Supplement to The Cosepp Financial Analyst

Enduring

In this Supplement, the topics listed below are discussed and updated from time to time. On occasions, they are also further articulated in the monthly newspaper, The Cosepp Financial Analyst
Australia's Economy
Australian Police Forces... are sanctuaries for heinous criminals ???
China's Currency Reserves
Collateralised Debt Obligations - the cause of the 2008 subprime credit crises 
Italy... the ongoing economic divide:  North  v.  South
Nuclear Reactors... and the radioactive, deadly plutonium 

Australia's Economy... dominated by near monopolies.    Australia, either by negligence or by policy, now has two major problems with its economy and businesses generally.

Its economy includes a duopoly in retail, and an emerging extremely powerful near monopoly holder of shopping centres. Many small businesses are either being gobbled up, or completely driven out of business and made bankrupt. As a result, the rich are getting fabulously richer, and all the rest are getting to eat whatever crumbs fall onto the floor, off the sumptuous table of the rich. In all this, many politicians and government agencies seem to have the Bastille complex, of doing nothing, of telling the common people to eat cake, of flagrant disregard for the rights and dignity and welfare of ordinary Australians.

Political power usually flows on naturally from economic power and might. This means that Australia forcibly gets to implement policies which the minority rich and powerful want, to the detriment of the vast majority of ordinary people.

Giving donations to political parties is one way the rich get their way. Some give to lobby groups or other intermediaries which then pass on the donations in a variety of ways. In this environment, there is an urgent and patent need to legalise citizen initiated referenda, in order to restore some semblance of representative government, in order to return political power back to where it belongs, to the majority of the people.

Australian Police Forces... are sanctuaries for heinous criminals ???    During June 2010, allegations of corruption and criminality and cover ups in NSW police surfaced, that involved senior police officers and an ex-police minister. Some weeks prior to this, a senior judicial officer refused to accept the veracity and testimony of NSW police.

Again during June 2010, more allegations of corruption and criminality and cover ups in the Victorian and Queensland police forces were spotlighted in the media. The allegations centred on police officers murdering people and getting away with it.

While there were also allegations that the corruption and criminality and cover ups were systemic and virulent in the Queensland police force but not in the Victorian police force, the truth of the matter is that they are indeed systemic and virulent and widespread throughout Australia's police forces, simply because most police officers belong to a sect, a secret society which stipulates that its members must help each other, stick to each other, and cover up for each other, above all else. In these circumstances, it is hardly surprising that a crooked rotting police officer would never be apprehended and brought to justice. He would also rot away all around him like a rotten apple in a barrel.

Australian police forces will always be sanctuaries for crooks and heinous criminals, with police badges, while police officers continue to remain members of that sect, of that secret society. This aspect never gets mentioned or discussed in the media.

To read about the criminality and corruption of the Australian Federal Police: Gangsters with police badges, click here.

China's Currency Reserves... continue to mount.   China has amassed enormous, and mounting, foreign currency reserves, currently believed to be in the order of about $US 2.5 trillion (that we know about), and counting.

The renminbi is of course the official name given to the Chinese domestic currency, the yuan, which was finally revalued on 22 July 2005. This revaluation came about only after years of intense IMF, US, and EU criticism of Chinese Government currency and trade practices. It remains to be seen how this change of currency policy is to be implemented in practice over the long term.

Prior to 22 July 2005, for a decade, the yuan was fixed at around 8.27 per 1 US dollar, and this resulted in accusations being made against the Chinese Government for engaging in mercantilism, a system of economic regulation expressly or covertly designed to bolster exports and discourage imports on an ongoing basis.

China has a population of about 1.3 billion, and it is expected to rise to about 1.6 billion by 2030, by which time the Chinese economy should surpass that of the United States and perhaps even have its yuan become a reserve currency. Only time will tell.

The only major negative for China is its socio-political system, and whether or not it will be able to manage its ongoing economic growth and the problems that such growth inevitably spawns. China also needs to be more proactive in dealing with its growing aids problem which, according to United Nations reports, has the potential to become a massive epidemic, especially in its rural areas.

On balance, the future looks quite rosy for China, more so now than at any other time in its history.

Circa 1803, former French emperor, Napoleon Bonaparte, is reported to have said:

"China is a sleeping giant. May it sleep on, for, when it awakens, it will shake the world."

Collateralised Debt Obligations - the cause of the 2008 subprime credit crises.   At the heart of the 2008 credit crisis, and of the accompanying financial turmoil in the United States, has been the mysterious CDOs, which is an acronym for Collateralised Debt Obligations. The effects of these dubious financial instruments still continue on.

