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The Rumi Forum presents Global Financial Crisis and the Fate of Capitalism with Dr.

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LUNCHEON: Global Financial Crisis and the Fate of Capitalism …

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MARKETS are bracing for the bankruptcy of General Motors, which could have widespread knock-on effects through credit markets and the US economy.
Analysts have been aware of the company’s woes for years, but a default could still inflict losses on investors holding $US27 billion ($33 billion) in GM bonds, and billions more in other derivative products.
The bankruptcy is unlikely to unleash financial meltdown on the scale of that following the Lehman Brothers collapse, and negotiations have given some of the biggest bond-holders an equity stake in the reorganised company. .
There is an extra $US38 billion in gross exposure to GM bonds through the CDS market, or net exposure of $US2.
But a default will ripple through markets for complex securities linked to the bonds, such as the credit default swaps (CDS), that effectively allow investors to take out an insurance policy against a default.
The managing director of Sandon River Capital, Gabriel Radzyminski, said credit default swaps were originally intended as a means of hedging risk, but they became a tool for betting on a company’s bankruptcy.7 billion.
Outside financial markets, the bigger blow could be the long-term economic effects.
He said the bankruptcy of GM could cost bondholders millions, but its fallout would be more moderate than that of the Lehman bankruptcy. This would raise the bank’s forecast for peak US unemployment to 11. Deutsche Bank says that even if the bankruptcy is controlled, it could cost a third of the 3 million US car workers their jobs.2 per cent.5 per cent, from the previous month’s reading of 9. “It’s probably more of a symbol than anything else.
A senior economist at ANZ, Julie Toth, said after losing Chrysler in recent months, it could come as another blow to the mood of US households.
Figures published on Friday night showed the US economy was shrinking by 5. It will hit confidence,” Ms Toth said.

.7 per cent a year, an improvement on the previous reading, while consumer confidence was at its highest in eight months

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IF GARIMPEIRO were a Darwin mud crab, he would be seriously worried. More than 1550 oil and gas types have just descended on the most northerly of our capital cities for the annual bash put on by the Australian Petroleum Production and Exploration Association.
For the poor old mud crabs, the mix of hungry oilers, charge cards, crisp white wine and balmy nights means that the restaurants beneath twinkling lights along Darwin Harbour Wharf will become their killing fields in the next three days.
That’s not to say that the APPEA bash is not a serious affair. And if the crabs don’t get "plated" there, the travelling economic boost that is the APPEA conference will catch up with the blighters at the Fannie Bay sailing club. Apart from the heavy politics of the conference’s plenary sessions, the talkfest is a hotbed of wheeling and dealing among the industry players. It is, as reflected in the pilgrimage from Canberra of the Resources and Energy Minister, Martin Ferguson, along with the chief executives of all of the big, medium and small oil and gas players.
A Deloitte oil and gas partner, Stephen Reid, reckons there are no fewer than 10 serious issues to kick over this year.
APPEA itself releases today a new "state of the industry" report that contains plenty of worrying trends for Canberra. No prize for guessing that among Reid’s Big 10 you’ll find carbon reduction, the credit squeeze and its impact on small companies, the challenge of alternative energy and talent deficits.
The industry will argue that the failure to do so – and that means no damage from an emissions trading scheme – would result in the alarming fall in Australia’s oil self-sufficiency continuing. The industry hands over more than $8 billion in annual taxes, so politicians need to listen when industry members (again) point out in coming days that the Government needs to make the investment climate for oil and gas companies friendlier.1 billion last year, an increase of $4. .7 billion on 2007, even with sharply lower oil prices in the second half.7 billion on 2007, even with sharply lower oil prices in the second half. At about $US66 ($82) a barrel, oil has just pulled off its biggest monthly gain (30 per cent) in 10 years. Sure, oil is well short of last year’s record levels of near-on $US150 a barrel, but it has headed in the right direction in recent weeks on hopes that the worst of the global financial crisis is behind us. The lanky and seasoned campaigner must be the first APPEA chairman to be involved in a takeover bid for his, er, own company.
Privacy report APPEA’s chairman and master of ceremonies this year is Buru Energy’s chairman, Eric Streitberg. In the wake of the global financial crisis, Buru struggled to trade at anywhere near its true worth, prompting Streitberg, through his privately-held Arenite, to make a $40 million bid of 25c a share and 2. Buru is the cashed-up Canning and Perth Basin junior explorer created last year when Streitberg’s ARC Energy was taken over by AWE.
Buru was holding cash at December 31 of $79.5c an option. But it also has a $40 million future commitment to supply Alcoa with gas.3 million.
So the offer from Arenite has generally been well received, as was reflected in Buru’s closing price on Friday of 22.
So the offer from Arenite has generally been well received, as was reflected in Buru’s closing price on Friday of 22.5c a share. But there will be a delay in getting the offer out to shareholders. Streitberg said on Friday there had been a small timing glitch. Nothing else has changed, the terms of the offer are going to be "absolutely" the same. Continued…

