Sameh El-Shahat’s Blog

The Financial fallout has provided an excellent opportunity for little countries in Europe to show the big players, humbled by the global recession, who’s boss.

This is a salutary tale of how and why you should think carefully before badly treating a small country, however harmless it may seem. Not so long ago, 65million years to be exact, the dinosaurs thought they had the Earth to themselves and  thought nothing of riding roughshod over little creatures called mammals that were all to intents and purposes insignificant. Then came the Asteroid (the precursor to the sub-prime crisis) and wiped out the big dinosaurs leaving the meek to inherit the earth. History could be repeating itself.

Here are two sobering tales from our times:

How Switzerland Turned on Germany To Teach The Americans A Lesson

This is a truly bad time for Germany. In classical Götterdämmerung style, it is being assailed by its friends and allies for money.

Only yesterday, I wrote about how its Euro-area partners are trying to fleece it, so that they may carrying on living way beyond their means. To fill up its rainy day chest, beleaguered Germany is being forced to turn on small tax haven Liechtenstein to claw back some of the money stashed away there by its rich barons.

Don't Mess With UBS!

And now, in a typical kick’em-while-they’re-down fashion, Switzerland has entered the fray as the latest country asking Germany to bail it out, and it is doing so in a very imaginative fashion. We’ve been dumping on the Swiss for a while now about their banking secrecy laws, so it seems that they are fighting back to secure a future in a rather bleak financial future.

The Swiss are neither in the Euro nor in the EU. They also have no natural resources to speak of, aside Milka cows, fresh air and great scenery. For their fabled chocolate, they have to depend on some pretty dodgy African countries for supply, and for their legendary timepieces, they need a constant supply of people with at least two free wrists to wear them, if the business is to remain sustainable.  So they had to be resourceful. First, they invented secret numbered bank accounts where, behind the façade of respectable cute family-owned banks that looked like something out of Legoland, anyone could hide their money and have access to it with no questions asked. But then the Americans and the Germans turned on them to try to get them to divulge the assets of their nationals. And so, in an attempt to show they are still in control, the Swiss have unveiled their new and deadly weapon.

Swiss Chocolate may be innocent for children,but the Swiss secret service has been using it as their weapon of choice for seduction and espionage for centuries. Ever wondered how a country could live off chocolate?

The Swiss Gigolo.

The Swiss Treasury, together with their fabled Nestle-fed Secret Services have sent their best agent first to seduce and then blackmail Germany’s richest woman who is heiress to the BMW fortune. The Swiss Secret services must have planned this operation very carefully, and they counted on certain German national proclivities. For example, they Swiss are obsessive about time-keeping, and so are the Germans. And so it was most natural that Ms Susanne Klatten, a member of the reclusive Quandt dynasty, and a major shareholder of BMW, would fall for suitor whose charm lay, largely, in being punctual and arriving on time for their secretive trysts. If there is one thing the Germans love, it is punctuality. A punctual yet unimaginative lover from the clock making Germanic  races could easily trump a constanly late but more ardent latin lover. If there are two things the Germans and the Swiss adore in a partner, they would be constancy and punctuality. The Swiss then asked their chocolatiers to produce to the most aphrodisiacal confectionaries for their man to ensure that his prey would offer no resistance.

He is considered "good-looking" by German matrons, and she's a good catch if you're a nerdy looking Swiss spy on the make. But he always "came on time", and that's what really made her fall for him. She became his "Swiss Made"

Having sold her some cockamamie story about running over some US mafia kid and the mafia dad asking for EURO10 million to care for his daughter. He would put up EUR3m and she the remaining EUR7m, which she did. Then he asked for her to leave her husband and place EUR290m into a trust fund for their future lives together. When she refused, he threatened to show intimate videos of them making love (punctually, of course). She reported him to the police, he was arrested and just sentenced to six years imprisonment by a Munich court.

It turned out that Ms Klatten was nothing more than the fourth wealthy woman he had seduced then conned and duped into coughing up the cash. He had been practicing for his big hit. While this may seem like a failed mission by the Swiss secret service, it is in fact a very successful mission. The Swiss wanted the Germans to know that they can strike at the heart of the industrio-financial complex. BMW had been penetrated (excuse the pun). What of Mercedes?

Unbeknownst to a German car manufacturer with a similar logo, this the coat of arms of the Swiss secret service. It stands for Blackmailing Married Women

This was also a shot across the American bow. UBS, the Swiss bank has been forced to hand over a few hundred client account details under duress by the US with the threat of criminal action. The Americans want details of 52,000 more clients who, they say, are flouting America’s stringent tax laws. For the Swiss, banking is their means of survival and they will defend it at any cost. Is it any coincidence that the Sgarbi case has been made public now? No, they Swiss are simply warning the Americans. Every American leader of industry, major banker, or politician, must now be wondering if his wife is currently being seduced by a suave, charming, and very punctual Swiss agent masquerading as an “attentive” lover, as Ms Klatten touchingly described Mr Sgarbi. Every package of Swiss chocolate entering the US can now justifiably be considered a tool of industrial espionage, aimed at giving the Swiss an unassailable advantage over the Americans.

How The Central Europeans Finally Got To Screw Austria

Up until less than a century ago, Austria had reigned supreme for over a thousand years over large swathes of Central Europe. The Holy Roman Empire, in the hands of the Hapsburg dynasty, kept a tight rein over the whole area. From 962 to 1806 (when it was dissolved by Napoleon). Then it was revived again briefly and managed to keep going till WWI when it was finally laid to rest.

So it was quite big, as you can imagine.

The Holy Roman Empire would eventually become a Wholly Austrian Mess

The Austrians, in typical Imperial fashion, lorded it over the Central Europeans and treated them like they were some oafish backward louts. They did have a favourite in Hungary, but generally treated the whole area with the disdain reserved for exotic diseases. They waited and bided their time, these Central Europeans, and they knew that eventually, they would have the last laugh.

The WWII came and went, and they all fell under the Soviet Yoke and got even more abused. Then the Iron Curtain fell and they were free again for a while, and then they saw their opportunity. Austria was so near, and yet so far.

In 2004, a whole bunch of them joined the EU where Austria had found refuge. A rump state and a far smaller one, but still a haughty one, all the same. Their revenge would be sweet.

http://www.eurointelligence.com/Article3.1018+M545e0be824a.0.html

They all then secretly agreed to start building shakiest and most advanced banking system that money could buy, and they made sure that they didn’t use their own money. In effect, the Central Europeans got Western Europeans, with Austrians at their forefront, to buy them a banking system from scratch. Then, in a concerted action that History will remember as the true end of the Hapsburgs, they encouraged their citizens to borrow their mortgages in Euros and Swiss francs, where the rates were lower than local currency banana republic rates. The Central Europeans then went on the kind of profligate shopping spree that one only does with other people’s credit cards! When the financial downturn came, all the local currencies collapsed, and all the mortgage repayments became huge as the local currency value of the foreign currency loans shot up sky high.

When people talk of the banking system of Hungary being screwed, they are in effect saying that Austria’s banking system is screwed. That is because Austria, in a last fit of imperial grandeur, thought it its god given right to recreate a financial Holy Roman Empire all over again. They fell into the Central Europeans’ trap. Austria got burned badly and the Central Europeans know that the Austrians, much as they would love nothing better than see them go to hell, must now bail them out as that’s the only way to save the Austrian banking system.

“After leading the way in providing credit to the eight former communist nations that joined the European Union in 2004, Austria’s banks are now on the hook for 201 billion euros ($254 billion) in loans, equal to about 71 percent of the nation’s gross domestic product. International investors rank Austria’s bonds as less safe than those of Italy, Spain or even Slovakia”. ©Bloomberg 2009

http://www.bloomberg.com/apps/news?pid=20601085&sid=aSskJbEPpc4A&refer=europe

Who’s having the last laugh now??

© Sameh El-Shahat 2009

Back in 1812, Napoleon (of whom I am great fan) bit more than he can chew. Having conquered most of Europe, he had a go at conquering Russia. His lines of supply got too long and having conquered Moscow in a rather pyrrhic victory, lost most of his men to the cold, disease and desertions. He had attempted to achieve far too much and the situation got out of control because of events he could not even begin to anticipate even in his wildest imagination.

