More Finsac

[Willi]

'FINSAC has been a total failure'
By Dr Paul Chen-Young in a letter to the editor
Sunday, August 05, 2007

I have seen the report of business leaders published in your July 25 issue and Dr Omar Davies's response in the August 1 issue of the Daily Observer.

As one - and the only affected ownership person in the demised domestic financial sector who has made any studied response to what happened - it is appropriate that I should add my own perspective.
I should remind readers that I wrote about the demise in the sector through two publications: [a] With Best Intentions - the Collapse of the Domestic Financial Sector in 1998, and that was before any legal action was taken against me; and [b] The Entrepreneurial Journey in Jamaica: When Policies Derail in 2004.

In the latter book I wrote about my life and more specifically in relation to the fall of the Eagle Group.
I admitted that mistakes were made in terms of major decisions by Crown Eagle Life Insurance where investments made to build and support hotels were not properly matched by long-term deposits. This was not unique to Crown Eagle, and other domestic life insurance companies made the same mistake and were forced to close, as in the case of Mutual Life and Crown Eagle, while Life of Jamaica and Island Life were sold off to companies in Barbados and Trinidad and Tobago.

There is no doubt in my mind that these companies could have been saved if low-cost funds were lent to them to pay off high-cost funds. The entire leadership of the life insurance companies met to discuss its problems and commissioned a study by PriceWaterhouse that showed that about J$25 billion was needed.

A team comprised of Dr Marshall Hall of Mutual Life, Hon Dennis Lalor of Life of Jamaica and me representing Crown Eagle was appointed by the industry to meet with Dr Davies to obtain his support. He met with us but nothing happened, and Mutual Life and Crown Eagle were closed, Life of Jamaica got support but was taken away by FINSAC and sold, and Island Life, representing the last of the four largest life insurance companies, was also taken away by FINSAC and sold. So the initiative to save the industry bore no fruit.

Even though late, the fact that some business leaders, as reported in the Observer, finally spoke out about the mismanagement of the crisis by FINSAC is of significance. Dr Davies's response superficially attempts to rebut the criticism levelled by the business leaders.
But Dr Davies who, I believe, will have a historical legacy as the worst finance minister whose policies have been an unmitigated disaster, has responded with barbed citations of some of the critics who somehow had dealings with FINSAC. His response is a smokescreen from the real issues posed.

His failed policies cannot be divorced from his attempt to escape culpability for the demise of the domestic financial sector and the entrepreneurship where those at the helm helped Jamaica to revitalise and expand investment in the tourism sector. Everyone who is objective will agree that it was the same maligned domestic financial sector that was responsible for the PNP Government's successful divestment programme of hotels, and the Government fully supported an active role by the domestic financial sector.

In the case of Eagle, we spearheaded the first consortium of about 12 domestic financial entities to build the first major hotel - Ciboney - in the early 1980s and our acquisition of Holiday Inn and the upgrading to make what was a run-down facility into a first-grade resort was applauded by the then prime minister, PJ Patterson.
Minister Davies's response about moving from hard core business has some validity, but it was with the complicity of the Government - a fact that cannot be denied!

Minister Davies talks about the mismatch of assets and liabilities. But can he be honest to recognise that there is no perfect match in the real world and, in the confusing monetary policy scenario which he created, where inflation and interest rates were running in excess of 50 per cent per annum in the early 1990s, financial entities which were pro-development would inescapably have that mismatch?
In the case of the life insurance companies, the record shows that they suffered sharp declines in long-term premium income as the public realised that in high inflation periods endowment policies made no sense. As a result, life insurance companies had to raise short-term funds by issuing commercial paper.

