Erdogan says Turkey could 'part ways' with EU if necessary

Reuters
Updated Sat, September 16, 2023

ISTANBUL (Reuters) -Turkish President Tayyip Erdogan said on Saturday that Ankara could "part ways" with the European Union if necessary when asked about the contents of a European Parliament report on Turkey.

The report, adopted earlier this week, said Turkey's accession process with the 27-member bloc cannot resume under current circumstances and called for the EU to explore "a parallel and realistic framework" for its ties with Ankara.

Turkey has been an official candidate to join the EU for 24 years, but accession talks have stalled in recent years over the bloc's concerns about human rights violations and respect for the rule of law.

"The EU is trying to break away from Turkey," Erdogan told reporters ahead of a trip to the United States. "We will make our evaluations against these developments and if necessary, we can part ways with the EU."

Turkey's Foreign Ministry said earlier this week that the European Parliament report contained unfounded allegations and prejudices and took "a shallow and non-visionary" approach to the country's ties with the EU.

(Reporting by Ezgi ErkoyunEditing by Toby Chopra and Helen Popper)

MEPs call on EU and Türkiye to look for alternative ways to cooperate

Press Releases
PLENARY SESSION
AFET
13-09-2023 - 

Türkiye’s EU accession process cannot resume under the current circumstances
No link between Sweden’s NATO membership and Türkiye´s EU accession processes
Türkiye is expected to respect democratic values, rule of law and human rights
EU is committed to further support refugees and post-earthquake reconstruction efforts in Türkiye

In their annual report, MEPs urge the EU and Türkiye to break the current deadlock and find “a parallel and realistic framework” for EU-Türkiye relations.

Unless the Turkish government drastically changes course, Türkiye’s EU accession process cannot resume under the current circumstances, say MEPs in their report adopted on Wednesday by 434 votes in favour, 18against and 152abstentions.

Urging the Turkish government, the European Union and its member states to break the current deadlock and move towards a closer partnership, MEPs recommend finding a parallel and realistic framework for EU-Türkiye relations, and call on the Commission to explore possible formats.

MEPs confirm that Türkiye remains a candidate for EU accession, a NATO ally and a key partner in security, trade and economic relations, and migration, stressing that the country is expected to respect democratic values, rule of law, human rights and abide by EU laws, principles and obligations.

No link between Sweden’s NATO and Türkiye´s EU accession processes

Parliament urges Türkiye to ratify Sweden’s NATO membership without any further delay, and underlines that the NATO accession process of one country can in no way be linked to the EU accession process of another. Each country’s EU progress remains based on its own merits, MEPs stress.

The report welcomes Türkiye's vote in favour of condemning Russia’s war of aggression against Ukraine in the UN General Assembly and its commitment to the sovereignty and territorial integrity of the country, regretting that Türkiye does not support sanctions outside the UN framework. Türkiye’s alignment rate with the EU’s Common foreign and security policy has slipped to an all-time low of 7 %, making it by far the lowest of all enlargement countries.

EU commitment to support refugees and the post-earthquake reconstruction efforts

MEPs commend Türkiye’s efforts to continue hosting the largest refugee population in the world of almost four million people. They welcome that the EU continues to provide funding for refugees and host communities in Türkiye, and are strongly committed to sustaining this in the future.

Expressing their heartfelt condolences to the families of the victims of the devastating earthquakes of 6 February 2023, MEPs state that the EU should continue to meet Türkiye’s humanitarian needs and reconstruction efforts. They underline that European solidarity could lead to a tangible improvement in relations between the EU and Türkiye.

Quote

The rapporteur Nacho Sánchez Amor (S&D, ES) said : “.”

“We have recently seen a renewed interest from the Turkish government in reviving the EU accession process. This will not happen because of geopolitical bargaining, but only when the Turkish authorities show real interest in stopping the continuing backsliding in fundamental freedoms and rule of law in the country. If the Turkish government really wants to revive its EU path, it should demonstrate this through concrete reforms and actions, not statements.”

Background

EU accession negotiations have effectively been at a standstill since 2018, due to the deterioration of rule of law and democracy in Türkiye.

Europarl.europa.eu

https://www.europarl.europa.eu/RegData/etudes/ATAG/2023/747118/EPRS_ATA(2023)747118_EN.pdf

2022 report on Türkiye - European Parliament

In 2012, Turkish Prime Minister Recep Tayyip Erdoğan set the objective for Türkiye to be a top-ten economy by 2023. Türkiye's gross domestic product (GDP), ...

Here's how much the unauthorized immigrant population in the US grew during the pandemic

Rafael Carranza, Arizona Republic
Sat, September 16, 2023

New estimates show how the number of unauthorized migrants living in the United States grew slightly despite global restrictions on travel at the onset of the COVID-19 pandemic to reach 11.2 million.

That's an increase of 200,000 from 2019, according to a new report from the nonpartisan Migrant Policy Institute, which analyzed data from the U.S. Census Bureau's American Community Survey.

The estimates of the unauthorized immigrant population in the U.S. are based on the 2021 survey, meaning that those numbers do not reflect the historic increase in encounters along the U.S.-Mexico border over the past two years and the expansion of humanitarian parole programs since the removal of pandemic restrictions at the border.

Ariel Ruiz Soto, one of the report's authors and a senior policy analyst at the Migrant Policy Institute, said this means the numbers today are likely much higher even though the federal government has boosted deportations.

"If you look at the border today, you'll see that of the thousands of people that come every day in the country, more of them are seeking asylum. And that asylum process takes a long time," he said. "So because of the way that we measure our estimates, asylum seekers who seek protection defensively, meaning that they irregularly and are in the process of removals would have to wait for years to go to an immigration court would be included in our estimates. And because of that, it is likely that the numbers will certainly have increased in 2022 and 2023."

What the available data does show is the continuation of a trend that has been building for nearly two decades, a reversal in migration from Mexico. Since peaking at 7.7 million in 2007, the Migrant Policy Institute said the number of unauthorized immigrants from Mexico has dropped to 5.2 million in 2021 as more of them return to Mexico.

That means that Mexican immigrants account for less than half (46 percent) of the total unauthorized immigrant population in the United States. As the share of Mexican immigrants has fallen, representation from other countries has surged.

Ruiz Soto said they especially saw an increase in the number of migrants from places farther away. In addition to Mexico and the Northern Triangle countries of Guatemala, Honduras and El Salvador, the institute's analysis identified a notable rise in unauthorized immigrants from South American countries such as Venezuela, Colombia and Brazil. Three Asian countries round out the top 10 countries of origin: India, China and the Philippines.

Opinion piece on immigration in Arizona: A little border chaos makes 'The View' sound less Manhattan and more Phoenix

The overall unauthorized immigrant population has remained relatively stable at about 11 million for nearly two decades. The report attributed that to U.S. immigration removal policies, adding that nearly 4.7 million immigrants have been deported from the country since 2008.

While the unauthorized immigrant population increased by 200,000 during the pandemic, Ruiz Soto said, the travel restrictions not only kept people out, but many immigrants were unable to leave the country. Additionally, in the aftermath of pandemic lockdowns, the U.S. began to expel all migrants at the border using a public health rule known as Title 42. Under that policy, the U.S. turned away 2.8 million migrants.

The report noted that while they used the term "unauthorized" to refer to the immigrants living in the United States without a legal visa or green card, those numbers include thousands of individuals with temporary protections, including humanitarian parole or deferred action or DACA recipients.

U$A

Drivers are skipping car insurance after premiums increase

Ronda Lee
Fri, September 15, 2023 

More drivers are going without auto insurance as inflation and higher premiums pressure their budgets.

The number of households that have at least one uninsured vehicle increased to 5.7% in the first half of 2023 from 5.3% in the second half of 2022, according to new data from J.D. Power.

The increase comes after auto insurance premiums grew at an “unprecedented rate” of 7.9% in 2022 and 5.9% in the first six months of this year, the report said. Add to that still high inflation that Americans are swallowing on everyday expenses.

“Consumers are stretched thin after nearly drawing down all their $2.1 trillion of pandemic-related savings, amid still high inflation and slowing income gains,” Kathy Bostjancic, chief economist at Nationwide, said after this Thursday’s release of August retail sales data.

Automobile traffic moves along Interstate 395 on Friday morning September 1, 2023, in Washington, DC.(Drew Angerer/Getty Images)

The cost of auto insurance jumped more than 19% year over year in August and rose 2.4% from July, according to the latest inflation data out this week. That far outpaced the overall inflation rate for the month.

Premiums have gone up to cover rising claims costs associated with repairing and replacing damaged vehicles, medical care, and other expenses.

“In addition to inflation trends, the private passenger auto insurance sector is also experiencing several other trends such as increased frequency and severity of claims cost, riskier driving behavior by the public, cost increases for medical and hospital services, and outsized growth in lawsuit verdicts and legal system abuses, that are negatively impacting and pressuring the industry with increased losses,” Robert Passmore, department vice president for the American Property Casualty Insurance Association (APCIA), said this summer.

And as many Americans brace for the start of student loan repayments next month, more may consider forgoing car insurance to make ends meet.

More than a quarter of Americans with student loan debt say they're not sure how they will be able to repay their loans in October, a recent New York Life survey found. And while another quarter say they have enough money in their budgets to cover the payments, 23% of those said they will need to reduce other spending to make it work.

J.D. Power found that certain regions had higher rates of uninsured drivers, with 12 states experiencing a 30% or more increase in the share of uninsured drivers compared with the second half of 2022. The top five states with the most uninsured include South Dakota, New Hampshire, West Virginia, Oregon, and Indiana.

States with the highest level of uninsured driver per J.D. Power

More increases could be on the way because, so far, those higher premiums haven't been enough to cover claims costs.

In 2022, the auto industry spent 12% more on claims and other costs than it collected in premiums, the second straight year such a deficit occurred, the J.D. Power report said.

Similarly, the Insurance Information Institute (Triple-I) told NPR this week that auto insurers paid $1.12 in claims last year for every $1 they received in premiums. This year, that’s down to $1.09, but still more than what’s collected in premiums.

“The industry has not had this poor of a full-year underwriting performance in decades,” Dale Porfilio, chief insurance officer of Triple-I, said in May of this year. “Unless replacement cost trends begin to decrease materially — which is not currently forecast — it will take the industry into at least 2025 to restore personal auto results to underwriting profitability.”

Drivers struggling with higher premiums should contact their insurer to negotiate a lower premium and ask about discounts, especially if they have a clean driving record, J.D. Power recommends. Additionally, consumers should shop around and use independent agents to find competitive quotes.

With more uninsured drivers on the road, those who are insured should also consider increasing their uninsured/underinsured coverage, which reimburses drivers in an accident involving an uninsured, underinsured, or hit-and-run driver.

Ronda is a personal finance senior reporter for Yahoo Finance and attorney with experience in law, insurance, education, and government. Follow her on Twitter @writesronda.

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Bankrupt trucking company Yellow eyes October sale of vehicle fleet

Dietrich Knauth
Fri, September 15, 2023

Yellow Corp. trailers sit at a YRC shipping facility in North Reading

By Dietrich Knauth

NEW YORK (Reuters) - Yellow Corp received U.S. bankruptcy court approval on Friday to sell its vehicle fleet by October, while continuing to market its real estate assets, which have already received a $1.525 billion bid.

The freight shipping company, which went bankrupt in August after a protracted labor dispute, owns approximately 12,000 trucks and 35,000 trailers, according to its bankruptcy court filings. Yellow has set an Oct. 13 bid deadline for those assets.

Hundreds of buyers have already expressed interest and signed non-disclosure agreements, and some have begun conducting on-site inspections, Yellow attorney Allyson Smith told U.S. Bankruptcy Judge Craig Goldblatt at a court hearing in Wilmington, Delaware.

"The sale process is well underway at this point," Smith said.

Yellow intends to conduct an auction for the vehicles by Oct 18 and seek court approval for the vehicle sale on Oct. 27.

The company is taking a longer time to sell its real estate assets, despite having a $1.525 billion offer in hand from rival shipping company Estes Express Lines. Yellow has set a Nov. 9 bid deadline and expects to seek court approval for a real estate sale in December.

A longer sale process will allow more competition for Yellow's 300 shipping terminals and other real estate assets, which have already generated significant interest from buyers.

Estes initially offered $1.3 billion for the real estate early in Yellow's bankruptcy, an offer was that was later topped by a $1.5 billion bid from Old Dominion Freight Line.

Smith said Estes' latest bid will provide more than enough cash to pay off the company's $1.2 billion in pre-bankruptcy debt, including $700 million owed on a U.S. Treasury Department bailout loan approved by former President Donald Trump's administration in 2020.

Goldblatt also granted final approval on Friday for a bankruptcy loan of up to $212 million, extended by hedge fund Citadel and equity investor MFN Partners.

Yellow entered bankruptcy with $39 million in cash, and it previously told Goldblatt that the loan would allow it more time to seek the best possible bids for its assets.

Yellow blamed its collapse on a labor dispute with the International Brotherhood of Teamsters union, and it terminated about 22,000 union-represented drivers when it went bankrupt. The union has said the Nashville, Tennessee-based company "mismanaged" its way to bankruptcy.

(Reporting by Dietrich Knauth, Editing by Alexia Garamfalvi and Nick Zieminski)

Troubled Shadow Bank Zhongrong Gets Help From China State Giants

Jacob Gu
Fri, September 15, 2023

(Bloomberg) -- An embattled Chinese shadow bank has taken a step closer to receiving potential state-led assistance, entering a partnership agreement with two of the nation’s biggest financial firms.

About a month after Zhongrong International Trust Co. missed payments on scores of investment products, roiling markets, it’s now signed an agreement with Citic Trust Co., a unit of conglomerate Citic Group Corp., and CCB Trust Co., backed by China Construction Bank Corp., the firm said in a statement Friday night.

The agreement provides so-called entrusted management services, Zhongrong said, and is aimed to “improve efficiency.” There was no specific mention of any financial terms or other types of assistance.

China’s government specifically asked Citic Trust and CCB Trust to examine Zhongrong’s books and lead the effort to stabilize its operations, Bloomberg News reported last month.

Read More: China Asks Citic to Examine Finances of Shadow Bank Zhongrong

Publicly acknowledging its troubles, Zhongrong, said Friday that it’s been unable to make payments as scheduled on some products. It blamed unspecified “multiple internal and external factors.”

Zhongrong and closely linked wealth firm Zhongzhi Enterprise Group spurred volatility in financial markets after halting payments on scores of investment products sold to wealthy individuals and companies. The crisis even sparked rare protests in Beijing.

Prior to the troubles becoming public, the National Administration of Financial Regulation established a working group in July to examine risks at Zhongrong, people familiar with the matter said earlier. Almost half of the funds raised by Zhongrong were funneled to its parent or affiliated units, one of the people said.

China’s trust industry is a key alternative funding source for weaker borrowers unable to get regular bank loans such as real estate developers and local government financing vehicles. Trusts pool money from clients and invest them into a variety of instruments and projects.

The sector — which has been severely affected by China’s property downturn — could face losses of the equivalent of $38 billion, according to a Goldman Sachs Group Inc. estimate.

Friday’s statement said that Zhongrong’s debt relationships and legal relationships in relation to trust products won’t be changed by the new pact with the two state-owned firms.

The company will continue to assume trustee responsibilities of the trust products according to relavent laws and contract clauses, Zhongrong said.

Citic Trust had 1.5 trillion yuan ($206 billion) of assets under management while CCB Trust oversaw about 1.4 trillion yuan, recent data show.

The accord takes effect Sept. 15 and lasts for one year, but the companies can negotiate an extension or early termination, according to the statement.

Chinese Developer Sino-Ocean Suspends Offshore Debt Payments

Andrew Monahan
Fri, September 15, 2023 


(Bloomberg) -- Chinese state-linked developer Sino-Ocean Group Holding Ltd. has suspended payment on all its offshore borrowings, citing tight liquidity, as the nation’s property debt crisis deepens.

The country’s 25th-largest builder “is fully committed to formulating a viable holistic restructuring of its offshore debts,” Sino-Ocean said in a statement to the Hong Kong stock exchange Friday. Trading on the exchange of eight dollar bonds will be suspended until further notice, but prices for some notes were indicated at least 2 cents lower at about 9 cents and on pace for record lows, according to data compiled by Bloomberg.

Beijing-based Sino-Ocean, which according to its 2022 annual report owns more than 290 property projects across China and is among the top homesellers in Beijing and Tianjin, also disclosed it has appointed Houlihan Lokey (China) Ltd. as financial adviser and Sidley Austin as legal adviser. Bloomberg News reported last month that Sino-Ocean was in talks with Houlihan.

“In response to mounting liquidity pressures, the Group has been in active dialogues with its creditors and endeavoured to proactively manage its liabilities,” Sino-Ocean said in Friday’s filing. It added that this year the company “has experienced a rapid decline in contracted sales and increased uncertainty in asset disposals and has continuously faced limitations in various financing activities.”

Shares closed down 12%, further paring a record surge logged earlier this week.

Sino-Ocean has been one of the biggest sources of angst in China’s credit market the past several months. Dollar bond prices slumped amid mounting concerns that even property firms with state links weren’t immune from a sector debt crisis that has sparked record defaults.

Once one of the stronger names among the country’s debt-laden developers, its struggles have been a sign of the sector’s ongoing liquidity constraints. That has been amplified recently by the payment struggles at Country Garden Holdings Co., which this year has lost its title as China’s largest builder by sales. Sino-Ocean expanded into a range of operations since it was founded in 1993, including property services, logistics and asset management.

