Friday, December 19, 2008

Inflation vs. Deflation


For the first time, I accidentally and irretrievably erased an earlier, much longer and colorful version of a post.

So, you benefit as I make this version shorter and more direct.

Since September, watching the world financial system has been like watching an overtaxed steam engine that is rattling and threatening to explode under the pressure.

I have been reading way too much about the crisis. Unencumbered by any serious education in economics, I think I can boil things down to one essential question: is the U.S. facing inflation or deflation?

You can see this argument being waged fiercely every day on places like "Seeking Alpha."

And although most of the best minds think it's deflation, the Oracle of Amsterdam believes the correct answer is, inflation.

Coming soon to a country near you!

It's a matter of first principles:

1) "Inflation is always and everywhere a monetary phenomenon."
2) The Federal Reserve and Treasury together control the money supply. And they are committed to printing as much money as is necessary to prevent a deflationary spiral.

(tw collins)

The nightmare of serious deflation is that nobody spends anything because they're waiting for lower prices tomorrow, and nobody is willing to borrow because debts are ever-harder to pay back. So it leads to massive unemployment and Depression 2.0.

Of course hyperinflation gives you Zimbabwe. But a little inflation ain't all bad. Sure, it's an endless aggravation for people who see their savings being eroded and facing prices that are always on the rise.

But at the moment, some inflation would be welcome in order to put a floor under housing prices and stabilize the rest of the market. And it will make it easier for everybody to pay back their debts.

Mild deflation would be okay too, but the Fed thinks, probably rightly, that they can't take the chance of dicking around trying to achieve something they don't know much about.

So the Fed/Treasury is printing money. The base money supply has been increased by 76 percent since last December.

That has a lot of effects, some predictable, others are unknowable and yet to come.

(some russian guy)

(patricia proven)

Most notably, there's no inflation yet! House prices are falling, stocks and (most) bonds are down, consumer prices are falling, everything is on sale.

The money is piling up in the vaults of big banks, and they are spending it on only one asset class: U.S. treasury bonds.

The more people that buy them, the lower the interest rates go, so it's nice that these big bailout packages are being paid for at a very low rate.

But so many people are piling into the treasuries that at one point interest rates actually went below zero.
That means, people were paying money for the privilege of letting the U.S. borrow money from them!

That's irrational, and it's one sign that treasuries are in a bubble. I think it may pop at some point.

The threat of that; the low return on bonds; and the big potential returns in other investments, should lead some money elsewhere eventually.

Also, the investors sitting on cash have to recognize that inflation is a threat, too, and start buying *something* or watch their pile slowly become worthless.

Gold has responded predictably to the printing campaign, i.e. it has gone up, and I think oil will probably follow.

The dollar has also responded predictably, namely by falling. I think further falls are likely, especially once tangible evidence of inflation starts coming in.

Now, the unintended consequences:

There are trade war elements to what's going on. China has been devaluing its own currency for so long to gain an export advantage, it is shocked to see the U.S. doing the same.

Germany, the only exporter larger than China, is certainly going to suffer from the weak dollar. In the long run, the European Central Bank will probably be forced to cut rates the same way as the U.S. is...

In short, people are going to be debasing currencies around the world. A race to the inflationary bottom.

That means, again, gold, oil and other natural resources will appreciate in nominal terms.

I should point out, the real economy doesn't benefit much from mere inflation. Stagflation is the best case scenario here.

The worst case scenario is that the printing leads to hyperinflation. The Fed believes, or hopes, that once inflation is clearly back, they'll be able to raise interest rates again in time and suck up some of that newly printed money.

However, it's going to be very hard to raise rates if the economy remains in the doldrums.

If hyperinflation sets in before there's any kind of a recovery and the Fed has to raise rates in the middle of a recession: Well, that's the "checkmate" scenario, and game over. The depression will be back on.

In the stagflation scenario, things may be made worse by all the radical actions of the Fed/Treasury. For instance, foreigners may be wary of buying U.S. debt: you never know when the U.S. government will just devalue the currency and screw you.

Over recent decades the U.S. government has benefited from Japan, China and others putting their money into treasuries, helping keep interest rates low. I don't think China, especially, will ever make that mistake again.

But in the short term we should get our inflation.



Wednesday, December 17, 2008



1. Verb, transitive, meaning "join a fraternity," usually at either Leiden or Utrecht university.

Pronounced: S'WAFFLE-in.

"Swaffelen" was chosen Dutch word of the year in 2008.

Originally from Zwaffelen, Belgian slang for swerving back and forth while drunk.

2. V. trans.: to slap with a flaccid penis.


The first I heard of swaffelen was when some Dutch kids got in trouble for smacking their dicks against the Taj Mahal (the video is here).

There was a bit of an uproar and the kid was kicked out of school because: a lack of respect for somebody else's culture, right?

Obviously the idea is much older than the word. To cite an earlier reference in literature, I believe it was Dr. Dre who said back in 1987:

"This bitch is tryin' to gank me! I'll slap you upside yo' head with 9 inches of limp dick"
Or words to that effect.

