World Economic News
European Central Bankers Now Worried Over Dollar Crash
Following the G-10 (actually, G-11: G-7 plus Belgium, Sweden, Netherlands, and Switzerland) central bankers confab in Basel Jan. 12, European Central Bank president Jean-Claude Trichet gave a press conference where he presented quite different views than those of last week, when he played down the effects of the 22% rise of the euro versus the U.S. dollar in 2003 (and slightly more than 50% rise since October 2000). Trichet now emphasized: "We're certainly not indifferent." He said "brutal moves" in the foreign-exchange rate of the euro are unwelcome. The dollar fall, as well as the implications of the Parmalat collapse, were at the top of the agenda of the closed-door meeting, which takes place in Basel every month. During the Jan. 12 meeting, the dollar fell to a new historic low against the euro ($1.289).
French Prime Minister Jean-Pierre Raffarin, on the same day, expressed concern about the "instability" in the euro exchange rate. At a public appearance in Paris he noted: "Unstable exchange rates are in the interests of neither the U.S. nor Europe. Together and quickly, we need to find the means to have an exchange rate that reflects economic realities."
Deutsche Bank chief economist Norbert Walter, in an interview with the German daily Die Welt on Jan. 11, called for an immediate rate cut by the ECB, in order to push down the euro versus the U.S. dollar. Otherwise, Walter said, the dollar would soon plunge to $1.40 to the euro.
BIS: Global Derivatives Market Has Doubled Since 2000
The global derivatives market, as reported by the Bank for International Settlements (BIS) in its Dec. 8, 2003 Quarterly Report, rose from $109.5 trillion in derivatives outstanding at the end of 2000, to $207.9 trillion as of June 30, 2003. For the same period, over-the-counter derivatives rose from $95.2 trillion to $169.7 trillion, while exchange-traded derivatives rose from $14.3 trillion to $38.2 trillion. While EIR believes the BIS, the central bank for central banks, based in Basel, Switzerland, dramatically understates the size of the derivatives market, the magnitude of the increase it reports does reflect the hyperbolic growth in financial aggregates shown by Lyndon LaRouche's "Triple Curve" collapse function.
Adecco Accounting Scandal: 'We're No Parmalat'
Adecco, the world's largest provider of temporary workers, based in Switzerland, announced Jan. 12 that it had discovered "possible accounting, control and compliance" irregularities at its U.S. business, and therefore isn't able to publish its 2003 earnings report. Within a few hours following the announcement, the price of Adecco stocks crashed by 44% and its bond prices plunged by a similar amount. The market capitalization of Adecco shrank by 3.4 billion euro in a single day.
Adecco last year had a turnover of 16 billion euro. It directly employs 28,000 people worldwide, and has 100,000 corporate clients for which it provided, in total, 650,000 temporary workers. As in the case of many recent corporate failures, Adecco became a world leader in its sector by buying up its global competitors. The most prominent takeover was that of the U.S. job agency Olsten Corp. ($1.4 billion) in 2000.
This latest accounting scandal was the front-page lead item in most European media on Jan. 13. Financial-market sources were drawing comparisons to Enron, the Dutch retailer Ahold, and Parmalat. The Adecco management was forced to put out a statement claiming, "We're no Paramalat."
UK's 'Precipice Bond' Market Goes Over the Edge
Precipice bonds, a form of derivatives traded in Britain, which "offer high income but a final capital return geared to the performance of a stock market index or bundle of indices or shares," have cost many investors a large chunk of their original investment, and complaints are pouring in to the UK's Financial Ombudsman Service, the Financial Times reported Jan. 9. Two high-profile distributors of precipice bonds, David Aaron Partnership and RJ Temple, have already foundered, and there are fears others will follow. The Association of British insurers projects that some 1.5 million people face an average loss of 5,000 pounds sterling each.
"There will be others while the market cleans itself of the problem of precipice bonds," said Finbarr O'Connell of KPMG, administrator of Aaron and liquidator of Temple. "The cost to the industry could be enormous. We are aware of other groups [in the same position]."
The London Guardian reported in October that precipice bonds "have cost up to 500,000, generally elderly, investors much of their savings," noting that the bonds were sold by investment companies such as Scottish Widows.
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