Essentially, CDOs have been bundles of mainly disparate mortgages and similar debt, put together by savvy Wall Street firms, and then flogged off as investments to unsuspecting investors at a huge profit. These debt instruments, these CDOs camouflaged with the enticing skin of investments, offered the allure of a prima facie high yield, while concurrently masking the true extent of the true risks involved, risks that came home to roost in September 2008 in a big way as a result of the US credit crisis which was precipitated initially by some sub-prime mortgages defaults. The bubble burst.

Some years back, I was somewhat perplexed by the invention and pronounced extensive marketing of this new plaything, these CDOs, that then germinated on Wall Street. At the time, I couldn't understand why anyone would have wanted to invest in such an obscure and not readily definable investment vehicle.

Many of these investors in CDOs have been government and semi-government authorities around the world, such as local municipal councils which, at the best of times, are easy prey to slick marketeers and snake oil merchants.

The fallen house of cards, the ruin is pretty easy to follow.

Up to the end of 2007, interest rates in the United States rose a near five-fold (5) over a short period of two (2) years, and so many mortgagees defaulted, rendering the values of those mortgages much diminished, of their re-marketed final CDOs way down.

The holders of these CDOs were therefore obliged, by virtue of accounting principles, to mark them down to market, i.e. to provide a provision for the diminution of their values and to charge such diminution as an expense in their financial accounts. Such a charge then required public disclosure and an accompanying reduction in reported profit.

The ramifications of the debacle continue to unfold, having already ensnared the odd reckless fishes who got too smart by half, who took too many risks and lost. Like the game of musical chairs, the music stopped, and they got left standing (exposed to the risks and losses).

As a side comment, tent dwellers in many US cities have grown, as a result of people walking away from their  mortgages and their homes.

In other past more transparent times, a person with a temporary mortgage repayment problem would have gone to his local loan officer, typically at a bank, and renegotiated the repayments. But with these CDOs, the owner of the mortgage was typically unknown to the mortgagee, who effectively therefore got precluded from renegotiating and therefore defaulted and simply walked away in exasperation. In such an uncertain scenario, both parties lost, which losses might conceivably have been mitigated or avoided had the CDO financial instrument not been there.

Some time in the future, I might, if so inclined, deal with another grey plaything in high places in high finance, usually called SWAPS, which are a vast darling among financial institutions, especially among their dealers who try to exude superior sophistication and who usually wake up in the morning with a sore neck (because of their attempts to kiss themselves each night). These SWAPS rarely ever get alluded to in the mass media, most of which have been dumbed down to moronic base levels, revelling on gossiping about who has been sleeping with whom and about other trivia which the seriously minded do not want to know.

Italy... the ongoing economic divide:  North v. South.    Italy's economic divide between its northern and southern regions is hardly anything new. It's been ongoing for quite some time, and it's really all about money and power, both of which have gone hand in hand. The northern regions currently have both, and so feel they should be the boss and in command, to be "il Duce."  But circa 2000-3000 years ago, the southern regions had the money and the power, and so were themselves at that point in time "il Duce." The North was then the shunned and uncivilised barbarian hinterland.

Times and circumstances of course change and, for today's purposes, the past does not really matter, except to whatever extent it may affect the present (if at all).

The South's current problems, though, really have their origins to the time of the unification of Italy. At the time, the South had thriving primary and secondary industries which provided its people with ample jobs and a good standard of living. The South was then quite prosperous, wealthy, and had enormous reserves of gold.

Upon unification of Italy, all the South's huge reserves of gold were immediately expropriated and carted off to the North. Additionally, the North dominated central government instituted policies which had the effect of destroying most of the South's secondary industries as well as debilitating its agricultural industry, in favour of those of the North, which, by this time, gained full control of the military and of what then constituted united Italy. But many in the South got caught napping and became unemployed, as their firms and their jobs inexorably disappeared as a result of those policies. Under those biased circumstances, owing to the subtle transfer of the wealth producing activities from the South to the North, the North thereby thrived enormously, both financially and politically, and the South correspondingly declined, retrogressed. Again at the time, I don't think that there would have been too many savvy economists in the South wide awaken enough to have discerned the rather subtle ruse of the North. In essence, in reality, there was a mass plunder and transfer of wealth from the South to the North.

