The plunge protection team...
What a phrase. I like it. Too early yet though, but when the crunch
comes, it will make interesting viewing,
other interesting articles are linked from there also.
You don't see much published about Ricardo and his law, but here was
something last year:
I have found an understanding of the law of rent immensely useful for
forecasting economic behaviour. How the rent of land manifests
determines how society grows, the shape of the economy, even the health
of its citizens. It is the absolute fundamental law of economics, yet
not one single economic think tank, let alone university, discusses it
these days in any way.
Macquarie Bank understands it though, it is why they are launching yet
another private equity bid, this time for Qantas (they already own most
of the airports). Though I think greed will catch up with them soon.
Packer knows it too, for his casino licenses.
[Hard to see govt changing its mind on the license for qan, tho if there
is one private organization very close to govt it would be Macquarie.
Perhaps they know something we don't ? Including an inducement for
management greed in the offer they have certainly done their homework.]
In this regard, I attach for you a small cutting from the Financial
Times, October 4, 2006. Notice what Mr Xie was best known for; warnings
of a potential bubble in the Shanghai property market - angering Chinese
officials. Firms like Morgan Stanley have a big interest in this
market, they do not want to be angering authorities. It means you and I
simply can never be told the real story, hence we need always to form
our own judgements by correctly reading "the tape", as well as listening
to those others who give a sometimes alternative view of markets based
on better knowledge - like Ricardo's Law.
The talk on China last Friday was excellent, but raised more questions
than it answered. I have asked if John would repeat it to us as a group
sometime in the new year, stay tuned.
It truly is all about the rent:
For those that don't recognize it, here is the continuing saga:
After the fall of the Berlin Wall, Boris Yeltsin, advised by the World
Bank and other privateers, sold off all of Russia's prime real estate
and commodity companies to private interests. Ownership of the property
rights is no doubt better in private hands than government, what happens
to the rental value is the question.
As was done with other Russian-owned commodities firms, Yukos was
founded by Russian presidential decree in November of 1992 to house
several other state owned, in this case, oil producers, the name coming
from the main producing firms Yuganskneftgaz and
Kuibyshevnefteorgsintez. No wonder they changed the name.
By 1994 though, the Russian government, desperately in need of cash to
survive one crisis after the other under Yeltsin, chose to transfer
ownership of most of the larger commodities companies to a few
businessmen in exchange for cash loans. By paying $309 million, Mikhail
Khodorovsky took a 78% stake in Yukos, the oil company, giving him not
only the rights, quite properly, to drill for oil, but to collect
improperly also, the value of the ground rent that goes with it.
Khodorovsky, a former young communist league leader, did not have to go
far to raise the finance, merely asking his own bank, Menatep, for a
'loan'. (Gorbachev had licensed a few private banks shortly before his
country collapsed in 1991 or so.) This was in 1995. One year later,
Khodorovsky took almost complete control with a further $160 million
'investment'. I say 'investment' because it is not really known how
ultimate control was gained in the mirky climate of those days.
1998 saw tough years as Russia defaulted on its $40 billion worth of
bonds, and Yukos employees went unpaid for months and months as the
price of oil fell below $9 a barrel. (The Kondratieff wave commodity
price low.) The company recovered with the oil price however. By 2001,
with a few management reforms and better accounting in place, Yukos was
suddenly worth an estimated $12 billion.
In May of 2003, Yukos announced a merger with Sibneft, another oil and
gas company, controlled by Roman Abramovich. The combined entity does
not get off the ground however, as the Kremlin, now controlled by former
KGB staffer, Vladamir Putin, levies fines for unpaid taxes. Khodorovsky
is arrested in October of 2003 and charged with fraud. Putin has
decided he wants some of the rent - and with it control of the country -
back. Putin seeks to reassure Yukos, and indeed all foreign investors
in Russia that he does not intend to bankrupt Yukos, but this is of
course exactly what he goes ahead and does. Yukos senior staff flee
Russia and take refuge mostly in either London or Tel Aviv. Some go on
to buy English premier league football clubs, so their money must have
gone out ahead of them.
After paying up fines, fees and taxes back to the Kremlin, (Kremlin
claims reached almost $28 billion) the remains of Yukos is acquired
eventually at auction (in contrived circumstances) by Rosneft. Rosneft,
with the assistance of the Russian government, goes on to list this year
on the UK stock exchange in a ten billion dollar IPO that has recently
valued the company, with the old Yukos oil rights, at $80 billion and
counting. Credit created to finance government granted licenses, at the
bottom of which lies the (permitted to capitalize) rent.
Had Yeltsin followed the advice of some better qualified specialists,
notably Fred Harrison and others who were there at the time, and simply
put in place the correct methods to collect the annual rental value, all
of the above could never have occurred. As I said, its about the rent.
Ricardo's Law, I urge you to study it. A little knowledge can be a