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GREG GOODMAN faces another week of tough talks with investors over Goodman Group’s planned issue of options that will see it reunite with Macquarie Bank.
Shareholders must approve the deal at an extraordinary general meeting, which is expected to be scheduled for later this month.
Amid the talks, market speculation is growing that the group is looking to offload its New Zealand-based Goodman Property Trust.
The New Zealand-born Mr Goodman’s group has a direct 18 per cent stake in the trust as well as being the manager, so any sale would reap the company a tidy sum.
The NZ trust has a market value of $NZ701 million ($554 million) and closed up last week 1c to NZ83c, a price that many Goodman Group investors can only dream about. The NZ trust will pay a cash distribution of 10c, an increase of 1 per cent over last year.
But, as is the case in Australia, finding a buyer will be tricky. In its annual accounts to March 31, it reported a profit of $NZ83 million.3 per cent write-down in the carrying value of investment and development assets to $NZ1.
But distributable earnings were hit by a 10.
With the lifting of short selling, Mr Goodman’s Australian outfit, is now said to be a takeover target and is trying to convince shareholders to approve the issue of options to Macquarie to help it secure long-term funding.5 billion. Standard & Poor’s has put the stock on credit watch negative. .
In the $330 million refinancing deal, announced the previous month, the equity slice of the deal has Macquarie Bank being issued up to 414 million Goodman options at 30c, with an initial $120 million available under Goodman’s existing placement capacity and the additional 294 million units subject to a unit holder vote.
In the $330 million refinancing deal, announced the previous month, the equity slice of the deal has Macquarie Bank being issued up to 414 million Goodman options at 30c, with an initial $120 million available under Goodman’s existing placement capacity and the additional 294 million units subject to a unit holder vote.
Citi’s Peter Cashmore said if Goodman repaid the $300 million anytime during the nine- or 24-month loan period, Macquarie was still entitled to the option.5c to 25c.2 million.
“Alternatively, if Macquarie exercises the option, Goodman receives $124.
He said if Macquarie was only issued 120 million options that would raise $36 million, then it would be entitled to a cash amount, estimated to be about $20. The options can be exercised anytime within the two-year period,” he said.
“In the meantime Goodman needs to refinance $225 million of debt held by two offshore banks in September and December 2009.6 million, or 7c per option.
“We would not rule out an equity raising if discussions with potential strategic partners collapse as Goodman seeks to replenish its liquidity status. Although the partial refinancing offered by Macquarie does ease Goodman’s liquidity burn rate in this period, in effect it has simply moved the liquidity focus to the first half of 2009-10,” he said.”

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HJ HEINZ plans to expand the reach of the Golden Circle fruit brand in the Asia-Pacific region after buying the Queensland company for $288 million in December.
In a teleconference with analysts on Friday to discuss the US food company’s record annual earnings of $US923 million ($1.
That would represent about one-tenth of Heinz’s annual global sales.6 billion), the chief executive, William Johnson, said the Golden Circle acquisition meant its annual sales from Australasia would now approach $US1 billion.
“We see a terrific opportunity to expand the reach of Golden Circle across Asia-Pacific,” he said.
Mr Johnson said Heinz’s Australian division would try to achieve “incremental growth” in the Golden Circle and Original Juice Company’s brands through more aggressive marketing.
“We will leverage Heinz’s marketing and sales networks across the region to pursue new export opportunities for these great Australian fruit juice brands,” Heinz Australia’s corporate affairs manager, Jessica Ramsden, said.
In addition to Australia and New Zealand, Heinz’s Asia-Pacific unit also operates in Japan and in high-growth emerging markets such as China, India and Indonesia. .
Mr Johnson said Heinz Australia had been “probably our top-performing company over the last five years”. But last year it raised prices across almost all categories in Australasia and reported a 6.
Mr Johnson said Heinz had increased its pricing “very aggressively” in New Zealand in April to help address the falling value of the local currency, but had increased prices only “somewhat” in Australia.4 per cent fall in volume.1 per cent price rise in the Asia-Pacific unit and a 1.
Mr Johnson said there was a global trend towards shoppers pursuing lower prices and becoming more selective.
He said Heinz had gained market share in all of its divisions around the world, with the exception of Australia and New Zealand, but he did not elaborate on why market share had fallen in Australasia.

