ORIGINAL FRENCH ARTICLE: Au coeur de la crise, la spéculation continue
by Pierre Ivorra
Translated Friday 24 April 2009, by
In view of the breakneck slide of stock indices and capitalization, as well as enormous losses declared, one might well assume that financial speculation is now dormant, ill from its excesses, stretched out on its dollar couches and suffering from a hangover after a drunken night. But don’t forget though that, though speculation flourishes when CAC 40 and Dow Jones are soaring, it can also reap its bonanza on worldly troubles. In brief, contrary to what one might think and despite Nicolas Sarkozy’s theatrical anger, speculation continues to thrive while the crisis is in full swing.
The Thomson audiovisual group has just exemplified this. On the brink of insolvency today, it has to face €2.1 billion of debt by the end of April, which it is unable to repay. The liquidation of the group threatens, however, to entail heavy losses for its lending banks. Thus, stock speculators— even traders in those same banks — pick up an option of trying to convert the debt into capital and thus to become owners of the group rather than to call for Thomson’s liquidation. In this way, they venture into another operation—they begin to sell their Thomson debt securities in order to buy shares of the group at the lowest price, in the hope that quotations will go up after the takeover. Then it remains only to sell them. To encourage this operation, the group has announced its intention to sell its assets and to reduce charges.
In the current crisis context, such money vultures are particularly interested in the corporate debt market. It is increasingly difficult to meet businesses’ funding needs. Automotive or construction groups have to assure risk premiums for investors and offer them interest rates well above the market. The French cement giant Lafarge is trying to overcome the problem by implementing a capital increase but it is very likely that it will be obliged to set a subscription price 40% below the stock exchange quotation. In this case as well, such “risk premiums” come together with sale of assets and job cuts.
The speculation is encouraged by the nature of recovery packages engaged by the governments of major capitalist countries. Thus, the plan set forth by Timothy Geithner, Secretary of the Treasury of the United States, extends guarantees and public funding to any investors willing to carry out a deal by purchasing rotten assets of U.S. banks at a cheaper price so that to resell them after the market rebounds and to gain some added value in passing. European plans, namely, the French, entered into without establishing any criteria for distributing assistance to banks in a manner favorable for employment and growth, bear a risk of providing new munitions to crisis-makers.