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Oh dear. I seem inadvertently to have fallen into a transatlantic cultural and linguistic divide with my line about Rachel Maddow, the MSNBC host, being a “chirpy gay liberal” in my column this week.

Those three words were picked out by the Huffington Post (you can’t trust the media) and set off a firestorm of protest among its indignant readers. I have also received quite a lot of fierce emails accusing me of insensitivity, homophobia, stupidity, jealousy, ignorance etc.

The last time I looked, there were 500 comments on HuffPo and some of them were not very nice about me. In view of this, and the comments on my blog item below, perhaps I ought to provide some explanation.

The truth is that I did not think about it much. I wanted a quick description of Ms Maddow, since she is the newest of the television talk show hosts whom I mentioned, and the phrase seemed to sum up her brand for those living outside the US.

For many US readers, there were two problems with this.

Continue reading "Chirpy gay liberalgate"

My column in the Financial Times this week addresses the debate over media bias in the US presidential election and why the Drudge Report has lost its past dominance of the media agenda.

Last Thursday afternoon, Matt Drudge broke out the red capital letters for the lead headline on his internet site, the Drudge Report.

“SHOCK: MCCAIN VOLUNTEER ATTACKED AND MUTILATED IN PITTSBURGH,” the headline read, with a strapline: “ ‘B’ CARVED INTO 20-YEAR-OLD WOMAN’S FACE . . . DEVELOPING.”

It was a shocker in the tradition of Mr Drudge’s scare stories and hyped-up trivia about Democratic candidates in US presidential campaigns, to go with past items about John Edwards’ $400 haircut and John Kerry’s windsurfing. This time, however, it was not merely tendentious but false.

By Saturday, the Drudge Report carried a smaller headline reading: “SHE MADE IT ALL UP!” beside a photograph of Ashley Todd, the Texan student in question. Far from being attacked by a tall black man and told she ought to vote for Barack Obama, she had injured herself.

The Ashley Todd affair was the latest in a series of failures by Mr Drudge to recapture the magic of the past, when the Drudge Report had an unrivalled grip on the media agenda. He has spent the past month blatantly cherry-picking poll results that favour John McCain, to the loud derision of Obama-supporting blogs.

Although there has been some narrowing in the national polls this week, Mr Drudge has cried wolf so often in recent weeks that he can hardly claim credit when the wolf finally shows up.

You can read the rest of the column here and comment below

I suspect that we can add Mrs Watanabe to the list of those suffering from global financial turmoil.

The abrupt rise of the yen and the dollar against higher-yielding currencies seems to have been driven by hedge funds unwinding various forms of carry trade - borrowing in a low-yielding currency and investing in assets in higher-yield economies. This has caused havoc in financial markets in the past couple of weeks.

The yen fell somewhat this morning amid reports that Japan will intervene on currency markets to dampen the extreme volatility in its currency. But the yen is at multi-year highs against the dollar, let along higher-yielding currencies such as the Australian and New Zealand dollars, while the Japanese stock market has plunged.

Hedge funds that invested heavily the carry trade, using leverage, are obviously in trouble to judge by the rapid changes in exchange rates. But the individual Japanese investor, including the mythical Mrs Watanabe, is also suffering, to judge by a conversation I had a few months ago with one banker.

He recounted taking a look at the books of a Japanese retail stockbroker that was offering itself for sale, and being taken aback by the amount of buying on margin in which ordinary Japanese investors were indulging.

The accounts showed that it was common for Japanese retail investors to be offered leverage of 20 times or more for their cash. In other words, they could deposit the equivalent of $1,000 and take trading positions of $20,000. A lot of them had used the opportunity to buy higher-yielding foreign assets.

The trade worked fine for Japanese investors as long as currencies remained stable and they could in effect switch yen into higher-yielding assets denominated in other currencies. But the sharp rise in the yen - and comparative fall in the value of these foreign assets - is probably landing Mrs Watanabe and her friends with big losses.

Here, to expand the point, is a prescient piece from FT Alphaville a year ago.

I’m afraid that I have failed, until now, to post a link to my book review in last weekend’s FT of a posthumous collection of reportage by Alistair Cooke, the great British journalist and broadcaster.

The first thing that strikes one about this collection of newspaper and radio pieces that Alistair Cooke filed for the BBC and The Guardian over several decades is that he popped up everywhere.

He observed the inaugurations of Truman and Eisenhower, listened to Edward Murrow’s denunciation of Joseph McCarthy, went to Montgomery, Alabama to hear Martin Luther King preach, and was near Robert Kennedy when the latter was assassinated.

The 1977 blackout in New York was about the only big event of postwar US history Cooke missed, although he lived there. He happened to be out of town in London at the time and so avoided hearing, from his apartment overlooking Central Park, the sound of looting.

Cooke was always an elegant writer. This year’s presidential election has sparked a debate about the importance of words, since Barack Obama is so eloquent. Cooke was definitely on the side of the wordsmiths, from John F Kennedy to Ronald Reagan.

You can read the rest of the article here and comment below.

I have written a response in the Weekend Financial Times to Andrew Lahde’s farewell letter:

Dear Andrew Lahde,

I have read your letter to investors in your hedge fund in which you say you are dropping out, praise marijuana as a drug that, unlike alcohol, “does not result in bar fights or wife-beating” and tell them not to “expect any type of reply to e-mails or voicemail within normal time frames, or at all”.

I did not put any money into your hedge fund although, in some ways, I wish I had, since you are said to have made an extremely large profit by shorting subprime mortgages in the housing downturn. As Kurt Vonnegut once said of the bombing of Dresden, the subject of his book Slaughterhouse-Five, it was a terrible event but he profited from it.

You admit that you were “in this game for the money” and have contempt for bankers “whose parents paid for prep school, Yale, and then the Harvard MBA” and who rose to the top of companies such as Bear Stearns and Lehman Brothers. They were the “people stupid enough to take the other side of my trades”.

Finally, you say you are going to “take a long rest to repair my health, which was destroyed by the stress I layered on to myself” and you have “no interest in any deals in which anyone would like me to participate”.

I do have a proposal for you, in fact, but it is just as well you are not reading your e-mail because it does not bear repeating in a newspaper. So I will confine myself to one point in response to your smug, self-satisfied stream of consciousness.

You can read the rest here and comment below.

Perhaps it is just me, but I am struggling to understand Alan Greenspan’s revised view of banking regulation. He issued a mea culpa to the House oversight committee, saying that the financial crisis left him a state of “shocked disbelief” that lending institutions had stumbled so badly.

Mr Greenspan, the former chairman of the Federal Reserve, and keen opponent of regulation of the over-the counter credit derivatives market in 2000, partly recanted, saying that the credit default swap market required some form of regulation. That is quite a reversal of his previous position, discussed on this blog before.

More generally, Mr Greenspan said that few could have imagine the events of this crisis and they had cause him to rethink his general stance on regulation:

“As I wrote last March: those of us who have looked to the self-interest of lending institutions to protect shareholder’s equity (myself especially) are in a state of shocked disbelief. Such counterparty surveillance is a central pillar of our financial markets’ state of balance. If it fails, as occurred this year, market stability is undermined.”

He added that regulators would need to intervene to ensure that banks that underwrite debt securities keep part of the exposure on their books rather than selling it all to other investors. The fact that they did not think they were exposing themselves to credit risk had exacerbated the current problems:

“As much as I would prefer it otherwise, in this financial environment I see no choice but to require that all securitisers retain a meaningful part of the securities they issue. This will offset in part market deficiencies stemming from the failures of counterparty surveillance. There are additional regulatory changes that this breakdown of the central pillar of competitive markets requires in order to return to stability, particularly in the areas of fraud, settlement, and securitisation.” (Hat tip: Justin Fox)

Fine but let us take a step back here. Banks are regulated because they are leveraged and have the potential to cause financial crises if they collapse, as we have seen. If self-interest were enough to keep them out of trouble, most of this regulation (and deposit insurance schemes) would be unnecessary.

Although the current crisis is severe, there have been repeated instances of self-interest at banks being insufficient to stop prevent foolish lending and credit losses. If Mr Greenspan thought otherwise, that means he was ignoring a lot of historical evidence.

It is very strange.

My FT column this week is on the re-emergence of alleged rogue traders at banks such as Caisee D’Epargne. At root, this is a crisis of reckless institutions rather than out-of-control individuals:

The rogue trader is back.

Markets are volatile, with oil plunging, currencies see-sawing and the Dow Jones Industrial Average bouncing up and down like a yo-yo. They are perfect conditions to expose a rogue trader in the mould of Nick Leeson of Barings.

