CORPORATE BUMS RUSH FOR WELFARE AFTER GUTTING OPM

By Farouk Martins Aresa

The announcement by the Chairman of Central Bank, Charles Soludo, that he is ready to pump another one trillion naira to defreeze and calm financial market sounded too much like US Treasury Secretary pumping the same amount in US dollars to bail out financial market in USA. We have not heard of any loud opposition against Soludo’s move as we heard in the US. Credit Soludo Thursday move, interbank lending rate decreased from 18 to 10 percent. Yet, no one in his right mind will even compare US economy with ours.

There was so much liquidity in Nigeria market after our stocks crashed last May that International Monetary Fund was warning us against it. Apart from different fundamental realities in the economies, real estate mortgages for the low income folks, that is blamed for most of the root cause of the problem in the United Kingdom and the United States, is out of question in Nigeria. Only a few of the middle income dying class in Nigeria, not to mention the low income folks, would qualify for mortgages on their homes.

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Greed and sharp financial practices among mortgage house brokers that are left to free market for correction and shielded from Government regulators are not common to United States and United Kingdom. It was recently seen in Japan and China real estates though with severe punishment. That is why some of us are wondering what housing market default Nigeria Central Bank is pumping trillion of naira into. Most of the people in Nigeria, especially in the suburbs own their houses outright and there are no mortgages on homes except in cases where these houses are used as collateral as elsewhere.

Nigeria is not one of the G-7 countries needed to shove up American economy and none of our banks has subsidiaries that hold toxic mortgages in the US that may benefit from the bailout. While the G-7 may be losing jobs that need to be saved in their financial markets, our only stake could be limited number of Nigerians working there, hardly enough to justify supporting big boys at home. Another US concern is the high cost of energy that may benefit oil producers but we have no reliable electricity, gas or kerosene.

Common folks’ subsidy for petroleum products have become a matter of debate among conservatives who think the money could be better spent. When you look at a Country like Venezuela with low cost of petroleum and Indonesia in spite of corruption, Nigeria’s progress in infrastructure is deplorable. Petroleum subsidy is the only commodity those who can afford cars or depend on public transportation enjoy. Fare depends on fuel cost.

Well, Nigeria may be showing solidarity with US treasury since it is a global village. But our surplus is already in US dollars kept out of Nigeria because we have no use for it or for fear that kleptomaniacs may get their hands on it or to buy our foreign import tastes. The real problem may lie in the lack of applicability of our hard earned education and acquired foreign experience to local situations. What ails Britain or the USA may not necessarily ail Nigeria. We do not have the housing toxic mortgage but much more.

Japan high real estate prices crashed forcing Government to move into the market with funds to bail them out. No housing crash in Nigeria or adequate housing for the majority of its people as these countries can boast of. The underlying provision of owning a home by each family cannot be discounted. This noble goal is used to justify UK and US rescue missions, to socialize toxic asserts and privatize profitable asserts.

The real motive in Nigeria is the same as on Wall Street: Government or Other Peoples’ Money, OPM, is the lifeline of the stock market. People are drawn into the stock market because of high returns and Nigeria stock markets have performed well before the recent downturn. Some of us were actually amazed at the lack of correction compared to other markets around the world. We had one of the highest investment returns. Based on what?

Some may have noticed that the World Bank just downgraded our credit rating. Where are all those who gave us triple B rating after paying off the Paris Club odious interest on interest? They are claiming foreign investment in Nigeria has increased from last year. They must be taking into account Nigerians in Diaspora who are sending money home and starting business with their billions of foreign currencies. Please give them the credit.

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When the going was good, Wall Street divided itself into independent investment houses and banking. These free standing investment houses like the Lehman’s Brothers, Golden Sachs, Morgan Stanley, Meryl Lynch, Bear and Stern raised their money privately far away from Government regulators. After sucking out the profit from Other People’s Money, most went belly up under the yoke of toxic mortgages made out to people they know would default. What the hell, they can socialize bad investments with public dole.

American International Group, AIG, was bailed out because of the various toxic asserts packaged by cunning brokers in and beyond United States for insurance. When Lehman Brothers could not get bailed out like Bear and Stern, Nomura Japan’s largest broker acquired its operation in Asia and some parts of Europe. Barclays also took over their employees in US. Meryl Lynch offered itself to the Bank of America.

The two remaining free standing Investment houses, Golden Sachs and Morgan Stanley quickly asked to become regulated as banks so that they could have access to public cash and direct deposits from the people. That is accepting exactly the regulations they run away from. These days we cannot tell the difference between conservatives and socialist, those who are for or against government regulations.

The Government bailed out Northern Rock in UK under the same circumstances, as HBOS crept towards welfare; the Government quickly supported or arranged the takeover by Lloyd. Lloyd itself was lucky to survive big losses in the UK corporate history in the 1980s and early 1990s because of expensive payouts for natural disasters as in asbestos health issues and oil spills spots around the world.

There are other developed countries where making home ownership has not been characterized by toxic mortgages because banks and mortgage brokers are well regulated.

Canada stands out, as some western European countries. Canada has over sixty percent of its population as United States with home ownership, without sharp practices. So are some US credit unions, states and cities with Bonds that make home ownership easier. That does not mean that Canada like United States did not go through the high mortgage rates of the 1980s or did not experience ten years cyclical stock market bursts.

The type of power exercised by Central Bank in Nigeria chills the blood of Americans when the Secretary of Treasury asked for that trillion dollar assuming the title of King Henry. If you wonder how money gets so easily out of the State or the Federal government treasury in Nigeria, now you have the answer. Throwing money at stock market without returns, checks and balances has never worked anywhere. Not in Nigeria.

Does it remind you of how we spent about N11.5 trillion to establish public enterprises between 1975 and 1995 only to realize N587 billion from privatization between 2004 and 2007? Now we are worried about toxic asserts in the US instead of providing housing to the masses like Jakande did in Lagos State, forcing Shagari to compete on Federal side in the 1980s.

Before the Governor of Central Bank can flush the market with money, or the President can start his project or the State Government can convert local government allocation, we may want to see certain check and balances as the US senators and house members are asking before they rush and approve money to prevent heaven from falling: