A year ago the IMF was predicting that losses from the credit crunch would probably amount to $1 trillion, a staggering enough figure. This week, however, the organization has revised its estimate to an astonishing $4 trillion. The greater part of these losses — some $2.7 trillion — is being borne by the banks around the world that the IMF predicts will need to raise $1.7 trillion of fresh capital.
But the remainder of this financial bloodletting is falling on insurance companies and pension funds which, with the exception of the once mighty US insurer AIG, have largely yet to make known the extent of the pain that they are feeling. It is when it comes to pension funds that the damage reaches the man in the street. Workers save both voluntarily and by enforced deductions from their salaries, toward an income to see them through their retirement, which with changing demographics often means at least a further 25 years of life.
Pension funds invest contributions to cover these long-term liabilities while at the same time keeping sufficient liquidity to pay out to current pensioners. A combination of plunging values in their traditional stock and bond markets, coupled with outright losses on toxic assets means that many pension funds can no longer meet the prudential cover of their liabilities that regulators require. In terms of fresh twists to the crisis, the shortfall in pension fund assets is the shoe that has not yet dropped. Though professionals, not least the regulators, know the situation, they also know that to blow the whistle now will just make matters worse. The wave of bailout money for banks would seem to have absorbed much of governments’ capacity, not to say appetite for further financial rescues. There seems nothing to be done except to hope that pension funds will somehow manage to meet their current liabilities and seize the chance to rebuild their balance sheets when markets improve. However, in the current climate, it cannot be certain that this will happen any time soon.
Meanwhile, in the US, two top investment banks, JP Morgan and Goldman Sachs, have each posted strong profits. As a result they want to pay back respectively the $25 billion and $10 billion they received in US taxpayer funds last October to ensure their solvency. Goldman Sachs actually just sold $5 billion of stock to help fund the repayment. Both institutions are now waiting to see if the government will accept the cash. Each will have to submit its balance sheet for “stress testing” to see if it really can afford the move. The last thing the Obama administration wants is to mount a second rescue. But why should these two banks wish to throw back the government’s lifeline at this stage, when great uncertainty remains? Could it perhaps be that as long as they were being bailed out, top managers were not allowed to pay themselves fat bonuses? Yet just such incentives underpinned the madness that originally caused the crash. When will they ever learn?
We need to close this ugly chapter
If America and its allies — including Britain — are to close the ugly chapter on torture we need to drag not only the abhorrent interrogation techniques out of the shadows, but the supposed results too, said The Independent in an editorial yesterday. Excerpts:
The public reaction to Barack Obama’s attempt to draw a line under the issue of torture by US government agents is a classic demonstration of the inability of political leaders to please all of the people all of the time.
The president has been heavily criticized by human rights organizations for saying there will be no prosecutions of those who applied such interrogation techniques. But he has been lambasted by others (most of them associated with the intelligence services) for making public the confidential documents which provided a legal justification for these practices. The first group accuses the president of granting torturers immunity; the second of recklessly jeopardizing US security.
Former US Vice President Dick Cheney yesterday joined the second camp. This is hardly surprising. Cheney was known to be the driving force in the Bush administration behind the application of techniques such as waterboarding to extract information from captured terror suspects. Yet Cheney’s intervention went beyond admonishing Obama for publishing the documents. He is now calling on the White House to go a step further and release evidence of the “success” of these techniques.
Those attacking President Obama for his refusal to pursue CIA agents through the courts are misguided. Prosecutions would have demoralized America’s intelligence, compromising their work. And it is questionable to what extent justice would have been served by going after those who carried out these interrogations, while leaving those who ordered them untouched.
In fact, the president struck a reasonable balance. By publishing the documents, Obama made it clear that the White House considers the techniques illegal. And in signaling that there will be no retrospective legal action, he lifted an inhibiting burden from the shoulders of the intelligence services.