In August, Sino-Ocean won bondholder approval to extend a combined $50.2 million of interest payments for three dollar notes by two months. A unit two weeks ago got creditor clearance to stretch repayment of a 2 billion yuan ($275 million) local note through August 2024 after having lost an initial vote regarding such an extension.


On Thursday, the Credit Derivatives Determinations Committee said it had ruled that Sino-Ocean’s missed payment on dollar debt due 2024 was a failure-to-pay credit event, triggering credit default swaps.

Sino-Ocean’s largest shareholder is state-owned China Life Insurance Co., which held a nearly 30% stake in the Hong Kong-listed firm, according to data compiled by Bloomberg. Having a nearly equal stake is Dajia Insurance Group Co., which took over most of the operations of China’s Anbang Insurance Group Co. and has been controlled by a state-run bailout fund.

The builder’s shares have fallen 47% this year and set their most-recent record low last month. The stock rose a daily record of 82% earlier this week as a Sino-Ocean affiliate won a 90-day grace period if any event of default occurs involving a yuan note on which a payment extension was sought.

 Bloomberg Businessweek

Worldscientific.com

https://www.worldscientific.com/doi/pdf/10.1142/9789813149380_0001

Defining State-Capitalism - World Scientific Publishing 

individuals based on prices prevailing in their market environment. Bolsheviks such as Vladimir Lenin and Nikolai Bukharin had insisted that worker interests in ...

Storage.grenadine.co

https://storage.grenadine.co/public.grenadine.co/global/357/1463/7ffeccf3828da878c907b25cef43748d.pdf

State Capitalism Theories of Lenin and Bukharin 

Marxist approach to the analysis of “state capitalism”, especially the theories of Lenin and Bukharin's. 【Keywords】 state capitalism，Russia，Lenin，Bukharin ...

Leftcom.org

https://leftcom.org/en/articles/2020-08-21/bukharin-on-state-capitalism-and-imperialism

Bukharin on State Capitalism and Imperialism - Leftcom.org 

Aug 21, 2020 ... Bukharin's views on the nature of state capitalism were the product of serious work. His 1915 book Imperialism and World Economy laid the ...

Brill.com

https://brill.com/downloadpdf/book/edcoll/9789004347618/B9789004347618_023.pdf?pdfJsInlineViewToken=1827449631&inlineView=true

State-Capitalism as a “New Stage of World Capitalism” vs. Th... 

Until 1917, or, more precisely, 1918–21, it would have appeared that Lenin held the same view of state capitalism as Bukharin, whose book on Imperialism and ...

D-scholarship.pitt.edu

http://d-scholarship.pitt.edu/9362/1/novosel_2005.pdf

nikolai bukharin: alternative or interregnum? - D-Scholarshi... 

Sep 16, 2005 ... Bukharin and State Capitalism ... pdf (18 August 2005). Lenin, V. I.. “On Cooperation.” Lenin Collected Works, Volume 33, 467-75, 2000, http ...

WORKERS CAPITAL
Calpers CIO Musicco to Step Down After Less Than Two Years


Eliyahu Kamisher, Nic Querolo and Amanda Albright
Fri, September 15, 2023 


(Bloomberg) -- The California Public Employees’ Retirement System said Chief Investment Officer Nicole Musicco will step down less than two years after she joined the largest US pension fund, sparking another round of turmoil in the high-profile public investing office.

Musicco, 49, will leave her position at Calpers Sept. 29 to focus on her family in Canada, according to a statement on Friday from Calpers. She oversaw about 400 employees and managed an investment portfolio of about $500 billion.

She joined Calpers early last year after a long search to replace Ben Meng, who abruptly departed in August 2020. Meng, who held the position for about 18 months, resigned amid allegations that he ran afoul of rules governing disclosure of personal investments, triggering an investigation by a state regulator.

Musicco held the job for less time than it was vacant after Meng’s departure. Her replacement will become the pension’s third CIO in the past five years and fifth in the past decade, a turbulent period that included Joseph Dear’s death from prostate cancer, Musicco and Theodore Eliopoulos’s resignations citing family reasons, and Meng’s messy exit.

Late last year, Calpers recently lost another high-profile executive, Greg Ruiz, who served as global head of private equity at the pension and left to join Jasper Ridge Partners.

Musicco led the charge on a commitment by the pension to invest $1 billion in emerging and diverse managers in private markets. Previously, she was a partner at RedBird Capital Partners, where she led the firm’s Canadian investment business.

Deputy Chief Investment Officer Dan Bienvenue, who has been with Calpers since 2004, will serve as interim chief, according to the release.

Under Pressure

Musicco, a Canada native, was born in Toronto and grew up in Southwestern Ontario. She worked briefly on Wall Street before obtaining an MBA and beginning a 16-year stint at the Ontario Teachers’ Pension Plan, where she ultimately led the fund’s private equity and public equity investment teams.

“I think I was employee number ten in the private equity group,” Musicco said in an August interview. “I was hired onto the direct investing team, and right out of the gate, we set out to really create a direct investing program.” The Ontario fund’s strategy was innovative at the time, and paved the way for what is now known as the Canadian pension model.

Musicco has been under pressure to meet Calpers’ annual return target of 6.8%. If the pension fund falls short, municipalities across the state could be forced to increase payments and cut city services to meet the pension obligations of more than two million Californians.

The fund reported a preliminary return of 5.8% for the fiscal year ended June 30, below the fund’s 10-year average of 7.1% and slightly below the California State Teachers Retirement System, which returned 6.3%.

Calpers had a funded status of 72% during the most recent fiscal year ended June 2023, which is slightly below the funding level of other US public pensions tracked by Milliman, for example. When Musicco was hired by Calpers, the pension said in a statement at the time that it was using investments in private markets to close the gap.

--With assistance from Pierre Paulden.

