As a rule, Finnish elections don't tend to generate much international excitement – but last night’s election victory by the eurosceptic party True Finns has turned that rule on its head.
A normally stolid member of the eurozone with billions of dollars of exposure to bailout funds and loan facilities, the new-look Finland could potentially scupper any further bailouts and plunge the euro project into a new crisis.
Here's why: Bailouts - like the EU bailout of Portugal, expected in June - require the agreement of all 17 members. And Finland, unlike its eurozone partners, has to put all requests for bailouts to a majority vote in parliament.
That’s very bad news for Portugal, which just last month became the third eurozone member to ask the EU and IMF for a bailout.
If you thought that lavish bonuses for the financial industry would be a welcome casualty of the current financial crisis, it is time to think again. The New York-based executive search and compensation consultancy, Options Group, put that notion to rest for us in a new report.
Options Group predicts bonuses at financial firms worldwide will increase by an average 40% this year, just months after many of these firms were teetering on the brink of disaster and begging for bailouts.
The report, released this week, says that managing directors in high-yield credit sales will see the biggest bonuses, along with those in commodity sales units. They’ve apparently had a heck of a year. In fact, it is an incredible turnaround in fortunes which came, of course, thanks to a life raft the size of Manhattan!
Still, how could it have happened so fast: A return so promptly to business and bonuses as usual? Interviewed on Monday’s edition of World Business Today, CNN’s Ali Velshi told me, “It’s unusual given the times we are in. It’s less unusual if you’ve been tracking how this market has been doing. When you look at the money these banks are making, they’ve actually made it on trading…. Buying things cheap and selling them high.”
Velshi also points out that many of the big banks making money now have paid back the taxpayer funds they borrowed, and taxpayers have made a profit on those transactions.
However, seven of the big financial firms doling out bonuses are not off the taxpayer’s hook. Their bonuses will reportedly be less handsome.
Velshi says, “Major profits have been taken at companies that have paid that money back… and they want to be free to pay their people. It’s quite a remarkable situation. You wouldn’t have thought six months ago we’d be talking about bonuses that were bigger than last year.”
Some analysts point out that financial firms will offer more in stock and defer more cash payments because of public pressure, and pressure from regulators to pay tie to long-term results rather than rewarding short term risk. That might placate those who believe excessive rewards for short-term risk helped cause the financial meltdown.
Professor Peter Morici, of the University of Maryland’s Robert H. Smith School of Business, says, “These bonuses show Wall Street is arrogant and insensitive. These bonuses were earned by investing cheap taxpayer funds, and the profits really belong to all Americans. This entire episode is an outrage.”
The U.S. Federal Reserve is planning to review the 28 largest banks to ensure compensation is not rewarding risk; however, global leaders have tried and failed more than once in the past year to agree on what constitutes excessive risk or excessive compensation.
“You only know it,” explained Barack Obama’s pay Czar Kenneth Feinberg a few weeks ago, “Once it’s staring you in the face,” and by then, of course, it’s too late.
So what’s the message here? Let’s just get used to it? The punch bowl is full once again on Wall Street. To paraphrase the much-maligned quotation attributed in London’s Sunday Times to Goldman Sachs chief Lloyd Blankfein, God’s work is being done. Phew!
So let’s just grit our teeth and pretend we haven’t learned a thing in the past year. There’s no need to wonder what’s going on now; no need to worry about what might be laying the groundwork for the next financial crisis. After all, we’ll know it, once we see it.
HONG KONG, China - "Asia's astonishing rebound", says the front cover in today's edition of The Economist newspaper (yes, they call it a newspaper). It is astonishing, too, when you look at the headline economic numbers coming out of the region at the moment.
Asia’s steady rise: Can it continue without consumers in the U.S. and Europe increasing their spending?
Take second-quarter economic growth for example: China up 7.9 percent, Hong Kong up 3.3 percent, South Korea up 2.3 percent, and even poor, lumbering out-of-shape Japan is expected to break its 18-month recession on Monday with Q2 growth of 1 percent. In Europe, recession is ending, too. But look at the numbers. Germany and France can manage growth of just 0.3 percent in the second quarter; Britain and Spain are still in recession.
Why? Why are these export-driven Asian economies leading the global recovery, when their key markets are still only now just stirring after the knockdown punch of the global crisis of late last year?
In a word: stimulus. It's not just China's $585 billion funneling into the economy; it's also Japan's $150 billion, and South Korea and Hong Kong's $11 billion apiece. Tax breaks, enormous investment projects, and government-funded property incentives all helped to keep the Asian consumer afloat, and generate economic growth. Restocking in the United States and Europe also helped, as companies broke from their deep-freeze and started building up inventories.
But. ... and there is a big one here: In its current form it's not sustainable. Asian policy-makers have done a remarkable job lifting economic growth out of the gutter, but until the real engines of global growth get off the ropes, the Asian rebound isn’t going to go anywhere.
What's needed is strong, sustained demand from consumers in the U.S., Europe AND Asia. It's starting in Asia, but this is still an export-focused region.
