Saturday, July 9, 2011

A Cautionary Tale: "Argentina files criminal charges against consulting firm for publishing inflation data"

Argentina is definitely an interesting place.
From the cult of Juan Perón to the current president Cristina de Kirchner (Hey gang, let's nationalize private pensions!), from the Barings debacle* of 1890 to the hyperinflation of 1990 and the collapse of 1999-2002 there are a lot of lessons to be taught or learned.
From MercoPress:
Argentina's government has filed criminal charges against the managers of an economic consulting firm, escalating its persecution of independent economists. A federal court official said Friday that a judge is evaluating the charges but has yet to decide if it is appropriate to begin investigating them.

The government is charging MyS Consultores with “publishing false information about inflation data” to benefit themselves and their clients. The criminal complaint alleges that MyS's data also lead to speculative behavior in Argentina's bond market.

MyS Managing Partner Rodolfo Santangelo described the charges as “ridiculous” and said the firm's inflation data do not affect financial markets.

Consumer prices rose 9.7% in May from a year ago, according to the national statistics agency, Indec. But virtually all economists say annual inflation surpasses 20%—one of the world's highest rates—angering government officials who dismiss inflation as a problem.

The criminal complaint, initiated by the Commerce Secretariat, is the harshest in a series of legal measures against economists. The credibility of Indec's data has been questioned ever since former President Nestor Kirchner replaced longtime civil servants with political appointees in early 2007....MORE
See also, today's "Inflation: How Fake Money Saved Brazil"

*A prescient piece from September 2007, prompted by the sight of stockbrokers lining up to clear out their accounts at Northern Rock:
New York Times Headlines-

Nov 19, 1890; Brothers Embarrassment
NEWARK, Nov. 18. -- Monday morning the officials of the Howard Savings Institution in Newark observed that more depositors than usual were presenting themselves at the teller's counter to close their accounts. Yesterday morning when the bank doors were opened, a score or more of them awaited the arrival of the teller. The run increased as the day went along, and by the time the bank closed for the day $30,000 had been withdrawn.

Two days earlier:

HELP FOR THE BARINGS; NO FURTHER DOUBT OF THE FIRM'S PERFECT STABILITY. AID STILL COMING FROM THE BANKS OUTSIDE OF LONDON -- THE CONDITION OF THE MARKET.LONDON, Nov. 17. -- The Scotch banks will have a meeting to-day for the purpose of adding to the Barings' guarantee fund. The whole banking world has shown alacrity in subscribing, and when all the provincial and other subscriptions have arrived the total will be such a sum as will make the whole incident a brilliant triumph for the organizers of the fund.

The Collapse of Barings
...Only one Baring received a peerage principally because he was a banker: Edmund, otherwise known as Ned. The others had been politicians or public servants. Ned became Lord Revelstoke in 1885, when London was the undisputed financial capital of the world. Revelstoke father and son ran Barings for fifty years, and Ziegler describes them as a formidable pair.

`Both were intelligent and cultivated, self-confident to the point of arrogance. They were dignified in manner and imposing in appearance, men accustomed to demanding the deference of their inferiors, putting into that category the generality of mankind.' But Ned Baring also had a streak of recklessness inherited from his grandfather, and a gambler's instinct (his father won his Mayfair house at a game of cards). He was a generous man, and he could afford to be: his annual income was 100,000[pounds sterling], worth 6,100,000[pounds sterling] today.

Revelstoke's enthusiastic embrace of Victorian capitalism red in tooth and claw was best illustrated by the flotation of Guinness shares in 1886. So over-subscribed was the issue of 4.5 million [pounds sterling] of ordinary and preference shares that the price of 10[pounds sterling] ordinary shares rose to 16[pounds sterling] 10s when the market opened.

No fewer than one-third of these shares had been allocated by Baring Brothers to members of the family and their intimates; 800,000[pounds sterling]-worth was reserved for the bank itself; and another 800,000[pounds sterling]-worth was allocated to partners, their friends and close contacts in the City. The profit attributed to the house and the partners alone was in excess of 500,000[pounds sterling]. `Even among insiders who had benefited from the operation, there was a feeling that it had gone too far,' said Ziegler.
Revelstoke's Guinness triumph misled him. He came to believe that public confidence went so deep that Barings' name on a share issue was enough to guarantee its sale. Revelstoke took an enormous punt in Argentina, and it went badly wrong. Tom Baring, one of the partners in New York at the time, wrote: `Verily, "a great Nemesis overtook Croesus." The line has never been out of my mind since the Guinness success.'

What Revelstoke did was to underwrite a 2 million [pounds sterling] share issue by the Buenos Aires Water Supply and Drainage Company. That meant that Barings sent the money to Argentina before it had sold the shares, and the shares subsequently proved virtually impossible to sell....MORE
See also 2008's "Nowhere to Run, Nowhere to Hide: "Latin America Economic Boom Threatened as Credit Freeze Deepens"

On Northern Rock:
Three Years ago Today: "Bank of England to bail out Northern Rock"

....On Friday the 14th it was a run on the bank:
Northern Rock: Customers line up to withdraw funds
The morning of Saturday the 15th:
Northern Rock (LON: NRK) Updates
When I read that The City's Stockbrokers and Fund Managers were queuing up to withdraw their deposits, well, it gets your attention....
I was so tired I degenerated to New York Post style headlines:
Rock, Paper, Scissored
Merrill Lynch came out with a buy rec. and a price target of 913 pence. Alphaville commented "We like a ballsy call, here on FT Alphaville, but what's this?
What's a Rock Worth? Lon: NRK; This Could be Awkward
More Post style headlines:
Panic on the streets of Britain: Northern rocked, City shocked 
On Sunday it just got silly:

Northern Rock=Quote of the Day
...The disclosure of the Bank loan was not what we wanted,' he [Applegarth] said.
'The weight of coverage has been absolutely intense and, of course,
it has damaged our brand.'...
-From ThisIsMoney
But, of course.
The media coverage has damaged the brand.
Somewhere along the way [it would have been September 15th, wouldn't it -ed] I just lost it:and posted:
Screw Northern Rock, It's Battle of Britain Day
Followed the next day by the story of the first Barings Bank failure in 1890 [just to cheer people up? -ed]
 All in all an interesting few days....