This development is often overlooked by the simplistic criticism of mismatching of assets and liabilities. The fact is that Dr Davies's high interest rate policies in the 1990s created serious funding problems for the life insurance companies and it was not just mismanagement that drove Mutual Life, Life of Jamaica, Island Life and Crown Eagle into financial straits.
As minister of finance, never has he achieved any forecast of economic annual growth in his entire career. Never has Jamaica seen such deterioration in its trade balance with Caricom and the rest of the world. Never has Jamaica seen its national debt reached the level of 150 per cent of Gross Domestic Product. Never has Jamaica seen sustained fiscal deficits hovering around 5 per cent of Gross Domestic Product. Never has Jamaica seen such levels of devaluations. Never has Jamaica seen such a deterioration in outflow of investment income abetted by profits to overseas interests from the fire sale of the domestic banks and life insurance companies. Never has Jamaica seen such a widespread collapse of businesses from every industry. Never has Jamaica seen such widespread obliteration of entrepreneurs.

All of these negative results of failed financial policies must be blamed on the lack of understanding by Dr Davies of how the economy works and what must be done to achieve economic progress. Any careful assessment of what happened under Dr Davies's watch must lead to the conclusion that there was no sound theoretical economic model to support his unrelentless preoccupation with building up net international reserves as the cornerstone of policy.

He forgot the fundamentals that without exports and prudent fiscal policy you cannot have lower interest rates, low inflation and economic growth. His massive borrowings, despite the FINSAC support, [which was 20 per cent of GDP and not 40 per cent as he claims, as supported by my findings and that of Professor Damian King], continuing deficits, deteriorating trade balances, deteriorating outflows in investment income, increasing consumption financed by increasing Government expenditures, all militate against achieving economic growth. Thus, the abysmally poor performance of economic growth averaging about one per cent per annum over the last 17 years is not surprising.

Dr Davies's response to the criticism of FINSAC by business leaders obfuscates the real issue - that there was mismanagement of the financial meltdown. Originally hailed as the entity to restructure the financial sector, FINSAC has been a total failure in doing so. All that it can show for its efforts is the massive debt to clean up banking and life insurance entities that were then sold at ridiculous terms to Barbadian, Trinidadian and Canadian companies that should have by now recouped their investments and will continue to enjoy high levels of profitability that will adversely impact the country's balance of payments.

These new owners are risk averse and we can expect to see no major initiative being taken to support investments in the productive sector, except in the case of National Commercial Bank where the Canadian company is owned by our own Jamaican, Michael Lee-Chin. They will simply concentrate on buying Government paper, trading in securities, providing loans for more consumption, and providing mortgages. Don't expect to see them investing or taking any risk for lending in tourism, manufacturing and agriculture.

Jamaica can expect no leadership from these entities in the development effort because of what must be described as the foolish strategic shift in ownership of these "commanding heights" banking and life insurance industries away from Jamaicans that FINSAC sold off for relatively small amounts of investments.

But the "sell-off" was not the only criticism of FINSAC. It has acted capriciously in deciding which financial and business entities should be saved and which should be closed. It has acted ruthlessly and arbitrarily in bringing lawsuits against some of the key players [including me] while exempting others. These decisions have been taken without any publication of the findings of forensic auditors for the public to review. This egregious behaviour must therefore give rise to the justifiable criticism levelled by the business leaders.
Policy leaders in major countries like Japan and Mexico did not panic and did not give away the banks and insurance companies to overseas interests. Instead they brought together the leadership of the troubled entities and arranged for support, including mergers and joint ventures.

Enlightened and responsible leadership in those countries recognised that ownership and control of the financial sector are critical and vital to any country's development. They had common sense and vision. Sad to say, Dr Davies neither demonstrated good sense nor any vision for the future, and our national anthem prophetically says: "Give us vision lest we perish."

I believe that the mishandling of the domestic financial crisis has set back entrepreneurship in the productive sector for at least a generation, as the psyche of the nation is now risk averse with an explosion of the trading mentality which Jamaica strived so hard to change after independence in 1962.

Dr Paul Chen-Young, the former head of the Eagle Financial Group, is an economist and investment banker. He now lives in Miami, Florida

[Willi]

Why did the Government close Century National Bank?
Wignall's World
Mark Wignall
Sunday, August 05, 2007


On July 10, 1996 the Ministry of Finance, with the assistance of armed security personnel and the police, entered the offices of Century National Bank and, in a matter of minutes, brought about the closure and end of all entities in the Century Group.