Fast forward to post-WWII Europe. The continent had been pacified after another Russian folly, this time committed by a very short Austrian guy with character issues running a German army. Yet, the spirit to conquer is still there. The instigators of conquest are no longer nations or states, but bankers. After Bretton Woods, armies of bankers would redraw the world’s map.

I consider myself a student of history, and I am also a banker. However, when I was trading and selling on the floor, I rarely had time to remember whether my actions could be better informed were I to remember Napoleon’s failings. But then I was a foot soldier and my excuse for success or failure was the universal “I was obeying orders”. What then of my ex-superiors in their financial ivory towers? What was their excuse? Styling themselves as modern-day Medicis and surrounding themselves with the trappings of power and culture, they failed to see that they would outdo Napoleon and Hitler’s Russian defeats…They bought paintings, and in good old tradition of the nouvaux riches, they acquired books by the metre to line their voluminous offices and never read any of them.

Today in the FT, Sir Fred Goodwin’s Royal Bank of Scotland adventure is quite comically explained, step by step. A commercial bank that wanted to conquer the world and ended up on the verge of bankruptcy. If Sir Fred ever shared anything with Napoleon, it is that they both had big egos. But Sir Fred was no Napoleon. The latter was a truly great man with ambitions as well as just an ego, courageous to a fault and his mark is still felt to this day. If Sir Fred goes down in history with the destruction he sowed, he will have much to share with another very little man with a predilection for grand ideas and ridiculous uniforms. One who only destroyed and left nothing but chaos and turmoil. I hope that at least you remember your history.

http://www.ft.com/cms/s/0/dbcc20aa-02a0-11de-b58b-000077b07658.html

It is not the job of commercial banks to conquer the world. Their job is to conquer the high street and look after our hard earned cash. Things started to go wrong the day the likes of RBS, Lloyds, and their American counterparts started having ideas above their station. They ended up in situations their commercial banking DNA and genes had not prepared them for. They evolved too fast. Put simply, you cannot cheat evolution by sticking a pair of wings on an elephant, push it off a cliff, and will it to become a bird. Like ungainly flying elephants, they came down to earth in a big mess.

And in the process, they triggered a process that would lead us to today’s mess.

After buying ABN Amro, RBS truly felt it could fly...

I am not always a fan of Joseph Stiglitz, but he wrote the following recently in Vanity Fair:

“In November 1999, Congress repealed the Glass-Steagall Act—the culmination of a $300 million lobbying effort by the banking and financial-services industries, and spearheaded in Congress by Senator Phil Gramm. Glass-Steagall had long separated commercial banks (which lend money) and investment banks (which organize the sale of bonds and equities); it had been enacted in the aftermath of the Great Depression and was meant to curb the excesses of that era, including grave conflicts of interest. For instance, without separation, if a company whose shares had been issued by an investment bank, with its strong endorsement, got into trouble, wouldn’t its commercial arm, if it had one, feel pressure to lend it money, perhaps unwisely? An ensuing spiral of bad judgment is not hard to foresee.”

http://www.vanityfair.com/magazine/2009/01/stiglitz200901

Vanity Fair, Jan 2009

Which is more dangerous, I wonder? Terrorism of the 9/11 kind, or the folly of commercial banks and the fraud of the Madoffs of our world? The fact that we even contemplate a comparison informs us that we are in uncharted territories. As for answer to the question, I am not really sure. But one thing is sure. In terms of lives destroyed, Bin Laden loses hands down.

Napoleon, a great man, was exiled to St Helena. Ironically, Bin Laden, a mass criminal, is enjoying the mountain air, and Madoff, another mass criminal, is enjoying his multi-million dollar apartment, for now. Sir Fred, so far as I know, is private citizen who does not face any legal challenges to his freedom or any personal lawsuit. Three very small men with not an ounce of greatness to share between them, but oodles of mediocrity. Combined, those three have visited some of the greatest destruction ever seen on our modern society. Very ironic indeed.

This article is inspired by and dedicated to PF.

© Sameh El-Shahat 2009