True to form, the Caisse d’Epargne, one of France’s biggest savings banks, on Sunday announced the resignations of its chairman, chief executive and finance director after four equity derivatives traders allegedly ignored their trading limits and ran up a loss of €600m ($770m, £477m).

I say “allegedly” because rogue traders – that evocative phrase first used by Eddie George, the former governor of the Bank of England – usually insist afterwards that they did nothing wrong. They say that they were, tacitly or explicitly, encouraged by bosses to take a chance.

Often that is just an excuse, but the rogue trader is not the biggest culprit at the moment. In this crisis – whatever turns out to have occurred at Caisse d’Epargne – companies and banks bear responsibility.

You can read the rest here and comment below.

I like Dan Gross’s suggestion that there is a link between the number of Starbucks outlets in a country and its risk of being enveloped in a financial crisis. The numbers do not stack up precisely but there is something there.

Here is the theory as Dan explains it:

At first blush, there’s a pretty close correlation between a country having a significant Starbucks presence, especially in its financial capital, and major financial cock-ups, from Australia (big blow ups in finance, hedge funds and asset-management companies; to the United Kingdom (nationalisation of the nation’s largest banks). In many ways, London in recent years has been a more concentrated version of New York—the wellspring of many toxic innovations, a hedge-fund haven. It sports 256 Starbucks. In Spain, which is now grappling with the bursting of a speculative coastal real-estate bubble (sound familiar?), the financial capital, Madrid, has 48 outlets. In crazy Dubai, 48 outlets serve a population of 1.4 million. And so on: South Korea, which is bailing outs its banks big time, has 253. Paris, the locus of several embarrassing debacles, has 35.

On the other hand, none of it proves Dan’s theory. You would expect Starbucks to have expanded in countries with big economies or rapid economic growth, a category that includes all of the above.

If I were an academic looking at the Starbucks international store locator, I would focus on two variables: the size of the cities where Starbucks has its stores and the rate of growth of the local economy.

The point about financial centres such as London, Dubai and Hong Kong is that, during the credit bubble, they grew into city states that dominated their national economies. That provided very fertile ground for Starbucks: lots of people with cash to spare in a small area. They also grew rapidly, with property and retail booms to match.

If you regressed those two factors against Starbucks stores, I imagine there would be a link.

There is a fascinating analysis of how the financial crisis is affecting the United Arab Emirates - including Abu Dhabi and Dubai - in the FT this morning, co-written by Lionel Barber, our editor, who was visiting when a bank bail-out was being crafted.

It makes me think that my recent note on the booming residential property market in Abu Dhabi may have coincided with the top of the market. (I also like the photograph that goes with the article, of Roger Federer playing Andre Agassi on a helipad on top of the Burj Al Arab hotel.)

Indeed, the charts accompanying the piece show that residential property prices rose by 42 per cent between the first quarter of this year and the last quarter of 2007, while the rise from first to second quarter was 16 per cent. That is still zippy but the rate of growth is abating.

The thing that interested me most was the way in which Abu Dhabi, which has most of the UAE’s oil wealth, held its nose and came to the rescue of Dubai, its flashier and more debt dependent fellow emirate when doubts surfaced.

It shows that, even if there are many in Abu Dhabi who look askance at Dubai’s wilder and more thrusting side, the family of emirates came together at the crucial time.

Crises are relative. Another chart with the article records the current account surpluses of Gulf countries, with the UAE’s 22 per cent of GDP surplus this year more than matched by Kuwait (44 per cent) and Qatar (43 per cent).

These surpluses, however, depend to varying degrees on the oil price, which has been in rapid retreat recently. When I was in Dubai last year, the conventional wisdom was that the local economy, which depends heavily on trade in the region, would be fine while oil remained above $40 a barrel.

The futures market is now predicting that oil could reach $50 a barrel by the end of this year, which is getting uncomfortably close.

James Surowiecki of the New Yorker, one of the brightest and most illuminating writers on business and finance, has started a blog.

What with him, Joe Nocera of the New York Times, Justin Fox of Time/Fortune, Daniel Gross of Newsweek, Robert Peston of the BBC and many other print and broadcast journalists drifting online, it feels like a tipping point for business blogging.

On the other hand, I suppose it could be a counter-cyclical financial journalism bubble.