Just a month prior to that fateful date, the BOJ and Century had been in discussions regarding bringing back profitability to the bank. Price Waterhouse International had only just prepared an action plan which projected profitability for years 1997, 1998 and 1999. Senator Alfred Rattray assured us that the minister in dialogue had also accepted the proposal. "Mr Rattray's clear understanding, as conveyed to the bank, was that the outstanding issues had been satisfied," said Don Crawford. "It was therefore a great surprise when the minister implemented the closure of the bank."

From one branch in 1984 to seven in 1996, Century National Bank was one of the fastest growing financial institutions in Jamaica. It was Jamaican-owned, Jamaican-operated and many Jamaicans were proud of its reality.

Indeed, in 1992 when Century was reaching out and investing in Jamaica Grande, no less a person than the late Carl Stone heaped praises on Don Crawford for his business acumen.
Writing in one of his columns in late 1992 he said:
"The massive and refurbished convention-type hotel shortly to be built up at Mallards Ocho Rios by Don Crawford and his partners is the kind of investment and investment risk our private sector should be promoting at this time.

"Don Crawford deserves to be commended, not attacked and put down for daring to put money into a long-term investment project. This column would like to encourage more Jamaicans with money to follow his lead. Don Crawford is my choice for outstanding entrepreneur in 1992. What he has done with the recently privatised hotel is a good demonstration of what private enterprise can do, if we have a little faith in it, by giving it room to flourish, make money, upgrade quality of product, expand to create more jobs and generate more economic activity."


Don Crawford (left) and Dr Omar Davies in happier times at the opening of Century's Half Way-Tree branch in the early 1990s.
The most famous entity which was brought to its knees in what was popularly described as 'the financial meltdown' in the mid-1990s was Century National Bank. From its humble beginnings in 1984 during the time of a JLP administration to its steady and, some may say, phenomenal growth in the early to mid-1990s under a PNP administration, Century appeared to be unstoppable.

Socialists in the house

It is useful to remember that the PNP administration which came to power in 1989 was still 'populated' with some of the old pseudo-socialists of the PNP regime of the 1970s. Those 'play-play' socialists could not operate a fry fish joint at a profit, and although they were not really anti-business, a few of the louder ones in the forefront of the lunatic left of the party somehow considered it cute to spout rubbish about the evils of capitalism and the joys of socialism.
Among the leftists in the PNP of the 1970s, there was more than an undercurrent of support for any foolish utterances coming from the leadership of the politburo in the USSR.

Michael Manley's planned walk to the mountain top with Castro did not materialise, and neither did his attempt to transform Jamaica into a 'democratic socialist' republic bear fruit. In fact, it did bear bitter fruit as Manley tried to restructure the society without having an appreciation for the tremendous fallout it would have on some key sectors of the economy.

What the country needed then was not the type of class restructuring which Manley believed could be brought about by governmental fiat, but revolutions in agricultural processes, construction, and especially education.
One of the positives of his social experimentations in the 1970s was the carrying to the front burner of our huge class divides. However, he needed to have written a second chapter in his democratic socialist primer, that is, now that we have identified the divisions, how do we put the hate back in the box once it is out.

Too many stupid people were actually believing that a 'socialist' without a house would get one if a 'capitalist' had two houses. Even worse, many who were branded capitalists by the politics of the day believed the wild rhetoric, sold out cheaply and emigrated to Florida or Canada.
After the PNP was deservedly thrown out in 1980, whatever communist tendencies Seaga may have harboured in his youthful days was long gone.

'Watch out for Jamaica' was the rallying cry from his backers in Washington as they pumped money and advisors into Jamaica. Although Seaga still wanted some governmental control over the economy and big business, his statist approach was still more palatable to business than the reckless experimentation of Manley in the 1970s.

Whether the 'socialists' who formed the PNP administration in 1989 were recycled or 'recovering,' one thing was certain: On the surface they were all pro-business, while deep down they still could not appreciate the need for profits, the show of economic success and the idea that in the real world there would always be a 'master' and a 'servant'.