Lehman Brothers’ Collapse 15 Years On: Lessons Learned From Those Who Were There


Brian Pascus
Fri, September 15, 2023

Lehman Brothers declared bankruptcy in the wee small hours East Coast time on Sept. 15, 2008. 

Photo: NICHOLAS ROBERTS/AFP via Getty Images

LONG READ

They say time is a flat circle. If that’s the case, then let’s take a long loop back to Sept. 15, 2008, a moment in time that’s etched in the annals of American finance, and a world far different than the one we currently inhabit — or is it?

For those who don’t recall the details of that day, Lehman Brothers, a 158-year-old investment bank with more than $600 billion in assets and 25,000 employees, declared bankruptcy after the federal government refused to offer itself as a lender of last resort to the beleaguered financial services firm, one that had leveraged itself heavily into a subprime mortgage market that was sinking faster than a stone in the ocean.

Just prior to its downfall, Lehman’s stock tumbled to barely $7 a share, after news broke that the firm had failed to close a deal with the Korean Development Bank, a state-owned firm in Seoul. After Lehman reported a quarterly loss of $3.9 billion on Sept. 10 and Moody’s threatened to slash the bank’s credit rating on Sept. 12, a tipping point emerged. The federal government gathered the largest firms on Wall Street together at 33 Liberty Street that weekend for an emergency meeting at the Federal Reserve Bank of New York to hash out a solution by the time markets opened on Monday, Sept. 15.

But by that point it was too late. There was no buyer to be had. News of the bankruptcy triggered a 4.5 percent one-day drop in the Dow Jones Industrial Average.

“We did not know Lehman Brothers would fail,” said Ronald Dickerman, president and founder of Madison International Realty. “I was concerned for the system. This was systemic risk.”

One day later, in a shocking reversal, Treasury Secretary Hank Paulson announced an $85 billion government-sponsored bailout for AIG, the multinational insurance and finance corporation, after it became clear that credit default swaps previously issued by AIG — effectively unregulated credit derivatives that acted as insurance against bets made by financial counterparties with one another regarding future price movements — had infected the global financial system and risked undermining the entire edifice of U.S. capitalism.

“We thought the world was going to end,” said a source who had previously worked at a major investment bank and spoke on the condition of anonymity.

Had the federal government not bailed out AIG, the interconnectivity of AIG Financial Products and the derivative positions they had with every major investment bank put the global financial system at risk, multiple sources stated.


None other than Ralph Cioffi, the former senior managing director of Bear Stearns Asset Management, could not believe his eyes at what was occurring.

Cioffi had already overseen the July 2007 bankruptcy of two Bear Stearns hedge funds with his partner, Matthew Tannin (who did not respond to a request for comment). The pair’s highly leveraged investment vehicles bet heavily on subprime mortgages, and their ruination ultimately paved the way for their investment bank’s demise and shocking sale to JPMorgan Chase (JPM) for $2 a share eight months later.

“If there hadn’t been steps taken, I’m not sure what would’ve been left within our financial system,” Cioffi told Commercial Observer. “Once the money market broke the buck, and there was a run on basically every financial institution, I’m not sure if it was 24 hours, or 48 hours, but the system was near total collapse.”

It was a strange time to be alive: America’s investment banks imploded overnight, housing prices declined almost as fast as the Dow Jones Industrial, balance sheets somehow carried leverage at 200 times their capital ratio, and at any moment the nation seemed prepared to enter into another Great Depression.

For those commercial real estate professionals who survived the upheaval, there remains not only lessons to be learned 15 years after Sept. 15, 2008, but information to be gleaned from how differently capital markets operated during the heady days of those decadent double zeros.

“Many people knew there was complete chaos going on,” said Manish Shah, senior managing director of Palladius Capital Management, who had left his investment banking position at Bear Stearns prior to its March 2008 bankruptcy.

“Back then, you had fairly low credit standards, and a crazy duration mismatch — you had those major banks, like Bear, funding itself with short-term commercial paper and doing one-, two-, three-year loans 50 times leveraged, sometimes 200 times leveraged,” Shah continued. “Basic math is if you borrow 200 dollars, and you lose a dollar, then you wipe out your equity. I mean, that’s insane.”

The insanity actually happened. And for those who were there, there’s never been anything else like it.

‘This thing has to blow’

Perhaps the strangest element of the entire 2008 financial crisis is not how inevitable it seems in retrospect, but how surprised so many of the participants say they were as it unfolded in front of them.

“I think there was just a general disbelief as to what was happening and how fast it all happened,” said Cioffi. “With hindsight it was all very clear, but at the time you don’t have the benefit of sitting there and thinking through everything that’s happening because it occurred so quickly.”

Sam Molinaro, recently retired from his position at UBS, was Bear Stearns’ chief financial officer and chief operating officer during the credit crisis. He watched in disbelief as his firm went from trading at $61 per share on March 12 to being sold to JPMorgan for $2 a share on March 16.

“We didn’t come into that week thinking we were about to go under. In fact, it was just the opposite: We thought we were managing our way through the problem and had been largely successful in doing that,” Molinaro told CO. “Our situation basically unraveled in 48 hours.”

Seven months later, Lehman collapsed within hours as well — and from there the run on the nation’s investment banks was on.

In the days following Lehman’s Sept. 15 bankruptcy, numerous other dominos dropped: Bank of America (BAC) finalized a $50 billion takeover of a desperate Merrill Lynch, whose liquidity had evaporated overnight; Washington Mutual, holding $307 billion in assets, was seized by the Federal Deposit Insurance Corporation and remains the largest commercial bank failure in U.S. history; Wells Fargo purchased Wachovia for $15 billion in a shotgun marriage among struggling commercial banks; and Goldman Sachs and Morgan Stanley, a pair or pre-eminent investment bank powerhouses, announced they were turning themselves into “bank holding companies” to access the Federal Reserve’s emergency lending window and effectively end the unregulated investment banking era of late 20th century, early 21st century American finance.