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Most policymakers, investors and environmen-talists are by now aware that the future of the Australian economy and indeed the planet depends in no small part on China. But by focusing on China’s headline economic growth rate they are in danger of missing the story.
China’s gross domestic product growth is invariably impressive but its significance is swamped by changes in the composition of that growth.
In 2002 Chinese corporate profits accounted for 20 per cent of GDP. And if there is a single internal meta-trend to watch, it is the changing division of economic returns between capital and labour.
Rising corporate profits – largely captured by state-owned companies – is partly explained by urbanisation. Within five years that figure had risen above 30 per cent. Apartment blocks and freeways are capital intensive.
The economic returns from China’s recent growth model have been naturally captured by heavy industry. They consume steel, cement, aluminium, chemicals and electricity. But mostly they have been ploughed back into investments in more steel, aluminium and cement factories in a self-reinforcing cycle. Some of those profits have come from export earnings and been recycled into foreign exchange reserves. UBS China economist Wang Tao lists the important ones:
?¡ Artificially lowering the prices of land, resources and energy;
?¡ Allowing state-owned firms to keep and reinvest profits;
?¡ Stalling on liberalising services and the financial sector in particular, which limits investment choices;
?¡ Favouring large, state-owned companies over other enterprises; and
?¡ Rewarding officials on raw GDP and production numbers.
In China the high profits, savings and investment of heavy industry have been amplified by government policy.
It is no coincidence that the turbo-charging of Chinese profits, particularly in heavy industry, has exactly coincided with the biggest and longest global resources boom in at least 100 years. .
Electricity consumption growth has averaged 13.
Exponential growth in heavy industry production explains how Chinese electricity consumption flipped from trailing GDP growth in the 1980s and ’90s to exceeding it.4 per cent, while heavy industry has risen to consume 55 per cent of China’s (coal-dependent) electricity production.5 per cent this decade, outstripping GDP growth of 10.
In fact it seems to be already reversing.
The good news for the long-term health of the planet – if not for investors in BHP Billiton and Rio Tinto – is that China’s pattern of growth in heavy industry is “not remotely sustainable”, to quote Jonathan Anderson at UBS.
The surge in Chinese corporate profits this decade has not only manifested in soaring resources prices and the accelerated suffocation of the planet. (Mining investors should not yet fret – another seismic shift in the structure of the Chinese economy is that the slump in Chinese resources consumption has been overtaken by a larger slump in high-cost domestic production, opening the door for an unprecedented surge in Australian exports).
The share of employee compensation fell from 53 per cent of China’s GDP in 1997 to 45 per cent in 2002 and a miserly 40 per cent in 2007. Another way to look at rising profits is that a declining share of national income is flowing to workers.
Economist Wang Tao again shows what’s been going on.
Economist Wang Tao again shows what’s been going on. She says the emasculation of employee income was not due to wage restraint. Rather, it was due to China’s lousy record of jobs creation. Growth in the number of non-farm jobs averaged just 3.4 per cent between 2000 and 2007, less than half of the 6.9 per cent rate recorded in the 1980s. Continued…