Sunday, November 30, 2008

Zwarte Piet 2008

I don't have so much to add to what I've said about Zwarte Piet in the past.

To me, Zwarte Piet is a racist anachronism and should be transformed into something a little less offensive.

It's not difficult to decipher that this 'servant' to a wise white man, with an impossibly black face, big red lips, and nappy hair, is a throwback to the colonial era.

Now, all that remains is convincing 16 million Dutch.

On a philosophical note, 'winning arguments' is not about proving people wrong. Trying to prove people wrong is only a recipe for making them defensive.

The most you can do in a discussion is try to introduce doubt into people's minds about something and perhaps show them that there are other ways of thinking that could also be attractive.

Easier said than done in real life! Anyhow, here's me playing Socrates. I plan to do this from time to time when I meet someone wearing blackface, as the opportunity presents itself.

I had the kid gloves on, and of course we reached no major epiphanies in a short conversation. But it was interesting how quickly everybody became nervous.

So, in the spirit of fair-mindedness, I want to ask myself where might I be wrong about Zwarte Piet and to try to see things more from a Dutch viewpoint.

I was recently talking about Zwarte Piet with one of my Dutch friends _ let's call him "Sander."

Sander repeated some arguments that I've heard in the past, about how he never perceived Zwarte Piet as a negative figure _ rather, Piet was likeable. While Sinterklaas was aloof and unapproachable, Piet was boisterous and friendly.

I guess I would say _ maybe. On the other hand, he's also dumb as a box of rocks; a subservient clown; and there's the danger he might stuff you into his bag.

Another hard-to-answer argument in favor of Zwarte Piet is: yes, it's racist, but so what? Is it really that bad an influence on children? Lighten up!

That's a hard one to answer. I don't believe violent video games hurt kids, so why should I think Piet is so important?
I would say, I don't think exposure to Zwarte Piet, by itself, makes people turn out racist. It's just one negative, offensive model. It's an embarrassment to the people who participate, like calling mentally disabled people "retards."
The world will not come to a halt if the Zwarte Piet tradition continues in its current form _ it would just be a better place without it.


My concern at the moment is what to do about my son (2.75 yrs old), and I have to say it's difficult to know what's the right thing.

I mean, demonstratively challenging all the Zwarte Piets around the country on their appearance in front of him is not a viable option _ let alone trying to keep him away from all the hundreds of thousands (millions?) of advertisements.

I don't think I could explain my distaste for Piet to him if I tried, so for now I'm just muddling through, avoiding Piet when I can and focusing on the Sinterklaas part of the story.


It seems the debate over Piet has gotten more venomous since last year.

I heard a pretty good analysis from one of Amsterdam's most powerful Surinamese politicians, Hannah Beliot. She said that what's happened lately is that Zwarte Piet has been adopted by the 'know-nothing' elements of Dutch society as a kind of prestige object.
This camp has decided that Piet is a vital symbol for all Dutch culture [even though the tradition is not as old as they like to think] and that they won't "lose" Piet to political correctness or any thing else.

Recently a pair of artists attempted to hold an anti-Zwarte Piet march in Eindhoven, but they were forced to cancel after receiving threats.

Most of the vitriol directed at them was because they were foreigners, deemed incapable of understanding Dutch tradition.

So much for tolerance and 'vrijheid van meningsuiting.' (Freedom of Speech), some other much-praised Dutch cultural virtues.

I hope the anti-Pieters push ahead with plans to make a film about the racism inherent in Zwarte Piet, a topic that in my view is on its way to becoming a taboo in this country.

For people who can't get enough of Piet, I recommend as a starting point for more reading.

Sunday, November 23, 2008

Amsterdam's Other Drug War


Okay, so Amsterdam's decision to close some coffeeshops got all the attention from the mainstream media.

Meanwhile, on the same day, the city announced a major new initiative that should come as a relief to countless tourists.

"Amsterdam bindt strijd aan met dealers nepdope."

Or "Amsterdam joins the battle against dealers of fake drugs."

"The Central Burrough is tackling problems and criminality caused by the sale of fake drugs in the center of Amsterdam.
The problems caused by so-called 'fake-dope-dealers' in the Red Light District appears to be increasing, judging by signals from the police and inhabitants. The police department has ticketed almost 1,000 unique persons for trading in fake drugs."


"It's difficult to catch fake-dope-dealers. Unless they move to, for instance, robbery, they aren't actually committing any criminal act: their wares are not [Schedule 1] drugs; they are usually just baking soda or little peppermints. "

"Victims, often tourists, scarcely report it because they don't want to be brought into connection with drugs."

"During a conference on Nov. 7, all partners acknowledged the size and urgency of the problem."


Friday, November 21, 2008

Dutch Weather

Though among the weakest of all blog posts, a nice one for my Dutch weather reports collection.

It says "Regular showers with chance of hail, storm, and later in the day also (wet) snow. Also, heavy wind gusts. Between the showers, also some sun."

Special bonus: the "kans op kans" seems like a mistake but maybe it's an expression I don't know. "A chance of a chance of hail."

Monday, November 10, 2008

Five Embarrassing Mistakes I've Made In Dutch

So you don't have to...

1)"Mag ik de spleet erwten soep?" = Not, 'can I have the split pea soup,' but 'can I have the split pussy soup.'


2)"Jij hebt volkoren gelijk." = Not, 'You're completely right,' but 'You're full-grain right.'

3) "Ik hou van kersens" = Not 'I love cherries' but 'I love cherrieses'

(darwin bell)

4) "Ik doe mijn beest" = Not, 'I'm doing my best,' but 'I'm doing my beast.'


(After hearing someone's age)

"Oh, je ziet er niet uit." = Not 'oh, you don't look it,' but 'Oh, you don't look good.'


Tuesday, November 4, 2008

Obama President!

Ah, I can't stay up late tonight, so I thought I would end the suspense and just call this election early.

My thoughts, at this historic moment? Thanks for not asking, I'll tell you anyhow.

Obama was a strong candidate who had quite a bit of good fortune in running after an extremely unpopular Republican administration; and it was the financial crisis that gave him a landslide victory.

The big picture is that Obama inherits leadership of a nation with grave problems, and he will need another few servings of luck to go with his talent if he's going to make a big difference in setting things right.

The small picture is, today is a good day for race relations.

Thank goodness that after today I will never have to listen to another European lecture me on how incurably racist America is.

Of course it is _ and so is every European country, especially the Netherlands. America is several decades ahead in coming to terms with that problem. Call it our 'original sin'.

What a transformation the U.S. has undergone since WWII. Still, if Obama hadn't come along now, it might have been another 50 years (who knows) before a black person were elected.

But now that he has come, it's inevitably going to be a watershed: after this, anything is possible.

So, congratulations and good luck to you Obama. I give you one day for a media honeymoon, and then it's time to get cynical. You are a politician after all.


Condolences to John McCain. I wish I knew what the world would look like now if you had won the Republican nomination back in 2000, when you coulda woulda maybe shoulda.



Monday, November 3, 2008

Nuon Posts a Loss? Wake Up, Netherlands


The following post, while important in its way, is too boring to read. So be warned. Stop now while there's still time.

It's a sad paradox: there is no industry that's bigger, or more important than the energy industry. Yet it is so deadly boring that it's impossible to get anybody to read about it, let alone think about it.

No matter how much we hate those monthly bills.

The Dutch energy company Nuon posted a net loss for the third quarter.

This despite enacting rate hike after rate hike in the past several years.

What's going on here? And why should we care?

Well, Nuon calls itself a "company" but in fact its is owned entirely by city, province and federal governments.

So in one sense I suppose it doesn't really matter if this "company" makes or loses money. You have very little choice but to pay your electricity bill, and if Nuon loses money, the governments that own it will have to raise taxes to cover the difference. If it makes money, then governments can lower other kinds of taxes.

However, Nuon pays its executives and managers as if they were in the private sector, so to the extent they are doing a poor/ineffective/inefficient job, they are effectively throwing away money or stealing it from the public.

And now we come to the point:

I've read many and many an earnings report in my day, but never have I seen a report more lacking in transparency than what they published today. (Here it is in English, for anybody insane enough to care).

The only facts we are given are that sales were flat, while profit plummeted from EUR179 million profit to a EUR2 million loss.

Why is this?

They say part of the reason was losses on "fair value items" which I think means investments.

Here's another of the reasons for the loss, in Greek. Don't try to understand this, you cannot:

"The efforts in connection with strategic processes including the unbundling of Nuon into a network company and a production and supply company have led to an increase in, notably, ICT and personnel expenses. Other expenses concern the credit crunch, which necessitated a revaluation of an investment relating to a cross border lease."

Nuon spends a fair amount of its press release grousing about a Dutch government decision, that ordered energy companies to split apart their generation plants and delivery network (i.e. wires!) into two separate companies.

The government did that because they are imagining a future when lots of generation companies (read: alternative energy companies) will want access to the grid, and they don't want the big energy co's playing dirty tricks to keep them out.

So, to make sure everybody plays nice, in the future the grid will be run independently.

Nuon fought that decision tooth and nail, like the other 3 generation companies, to protect their monopoly. But Nuon (and Essent) had a special secret second reason.

Here's where it gets complicated, but it's juicy if you can understand it:


Before this decision came down the pipe, Nuon had struck a deal with U.S. companies to help them cheat U.S. tax authorities _ sorry, I mean 'take advantage of a U.S. tax loophole' _ and split the proceeds.

How did this work? The exact details and numbers have never been made public, but here's the basic idea:

Nuon sold its network to the U.S. companies, and then immediately leased it back for 100 years. Huh?

Because the U.S. "owners" were able to claim a tax deduction for depreciation of the assets.

An electricity network is a valuable thing, and the tax savings on its depreciation was a huge number.

There's a lot of room for variations on the theme above, but that's the basic idea.