For Warren de Haan, CEO of Acore Capital, who at the time ran Countrywide Financial’s commercial real estate finance business, the implosion of Lehman and the other firms was eerily similar to the sudden destruction of Long Term Capital Management (LTCM) in 1998. That heavily leveraged hedge fund experienced unexpected losses on various arbitrage spreads and required a $3.6 billion bailout organized by a consortium of Wall Street firms and the federal government.

De Haan used the lessons of LTCM to hedge his mid-2000s CMBS business at Countrywide Financial against the subprime mortgage market, an expensive bet that paid off for him even as he noticed strange things occurring in the securitized marketplace.

“What we were looking at was leverage on leverage, so the CDO [collateralized debt obligation] market had people taking mezzanine positions which are already leveraged [by virtue of having an A-note or a senior loan ahead of them], and packaging those things together and securitizing them, and getting even more leverage,” recalled de Haan. “You’d have 10 different participants buying different fin-tranches, hedge funds buying 5 percent slivers of a loan, and these tranches are complicated with intercreditor agreements, they’re very high leverage, so when the market moved against them, they very quickly got wiped out all over the place.”

With investment banks like Lehman, and commercial banks like Wachovia, leveraged 40 to 1 on their balance sheets (at best) when it came to their amount of operating leverage, de Haan saw a situation where the banks were behaving more like private equity firms rather than the fiduciaries of capital they were entrusted to be.

“What was going through our heads, us and others, was, ‘Yeah, it feels inevitable, and that this is going to happen,’ because of the factors that we’re talking about [with LTCM],” he said. “We looked at this thing and said, ‘This thing has to blow.’ We just didn’t know how badly it was going to blow. And as we started seeing it, it became pretty obvious what was going on.”

For others who were in the market at the time, like Madison International Realty’s Dickerman, the behaviors of borrowers at the microeconomic level – specifically homeowners and mortgage lenders — is what alerted him to the systemic risk.

“It was the subprime lending boom with variable-rate mortgages, adjustable-rate mortgages, teaser rates, and that was the eye of the storm,” said Dickerman. “Investors were buying single-family homes, borrowers were sitting down with lenders and saying, ‘I want to borrow $100,000,’ and the lender would say, ‘You could borrow $130,000 and I’ll show you how.’ ”

As for what happened to Lehman that September morning, Dickerman said that he was surprised the federal government did not come to the rescue of Lehman Brothers CEO Dick Fuld, who desperately pleaded with anyone on Wall Street for a merger and expected to be saved by the arms of a Washington-backed buyer buttressed by taxpayer dollars.

“Dick Fuld was calling around, trying to make a deal, Hank Paulson was Treasury secretary, and I would have thought that Lehman Brothers would be bailed out,” Dickerman recalled. “But I think at the end of the day, Dick Fuld was not a beloved figure and was not well liked on Wall Street.”

Fuld, who now serves as chairman of Matrix Private Capital Group, did not respond to a request for comment.

‘There was no reining in the risk’

One of the critical elements of the financial crisis that made it so difficult to contain was that the problems weren’t limited to Lehman Brothers and Bear Stearns — they were everywhere, at every financial institution, and on every balance sheet.

Years of easy credit engineered by former Federal Reserve Chairman Alan Greenspan following the burst of the dot-com bubble in 2001 combined with a lax regulatory environment that saw the repeal of Glass-Steagall in 1999 (the Depression-era law which had previously forbid commercial banks from engaging in the riskier behavior of investment banks), the passage of the Commodities Futures Modernization Act in 2000 (which exempted derivatives like credit default swaps from being regulated), and a fateful 2004 decision by the Securities and Exchange Commission (SEC) that unshackled debt-to-equity requirements at banks with more than $5 billion in assets from 12-to-1 to … wait for it … unlimited leverage.

Lehman’s collapse sparked a domino effect of collapsing stocks and wobbly companies. Photo: Spencer Platt/Getty Images

“They’d stopped looking at the fundamentals of the company or business plan, and said, ‘If my competitor is willing to give them $550 million, I’m going to give $650 million to win the business.’ That’s what was happening back then,” said Shah. “What didn’t happen was there were no risk officers that could stop the sales guys.”

One reason voracious originators could convince firms their dubiously leveraged loans and derivative bets would work out was due to a securitization process that allowed collateralized debt obligations to be created off the debt owed on other collateralized debt obligations, known as CDO-squared.

“The mentality in that 2000s period was, ‘We will lend whatever it takes to win the business and we will offload the risk,’ ” Shah recalled. “The guys trying to bring in revenue were able to convince firms it would all work out: ‘Our competitors are willing to go very high, we’re going to go slightly higher, we’ll be able to make a nice commission, and, oh, don’t worry, we’ll be able to sell it off.’ ”

This behavior wasn’t just irresponsible; it bordered on outright fraud, according to the former investment banker who requested anonymity.

He said that a mentality existed where it didn’t matter if bad credits were being created, just so long as they could be sold on the market, and that that was the way the system worked.

Jonathan Epstein, managing director at BGO (formerly BentallGreenOak), worked at the time as the head of structured finance of Lehman Brothers in Asia. He described his old firm as being in the business of “selling money,” and said Wall Street firms like Lehman and Bear Stearns got into trouble once they started buying mortgage companies to control the supply of originations and roll over profits to induce investors to further perpetuate the system of leveraged originations.

“That’s where I think it went off the rails. There was no reining in the risk,” said Epstein. “It was more of ‘How do we keep pumping the system?’ Well, if you want to pump the system, you ultimately have to take more and more risk, and [back then] there was not a lot of commonsense risk analysis.”

‘A Disaster Waiting to Happen’

Others blamed regulators and ratings agencies — Moody’s Investors Service, Standard & Poors, and Fitch Ratings, who did not respond to requests for comment — for not just being asleep at the wheel, but for signing off on hundreds of billions of dollars of subprime loans as safe AAA products (when in fact it was closer to toxic waste).

