklessness of financial institutions in granting mortgages for amounts close to (or even exceeding) 100% of the valuation.
• The irresponsibility of these financial institutions (exacerbated by mortgage brokers in the US), which have devised ‘designer’ mortgages to boost sales: all manner of payment plans with highly variable interest rates, negative amortisation (North America e (Interest-only), and a long and diabolical list of other issues. Worse still, most of them will blow up in the faces of these financial institutions between 2009 and 2011, when the creative accounting will give way to the gaunt the reality of compound interest and amortisation, although we hope that current markets have already priced in a significant portion of this.
• The irresponsibility of all those who took out these loans, who were (and some still are) immersed in a first-world standard of living that is proving to be illusory. In a consumerist environment far more excessive than that of the Happy 20s.
• Today’s globalisation means that the knock-on effects of the financial crisis are felt across the entire planet, whereas the Great Depression spread to Europe and what are now known as the emerging economies in a much gentler and more gradual manner. Globalisation amplifies and accelerates the downturn, and let us hope that the same will be true of the recovery.

Consequently, and given the danger that today’s mortgage holders have less to lose than those of the 1930s, this false headlong rush will only intensify. Mortgages were granted to ‘Ninjas’ who, regrettably, should never have been allowed to become homeowners given their precarious financial situation; conversely, those in a less precarious position benefited from the system’s lax requirements when it came to financing them. This is also a very serious matter because, due to these lax requirements, mortgage holders with moderate financial stability will also jump ship in the face of the social hardships this crisis will generate, as their modest investment in the property venture represents a loss they can easily absorb, paving the way for a future repurchase of another property at much lower prices.

No one will fight under these conditions to save their mortgage from repossession, as they did during the Great Depression. And that radically shifts the problem from mortgage holders to the banks (something that happened to a much lesser extent in the 1930s). But the banking sector, due to the extreme and globalised impact it is suffering, is in turn passing the burden on to the financial system, dragging the real economy down with it. And the financial system, on the brink of collapse, has passed the burden on to the governments, who are facing mounting challenges in the midst of a financial wasteland and a real economy in freefall. At this stage, it is clear to everyone who bears the brunt of ‘Big Brother’ the State, thus demonstrating that the superficial analysis suggesting the social and economic drama of the Great Depression was greater than the current one is, predictably, mistaken.

In short, comparisons between the current recession and previous ones (particularly that of the 1930s) are, to say the least, complex and misleading. And I can’t help but smile sadly when I hear high-sounding luminaries from the world of economics proclaiming that this depression is drawing to a close because, historically speaking, not even in the 1930s were there periods of recession lasting more than a couple of years. And this is only true if we regard the sub-cycles of technical recession as a cycle in their own right, ignoring the fact that the Great Depression as such lasted 10 years and was only brought to an end by the Second World War.

And the worst thing is that some of these eminent figures do not even have any commercial or political interests that would lead them to make such claims; rather, in my view, they are simply flawed analyses based on incomparable and disjointed data. I wish I could see greater substance and rigour in them; nothing would please me more.

The film *Jurassic Park* raises several interesting points. One of these is the danger of two species – humans and dinosaurs – coexisting in the same time period. This is something that never happened naturally, yet occurs artificially in this work of fiction. This artificial coexistence between two distinct natural worlds may clash or grind at the teeth for countless and unforeseeable reasons, many of which we cannot even begin to fathom, let alone try to prevent or improve. It is, in short, an unnatural coexistence which, whilst it may prove successful, is highly likely to generate a great many complications or problems. This conflict-ridden coexistence will seek to restore the natural balance – and almost always to the detriment of the most vulnerable.

You may be wondering what all this has to do with Family Office advisory services or with finance in general. Well, you’ll understand if we talk about the coexistence of sudden wealth with people who have not been able to generate that wealth themselves. In other words, when someone receives a fortune that they have not earned or generated themselves.

Every day we see many cases in which a family with a moderate capacity to generate wealth suddenly comes into a sum of money that it is unlikely to be able to manage properly. This sudden increase in wealth can take many different forms, unrelated to effort or merit, and none of these forms precludes the possibility of the others: Inheritances, prize draws, property rezoning and get-rich-quick schemes of dubious legality, separation agreements, the distribution of bequests whilst still alive, various speculative bubbles, etc… However, these episodes do not usually recur, so there is unlikely to be much room for manoeuvre or second chances to learn from mistakes.

It is obvious that the reason why many of those who come into sudden wealth squander it within a few years is none other than their own inability. If they had been capable in their own right, the wealth would probably have come to them more or less directly, because time tends to put everyone in their place. But let us make no mistake: this is by no means a criticism, as not all of us are obliged to be capable of generating more wealth than is necessary. There are even people, despite being capable, whose interests and efforts are focused on far less material things. A real lesson for everyone else in many ways. And it should be made clear that both those who are incapable of creating abundant wealth and those who have no interest in doing so are just as worthy of respect as the rest of us (or even more so).

Let us focus on those who, despite trying to generate as much wealth as possible, are unable to earn much more than enough to support their families. If this group – let’s call them the middle class (the most numerous group until this crisis) – were to come into sudden wealth in any of the ways mentioned above, they would have to contend with two contradictory realities: Wealth in the hands of those incapable of creating it. United in time and space, just like the dinosaurs and humans we mentioned at the start of the article. A low or average capacity for wealth creation will squander that sudden fortune within a few years, with a few exceptions. Among these exceptions are those who will make the effort to educate themselves so as to manage their sudden wealth properly. Some may even succeed, but the majority will fail due to their own shortcomings or because they overestimate their abilities during this training process. Hiring good professionals is usually very beneficial, but at the same time very difficult to achieve. However, many others will not even make the effort to learn. And they will believe that if they were able to manage their lives without wealth, it will be even easier for them to do so with money. Big mistake. The only thing that will come easily to them is squandering their fortune – whether quickly or gradually, but in either case in a sadly inexorable manner. Not only may they lose the entirety of the sudden wealth they have received, but they may also find themselves in debt and in a far more precarious situation than before. They may even end up losing the skills that originally enabled them to enjoy a more than respectable standard of living, all because of vices and a lifestyle of false affluence maintained for a few years.