Returning to the idea of Nuon as private "company": this kind of scam, I mean deal, called "Cross Boarder Leasing" is a very much private sector behavior. Organizations on two sides of the Atlantic colluding, I mean, cooperating, to lower their combined taxes. One can wonder why Nuon and Essent were allowed to do this. An answer would be LITTLE OVERSIGHT and LITTLE COMPREHENSION of the deal among their shareholders, i.e., governments; and of course little interest or understanding by the public.

The two things go hand and hand, n'est pas?

There was a buyback clause somewhere in the 100-year lease agreement, just in case Nuon had to repossess the network for some reason. Say, for instance, by order of the Dutch government.

Which is what happened, effective July 1, 2008.

So now Nuon
a) no longer gets the expected benefit of its side of the deal
b) probably has to pay its U.S. partners for the unexpected losses on their side of the deal.

Without the details of the deal, it's impossible to know how much money Nuon lost as a result; things could have been hedged or insured in various ways.

But I believe the company itself bandied about numbers like 1 billion euros as their 'worst case' loss when they were lobbying against the Dutch government doing this.


How do I know all this stuff? A little bird told me. Otherwise stated: Nuon, feel free to contact me to deny it.

Or maybe I'm dead wrong. Still sure would be nice to understand why it is that Nuon is hiking rates, & energy prices were sky high for most of the 3rd quarter but they are still losing money.

Nuon shareholders, are you listening?
Dutch press? NRC?

Congratulations, Mr. Hamilton

The name is almost...presidential...

(I have kind of a backlog of posts, but this is one that can't really wait)

I know absolutely nothing about Formula-1, but Lewis Hamilton was in town a few months back. A very impressive person. I predict he will not self-destruct the way so many stars do.

Photos by me!


Wednesday, October 22, 2008

Virtual Theft

(these are not the kids. Photo source...unknown).

Two Dutch kids were convicted of "virtual theft" recently. It kind of got overshadowed by a more eye catching headline _ a case out of Japan where a woman was arrested for "virtual murder."

The Japanese woman hacked a computer to delete her virtual husband's character in an online game, so hers was ultimately a hacking case.

The Dutch kids were found to have stolen virtual goods. In my view it probably should have been robbery of virtual goods.

But in any case, I do believe this is a landmark ruling so, my public service for the day is to translate some significant parts. For someone who may stumble onto this at some point in the future.

The essence is recapituated in this AP story:

A Dutch court has convicted two youths of theft for stealing virtual items in a computer game and sentenced them to community service.

Only a handful of such cases have been heard in the world, and they have reached varying conclusions about the legal status of "virtual goods."

The Leeuwarden District Court says the culprits, 15 and 14 years old, coerced a 13-year-old boy into transferring a "virtual amulet and a virtual mask" from the online adventure game RuneScape to their game accounts.

Translation of the bulk of the ruling text after the MORE.

Published Oct. 21, District Court of Groningen.

The suspect, born in 1992
"Denies all the accusations vehemently. He says that he didn't use any violence himself, and didn't see that his co-defendant used the violence he is accused of. The violence and the threats that the accuser says were undertaken by X, are completely at odds with the image that emerges from the report by the Council for Child Protection. It's actually inconceivable that someone like X, as he is described by his references, would suddenly demonstrate such violent behavior."


"The Prosecutor has, in short, at the hearing, maintained that the virtual amulet and virtual mask are goods as intended in article 310 of the Criminal Code. The defense has argued the opposite.

The court considers as follows:
In the present case there can be said to be virtual goods, namely a virtual amulet and a virtual mask from the computer game "RuneScape." The court knows the following of "RuneScape." RuneScape is one of the larger online games and primarily popular among youth. Millions of players, so-called online gamers, play the game around the world. RuneScape takes place in a virtual world, in which players with characters can take part in that virtual world. Players can, among other things, fulfil quests, fight against other players and develop other activities.

To do this, people can obtain among other things 'items' such as a mask or an amulet. The items have each an own value. This value is expressed in 'coins' and that value fluctuates on the basis of supply and demand for the items. With these 'coins' a person can as player, develop 'skills.' The more 'coins' the player has, the stronger he becomes in the RuneScape game.

The accuser, suspect and co-defendant each had an account that gave access to playing RuneScape and were also active players of the game. The accuser had in his account a virtual amulet and virtual mask.

Article 310 of the Criminal Code is intended to protect the assets of citizens. In answering the question of whether virtual goods are goods in the sense of that article, this has to be kept in mind.

There are a number of criteria that must be satisfied, if something is to be considered a good in the sense of the article.

First of all, it is of importance whether a good has a value to the possessor. This value does not have to be capable of being expressed in money.

In current society, virtual goods from the online computer game "RuneScape" have become objects of great significance. For a large number of online gamers, these goods have value. The more virtual goods a player has, the stronger he is in the game. Additionally, the virtual goods are bought and sold for money, for example, via Internet or in the schoolyard.

In the current case it appears that the mask and the amulet had value for both the accuser and the defendants.

