Caroline Kennedy

Now that she is out of the running for Hilary Clinton's NY Senate seat, I wonder if Caroline Kennedy will be offered the Ambassadorship to Paris ( a town loved by her mother ) or London ( where the scion of the family had the same posting ) ? Both are the plums in the Foreign Service portfolio and would be a just reward for her friendship and support of the President. Old Europe needs to know it is still regarded as an unflinching and reliable ally in the new administrations view of the world.

The crying need for an ethic of finance - towards communalism

The destruction of goodwill on the balance sheets of the financial sector continues apace. Recent revelations that John Thain had authorized accelerated bonus payments at a time when he knew that Q4 earnings would reveal a huge write down have angered BoA shareholders and American taxpayers alike. This mornings revelations of the multi-million dollar redecoration of his office with $87,000 rugs and $1400 trash cans have only served to link Merrill's name with that of Enron in the pantheon of financial greed run rampant.

The root cause of all this has been the increasing commoditisation of money. There was a time when financial investors were prudent in their dealings recognizing that the capital they handled and advised was the sum of personal investors hard earned savings, corporate success, occasional good luck and the retirement dreams of young and old alike. To be in the financial sector implied probity and responsibility.In the mid-90's this conservative approach to capital management slowly started to change with restraint giving way to excess. Money was increasingly viewed as a basic commodity that could be limitlessly mined and endlessly leveraged without any link to the fortunes of the people,families and firms that provided it. Moderation as an appropriate ten plate was forgotten in an ethos that rewarded risk. Abstention was laughed at. Personal wealth enhancement replaced fiduciary conservatism in dealing rooms and as the guiding mantra for the industry as a whole. Greed blossomed in an environment where risk was down played.

After a decade of excess that moved from brokers to fund managers the party has finally come to an end. Risk has been shown to be alive and well and trust in the financial sector has evaporated. By placing their reward structure above that of their clients the current generation of managers in the banking sector have overseen the destruction of their companies, the impairment of their balance sheets and the undoing of generations of goodwill built up in their companies.

One first step to restore confidence in the banking system will be the SEC and FSA and others formally tasking independent directors with the duty of safeguarding client capital and ensuring that suitable questions are asked of management. The era of the cosy board must come to an end or governments will provide their own candidates. Going down that route opens up other dangers.

Budget deficits to put '39 and '40 in the shade.

Just read an article stating that Ireland has the highest home owner ratio of any country in history at 82%. The Irish Finance Minister is reported in the press as saying 'we're bust'. See my comments about the Euro earlier this week. The budget deficit projection for the UK and Ireland in 2009 is 11% before counting in banking sector liabilities. In 2010 and 2011 national deficits are likely to be greater as a % of GDP than they were in 1939 and 1940.

Central Europe and Geithner

Impressed with what I saw of Tim Geithner's testimony to the Senate committee considering his nomination but horrified at the self absorption and superficiality of many of the legislators questioning him. One Senator wanted one word yes or no answers to complex matters of regulatory change - talk about grandstanding!

FT picks up on the excessive lending given by Austrian and Italian banks through their Central and Eastern European subsidiaries. Providing Swiss Franc mortgages to Hungarian Forint earners and assets was never going to be triple A rated. Rather than take the hit on their own balance sheets ( which the banks can't weather and which would drive them into government ownership ) the Austrian and Italian banks are now asking for crisis funds for the region from the ECB .

Qatar and its Boeing 787's

Just off the phone to an old colleague who is now working at a bulge bracket ( are they still called that ?) in the ME. Tells me that he hears that Qatar Airways is trying to buy production slots for Boeing 787 Dreamliners from airlines that are now having difficulty financing. Qatar was originally planning to introduce the 787 in 2013 but date of entry may be brought forward if they are successful. If true what a difference 6 months makes in terms of demand! I always find that airline gossip is as good an economic indicator as RoRo numbers.

Why would the ECB want the UK to join the Euro?

Sentiment on the trading and research desks of the big City firms is as dire as I've ever known it. The creeping realisation that the salary component of the remuneration package is likely to be larger than the bonus element isn't helping.Prop desks in many houses have had their hands tied and are ticking over at 10% of summer levels.

Lot's of talk about nationalisation of the banks, sterling at parity with the greenback, and a reduction in national installed capacity of 10%-15%. Some pundits are beginning to say the unthinkable that the UK will need to join the Euro. Question is why would the Europeans let us ? Entry would probably be at around £= 70/75 euro cents to make sense and that would only serve to boost UK competitiveness, and attract FDI into the UK from the rest of Europe. Whatever the outcome the UK government is at some stage going to have to address government spending with particular focus onpublic sector pensions. President Sarkozy remains convinced that the UK will have to come cap in hand to their European neighbours by the fall at the latest - the alternative being an IMF bailout. There's going to be plenty of fun ahead in the currency markets!

Fiat and Chrysler

Fiat's Chairman Sergio Marchionne has already said that he doesn't believe that an automaker can survive unless it produces 5 million units a year. Add Chrysler's output onto that of Fiat and you come up with a number of 3.5-4.0 million - a figure much closer to commercial critical mass than either achieves at the moment. Strategically,the proposed deal makes sense but it faces three obstacles :

• Can Chrysler cut it's current estimated burn rate of $50m a day and hold out until the new models arrive ?
• Will Congress continue to allocate funds to a Chrysler that is manufacturing a foreign designed product ?
• Can consumers afford new cars in the absence of credit in the general economy? They may like the product but not be able to afford it.

Good to see positive thinking on the part of Fiat's top team.