Glenn Maguire, chief economist at Soc-Gen, says it will be decades before Asian economies have rebalanced so that domestic demand can keep economies growth healthy by itself. And here's a clear statistic to back that up: Maguire says the U.S. consumer market in 2007 was about $10 trillion. China, by contrast, was $1 trillion. Even taking into account the rest of Asia (except Japan) but including India it comes to about $2 trillion. Some other estimates put the total at $4 trillion, but you can see Asia is still a long way behind.
It's a given that the U.S. consumer has changed his/her buying habits. Job security and rock-bottom home values and big, big personal debts will do that. It will be a long time, perhaps many years if ever, before the U.S. consumer, or for the matter the European consumer, is prepared to go on the sort of buying binge we've seen build up during the past two decades.
That means lower economic growth, for all of us, for a long time to come.
LONDON, England — I spent an enjoyable day going “back to my roots” for our report on how the UK’s commercial radio sector is coping in the current downturn.
I began my career in radio some 25 years ago and have a lot to thank it for (Heavens! Is it really that long ago? I feel so old. I reported from Stockholm recently and my CNN producer for the trip was born in the year I started working!).
As well as providing me with solid journalistic training and experience, it taught me many of the broadcasting skills I use today here at CNN. For instance, the apparent “effortless” ability to talk about nothing in particular, without a script, at a moment’s notice and for any length of time.
There are of course no pictures to disguise unintentional gaps on radio and, as silence is far from golden, the host has to talk. Thus I learned to think on my feet (in television we call this skill “filling.”). Or the ability to “fill” while someone is counting down to zero through my earpiece and to end a sentence just as the countdown reaches one.
I learned to convey emotion and warmth through my voice and how to read a script out loud without it sounding as though I was reading words on a page. People often remark about the rich quality of my voice, which I can assure you has not been acquired thanks to any of life’s “excesses.” Radio taught me the “singer’s technique” of talking from my stomach. I now do it habitually, which gives my voice the “warmth” that people seem to find attractive.
The UK commercial radio industry seems to be coping pretty well in the current “difficult trading environment.” Some networks, due to their aggressive acquisition strategies and the fact that they have paid a premium for licenses, are saddled with high levels of debt and are finding things particularly tough. There are others in the bigger radio markets like London that are struggling purely because they are competing against so many rival stations. But on the whole, the industry is optimistic that it can see the recession through. Radio advertising is relatively cheap compared with other forms of media and the fact that radio is a medium you use while doing something else means that it complements, not competes with, television, magazines or the net. All this makes it very cost effective from an advertiser's point of view.
We visited just two of Britain’s 300 plus stations for our report: London’s Magic. Flagship of the Bauer media empire’s 25 Magic branded stations and Hertbeat FM, which broadcasts to a small chunk of Magic’s territory to the north of the capital.
Magic is top dog in London with more people listening for longer than any other station. Big, high spending advertisers are keen to be associated with the brand which owes its success to a polished “more music, less talk” format of feel good hits linked by household name presenters. Every song, every ident, every link is planned for maximum impact. The studios are plush and hi-tech and have a very “big media” feel. It’s all very impressive, but somehow rather soulless.
Contrast that with tiny Hertbeat FM, broadcasting from a converted outbuilding at Knebworth House, a stately home famous for the rock concerts held in its grounds. The station gets only the crumbs of the national advertising cake and so relies upon the ad-spend of hard pressed local businesses for its living. But Hertbeat’s very “localness” is the key to its success … “Made in Hertfordshire, not in London” says one of its jingles. Listeners and advertisers alike appreciate the feel-good mix of music and talk about local places, people and issues.
Hertbeat FM’s zoo format breakfast show is the one that blasts my household awake each morning. The music and infectious chemistry between DJ Steve Folland and his co-hosts Chris Hollis and Dawn Easby are popular with the whole family (all three are up-coming stars and I dread the day when they’re snapped up by one of the big networks, as they inevitably will be. Breakfast just won’t be the same without them).
The morning after my report aired on CNN’s Quest Means Business there was a lot of on-air banter and gentle leg pulling about Richard’s larger than life personality. I quickly arranged for Richard to call the Hertbeat studio and there followed one of the funniest and most entertaining pieces of radio I think I’ve ever heard when a grumpy, never at his best in the morning Richard was cajoled into growling the word “sausages.” Afterwards Richard remarked how much he’d enjoyed his live radio appearance. And then he said that he envied the Hertbeat presenter’s freedom. I asked him to explain what he meant. “Their freedom to deviate from the format, dear chap”, he said. “I bet they have a damn sight more fun at work each day than anyone at Magic or the other big stations.”
And I think he’s got a point. Perhaps big is not always best and it’s the more agile, smaller stations with loyal local listeners and advertisers, and less rigid formats, that will come through the recession best.
LONDON, England - As the dust settles after an historic U.S. presidential election, the man chosen to be the next Commander in Chief cannot afford to pause and reflect upon the significance of his victory, let alone rest up after the most gruelling and expensive election campaign ever.