Of importance, too, is that a good need not be material. In jurisprudence, it has been determined that also immaterial objects _ such as electricity and bank account money _ have been recorded as goods in a legal sense.

The virtual amulet and the virtual mask in the current case are not material goods, although they can be measured. Given the intended jurisprudence this is no reason not to consider them goods as intended in Article 310.

Continuing, it appears from the jurisprudence that an important charactaristic of a good in a legal sense is that he who takes in a theft obtains actual power over the stolen good, and he who is robbed loses it.
The possession of the good must pass from the one to the other.

The virtual goods intended in the current case, namely a virtual amulet and a virtual mask, were in the possession of the accuser. Only he had the actual power over those goods. The possession of the virtual goods can be transferred, for instance by placing the goods from one account to another.

In the current case, the goods were transferred, namely out of the actual power of the accuser and to those of the defendant and codefendant.

Defendant and codefendant transferred the goods from the account of the accuser to the account of the defendant. Thusly the accuser lost the actual power over the goods and the defendant and the codefendant got the actual power.

Given the virtual amulet and the virtual mask as intended in the current case satisfy the criteria, the court is of the opinion that these virtual goods fall under the concept of 'good' as intended in article 310 of the Criminal Code and belonged to accuser.

Considering the Evidence

The defense argued at trial that the accused did not illegally take the goods and he should be acquitted...given the playing rules of "RuneScape" allow the behaviors of the defendant and codefendant, and they didn't do anything punishable in any case.

The court is of the judgment that this argument must be rejected, given the actions of the defendant and codefendant took place far outside the context of the game, and thus can have nothing to do with the playing rules of "RuneScape."


The court used as evidence, the witness statement

"On Sept. 6, 2007, *codefendant*, victim and me went to the condefendant's house in Leeuwarden. We all play the ongame line "RuneScape." A day earlier, codefendant and I had agreed via MSN chat to transfer virtual goods from victims account to our account. I saw that codefendant hit victim. I also saw that codefendant took a knife and went in the direction of victim.

On Sept 6, 2007, I put victim in a choke hold by clamping his neck in my elbow. I flexed my muscles so that victim couldn't get any air. We hit victim. I hit victim intententionally with the palm of my hand in his face. Because victim didn't cooperate, I choked him. We forced victim to log onto that computer. Victim didn't want to give his password and log in to play the game. Because we threatened him, he finally did log in and got the game. I threatened him that he had to cooperate. If victim didn't want to cooperate, then I'd give him some more blows ... I took two knives from the kitchen drawer. I rubbed the blades against each make him scared.


I've been playing a game on the Internet for years now. I spend an average of four hours a day on it. It's called RuneScape. It's a game in which you are a small puppet that can earn money by working. I'm very rich on RuneScape and because I'm rich I'm also very strong. I'm almost unbeatable in this game. Because of my great wealth in RuneScape in money and possessions, I change my password almost every three days, because I'm worried someone will figure it out and hack me.

I biked on Sept. 6, 207 with defendant and codefendant to the home of codefendant in Leeuwarden...I had to cooperate to transfer the money and goods from my account to the account of defendant. When I said I didn't want to, defendant and codefendant began to hit and kick me. I was apparently hit in the head with fists. They punched me on purpose and very hard against my head and ribs. Because of the beating I got, I fell to the ground of the bedroom. Next I saw that both were kicking my chest and legs, on purpase and hard. I also saw and felt that they stood on my chest, apparently on purpose and with force...I felt a lot of pain. I heard that they called to me that they would kill me. Next I saw and heard that first the codefendant went to the kitchen and got a knife and shortly after that defendant also went to the kitchen and got two knives. With the knives they threatened me with death. I became very scared. I couldn't do anything else but cooperate with defendant and codefendant. I didn't dare to refuse...I had to go with both to a computer in the living room of the flat where I had to log in with my account on the game RuneScape...suddenly I was pulled over backwards in the chair by defendant. I lay on the ground and defendant kicked and hit me again on my head and body. When it stopped, I saw that defendant sat on the stool. I stood up and saw that defendant transferred all my money and goods from my RuneScape account to his own account _ stole from me...Then both put me out of the house.

The facts demonstrated in the case amount to the crime:

Primarily theft, preceded and accompanied by violence and threats of violence, committed with the intent to prepare the theft and make it easy.

Committed by two persons.


The suspect has given no hint of understanding the wrongness of his behavior and has a too positive image of himself. The circumstance that he's never had contact with police before and much time has passed since the committing of the act and the trial is mitigating.
The Council for Child Protection has issued two reports over the defendant, from which emerges that at school and at home there are no problems with the defendant's functioning. The Council does not give any punishment advice, since the defendant has taken a position of denial.
Jailtime doesn't make sense for a defendant who was 14 when the crimes were committed.

Yada yada yada. Sentences of 200 community service hours and 160 hours, and a suspended 2 month sentence for each.

This decision is signed by B.J. de Jong, chairman and child judge. MJ Dijkstra and A. de Jong, rechters.

Verdict rendered at open sitting of this court on Oct. 21, 2008.