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THE big four banks are not only grabbing market share from their smaller rivals in the lending and deposit markets, they are also narrowing the gap in an area that was once the domain of the regionals: customer service.
In yet another sign that the fallout from the global financial crisis is hitting the second tier of the banking industry, the difference in satisfaction levels between ANZ, Commonwealth, National Australia Bank and Westpac and regional lenders such as St George, BankWest, Bendigo and Adelaide, Bank of Queensland and Suncorp has fallen to its smallest point since records began in June 1996.
The gap is now 5 per cent, having been as high as 17 per cent six years ago when the big four were out of favour because of the effect of their extensive branch closure programs and cutbacks in staff dedicated to customer service.
By contrast, the big banks’ combined satisfaction rating has risen to 72 per cent – the best figure since late 1996 when the first results of the RMR survey revealed the beginning of a sharp decline in customer confidence.
The narrowing of the gap has also coincided with a fall in the overall customer satisfaction levels of the small banks from their highest point of 84 per cent recorded two years ago by Roy Morgan Research to 77 per cent the previous month.
The latest statistics show big year-on-year falls since April last year for all the regional banks, with large proportions of the decreases recorded by St George and BankWest coinciding with their purchases by new owners Westpac and Commonwealth Bank, respectively. .

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IT HAS become the best of times for the Australian gold sector. After being on the skids for 12 years, production is set rebound in response to the surge in gold prices to a record quarterly average of $1371 an ounce in the March quarter.
The Melbourne-based industry consultant Surbiton Associates is also predicting that conditions are right for an increase in gold exploration, the life blood of the $8 billion industry.
Gold was an ideal target for smaller companies in the current environment, Dr Close said.
A Surbiton director, Sandra Close, said that the slump in iron ore and base metals prices might induce small exploration companies to look more closely at gold again.
But before the industry’s renaissance arrives, production continues to bump along at lower levels. It is a high-value, low-volume commodity that doesn’t have the massive development costs or the enormous infrastructure requirements that the bulk commodities require. A survey of March quarter production by Surbiton, released yesterday, showed that output was steady at 54.75 million ounces), worth $2.5 tonnes (1.
That was unchanged from the December quarter but an encouraging 3 per cent gain on the previous corresponding period.13 billion at spot prices. However, barring any unforeseen mine closures, output for this year should exceed last year’s. . Production for this year will get a boost from OZ Minerals’ new Prominent Hill copper/gold mine in South Australia. Production for this year will get a boost from OZ Minerals’ new Prominent Hill copper/gold mine in South Australia.9 billion redeveloped Boddington gold/copper operation.
The real boost will come from midyear and the commissioning of Newmont’s $US2.
Dr Close said that the higher gold output anticipated this year should allow Australia to regain a higher ranking among the world’s top producing countries. It is set to produce 31 tonnes (1 million ounces) annually, making it Australia’s biggest goldmine.
The only dark cloud is the recent strength of the US exchange rate. Last year, China was the leading gold producer with 282 tonnes, the US was second with 229 tonnes, followed by South Africa with 220 tonnes and Australia with 219 tonnes. But because of the US exchange rate, the local price – at $1222 an ounce – is well off the record quarterly average set in the March quarter. Gold has risen strongly in the past two months to $US980 an ounce.
Even at $1200 an ounce, the low cash cost operations such as Ridgeway, Cadia and Challenger were doing very well. The local price has been in an upward trend for the past nine years.

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A MAJORITY of General Motors bondholders agreed to support a plan to exchange debt for an ownership stake in the company as high as 25 per cent, The New York Times reported over the weekend.
Investors holding a little over 50 per cent of GM’s $US27 billion ($33 billion) of debt agreed to the swap, removing the last roadblock for General Motors to file for bankruptcy protection today. GM has scheduled a news conference today in New York, where it is expected to make its bankruptcy filing.
Bondholders will initially get a 10 per cent stake in the company, with warrants for an additional 15 per cent.
A restructured General Motors will be controlled by the US Government, with the Canadian Government possibly owning a small share.
GM stock fell to US75c on Friday, below the $US1 minimum normally needed to trade on the New York Stock Exchange.5 per cent and 10 per cent will be given to the old GM to hand to creditors to resolve claims, according to a regulatory filing.
A union health-care trust will own 17. Magna beat Fiat in its bid for Opel.
On Friday, German Chancellor Angela Merkel’s Government chose the Canadian car-parts maker Magna International as the buyer for GM’s Opel division and confirmed a financing plan aimed at helping the unit avert insolvency.5 billion ($2. . Opel will be placed under a trust, shielding it from GM’s bankruptcy.6 billion) loan to keep Opel afloat.
“I remain very optimistic that Holden will weather the global financial storm and emerge stronger,” he said.
In Australia, the Industry Minister, Kim Carr, was confident yesterday that GM’s Australian subsidiary, Holden, would survive “even if General Motors [does] go in chapter 11 bankruptcy”. “The co-operative efforts of management, workers and the Australian Government have put the company in a good position to deal with whatever General Motors may announce in the coming days.
“Holden has already undergone significant restructuring,” he said. It does not mean GM is being liquidated or is going out of business.
“It is important to remember that chapter 11 bankruptcy in the US is very different to bankruptcy in Australia.
Senator Carr said the production of a new four-cylinder vehicle in Australia meant Holden was a relatively high priority in GM’s global operations.”
Last month, Holden announced it would switch to a single shift at its assembly operations in Adelaide, saving workers’ jobs and helping the plant survive the global recession .
and

