Wednesday, October 22, 2008

Dawn raids on pension funds

Just when you think that your money is safe, your government after using up the country’s reserves and emptying your children’s piggy banks (in relation to the future tax burdens they have to bear), will soon, if not started already, make dawn raids on your parents’ and your pension funds.

(At the time of writing, Argentina has just announced the nationalization of the country’s private pension funds while our government has already announced that they will borrow a few billion from our largest pension fund of which I am still a member to support the stock market.)

No, you cannot blame the government. The conventional wisdom of not to bail failing companies has been thrown out of the window, as expected.

Desperate times need desperate measures, and governments are indeed desperate since they don’t know what to do.

The safety net has widened considerably if you have not noticed. (Think of the bail outs of insurers, real property companies, and businesses, for example Korea, that betted heavily on the continued appreciation of their country’s currency against the US dollar and got severely whacked.)

A country’s financial system, her stock market and currency have to be saved at any cost – unless the government officials have to use their own money. Every government leader wants to be the hero or heroine of the day in the current crises.

Every moment is just a breath-take away from the reversal of the bottom of the global stock markets. If dumping tens and hundreds of billions of US dollars into the system do not work, and when the chips are down, why not try trillions? Brilliant strategy!

If the country runs out of money trying to rescue all the sinking and rotten toxic laden boats, the easiest or the softest touch is to raid the huge cash pile still available in the pension funds. After all, Japan has had set the precedent during the early 1990s. And look how well she has been doing since then, despite the so called lost decade. That is if you do not mind paying the banks like the Japanese did, a small annual interest or a fee for keeping your money with them rather than keeping cash under the mattress or in the safe for years on end.

The rather unfortunate thing to this is that almost all governments in the world are caught up in the game and feeling rather feverish in the loins. In case, you do not understand gaming analogy, gamblers feel feverish after laying heavy bets all across the table hoping that the roulette ball will eventually fall on their betted numbers.

A roar goes up if they win but they feel peevish when they lose. Perhaps these governments should just stick to playing red or black since they have already lost tons of their country’s money playing the numbers, don’t you think? Or perhaps, they should ask those French who frequent Monte Carlo, how to really play roulette.

Playing red or black can certainly provide a better percentage of wins than the numbers. Instead of the numerous I don’t knows you get from those government officials who are supposed to be in charge, after quickly burning up the country’s reserves and money in your children’s piggy banks.

Of course the global stock markets had roared for two days after the weekend announcement that the US and Europe would pump in almost three trillion US dollars to bail out their financial systems. Mr. Market approved and the markets rose by the same amount in value, if not more. A fair exchange, one would say.

However you cannot blame the markets for plunging again after the initial euphoria. Mr. Market is probably now waiting for more trillion dollars announcements before he decides to roar again. That is one reason, the governments may dawn raid their countries’ pension funds rather than resort to continuously print money up till late next year to pay for their recently acquired gambling habits and those of their rescued or adopted kids – those unrepentant hard core gamblers who still point fingers at others for the fall of world renowned institutions.

And in a very wrong way, these well heeled Americans and Europeans have become more Chinese than expected.

Instead of learning their ancient virtues, they have learned their vices and have finally taken over the mantle from the Chinese to become the new kings of gamblers, in terms of magnitude.

The Chinese men in the street who have gambling in their blood can only afford to lose their shirt or their lives while these well heeled and learned guys can lose hundreds of billions (almost 700 Billion to date) and bring down giant institutions. And still managed to get well paid plus huge bonuses to boot – outstanding back pay and bonuses amounted to 69 Billion US dollars, I last heard.

Therefore, no contest, these well heeled intellects win hands down. And the whole world including you and me loses.

No, I am still sitting on my hands, if readers want to know if I have started to invest in the stock market. And since no institution or government wants to pay anything for the trillion dollar answer of when the bear markets will reverse, which can be provided at a very reasonable price, I will go into hiding.

There you go no free lunches and spoon feeding, even if kin, good friends and regular readers ask. Unless I can sell you a CDO or CDS worth a USD billion that no one else wants!

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