An important distinction to remember is that regulators in this sense are federal and state entities like the SEC, the (now deceased) Office of Thrift Supervision, and New York State Department of Financial Services, whose job is to look under the hood and make sure banks are playing by the rules. Meanwhile, credit ratings agencies are for-profit firms tasked with assessing credit risk, and who made huge returns in the runup to the crisis — and likely experienced a conflict of interest — by giving their stamps of approval to dangerous financial products while receiving a fee from the same firms they were grading.

“They weren’t distinguishing. They might say they were, but they weren’t differentiating enough between good credits and bad credits,” said de Haan. “They were the eye of the storm and they were the gatekeepers for securitized products.”

The former investment banker, however, emphasized that it should’ve been obvious to regulators that cracks in the foundation of the financial system had formed due to the enormous wave of off-balance-sheet financing and rampant flow through securitization processes that the largest banks and many regional banks participated in.

“It was just a disaster waiting to happen, and anyone that was close enough to that market could easily see it,” he said.

BGO’s Epstein suggested that the watchdogs might not have had the analytical ability to keep up with how fast the investment banks were creating complex financial products for off-balance-sheet and on-balance-sheet use. Epstein compared the confusion of regulators to what occurred among the FBI, CIA and NSA in the run-up to the Sept. 11, 2001, terrorist attacks.

“Post-9/11, we created the Director of National Intelligence (DNI) office because there was no grouping together of the different intelligence agencies in one spot, where you could’ve picked things up,” he said. “I don’t think that was happening at the regulatory level because everything was siloed: the insurance regulator, the banking regulator, the Fed.”

Sam Chandan, director of the Chen Institute for Global Real Estate Finance at New York University, worked at REIS, a subsidiary of Moody’s Analytics, at the time of the crisis. Chandan said that technological limitations of the mid-2000s forced ratings agencies to calibrate risk using insufficient data sets that underestimated systemic dangers posed by subprime mortgages.

“We lived in a different world,” he said. “While events were unfolding in real time, much of the data we had to work with as an industry lagged and was offering a good indication of where we were two months earlier, a quarter earlier, but not operating as a meaningful gauge of where we were that day as events unfolded.”

However, Matthew Reidy, director of CRE economics at Moody’s, noted that multiple actions have been taken since then that have helped improve the CMBS and securitized marketplaces from a risk standpoint. Notably, risk-retention rules require lenders to retain 5 percent of the originations of a securitized deal on their balance sheets for at least five years. Also, the Federal Reserve stress tests most banks annually, and regulators require deeper transparency on asset-backed securities.

“In a lot of these things, the key has been improved transparency in the deal itself, and making sure investors are better able to understand what they’re buying,” said Reidy. “At least there’s someone with real skin in the game today.”

‘That voice in the wind’

As we mark the 15-year anniversary of Lehman’s sudden downfall, the financiers of the time admit they remain humbled by what occurred in those strange days of 2008.

“In every regard, I think we’ve all learned a lot of lessons,” said de Haan. “As it relates to the amount of leverage, the ways pools are constructed, risk management overall, I’d say all the lenders are more conservative than how they were back then.”

For Ralph Cioffi, who was indicted for misleading investors while at Bear Stearns and eventually cleared of all six charges, the crisis remains a painful reminder of the perils of following the proverbial madness of crowds.

“I think one just has to be careful, institutionally and individually, not to get caught up in an investment theme that is just broadly accepted,” he said. “It’s usually that voice in the wind that ends up being right at the end of the day.”

To Molinaro, who watched his investment bank lose its various lifelines to liquidity over a matter of hours, the 2008 financial crisis was a reminder that perception, rather than reality, dictates whether banks have enough capital to support the risks taken to generate huge profits.

“If there’s any one lesson, it’s all about liquidity,” said Molinaro. “Bear Stearns and Lehman Brothers didn’t go under because they didn’t have sufficient capital. In fact, each was well capitalized at the moment of their failure. They went under because the markets lost confidence in them and they lost access to funding markets.”

Since then — and despite the way the landmark Dodd-Frank Wall Street Reform and Consumer Protection Act has been watered down over the years — positive changes have been made to the wider system. The largest banks are now under federal regulation; higher capital requirements have de-risked the banks as they’ve eschewed many products that can’t generate the returns needed to compensate for higher capital costs; and, in an effort to tame speculation, the Volcker rule eliminated pure proprietary trading activities in the banking system.

But perhaps the most important legacy of the 2008 financial crisis is the way private credit, structured credit, and non-bank credit is now a larger component of the capital markets landscape.

Funding models for the nation’s most relevant banks like JPMorgan Chase and Bank of America have largely moved away from wholesale markets to deposits, which has added stability to their liquidity profiles at the expense of potentially higher profits from riskier credit. As regulations have forced banks to carry higher capital requirements, the credit risk for many high-yield investments has been pushed on debt funds and alternative lenders who don’t carry the same duration risk as depository institutions.

Justin Kennedy, managing director and co-founder of 3650 REIT, noted that the banks that survived have gone on to operate as capital markets liquidity providers rather than direct takers of credit risk.

“If you look today, the largest U.S. banks don’t have exposures remotely similar to 2008,” Kennedy said. “Much of the credit exposures at the big banks have been transferred in the capital markets to credit funds like ours, and those exposures are now taken by private capital, for the most part.”

However, as someone who lived through an honest-to-God bank run, Molinaro seemed skeptical that private credit can handle those increased exposures that felled the most powerful institutions in American finance just 15 years ago — if they were to emerge again.

“[The regulations] will likely cause even further lending activities to be pushed out of banks into the shadow banking system,” he said. “It isn’t clear that is a good outcome as more risk moves to unregulated markets where the interconnectedness and systemic risks are less well understood.”

Brian Pascus can be reached at bpascus@commercialobserver.com.