What advice would you give to anyone faced with the prospect of losing their job or their home?
The domestic and international goodwill that Barack Obama enjoys today will be short lived.
The millions who voted him into office as an agent for change and the hundreds of millions more around the world who see him as a figure of hope - the man to restore their faith in the United States - face an uncertain economic future.
While Obama doesn't officially take office until January, he will be involved in decisions taken right now, today, particularly concerning the economy and the implementation of the multi-billion-dollar bailout plan.
He faces a daunting burden of responsibility. People have such high hopes, but as recession bites and thousands lose their jobs and possibly even their homes, his "honeymoon" period won't last long.
So, while the president-elect appoints some of the best and brightest of minds to his cabinet and gets to grips with sorting out the mess we're in, we want to draw on the bank of experience that is the CNN audience. You.
Presidents and economic hard times come and go and yet the world keeps turning. Having lived through "downturns" in the past, what advice would you give to anyone faced with the prospect of losing their job or their home?
Many of the people who brought Barack Obama to power were voting for the first time, perhaps too young to have lived through a period of economic gloom such as this.
Just how do you cope with debt and the associated stress? With unemployment and foreclosure?
LONDON, England – The party's over, the hangover is about to set in. Friday's relief at news at the U.S. government's bailout plan which sent stock markets soaring is set to be tempered this week by thoughts of what next?
Yes, Henry Paulson rode to the rescue of the world's banks by announcing that he was set to exorcize them of the toxic debts that were dragging them and us towards financial meltdown. BUT - and it's a big but - the devil will be in the detail.
Is Mr. Paulson going to pay the full write down cost of the bad debt when he takes it off their hands - at enormous cost to the U.S. taxpayer? Or will he play hardball for a discount to the market price - leaving banks to take more pain and reluctant to lend to each other and us? In which case, we're back where we started.
And of course Hank's plan still has to get through Congress. In an election year!
One thing is certain though: The banking industry is in the future likely to be subject to much tighter regulation - and tougher public scrutiny. That will impact growth and profits - and their willingness to lend us money. We're all likely to feel a little poorer in the years to come.
So, over five breathless days we escaped global financial meltdown by the skin of our teeth. With reality set to bite, the coming week is going to be a little less stressful, but no less interesting.
LONDON, England – Our inbox has filled in recent days with e-mails telling us where our viewers feel that the blame lies for the collapse of Lehman Brothers and this week's market turmoil. A few examples ...
"The banks & insurance companies of the world have caused their own demise."
"The crisis on Wall Street is the result of fat cats who should be investigated on gross mismanagement."
"They've had it coming. There is simply too much speculative money being generated by unfettered financial institutions, money for which there is no real equivalent in goods and/or services."
"Good that the smug finance professionals who were on the gravy train will get a real jolt with this and hopefully many pink slips."
It's clear that there's little sympathy for the bank staff that have suddenly found themselves among the ranks of the unemployed.
But while the "smug, overpaid" investment bankers and "professional gambler" traders represent the public perception of the banking industry, the vast bulk of Lehman and Merrill employees are more modestly paid backroom staff.
There are thousands of sales people, secretaries, researchers, clerks, human resources and catering staff caught up in this, who had no involvement whatsoever with the complex financial dealings that led their employers into so much trouble.
With food, utilities, general living costs and unemployment all on the rise, and with Christmas and all of its associated expense just around the corner, perhaps we should spare a though for these "ordinary" guys and their families who are likely to find it tough going as they search for a new job in these uncertain economic times?
LONDON, England - Those of us who work in financial journalism have a slightly frazzled look about us today. It's been the most extraordinary weekend as Hank Paulson and Wall Street's top executives desperately attempted, and ultimately failed, to breathe life into ailing Lehman Brothers. I've experienced nothing like it in my 25-year career.
The demise of Lehman Brothers, the fire sale of Merrill Lynch – the next potential domino in the chain – and news of serious problems at insurer AIG have sent shock waves around the world. Three of the top five U.S. investment banks have now fallen victim to the credit crunch. These really are seismic events. As one commentator put it: "Tectonic plates are shifting under the foundations of the U.S. financial system," and we're all likely to feel the ground shake.
In London, the FTSE 100 index of leading shares fell nearly 3 percent in the first few minutes of trade. With the dollar tumbling both the Bank of England and the ECB said they would intervene if necessary to bring stability to the currency markets.
Our old friend David Buick of BGC partners, says the mood today on the trading floors in London is grim.
It's not so much the demise of Lehman Brothers that has sent shock waves through the City, but Hank Paulson's refusal to use public funds to sweeten any rescue deal and the realisation that we're still some way from finding out just when the cycle of huge write downs and failures will end.
Confidence, he says, is shot to ribbons. And after this unprecedented roller coaster of a weekend, so am I.
About Business 360
CNN International's business anchors and correspondents get to grips with the issues affecting world business, and they want your questions and feedback.