The coexistence of a limited capacity to generate wealth and a sudden windfall will, in almost all cases, be an unnatural combination that will seek to restore its balance. This rebalancing may, in exceptional cases, come about through improved training, but almost always nature will rebalance itself, leaving the protagonist at a level of wealth similar to that which they originally knew how to generate and manage. In other words, rebalancing to the detriment of the most vulnerable party: Wealth. Very little of it, nothing at all, or even debts will remain after this natural rebalancing.

“God creates the dinosaurs. God destroys the dinosaurs. God creates man. Man destroys God. Man creates the dinosaurs. The dinosaurs eat man.”

Dr Ian Malcolm (Jurassic Park – Jeff Goldblum 1952 – )

God creates man. Man creates wealth. Man creates his children. Children do not create wealth. Children grow into men. Sudden wealth falls into the hands of men. Men devour the wealth. It’s God’s fault. Wealth destroys man. God, if man’s father were to raise his head… Oh dear, what a mess!

It seems the US can’t seem to catch a break… and here in Europe we’re so oblivious that we think their problems won’t affect us just as much, if not more so. The latest red warning light to come on (one of the few that were still off) is that concerning the price of lower-grade non-financial commercial paper: the so-called A2/P2 CP (Commercial Paper).

The spread or the spread paid on an A2/P2 rating compared to AA-rated non-financial commercial paper has historically been minimal, except during crises such as the dot-com bubble and other isolated instances where this spread reached almost one percentage point. As you can see from the chart below, for long periods this spread was barely a few dozen basis points. However, when the credit crisis hit, and particularly during the last quarter of 2007, this spread shot up to 160 basis points. This was unprecedented and was considered at the time to be an unsustainable shock.

Well, just as the Fed is in the midst of planning a massive buy-up of long-term Treasuries to create an artificial ceiling on prices, things are going awry – specifically, the spreads on A2/P2 commercial paper relative to AA-rated debt. But it’s not just that they’re widening; they’ve shot up to unprecedented astronomical limits, above 580 basis points one year out. You can view these spreads at this page from the Fed. Not only does this harm the companies themselves, which sell their bonds at exorbitant prices to the detriment of their balance sheets, but it is also potentially dangerous for the investors who buy those bonds. This risk is, of course, reflected in the form of a massive spread and contributes to the tightening of credit conditions. As we often say, this imbalance will tend to rebalance itself, and God willing, this will take the form of a narrowing of the spread (albeit in a way that is also artificial) rather than rising due to widespread defaults. What we believe is inevitable is that this pressure on commercial paper will spread to Europe, and that we will see spreads widen there as well.

All of this is nothing more than the social consequences of the tsunami that we are beginning to see something we might not immediately notice on our beaches, but which has been caused by the financial and credit crisis we have been experiencing since the summer of 2007.

Commercial paper distressed, ... is nothing more than a reflection of the global financial situation at company level, and therefore also at investor level, and consequently at workplace level and in terms of unemployment figures. We are not just talking about redundancy schemes, but also about closures that result in a 100% of unemployed people.

Many initial steps are being taken, and the effort will be historic, but the problem we have got ourselves into is colossal. The pressure is so intense that, despite attempts to keep the vital financial fundamentals under control, in many places...manhole covers are being hurled through the air with unprecedented force, such as the spread on that A2/P2 CP. Let’s hope they serve as a kind of safety valve, although at present they are merely symptoms of the fact that we're standing on a volcano. And the following graph could well be the seismogram of the first eruption, which took place in August 2007.

A quick glance at this chart of commercial paper yields—which are traditionally linked to the official yield curve—reveals some shocking evidence. And the final quarter of 2008 is proving to be even more terrifying. Only politicians, the wicked or the foolish have, until recently, failed to realise that the world changed 16 months ago. Crystal clear, isn't it?.

It is not our intention to cause offence or stir up controversy that might turn people against us, but one thing all the authors of this blog are clear about is that there is no point in writing articles politically correct, which do little or nothing to help readers find insights that go beyond the sterile and/or the run-of-the-mill. The truth is that we care little about the repercussions, whether in the form of rude anonymous letters or a persecution complex on the part of pseudo-professionals in management or consultancy. Some of whom, paradoxically, melt away like ice cubes in the desert as soon as, by a twist of fate, their professional paths cross with ours and they are required to follow the guidelines set by a Family Office. Indeed, in some cases where the relationship, through time and effort, enables these professionals to grasp the essence of our work, we often see a a flicker of healthy and honest envy in the sparkle in their eyes and in their confessions off the record, and that speaks volumes in its favour. So let’s get down to business, confident that we’re going to open many people’s eyes, and in the hope that only those who really deserve it—and the less honest among us—will take offence.

The risk profile classifications of investors, which are commonly used by banks, are now very popular. These typically consist of between 3 and 6 categories, ranging from the most conservative (sic) to the riskiest. All of this has been compounded in recent months by the famous MiFID, which acts as a safeguard against potential future claims by customers against their financial institution (as Echevarri once so aptly put it), even though it was officially created to «safeguard investors» interests’. Needless to say, these risk profile classifications are not only wholly inadequate but also misleading. And not only do they fail to support the proper growth of our financial assets, they focus exclusively on two variables: Profit target and acceptable losses. All of this takes place within a short-, medium- or long-term framework, which is established solely to determine the scope the institution will have to absorb losses, before the customer has any right whatsoever to even feel annoyed by the financial drain.

If we set aside risk profiles, MiFID and portfolio management, and focus on the management of SICAVs, the picture changes. But it's getting worse. When a private client (or their advisers) is not considered suitable and adequately prepared to manage oneself de facto Given that it is the Bank’s own SICAV, the pressure exerted by the Bank’s management is even further removed from reality. Under the pretext of the reputational risk the institution faces if the SICAV does not achieve results in line with the management company’s average, management criteria are being imposed that are absurd, to say the least.