UK

Wilko left on the shelf despite final sales push

Hopes of rescuing jobs and stores at collapsed discounter unravelled during at times ill-tempered administration

Most of Wilko’s 12,500 staff are facing redundancy

Laura Onita 

FT

YESTERDAY

In the days after Wilko collapsed into administration in August, expectations from workers were high that the majority of jobs and stores at the 93-year-old discount retailer could be saved.

Employees were told by the GMB union, which represented many of the chain’s 12,500 staff that there were “genuine grounds for hope” that a buyer would swoop in as negotiations began with a handful of interested parties over its 400 shops. 

Five weeks on, with no saviour in sight, almost all of them are facing redundancy. Many are spending their final days in Wilko’s employment overseeing dispiriting closing down sales across the country as the chain is wound down.

A slimmed-down offer from Doug Putman, the Canadian owner of HMV, who at one stage was looking at potentially acquiring the majority of stores, fell through on Sunday. 

Approaches from M2 Capital, fronted by chair Robert Mantse, descended into a war of words with administrators at PwC, after the investment firm was unable to prove it had the funds to back a deal that it claimed would have safeguarded Wilko’s future. 

Meanwhile, rivals B&M and Poundland have cherry-picked 122 stores from the Wilko estate, in desirable locations, which are set to open under their respective brands. 

So why couldn’t Wilko — a well-known high street name in a sector which is thriving during a cost of living crisis — be saved? 

Canadian businessman Doug Putman: ‘The underlying costs of running Wilko’s infrastructure systems would have made it extremely challenging to run the business economically’ 

Those involved with negotiations over Wilko’s future said the chain ultimately required too much investment to be revived while other complexities made it hard to divide the store estate into chunks under the Wilko brand.

“I was prepared and able to make the financial investment required, had a viable deal gone through to get the business back on its feet,” Putman told the Financial Times in an emailed statement. 

He added that his firm, Putman Investments, had substantial funding in place to acquire Wilko and turn it round, but said that further due diligence uncovered a litany of legacy problems that rendered it unsalvageable. 

“The underlying costs of running Wilko’s infrastructure systems would have made it extremely challenging to run the business economically,” he added. 

A person familiar with the business said the retailer’s back-office operations, warehouses and IT systems were set up to run a large estate, which could not be “cut in half in a short period of time”.

Even before its demise, any buyer or investor was expected to inject around £75mn.

Figures from data firm Kantar this week showed 3mn people shopped at Wilko in August compared to 2.4mn in July 

Another hurdle for any suitor would have been negotiations with suppliers, in particular the larger consumer goods companies, who expected cash on delivery for any new stock, while smaller suppliers were more amenable to supplying on credit. Agreeing payment terms to restock shelves and get the stores trading again after a brief period when no new products were flowing into Wilko’s warehouses was a challenge, Putman added. 

Depleted stock levels also meant that a couple of lenders who were interested in backing a bid subsequently walked away as there were not enough assets to lend against, according to three people familiar with the matter.

“Retail lenders will advance money on the basis that there is X amount of stock in the business,” a restructuring executive explained. “‘For every pound of stock, we will provide you with 60p of funding’.”

Meanwhile the administration process became more chaotic due to a row between M2 Capital’s Mantse, who maintains that the process run by the administrator was not fair and transparent, and PwC.

An email seen by the FT from PwC’s lawyers Shoosmiths to Mantse said that many of his “communications have been aggressive in nature and contained various expletives and threats including various messages left on WhatsApp voice notes for a PwC employee”.

Mantse, who did not comment at the time about how his proposal was funded or on the Shoosmiths communication, said then: “M2 Capital is not giving up on this, our firm belief is justice for all. I’m saving the 12,500 jobs that need to be saved.” He did not immediately respond to a fresh request for comment.

PwC previously said that it “wholeheartedly reject[ed] the assertions and characterisations” and that it was “running a fair and transparent sales process”.

Zelf Hussain, joint administrator, said: “We worked relentlessly to find a solution that would’ve saved the business as a going concern and preserve jobs . . . “We’re confident the deals that have been announced will provide a platform for future employment.”

Ironically the intense interest in Wilko’s future sparked by its administration has lifted the chain’s profile and sales. The prospect of the doors shutting for the final time in the coming weeks has brought shoppers out on the hunt for bargains — boosting the amount that can be recouped for stakeholders. 

Figures from data firm Kantar this week showed 3mn people shopped there in August compared to 2.4mn in July. Its market share of non-food groceries such as toiletries and household goods was 0.5 percentage points higher month-on-month as people hit the closing sales.

“There is never one challenge that causes the demise of a business,” said Diane Wehrle, insights director at research company Springboard. “For Wilko, it was a blend of increasing competition, losing sight of what its core offer was and high costs.” 

Attention is now turning to what value there is left in the business, the brand name and website having been acquired on Thursday by rival The Range for an undisclosed amount.

Hilco, the specialist retail investor that has been facing scrutiny, including from the GMB, over its dual role as a lender to Wilko before it collapsed and now as its liquidator of stock, has provided additional cash to the administrators to replenish the stores’ shelves as the business is wound down, according to two people familiar with the matter.

People close to PwC and Hilco strongly denied the suggestion that there was a conflict of interest, adding that the cash injection allowed PwC more time to find a buyer for all or part of the retail chain. 

Hilco — which is Wilko’s biggest secured creditor — and lender Barclays are expected to be repaid in full, according to people close to the liquidation, as are HMRC and the arrears of wages and holiday pay for employees.

The pension trustees should get £20mn from Wilko’s property assets, although it is unclear what the pension deficit is. However, unsecured creditors, such as suppliers and landlords, are unlikely to be paid in full, according to a person close to the process. 

Criticism has also been directed at the family owners who have been paid tens of millions in dividends in the past 10 years. The most recent payment of £750,000 was in February 2022.

Jonathan Griffin, a director at Amalgamated Holdings Wilkinson Limited, the ultimate owner of Wilko, said dividend payments did not contribute to Wilko going into administration and said they “were paid within the financial framework regulating dividend payments and after the Wilko board had received a recommendation from the chief financial officer that it was prudent to pay them”.