Thursday, October 9, 2008

Bend on Herengracht, then and now

"The Bend on Herengracht" by Gerrit Berckheyde from 1671.

"The Bend on Herengracht" by Toby Sterling from 2008. Hope I found the correct spot, it doesn't look quite right.

More dog crap, cars and bikes. Plus the trees have grown.

The first painting was bought for at least EUR1.5 million by the Rijksmuseum, if I read the press release correctly.
The digital photo is yours for free...

Tuesday, October 7, 2008

Thoughts on the Global Financial Crisis

(flickr's yozza)

Meanwhile, beer is still trading steady at EUR2 1/4

"Time and the hour run through the roughest day."


Thursday, October 2, 2008


(flickr's benidormone)

I hope, I think, it's not unethical for me to put together a few thoughts about reporting on Fortis over the past year and a half.

But first, a few bits of comedy _ well, irony _ to lighten things up.

Actual Fortis slogan: "Here Today, Where Tomorrow?"


Next, an email exchange. Note the date. I think it's right that I remove a few identifiers here.

From: [mailto:]
Sent: Thursday, September 25, 2008 4:32 PM
To: Sterling, Toby
Subject: RE: 26 June press release

Dear Toby,
Thanks, but I shall not answer your question since this scenario is not on the table.

From: Sterling, Toby [mailto:tsterling@xxxx]
Sent: Thursday, September 25, 2008 4:14 PM
To: Xxxxxxxx Yyyyyyy
Subject: RE: 26 June press release

Thanks Xxxxxxx.

One other question: Fortis could always get a loan from the Dutch and/or Belgian central banks if it came to that, no?


Toby Sterling


Finally, I just wanted to note that S&P, Moody's and Fitch all downgraded Fortis' credit ratings on Monday _ AFTER the 12 billion euro cash injection by the Dutch government.

In Dutch they say "Als 't kalf verdronken is, dempt men den put."
In English we say "closing the barn door after the cow has gone."

Once upon a time, I used to respect the ratings agencies...


So, the central question I want to address in this post is: what, if anything, should I have done to make it clear I thought Fortis was heading for disaster?

The short answer is, in the moment I didn't think I could or should do anything. After all, it's not the media's job to speculate, and I certainly didn't KNOW there was anything wrong with Fortis. In fact, well-meaning analysts who understand far more about finance than I told me as recently as last week that they thought there was nothing wrong with Fortis' balance sheet.

And in fact, lots of people think there really, truly, was nothing wrong _ apart from a lack of confidence from investors and depositors. And confidence is everything for a bank.
I think, it's my opinion, that the company itself believed it was healthy and did not, could not comprehend that the wolf was at the door until it was too late.

So now I turn on the way-back machine:

From the time that Fortis entered the bidding to buy ABN Amro, it always seemed like a bad idea to me: I'm not a financial wizard, but I would say from what I've seen and read, large takeovers fail as often as not.

Both in minor ways and in major ways.

I remember at one point looking at Fortis' market capitalization _ market value _ and thinking 'they're paying EUR24 billion and they are only worth EUR36 billion themselves? It's like an Elephant eating a Hippopotamus.'

I put the figures prominently in a few stories and including skeptical analyst comment. That's what I did.

By the way I had vague nightmare fantasies that proved incorrect about what would go wrong:
I imagined an exodus of ABN Amro employees and customers walking out over petty national jealousies. Or in anger at the increasing lack of choice in the Dutch market. Or the way ABN and Fortis are always nickle-and-diming their customers. And that these things would lead Fortis to miss its integration targets. I had no idea at the time that it would be a credit crunch that would actually derail the buy.

In fact, as the U.S. economy was starting to run into trouble, I thought very much that it wasn't a bad time to be buying Dutch assets _ Europe was in better shape, and the Dutch market has been outperforming the rest of Europe for several years now.

So, I thought Fortis overpaid, but the most likely scenario was that the integation would be a bit clumsy, and the two would eventually settle in together.

When the shares were down around EUR22, I thought the worst of the selloff was over, the customers who were going to walk had walked, and now the question would be, how well does the integration go?

But as the year went on and markets went down, down, down, and Fortis always falling worse than the market, it did seem increasingly unlikely that it was going to be able to raise much money by selling assets.

Furthermore, I had a kind of uneasy concept, an idea in my mind, that probably only shows my lack of understanding: it seemed to me that if the company's debt remained the same while its assets were shrinking in value by the day, then the amount of $$ it needed to raise would be increasing as markets fell, fell, fell.

When Fortis issued shares and canceled dividends in July, it was treated by most investors as a betrayal and they screamed bloody murder. The CEO resigned (that particular event I missed while on vacation). But funny enough, in retrospect it was one of the most responsible things that the company did.

About 2 weeks ago it got so bad that I personally thought that one bit of really bad news could topple the company.

Whoever I talked to about things agreed that the situation was dire, but no one really thought they would go bankrupt. I agreed _ I guess it was always clear the government was going to bail them out if it came to that. But the details of how that would work...very unclear.