That’s right, and in many cases the managers of these open-ended investment companies operate on the basis of just three guidelines: Return target, acceptable losses, proportion of equity and fixed-income assets in the portfolio, and very, very little else (I refuse to believe that the operating account for the bank and/or the management company could be the fourth guideline they work by). Moreover, this third proportion is usually a variable that depends on the first two constants. It saddens us to see that these management firms are far more concerned that the number of temporary breaches (of the regulations and limitations of these investment companies) incurred by the management company’s SICAVs is moderate, that they do not run into problems with the CNMV, or that the valuation criteria (which are becoming increasingly rigorous, A.D.G.) do not undermine their return figures relative to the benchmarks (sotacaballoyrey) of asset management firms at other banks.

For these managers, there is no connection whatsoever between returns (whether positive or negative), valuation criteria, temporary defaults, etc., and the growth of the client’s and their family’s wealth. Vital concepts that should form the very essence of investment and management strategy design are completely overlooked. What is more, these management firms are not even aware that such concepts exist, despite claiming to understand the client and their circumstances in order to tailor their management approach to their needs. And indeed, that is what they claim to do. Pathetic.

The annual divestment requirements to cover the GIA (expenditure, investment and savings) of the Family and its environment, the taxation of said GIA, the consequent application of such divested income to investment and savings outside the SICAV, the need to reinvest the FSC (safety and growth margin) in the same or other items within or outside the investment company, changes in projected rental requirements and divestments, as well as changes in acceptable risk levels based on the volume of FSC secured, and so on and so forth; these are some of the factors that The Unbearable Lightness of the Manager It's more than just Chinese; it's Swahili.

In fact, they cannot even grasp that there are concepts which should have some bearing on their work—such as estate planning, corporate and tax structures, business or property growth or decline, and divestment requirements—and apply them to GIA (expenditure, investment and savings), nor what on earth a safety and growth margin is for. Let alone even begin to grasp what a Vital Balance and its application in real life. Unfortunately, they often fail to realise that their assets are not limited to the money deposited with their bank. Nor do they appreciate that managing those assets cannot be approached in isolation from the rest, relying solely on the two constants and the variable mentioned above, with or without MiFID. Some, in a moment of clarity, reply: «No, of course not; I suppose he’ll have more money or another SICAV with a different institution.».

The concept of real estate or business assets (not to mention artistic or other types of assets) implies for these managers a trip into outer space, that is to say, something infinite and unknown that is beyond their comprehension, and which they do not even consider might or should interfere with their earthly work—work limited to the capital managed by their own organisation and to the repetition of the mantra: «»Return target, acceptable losses, proportion of fixed income and fixed income in the portfolio'. It’s a bit like explaining the Big Bang or a quasar to someone who believes the Earth is flat.

Even though some of those who take offence label us as arrogant know-it-alls, we wouldn’t want readers in general to get that impression. Nothing could be further from the truth, and those closest to us know this. We don’t have a monopoly on the truth and we make mistakes just like anyone else. Experience has taught us that humility is something that must never be lost, because it can often prove very, very costly. And we have never boasted of being able to predict the future or the markets, as others do when peddling their so-called predictive powers in one way or another. But it is true that, when it comes to the various problems that wealth often brings to its owners and to the proper management of assets, we know more than most. Our track record speaks for itself, and we have dedicated our professional lives (and even part of our personal lives) to this. In comprehensive wealth management, the financial aspect is just that: one piece of the jigsaw. But for managers, their area is everything, and they aim to «get to know their customers» through absurd questionnaires and the definition of a couple of numerical parameters. From that point on, your professional success (and financial reward) will depend on meeting or exceeding the benchmark applicable to the ghetto which is supposedly due to his client. That is all. Jeopardising the necessary progress and accepting the risks associated with their profile, whether these are manageable or prohibitive. Without caring, and without even beginning to understand that behind the money there is a family, certain objectives, circumstances, needs, a wide variety of desires, past, present and future investments, legacies, diverse and complex tax regimes, ownership and tenure of assets, capable or incapable heirs, family businesses or otherwise, present and future working capacities or incapacities, various health and risk coverages, investment affinities and capabilities, etc., etc., etc.

It is true that a financial manager’s remit is limited, and we cannot hold them responsible for being unaware of all the circumstances surrounding their clients. They aren’t paid for that (or are they?). But worst of all is that most of them are unaware of their own limitations. They are almost completely unaware of the world of wealth management beyond the limited financial remit, which is even restricted to the institution they work for. And the worst thing is not their lack of knowledge, but their contempt for the ignorance they carry and accumulate. Perhaps many of them were top of their class, and often that very lack of Humility They apply it in their work when dealing with the market. Age and experience certainly tame (and enrich) the wild beasts. But unfortunately, this realisation usually dawns on them when they are already far removed from the trading desks and screens – which is precisely when those wild beasts are at their most dangerous. I wonder why that is?

All in all, and with a few very honourable exceptions, The Unbearable Lightness of the Fund Manager, together with the investors’ own incompetence, are the main reasons why the vast majority of wealth is squandered and destroyed before the helpless eyes of those who helped to create it.

«I'm underwater and the beating of my heart creates ripples on the surface.»

Milan Kundera (Brno, 1929 – )

It is clear that the political decision – whether it is the right one or not, only time will tell – is to plugging holes and to buy up toxic assets to safeguard the system’s solvency. The outcome of that decision – taken under the pressure of collapse and panic – appears to be the injection of funds via capital increases into balance sheets whose holes have turned them into Swiss cheese. Well, it is clear that intervention only takes place in those cases where imminent bankruptcy would cause direct or indirect damage that is globally unacceptable. In other words, companies whose shockwave lacks the capacity to shake truly essential foundations will go down with a bang. And the authorities will stand by and watch those in distress a Viking burial, but without drawing on the already stretched public purse. Only when it is strictly essential will losses (a euphemism if ever there was one) and thefts be socialised – that is, when the bailout becomes a more or less globalised matter of state.

But let us focus specifically on those cases in which, for reasons of state or systemic stability, the public’s money is to be used – whether or not shares are purchased as part of a rights issue – to stabilise collapsed balance sheets. The states are set to take on risk (They’ve been doing this for weeks, even months.) In other words, in exchange for public money, they’re going to end up with paper that the Market – as efficient as ever – has been systematically rejecting since at least the summer of 2007. And when I say ‘the Market’, that’s exactly what I mean: all of us.