With the passage of time, the North even succumbed to entrenched delusions of racial superiority, and started to attach a racial superiority element to its new found prosperity, which it really manipulated to the detriment and under the very noses of the unsuspecting South.

Sicily, then the most populous region of Italy, eventually but too late as the damage had already been done, later woke up to the North's ruses and wanted and agitated to secede from mainland Italy. As a result of this and of the resultant conflicts, Sicily was in due course granted more autonomy and the North concurrently moved to marshal more economic resources to the whole South, resources which were previously, really, stealthily expropriated anyway by looting the South's reserves of gold and by predatory economic policies inimical to the South's wellbeing and development. The disparity in power and money between the North and the South continues to this very day, although it is not as great as previously. The weight of power, money, and influence, though, currently still resides in the North.

After World War II, circumstances again changed dramatically, as a result of the ravages of the war and, more significantly, of the flood of the then cheap imports of agricultural products from the United States. Most of Italy's agricultural industry was as a result brought down to its knees. Countless millions in consequence emigrated from the South to the North, in search of jobs and a better life. Most of the North is therefore, currently, not strictly Northern as it once was. The North today is very much a mixture of both North and South. Italy is therefore now more united, speaking and acting as one people as never before.

Italy today, though, has again been somewhat transformed, especially as a result of being an integral member of the European Union. Italy also now has a huge non-Italian immigrant population, both legal and illegal, which is believed to be in the order of about 2-5 million. These countless New Italians will no doubt in time leave their mark, probably more so in the North where they are mostly congregated.

If so, in time the South will essentially constitute the real Italians, not the North.

Nuclear Reactors... and the radioactive, deadly plutonium.   Many years ago, when at school, I learnt about that rather nasty, radioactive commodity called plutonium, which is used to make horrendous nuclear weapons.

Plutonium, though radioactive and emitting continuous deadly radiation, can decay, of course, but it takes a mighty long time to do so, having a half life of about 250,000 years. This means that any given quantity of it, for example say 200 grams, will continue to emit deadly radiation over 250,000 years, during which time half of it, 100 grams in our example, will slowly decay and lose its deadly radiation properties.

After this initial first lot of 250,000 years are up, the remaining 100 grams are still in good working condition and will continue to emit deadly radiation over the next lot of 250,000 years, during which time half of it, 50 grams of the remaining 100, will slowly decay and lose its deadly radiation properties.

So, after this second lot of 250,000 years are up, the remaining 50 grams are still in good working condition and will continue to emit deadly radiation over the next lot of 250,000 years, during which time half of it, 25 grams of the remaining 50, will slowly decay and lose its deadly radiation properties.

Thus, as can be seen, after 750,000 years, 25 grams out of the original 200 would still remain in good working condition, still emitting deadly radiation. This rule about "half life" would continue on indefinitely over every lot of 250,000 years, until the entire quantity of the plutonium decayed completely, which, for our purposes, would really be a near eternity, bearing in mind that man lives for about 85 years.

Plutonium gets produced around the world as a by-product in nuclear reactors, or overtly in them in order to make nuclear weapons much more deadly than the atomic bombs which were dropped on Hiroshima and Nagasaki during World War II.

After a nuclear nation has amassed enough plutonium to make sufficient nuclear weapons to annihilate the whole wide world many times over, any additional plutonium produced becomes surplus to requirements and therefore has to be packaged in containers and stored in a safe stable location, for hundreds and hundreds of thousands of years into the future, hoping that such containers will last so long, and not break up nor corrode over this near eternity and release the plutonium into the environment to emit its deadly radiation.

Some pretty nasty, deadly, and frightening stuff to have around, this plutonium, I'd say. But not too many people really know the full extent of plutonium, nor probably care as they won't be around to account for, or suffer, its dire consequences.

And which nations have plutonium?

The answer is... every nation that has a nuclear reactor, and every nation that has nuclear weapons. It is widespread.

While nuclear reactors continue to be used around the world for generating electricity, and many more of them are on the drawing board, the problem of storing the plutonium by-product remains essentially unresolved and continues to be a perilous danger to humanity and other living species. Our own generation of course will obviously not be around in the future to suffer the dire consequences of laid-waste plutonium, which would continue to emit deadly radiation over hundreds of thousands of years into the future. It will be the future generations who will suffer for, and pay the costs of, our recklessness and selfishness.

On the bright side, maybe man will evolve to live with, and tolerate, radioactive radiation. I'm not holding my breath waiting for this happen, if ever it does so.

Last Updated.   This particular webpage was last updated on 2 July 2010.

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