I didn't expect they would have to sell ABN, because I figured it would be too disruptive for them, such a large bank, crucial part of the Dutch economy, to change hands yet again.

Rumors were swirling around about Ping An not going through with its much-needed EUR2B buy of a Fortis asset management arm.

Fortis denied those rumors, but after the fall it appears they were true.

The price they got for selling assets to Deutsche bank _ I thought, if these are market prices right now, Fortis is going to be going BACKWARDS by selling things.

But by late last week, the most amazing thing was the incomprehension among Fortis managers. What's going on? Our numbers show no problem at all! Why are you barbarian shareholders behaving this way? This was clearly not something that business school (or wherever it is Belgian bankers go) prepared them for.

Probably from the moment Lehman failed, their destiny was written. Unless they had pulled out all the stops to find a merger partner on very unfavorable terms, or said 'damn the consequences' and issued more shares, they were going down.

But how does a reporter write those kind of things? With what evidence? Furthermore, by writing about a "crisis" at a bank, you are essentially yelling fire! in a crowded theater. The act of writing a story like that _ unprovable _ can cause a company huge, unfair harm.

What I did? Every time their shares fell, I wrote a brief story saying "shares fell on fears their plan to sell assets won't work."

Was there a better approach? In the financial world, you run into analyst opinion pro versus analyst opinion con pretty quick. And they know infinitely more about finance than reporters. (Reporters who know too much tend to become analysts themselves, or at least move into in-house PR).

And it goes without saying that all companies not only reflexively deny any trouble, but they also indisputably have better information about their own business. So it's easy for them to refute skeptics with "facts."

But sometimes, facts can obscure the forest with trees.

Well, I leave this line of thought in aporia. What's done is done.


Sometimes I criticize Dutchies on this blog, but I want to say that in this crisis they showed off one element of the national character that I love.

When the bailout was announced, I heard more than once "yeah, that's what you get when you let Belgians run things." But _ and this is essential _ the joke was told with no ill-will, just to relieve the tension.

It's a friendly rivalry, and if anything I think the Belgians have slightly more of the inferiority complex _ there was a little too much gloating when Fortis was buying ABN.

Lapwing. Icarus.


For weeks now I've been thinking: wouldn't the fallen ABN Amro CEO Rijkman Groenink be the ultimate interview right now?

Rijkman, where are you?


Wednesday, October 1, 2008

September Madness

I found this mildly amusing. Not sure if credit should go to Seeking Alpha or Ockham Research.

Note they misspelled "Barclays."


Tuesday, September 30, 2008

Snow On Mars

(from Flickr's Fooishbar. Deep fried Mars bars with powdered 'snow' sugar on top).

I many damn times will they report that there is water on Mars?

(from geenstijl)

I mean, really.


Thursday, September 25, 2008


Dear Mr Solomon Okoro:

You have been recommended by an associate who assured me in confidence of your ability and reliability to proscecute a highly confidential financial transaction on behalf of my partners.

I am a high-ranking official in Treasury Department (DPOTT), Republic of America. We hold a sizeable sum in US Federal Bank awaiting remittance into a foreign bank of our choice.

However, by virtue of our position as civil servants, we cannot receive this money in our names.

I have been delegated as a matter of trust by my colleagues to look for an overseas partner to whose account we would transfer the sum of $700,000,000,000 (SEVEN HUNDRED BILLION DOLLARS).

We have agreed to share the money
-20 percent with the account holder (YOU)
-80 percent for us (THE OFFICIALS).

Please reply so that I can respond with detailed information about safeguards that will be used to protect the funds.

Yours Faithfully

Rev,Mr. HENRY Paulson

1125 15. TH. Street, NW. Washington, DC

(the american roadside)

No, I didn't think of this first...

Monday, September 22, 2008

Dutch Blog "War" - GeenStijl vs GeenCommentaar vs NOS


The NOS reported today that a "war" has broken out between GeenStijl and GeenCommentaar.

That's the Netherlands' BBC equivalent, reporting on the blogs NoStyle and NoComment.

GeenStijl is the most popular Dutch blog, and it got that way by being smart and well, tasteless. Love 'em or hate 'em (I love 'em), they can't be ignored.

GeenCommentaar is a lesser known site designed as a response to GeenStijl (which is populist and perceived as right-leaning).

Recently GeenCommentaar put up a fake petition, guessing (correctly) that GeenStijl would invite its readers to deface it. But GeenCommentaar simply gathered the IP addresses of users coming in on the GeenStijl link to create a database of the site's readers.

Then they began offering the database as a "GeenStijl Checker" so that other leftist websites could use it as a filter to prevent GeenStijl readers from commenting again in the future.

So in retaliation, GeenStijl launched a denial-of-service attack on the site where the database was housed. Which is technically illegal under Dutch law.


(by chance I happened to see this interview taking place near Artis this morning _ I wondered what it was all about; if I had known I would have stopped to take my own photo and ask a few questions).