But be careful, because That risk only applies if we stick to the rules of the game. In other words, if the clusters (M1, M2 and M3) are still the same as before. As we have already seen in these four articles As in previous instances, the credit bubble has not been accompanied by a proportionate increase in the M1 aggregate (banknotes, coins in circulation and liquid assets). And it is clear that governments’ capacity to sustain public deficits is finite, whilst the scale of balance-sheet write-downs during a period of depression such as the present one seems like a veritable, quasi-infinite ocean. It therefore seems inevitable that M1 will increase dramatically, not as a result of economic growth but rather created to meet the public sector’s need to purchase risk.

So, if the risk is to be paid for, at least in part, by an increase in the M1 aggregate, is it not the case that its intrinsic risk is being distorted? In other words, a security that carries a risk for which someone is willing to pay well above market value should entail a loss for the buyer that will, in all likelihood, translate into a financial loss in the future. But bear in mind, this is true only whilst the conglomerates remain in place, particularly the M1. For if governments pay for high-risk instruments (debt, capital increases, collateral, etc.) at a price above market value, using money that is to be created and which will cause the M1 aggregate to grow, that risk is diluted within the aggregate itself.

And so we come to the magic we all need: The risk will have been mitigated Where will the risk end up? What will become of the toxic waste? How will the holes in the balance sheets be plugged? What will have become of the widespread bankruptcy?

To paraphrase our dear Mr Leopoldo Abadía, to whom I send my regards from here, when he spoke about where the money from the loan in circulation was, we would say the same thing: The risk will be «Missing’«.

What is clear is that we must not suffer because the risk that governments are taking on turns into a financial loss that bankrupts countries capable of manipulating conglomerates. The M1 aggregate will grow in line with that risk. And as for that growth in M1… we’ll have to wait and see. There are many questions that might arise at this point, and we are really venturing into uncharted territory. For example, what proportion of risk will governments buy? Half from the US and half from Europe? What about the G20? And what about emerging market sovereign wealth funds (SWF)? In fact, this allocation of ‘cards’ should be based more on central banks than on states, as it is the former that have the exclusive power to alter the M1 aggregate. In any case, I fear this is set to be the most crucial, coordinated and yet least transparent and regulated process in history. Let’s hope it turns out for the best.

At this point, we could say that, in fact, The Member States will not even be buying risk; rather, they will have to allocate risk-purchase quotas amongst themselves, which they will then convert, proportionally and in a coordinated manner, into M1 growth quotas. I don’t even want to think that it might end up being traded, as is the case with CO₂ emission allowances, and I hope we do not end up creating a market out of our own miseries when our very survival is at stake. Some will say that inflation will take hold in a scenario where M1 increases, but let us not forget that all this will happen to plug gaps created in part by the sustained and disproportionate abuse of M3, which is unlinked to M1, in a recessionary environment and a depression that may well exceed that of 80 years ago. I, for one, am not so sure, and I believe that such a scenario is hardly comparable to anything that preceded globalisation and this multi-crisis.

How much is risk worth?… What if we all chipped in to buy it?…

A return to equilibrium after all that? It’s certainly impossible to predict.

I think Dani, which is almost like the «small picture»I’ll be happier, won’t I?"

Once upon a time, there was a bar: Bar Manolo. In an ordinary neighbourhood in any given town, there was a run-of-the-mill bar that had been open for several years, with its regulars and the occasional passer-by. Just like so many other bars in Spain. However, something was happening to this bar and its owner, Manolo, just as it was to so many other bar owners.

Over the past year, 2008, sales have skyrocketed. Yes, yes, right in the middle of the crisis, the locals are drinking more and better than ever. Although this so-called crisis is making itself felt in one respect: the way people pay. Company redundancy schemes, unemployment and unsellable, burdensome mortgages mean that customers at Bar Manolo are racking up more and more drinks on their personal tabs. Tabs that Manolo has always run on credit, collecting payment religiously at the end of the month from each of his regulars. Money is even scarcer now, and the abundance of recent years is sorely missed – at least when it comes to the loose change in people’s pockets. Nevertheless, the customers think: why should they deprive themselves of those little pleasures – a coffee and a chat at the bar with neighbours and friends – now that they’re on reduced working hours or out of work, if they’re soon going to find a job or be able to sell whatever is weighing down their finances? After all, in this world, few things give as much pleasure for so little money as a pleasant time with friends and neighbours, a beer and a tapa, a quick game of cards or dominoes, or a simple coffee whilst discussing yesterday’s Champions League fixtures.

Manolo, who is a born businessman, has noticed this increase in credit accounts and has decided to capitalise on his customers’ tight cash flow. So, for those who, instead of paying in cash, have their drinks charged to their account, he applies a surcharge of 10%. What’s more, if anyone asks him at the end of the month to defer payment of their bill until the following month because they’ve suffered some unexpected financial setback, the surcharge is 20%. Customers are happy to accept this, and he has even managed to win over a few who used to go to the bar opposite, where the stingy owner only gives credit to people over 80 accompanied by their parents. But that’s how it goes for him – now it’s empty, whereas Bar Manolo is always packed, whatever the time of day.

His accounts for this financial year are going to be spectacular – better than ever. Sales have soared, and so have his profits. In some cases, the mark-ups reach as much as €2 for a simple cortado! The profit margin is huge, and the atmosphere at Bar Manolo is the complete opposite of that of a neighbourhood in crisis. Manolo even treats himself to buying a round when his team wins, and the bar erupts with joy. Manolo’s Bar is something truly unique…

But despite all this excitement, Remedios, Manolo’s wife, can’t sleep at night. Nor does Manolo’s brother-in-law, a builder by trade, who got him out of a tight spot years ago by lending him a fair bit of money to refurbish the bar, and who is now out of work. He needs the money he lent him because the crisis is taking its toll and there are no more building jobs to be had. What’s more, he doesn’t trust all this excitement at his brother-in-law’s bar in the midst of the crisis, which is why he’s demanding that he pay it back, even without interest.