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“GM’s February restructure statement noted that Holden Australia was seen as ‘viable’ due to Australian Government support for the new four cylinder fuel-efficient car,” he said

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THE NSW Bookmakers’ Co-operative has called for the immediate implementation of recommendations made in Alan Cameron’s independent review into the state’s wagering environment, to halt a rapid decline in revenue.
The co-op has described the restrictions placed on bookmakers and the TAB as “antiquated”, with the regulations sending NSW wagering into freefall while other states are recording positive growth.
“NSW is now the most restrictive regulatory jurisdiction in Australia,” co-op chief executive Peter Fletcher said yesterday.
“Other jurisdictions have moved with the realities of an emerging national market for betting. “It is why the overall wagering growth rate here is now the lowest in the nation.”
Fletcher is armed with plenty of knowledge regarding the wagering sector, having recently taken charge at the co-op after 15 years with the NSW TAB. NSW has not.
“A review of the latest ARB [Australian Racing Board] fact book’s betting statistics confirms that national wagering growth over the past five years has been pretty strong in both the TAB and bookmaking sectors,” Fletcher said. However, NSW went backwards. “Tote betting nationally has grown by about a billion dollars net in that period, with another net billion in growth going to the bookmaking sector, mainly due to the corporates.
“NSW bookies are the meat in the sandwich, with the delays in settlement of the race-fields dispute and the Cameron report recommendations,” Fletcher said.”
It’s not just bookmakers but also the TAB, for Fletcher maintains “both are experiencing negative growth” and “this is a clear indication as far as the co-op is concerned that the restrictive regulatory policies here are now working against growth”.8 million and set to slash employee wages. .
“Total NSW bookmaking turnover has been in a straight-line decline since 1989, and are now in dollar terms back to where they were in the mid-1970s,” Fletcher said.
“Total NSW bookmaking turnover has been in a straight-line decline since 1989, and are now in dollar terms back to where they were in the mid-1970s,” Fletcher said.”
The number of bookmakers operating since 1978 has fallen from 1100 to 287 as of last year, with Fletcher declaring the Cameron report “critical” for “it found too many unnecessary restrictions on betting in this state”. Since then TAB turnovers have quadrupled, whilst bookmaker turnovers have halved.
“Our bookmakers big and small are basically unable to service their best clients under this regime.
“The first to go should be the antiquated rule that a bookmaker has to be on a stand at a race meeting to take a bet from a client,” Fletcher said. They are forced to do business with someone interstate who can take those bets. The world has moved on – NSW punters want to place their bets on any meeting at any time of the day by phone or internet but they can’t. He also recommended a number of TAB restrictions, again peculiar to NSW, be dropped.
“Cameron could see no reason to continue with most of these operational restrictions that make our NSW bookies non-competitive with their interstate counterparts. A fresh approach is needed.
“The competitive restrictions ’stand-off’ between the TAB and bookies here in NSW is now clearly hurting both sectors.
“The NSW racing industry has a bigger problem than the uncertainty around race fields legislation and its fees,” Fletcher said.
“The NSW racing industry has a bigger problem than the uncertainty around race fields legislation and its fees,” Fletcher said.
“If we don’t see the reforms to betting arrangements here, both NSW bookmakers and the TAB will continue to be starved of wagering growth, and the revenue declines being experienced here will continue long term.”