The NOS played an interesting role in all this. They've been wrong-footed by GeenStijl frequently in the past, but this time it seems to me they did a nice job of ruffling the feathers of the infant terrible, without getting their own hands dirty.

GeenStijl put out a lengthy response to the NOS piece, photoshopping a frame grab from the program and crying "boo hoo" (one of their favorite phrases for mocking complainers) about the database, claiming it violates privacy laws. Doubtful, dudes.

I forget who it was who first said this, but in U.S. politics and in life, once you have to start explaining yourself, you've already lost.

Friday, September 19, 2008

Wouter's Wise Words

Wouter is the Dutch finance minister.

He says

I can't imagine that the American financial system will ever again be as it has been. Everyone who now still dares to assert that the financial sector is capable of regulating itself, and shuts his eyes to the fact that that has led in practice to free rein for greed, irresponsible risks and disproportionate, perverse bonus systems, won't be taken seriously anymore. This kind of Capitalism is gone. I think for good.

As a side note, I see the Dutch media all misquoted him slightly. Interesting the things you find out when you use a recording device.

Actual quote:

Ik kan mij niet voorstellen dat de Amerikaans financieele systeem ooit nog wordt zoals het geweest is. Iedereen die nu nog durft te beweren dat de financieele sector in staat is zichzelf te reguleren en de ogen sluit voor het feit dat dat in het praktijk geleid heeft tot eigelijk vrije baan voor hebzucht, onverantwoord risico's en buitenproportioneele, peverse bonussystemen, zal niet meer serious genomen worden. Deze vorm van kapitalism is voorbij. Ik denk voorgoed.


In the Dutch media (ANP, repeated by NOS and RTL):

"De hele crisis betekent de definitieve teloorgang van een systeem dat is gebaseerd op hebzucht, onverantwoorde risico's en perverse beloningen", zei de bewindsman vrijdag na afloop van de ministerraad.


Sunday, September 14, 2008

Kanker Luiers - Lost in Translation

Once again, big trouble in little Hemonystraat.

Someone has vandalized the Taco Mundo with the following message:

"Brommer vrij Hemonyplein kanker luiers ! "

Which presents translation problems.

The folks over at GeenStijl are having a field day with it.

Actually, the GeenStijl/Dumpert headline, "Look An Angry Small Business Owner," kind of misunderstands the situation.

It's not the store owner who's mad (other than than his store got vandalized).

Let me explain. But first of all, let me say I deny any involvement.

I think the basic idea has to be, this is an expression of anger by a local about the Taco Mundo employees riding their scooters too fast over Hemony square, where lots of kids play. Including mine.

So the first part is "(keep) Hemony square scooter free" or "Hemony square (should be) scooter-free."

Kanker luiers = "cancer-diapers," presumably a play on the common Dutch insult kankerlijer or "cancer-sufferer."

Yep, that's really a normal insult here. There's a whole range of sickness and disease insults.

But "cancer diapers" instead of "cancer sufferer." The pronunciation is close. Assuming it's not a mistake (which can't be ruled out), what are we to think?

As if the message was scrawled by a gang of tough toddlers who call themselves the cancer diapers?

Or as if the author wishes to portray Taco Mundo couriers as so young they are still wearing diapers, which are cancerous?

The mind boggles.

Friday, September 12, 2008

Subprime Subway

(the damage doesn't look that dramatic from across the street).

A bit of a cockup this week by the the genius Dutch engineers building the Amsterdam subway.

Peter Doeswijk, a neighbor, told NOS news he had no faith left in the city.
"They said 'we've got everything under control, we've investigated everything,'" he said. "All kinds of experts came by to try to reassure us. Then they go back to work for two days and it happens again."

I wish they would just hurry up and finish the damn thing.

The 'Vijzelcircuit'' (sorry about that spelling) has been a wreck for like, six years now.

Beautiful day though.

What I find less-than-comforting is that these are the same engineers who are telling us, no problem, the dikes are going to hold...


Wednesday, September 10, 2008

Amsterdam fiber optics co to offer 1 gigabit/second connection

This is not a record.

Glasvezelnet Amsterdam is going to be offering a commercial fiber optic internet service at 1 gigabit per second by 2010, the company said at a demonstration Wednesday.

I would have liked to do a story about this for AP, but it doesn't quite rise to the level of news: there are already similar services available in Sweden and Hong Kong.

Still, that makes my 20 mbps/s connection with VersaTel look like a steamy pile.

Japan has roughly 14 million fiber users (compared with 1.2 million Verizon subs in the U.S.). But they are not getting anything near 1 gig _ in Japan, they're getting 50-100 mbps, not that much better than the best xDSL++

I also got some good data on the current situation in the Netherlands: Glasvezelnet has around 43,000 houses passed, but very few connections. They expect to have 22K or so clients by the end of 2010.

Including KPN and many other builders, there will be 150K-200K subs in the Netherlands by year-end.

My apologies for the abrupt slowdown in posts. Unfortunately, it's not likely to be a temporary thing. The pressures of fatherhood and other life goals are cutting into my blogging time, probably forever.

Het is niet anders...