Manolo, on the other hand, is in no doubt: the crisis is for those who don’t know how to run their businesses. Things are going brilliantly for him, and it’s a shame that his wife and brother-in-law are so short-sighted: «Asking him to pay back the loan just when business is going so well! That’s why some succeed and others don’t,» he thinks to himself. He’s always regarded his brother-in-law as a dim-witted builder who made a windfall during the construction boom. Manolo, on the other hand, has proved himself to be a successful businessman…

As the bar is short of cash, Manolo is unable to repay the loan to his brother-in-law at the moment and decides to seek other partners by simply increasing the share capital. By showing them his brand-new 2008 accounts and his forecasts for 2009, he soon catches the attention of many acquaintances who flock to him like flies to a hive of rich honey.

A large customer base and circle of friends. The news spreads through the neighbourhood like wildfire. And the business remains packed, selling at ever-higher prices and adding surcharge after surcharge to the bill…. Bar Manolo is the benchmark for success in a neighbourhood ravaged by unemployment and the economic crisis.

Some lucky residents, hand-picked by Manolo to benefit from the capital increase, can even boast that they are partners in a business with rising profits… in the midst of a crisis!!! And you can’t take back what’s already been done, because some of them, if they aren’t already unemployed, will soon be. The crisis is hitting harder than ever – or at least that’s what those who aren’t members of Manolo’s party say.

Meanwhile, the news is on the telly at Bar Manolo. Today’s report is about the umpteenth capital increase by the Molocos Bank and how cheap the shares in the Rísimas Bank, whose dividends now amount to almost 12% per annum. At the bar, some customers are discussing whether or not one should asshole to invest in banks in times like these. And Manolo declares: «Wherever there’s a well-run family business like this one, people should pull their investments out of the stock market and sell off their shares in banks holding bundles of American rubbish… as the Leopoldo »That one!".

Some people are so lucky and so talented.

Characters:
Manolo……………..Various Bankers
Wife………………Remedios De Estado
Brother-in-law……………..ECB
New Members……Mere mortals

It is common knowledge that ostriches bury their heads in the ground when they sense danger, as if doing so would keep them safe. Clearly, shutting out their senses does nothing to protect them from the actual danger surrounding them. With this «»lifesaving strategy' They manage to change only one reality: their own. In this way, they avoid the stress that would result from being aware of the real situation around them, but they do not in any way manage to improve their precarious situation. It merely improves their own futile subjectivity.

Similarly, we can say of ourselves that we are aware that we find ourselves in a hostile situation, that grave danger lies in wait for us, or that our prospects for the future have been dramatically diminished by adverse circumstances; that is the premise sine qua non so that we can react and try to prevent harm as far as possible. Not only is it physically impossible to resolve anything if we bury our heads in the sand, but the damage – if left unaddressed – will be far more devastating.

Applying these all-too-obvious syllogisms to the circumstances of an investor in a hostile environment such as the current one, we arrive at revelations that are curious, to say the least. It is, regrettably, all too common these days to come across investment portfolios severely affected by various forms of carnage: Structured products trading at 15, 30 or 50% of their value, equity and fixed-income portfolios (preference shares and perpetual debt) with unrealised losses of more than 50%, and various investments in derivatives adrift.

Some of these investors, whose financial assets have been decimated, act with the Head-in-the-sand mentality. In other words, faced with the unrealised losses in their portfolios, they bury their heads in the sand without exiting the markets and without doing anything to remedy their situation. They thus follow the advice of the very same fund managers who have caused them harm by exposing their assets to excessive risk: Now is not the time. Taking a loss would be suicide. You’d be selling at the worst possible moment. We’re hitting rock bottom. There are plenty of opportunities right now… Keep it up – it’s war! In the midst of mental ostrich-ing, The strategic criterion is: «I don’t make losses, so I don’t lose out. As for the bag (or structured products, or whatever) »If it goes up, I’ll recover and it will all have been just a nightmare’. And until that happens, keep your head buried underground with the manager’s foot on top of it, lest you be tempted to lift it up, take a look at the bigger picture and take the bull by the horns, thereby putting an end to the profits of those managers and custodians. And when, from his mini-bunker – or, as it’s also known, a hole in the ground – he asks the manipulators of his money in a voice from beyond the grave: «How are things up there?» The answer will be: «Don’t worry, the danger’s almost over. Hang in there a bit longer, and don’t you dare stick your head out – that way, nobody’ll see you.».

We can say much the same about property owners at the height of the property bubble, followed by a global economic depression: «I don’t sell my properties, so they’re worth more than the market suggests» The only difference compared with the ‘head-in-the-sand’ approach taken by stock market investors is that many property owners bought at prices lower than today’s (if they had bought the properties at a price higher than today’s market price, the statement would be identical to the previous one: ‘no realised losses = no loss’). However, just because we bought cheaply years ago and are not making a loss does not mean that the value of our property is not falling. If the market price falls, the value of our properties – and therefore our wealth – falls too, regardless of whether we sell them or not and whatever valuation method we use. If we also factor in the opportunity cost of our properties not appreciating in value over other markets, scenarios and types, the difference in the performance of our assets over time will be staggering.

Sadly, the investor who has lost money on the stock market and the property owner facing a downturn often turn out to be the same person. And if this happens at the same time, In that case, the ‘head-in-the-sand’ mentality becomes doubly devastating for wealth. And this tragicomedy has been playing out ever since share prices were 50% higher than they are today! It is not the same to disregard our capital growth over a few months as it is to do so over an entire cycle. To disregard the positive and healthy growth of one’s capital over a number of years is to squander precious time that is very difficult to recoup over the course of our investing lives. And This contempt becomes an aberration when we are faced with a global recession such as the existing one.

Just to give you an idea of globalisation: the 16 million transactions that took place on one of those fateful days in 1929 are now completed within the first five seconds of any trading session on Wall Street.

But from a certain perspective light, we must not demonise or criticise wealthy individuals with an ‘ostrich mentality’; quite the opposite, to beatify them. Thanks to them, the markets do not fall much more sharply. Because their portfolios are frozen and remain out of the market, sell orders do not multiply, causing prices to fall even further. Nor do their properties end up swelling the lists of properties for sale, as they hold on to them despite their value falling every day, and because bull runs may only return after the European recession – which this time is expected to be worse than the American one. Thanks to them, the property market will not fall any further than is caused by repossessions, unemployment and the recession itself.

The Head-in-the-sand mentality It attributes the falls in bear markets to a philanthropic and heroic act on the part of the investors who practise it. They sacrifice their own wealth (and that of their innocent heirs) so that the rest of us mortals may be better placed to sell our securities and property on the market, thereby finding buyers more easily and losing far less. Is the last one a fool? No, the last one is a blessing. Thanks to these supermen and superwomen who bury their heads in the sand in difficult times – thereby allowing their wealth to diminish significantly and steadily – the rest of us have greater room for manoeuvre. And we must also thank their fund managers for the work they do (is it philanthropic, too?), putting firm pressure on them to keep their heads buried when they’re tempted to look around and make decisions to save their wealth, as the rest of us selfish, primitive mortals do. Not them, though – investors with Head-in-the-sand mentality, they’re a different kettle of fish. They stand their ground, grit their teeth and convince themselves that the losses in property values and their investment portfolios (here, their fund managers help them to believe this) will be temporary. That everything will go back to normal, just like in a simple bear market, like those of yesteryear. Visionaries or candidates for beatification?

Then Jesus said to his disciples: «Truly I tell you, it is hard for a rich person to enter the Kingdom of Heaven. And I tell you this: it is easier for a camel to pass through the eye of a needle than for a rich man to enter the Kingdom of Heaven.” (Mt 19:23–30)

Well, I thought he was talking about something else… Bless the ostrich mentality. Meanwhile, life goes on…

It seems to me that the publication as posts of comments to some of our articles can be produced with a certain regularity given their high level. The proof is that we are receiving more and more and better comments, well-written and with a quality of content that I am reluctant to publish simply in relation to an article. After all, that should be the essence of a blog. So, let's do another one copy/paste of a comment, also anonymous, to the article Fried anchovies, which, according to our criteria, deserves a space as a post. Although it does not have the same origin or opinion, and since this time the author has not given it a title, we are going to give it the same title as the first comment we published: Boquerones Fritos (II). May you enjoy it as much as I have:

«Very good post by this unknown Keynesian, although I agree with dalamar on many things. And, on the other hand, I am touched by the anonymous participant who has become unemployed, as a representative of millions of people who really need to be thought about as soon as we wake up every day. We are in a moment of upheaval and we have to get out of it any way we can. We cannot let the financial system collapse, whatever it may cost us, and neither can we fight with dogmatic recipes, be they Keynesian or Hayekian. The economy is governed more by chaos theory than by classical mathematics; it is not as easily predictable as many believe. If not, why did Keynesians fail first, and after three decades of success they were unable to fight inflation (the famous stagflation)? And then, after two decades of neoliberal successes, of those who presented themselves as eternal saviours against stagflation, how is it that they now find themselves in another stagflation more catastrophic than the first and mixed with a ferocious financial meltdown? And that's not the end of it. I have already put it in some posts to other articles. The seriousness of the economic situation is not the current crisis, which rather seems to be sent by someone who says: I am going to stop the economy for the last time to make you think; I am giving you the last chance to reason that money is not the real wealth, but a human convention that is created and destroyed (the conglomerates that Family Office explains so beautifully, through which money is created). The real wealth is natural goods, energy, raw materials, living species, the Earth's climate, from which every economy starts, and which, if they disappear, will make us all disappear. We are 6.6 billion people growing exponentially and we are going faster than nature, so it is nature itself that is going to stop us in our tracks in a decade or two and there will be no economic or financial solution. Let us now, yes, put in place Keyesian measures to reactivate the productive sectors, but not simply in public works, which did not go so well for Roosevelt with his New Deal (sadly, they went better for Hitler, with his minister Schacht: his public works and armaments gave work to 6 million unemployed, but only to later kill half of Europe), but let us reactivate the energy sector, which will prevent us from inflationary oil crises and give us energy independence. Oil is in decline and is dangerously heating up the planet; let's invest in solar panels (manufacture, install and maintain them), in wind turbines, in hydrogen, in harnessing the energy of the sea, etc., etc., and help create businesses and jobs in these sectors. Let's extend them to waste management, green sewage treatment plants, alternative energy desalination plants, and to creating services, rather than products, that eat up natural resources. And let us also think about the rest of the world that is rightfully striving to achieve our welfare, let us help them get on the viable path and not on ours, which we already know does not work in the long term and will accelerate our self-destruction. Let us do all this (controlling inflation, the savings/investment balance, the public deficit, avoiding protectionism), but let us do all this without letting more time pass. There are only a couple of decades left and our children and grandchildren are already here begging us not to let the great tribulation come. When Keynes was told to rely on the neo-liberals« long run, he said: »in the long run we are all dead". «

As you will have noted, we had four key factors for investment in North America: the potential for capital appreciation in prime property, corporate bonds, equities and the $/€ exchange rate. Starting with the last point, the exchange rate has moved in the potential investor’s favour, from 1.5 dollars per euro at that time to the current 1.25 (+17%). As for equities, the Dow Jones has lost approximately 30%, although shares in companies such as KO have fallen by 22% and JNJ by a mere 5%. As for the financial sector, it is best not to even mention it, as it is difficult to find banks with falls of less than 50% – not for the faint-hearted, as we warned at the time. Certain non-financial corporate bonds, despite the scares caused by car manufacturers, still appear attractive in the short term, although the difficulty all companies in general are facing in refinancing themselves means their balance sheets are highly unstable and, consequently, their risk of credit event it cannot be ruled out in many very large companies. Finally, as regards a recovery in the US property market in general, it seems that this is still a long way off, although much closer than in Spain or even Europe. And that is why our recommendation for armour as a form of property investment (and, in certain cases, as a partial alternative to some types of fixed-income investments), it is currently focused exclusively on prime locations such as Manhattan.

We are currently offering our clients access to a range of special offers in New York. From flats on Wall Street to units in the Soho Trump Hotel, the only 5* GL in the legendary neighbourhood of Soho. The final marketing of the latter is due to take place in early January 2009 and its opening is scheduled for the end of that same year. The investment costs for one of the rooms in this hotel range from 1 to 1.5 million $, and the return on investment forecast by the developer and the Trump Organisation Hotel, which operates a large number of luxury hotels worldwide, offers investors an approximate annual net return of 7%. The final return will, of course, depend on the occupancy rates and nightly rates achieved by the hotel operator itself. As a point of reference, the average occupancy rate for hotels in New York this year exceeds 90% and is rising, and it would be difficult to find a property prime among the primes such as this Trump Hotel in the heart of Soho, Manhattan. Furthermore, as we always strive to link happiness with wealth, this type of investment can be used for personal purposes for up to 120 nights a year, which, naturally, reduces the return proportionally.

Naturally, given the volume of bookings made since Cluster Family Office, our clients who purchase at least one property benefit from special discounts, in addition to the commission generated by our role as estate agents, which we always pass on in full to our clients in every property transaction. In this way, the expected returns on the investment are significantly increased.

That said, you may well be wondering why we’re mentioning this type of investment – which exceeds one million $ – in a blog dedicated to providing free advice for those with modest assets? Well, staying true to the philosophy of Fresh Family Office Rather than attempting to adapt and apply investment protocols and strategies designed for high-net-worth individuals to small investors as well, we are endeavouring to ensure that the official partner of Trump y Prodigy in Spain, Idien Group, facilitates the sale of fractions of units separately through investment companies. This would allow a small investor to purchase, for €100,000, €200,000 or €500,000, one-tenth, one-fifth or half of a unit, and to share the returns and ownership jointly with a group of small investors. It appears that this proposal will be launched shortly and that various units at the Soho Trump Hotel in Spain will be sold under this structure, thanks to CFO. And who knows whether, in the near future, 15 units could be managed as a SOCIMI, that is to say Reit Spanish.

Next Tuesday, 25 November, Prodigy-Trump and Idien Group They will be giving a presentation on this property at the Gran Meliá Fénix Hotel in Madrid for Spanish investors. Cluster Family Office will be attending this event alongside our interested clients. But we have also agreed with the developers the project team and those responsible for the presentation, as well as with Idien Group, a specific information session will be held for small investors interested in purchasing fractional ownership shares through the investment vehicles that will be explained at these meetings. To this end, it will be necessary to coordinate the number of attendees at each meeting and their investor profile – that is, whether they are potential buyers of whole units or small investors interested in purchasing fractional shares of the property. I therefore urge those interested to please contact us to organise this information session, which will take place on the same day as the official launch of the Soho Trump Hotel in Madrid, capitalising on the presence of the developer of the project. Furthermore, for those purchasing flats, the developers organise personalised three-day trips to New York with flights and accommodation paid for, which naturally includes a private guided tour of the skyscraper currently under construction.

The financial crisis is wreaking havoc on the equity markets and even on part of the fixed-income market. Property prices in the US are also continuing to fall. And as Buffett would say, we do not know how these markets will perform in the future, but at current levels we still believe that a strategic investment of this kind in the US may be suitable for many Vital Balance. We continue to believe in strategic ‘aces’ poker, even though €/$ has already generated a profit that many have let slip through their fingers. Even though the stock market and non-financial returns remain uncertain, and even though property prime have appreciated at the slowest rate in their recent history. However, in Manhattan they have not even fallen below +6% over the last year, although – to quote the Oracle of Omaha – they may well do so in the near future, of course. Nevertheless, we consider the present moment and the coming year 2009 to be even more suitable, if that is possible, for this strategy, tailored to each ‘Balance Vital’.

For all these reasons, we believe this purchase at the Soho Trump Hotel is an investment that, always taking into account each family’s individual circumstances and financial situation, and tailoring the approach to each specific case, it could serve as an alternative to many property divestments in Europe, and particularly in Spain. Due to its prime nature (in our view, the very best prime property available anywhere in the world today), its potential tenants or users of a 5* hotel (who are infinitely more numerous than the potential tenants of a flat in the same city, for example), its potential for a future price rally, and its warranties from developers y partners management, operations and branding, by the timing of the investment in the middle of 2009, at an exchange rate that was still attractive at 1.25 $/€, due to a expected recovery the US economy is closer to us than the European one, etc., etc., etc. Furthermore, if we finally manage to make this type of investment accessible to small savers as well, it will be a source of enormous personal satisfaction, as otherwise it would only be available to Family Office clients proper. Both parties, moreover, can guarantee the 100% of the investment through a complementary purchase of 10- or 15-year US Treasury bonds, thereby structuring an investment with one, two, three or four 100% aces guaranteed by Treasury Bonds.

Anyone interested in attending this presentation in Madrid next Tuesday, 25 November, whether or not they are CFO clients, should contact us as soon as possible so that we can coordinate and organise small-group information sessions, whether they are aimed at investors in full units or at specific meetings for small investors.

As we promised last Monday in a comment, we are now going to publish another comment we received in response to our article in the form of a post: «Investing During a Recession and Depression». We’re not doing this because we agree 100% with its content – that’s not the case; in fact, I disagree on several points. But what I find worth highlighting is that someone has written a text anonymously to such a high standard of quality and ethics. I find this to be an extraordinary act of generosity, as we all tend to take centre stage – even if under a pseudonym – whenever we produce a piece of writing that reaches the standard of a well-reasoned opinion piece. But not in this case. The author chose not to sign it, despite its length and quality.

I have no idea whether the anonymous author will see fit to send us more high-quality articles, or whether, on the contrary, we shall never hear from him (or her) again, or perhaps he or she will reveal their identity shortly. I’ve no idea. But the fact that they’re contributing and sharing articles that far exceed the minimum standard required – and doing so anonymously – strikes me as highly commendable, regardless of whether or not we agree with them. I’ll leave you now with the text, to which I’ve taken the liberty of adding a few photos:

«The effects of the White House Bailout Plan approved in Washington last October are having no impact whatsoever on the financial markets or the real economy. This was to be expected. But the worst thing is not this, but rather that the model is being copied in Europe without the slightest hesitation, since the US is the world power that holds “the truth” in its hands and, naturally, as if it were a DVD of the latest American film, we Europeans are “swallowing it hook, line and sinker”. The approval of 700 trillion dollars to address the chaos within financial institutions is nothing more than a botched stopgap measure, since what they are trying to save is precisely the inefficiency of a manipulative and corrupt financial system, rather than focusing their efforts on saving the “real economy”. The latter seems to be of no interest to either the political class or the bankers currently in power. For some time now, financial institutions have been expanding their range of investment and asset-based products, financing the purchase of all manner of goods for consumers eager to have better homes, better cars, better services and better holidays spent lounging in a hammock in the sun. “The secret’s in the dough,” as a pizza maker once said. It’s quite simple: if I give you money for a house with a jacuzzi and automatic blinds and finance it over 50 years, you’ll be paying interest and the principal until your teeth fall out. If one day you can’t pay me back, it doesn’t matter; I’ll keep your “doll’s house” because, as business is booming, I’ll make some extra capital gains from it and, as ABBA said, “the winner takes it all” (‘el ganador se lo lleva todo’ for those who’ve always thought Teruel exists too).
Everything’s changed, hasn’t it? Banks now face major strategic challenges. Saving their own skins and their profit and loss accounts, reducing bad debts, increasing the range of deposit products (those little savings – bring them over here and I’ll even give you a car or a motorbike), raising the price of assets (I’m going to charge you more interest on whatever I lend you) and raising fees (that passbook maintenance fee I’ve never understood, because it practically maintains itself). The worst thing is that this capital injection from the Bailout Plan does nothing to improve the real economy. Consumer and investor confidence has hit rock bottom; there is no capacity to save (and there will be even less next year), interest rates keep rising (to attract savers who are unemployed and have no capacity to save) and unemployment figures keep climbing (will the banks give us a measly job as a cashier with this government cash injection?). It’s a world turned upside down, and yet there are still people who are delighted by the “nifty intervention” of the saviours of the world. I’m going to propose another bailout plan that shows a bit of common sense. Just for one day, I’m going to put myself in the shoes of Obama, Bush, Zapatero or Father Christmas. I believe that state intervention in crisis situations is necessary to boost aggregate demand – that is, consumption and investment. Paying off banks and financial institutions is like going to see a doctor who is ill with the very same symptoms as you. In a climate such as the current one, governments must invest in the productive economy rather than in the speculative activities of financial institutions. There is still a great deal of room for improvement when it comes to our countries’ roads; we need better transport infrastructure (just ask Britain and its industrial revolution), we need access to better services for the elderly, we must ensure that everyone has access to new technologies in a more balanced way and without having to pay a premium, we must improve our children’s education (precisely so they do not fall into the same mistakes as their elders), to promote cultural diversity, to provide a more balanced and equitable healthcare system, to carry out research into cures for new diseases… so many, many things… but then again, most of them are regarded as cost centres rather than profit centres. That’s where the real problem lies. They mistakenly believe that if the State bails out the financial institutions, then it will be possible to delay mortgage repayments for end consumers by six months and that’s it – everything’s sorted. Sometimes I think political and economic leaders have fried anchovies in their heads. Yes, yes, fried anchovies instead of brain cells. If the State were to invest those 700 trillion dollars in creating jobs rather than in funding the chaos caused by the financial institutions’ own mismanagement – backed up by a cut in interest rates – this would lead to an increase in both consumption and investment, in short, an increase in aggregate demand. So, if I have a job, I have a monthly income that allows me to spend and pay my mortgage instalments… there’s no need for the bank in question to grant me a six-month payment holiday, which, at the end of the day, is just a half-baked stopgap measure that will actually generate more revenue for them in the long run…No, no – if I have a job, I have the money to pay them; neither the bank nor the global financial system should doubt that for a moment. What’s more, I’ll be able to eat every day and even go to restaurants at the weekends. The restaurant in question will be grateful to me because it won’t have to close down or sack its three long-serving waiters. But, let me think… if interest rates go down, the savings rate drops (obviously, for the few pennies I’ve got, it’s not such a good deal to put them in the bank anymore)… blimey, I’m only just realising now that the banks are the ones most keen for rates to go up, so they can boost their liquidity and finance more of their own “shady deals”… brilliant! that way they’ll use my money to do whatever takes the fancy of whichever banker is in charge. I much prefer the idea of financing the real economy. Lower interest rates, increased consumption and investment, increased imports and purchasing power… and, of course, job creation… in times of crisis, recession or systemic risk, this is a solution that satisfies me far more than simply bailing out the international financial system. I would say to governments and banks: don’t just give me the fish (the six-month repayment holiday); give me the rod and teach me to fish (give me a job, and then I’ll be able to pay you back without any problem). The thing is, this latter option isn’t appealing; it makes more sense, and the truth is that it would mean a redistribution of wealth that the banks simply don’t understand. And to those who think that these solutions might lead to higher inflation, I would say that they may well be right, but there is no need to get too worked up about it. Is it better to have an economy with full employment or one with a high inflation rate? Full employment is a utopia, but governments must invest precisely in this. With the NAIRU, or natural rate of unemployment, there is no link between inflation and unemployment. In the past, full employment was achieved by manufacturing more weapons. This is a scourge from every point of view; we have several examples before us. We must work towards full employment by creating a coherent system of banking supervision, boosting the confidence of both consumers and investors, allowing for greater flexibility in exchange rates, and steering clear of protectionism in these times of recession and Why are local federal bodies (such as the FDIC) or global organisations (such as the IMF and the World Bank) created, which are supposed to regulate activity in the financial markets but are in fact merely figureheads for the operations carried out by the ‘sharks’? JP Morgan has just bought the assets of the largest US savings bank, which was forced into bankruptcy, at a bargain price. All in collusion with the FDIC (Federal Deposit Insurance Corporation). JP Morgan has managed to drive down the value of its shares, snapped up the savings bank at a bargain price (1.9 trillion dollars) and is still asking to claim a tax write-off on the transaction amounting to 20 trillion dollars. This smells fishy to me. We are pumping money into the financial institutions, which are the ones that start it all, distribute the spoils and take… the whole lot for themselves. The Bretton Woods agreements must serve as a benchmark now, at the onset of this chaos. It is no good simply protecting the interests of the usual suspects. We must focus on the real economy and ensure that financial institutions can get back on track, with real money, real people and real work. And we must not allow speculation and barbarism to prevail. It seems nobody wants to realise this. “Please, let the financial institutions return ”the cheque» – or the extra Christmas bonus – and let Barack Obama invest in the real economy. In fried anchovies, mind you – the real sort – to eat.’

Thank you, Anonymous.