The strangulation begins

When Carl Stone had said, 'Don Crawford deserves to be commended, not attacked' he was making reference to the wholesale attack the PNP government made on the man in an open session of Parliament.
It is November 1992 and the PNP is about to face a pending election. Although the elections are set for March 1993, Stone Polls in November are showing that there is a danger for the PNP. The JLP is ahead in the polls.

The 1993 elections will be most important to the PNP because for the first time, the party is being led by a name other than Manley. The man in place is PJ Patterson, and even a person like Carl Stone shares the belief that if Eddie Seaga can solve the 'Gang of Five' issue, the PNP could end up being the first ever one-term administration.
When the JLP handed over government to the PNP in February 1989, Seaga was showing his mastery in handling crisis in the wake of the widespread devastation brought on by Hurricane Gilbert. At the same time, the US dollar was worth J$5.50 and the economy was on a growth path.

Three years into the PNP administration, the growth ceased, the dollar was under pressure at $22 to US$1 and inflation was taking off into the stratosphere.
Unknown to many of us at the time, while the government was telling us that the official exchange rate was US$1 to J$22.10, the BOJ employed agents whose duty it was to travel around the country and purchase all the available foreign exchange, usually at rates exceeding the 'official' rate.

In fact, on the books of Century was a current account being operated by a sub-agent acting for a BOJ-authorised foreign exchange agent. In one year this account had an aggregate turnover in excess of J$1 billion. When the bank was closed in 1996, that account had a J$130-million overdraft and was one of the non-performing loans in the books of the bank.

As I said before, it is November 1992 and Century needs US dollars to complete the refurbishing of the Jamaica Grande Hotel. In that same month CNB purchases US$750,000 in a Dutch auction from Quotron, a Citibank subsidiary which handles the sale of foreign exchange from the US Embassy. CNB won the purchase by bidding at a rate of J$25.10 to US$1.

As Don Crawford later said: "The CNB purchase aroused the anger of the minister of finance. A general election was in the offing and the public's perception of the value of the Jamaican dollar had political overtones, which the Government probably saw as having the potential to influence the results of the elections."

In a conversation I had with Crawford recently, he reiterated what he had already stated in print. "To the management of the bank, it was a purely business decision, and we at CNB would have had to be idiots to set out to embarrass a ruling administration. The foreign exchange was urgently needed and any delay in securing it would have been terribly damaging to the Jamaica Grande project. Any delay in its completion would have been extremely costly to the county as a whole. Instead, the Government criticised CNB and reprimanded us in Parliament. To add to that, we were also sent a letter of reprimand by the governor of the Bank of Jamaica. The end result was that a run on the bank was created solely by the actions of the PNP administration in Parliament."

The irony of it was that it was known that almost all banks were purchasing foreign exchange in that manner. The Government was especially rankled by the fact that its action against CNB revealed that the BOJ had agents with huge amounts of cash in the trunks of their cars and/or cheques printed with the words 'foreign exchange authorised agent' on them.

What CNB did was normal business practise in the circumstances where old, refurbished socialists with their square-holed thinking were trying to operate a round-holed market-driven economy.
To the PNP administration, big business was still suspected of something other than what was obvious. The ghosts of the 1970s were still affecting the business-understanding of the administration, even though many had thrown away their bush jackets and Karebas for western cut suits and ties.

The Gov't withdraws funds from CNB

To make a bad situation worse, the run on the bank was followed by the Government withdrawing approximately J$750 million. According to Crawford, "The immediate effect was that there was an overdraft at the BOJ of just under J$1 billion. The BOJ attached a penal rate of 91 per cent per annum to this 'government-sponsored' overdraft. The penal rate resulted in J$103 million being paid to the BOJ."
Crawford, his partners and shareholders, saw all of their gains from 1984 being swallowed up by the heavy hand of an inept administration.

The public sector account was gone. The huge overdraft at the BOJ and the penal rate were also harsh and crippling realities. The bank was forced to offer higher interest rates to attract deposits and avoid the 91 per cent penal rate. It also had to earmark and increase its advertising budget to offset the government-sponsored negatives thrown on the bank.

To add insult to the most painful of injuries, there was further ministerial pressure on the bank to restrict its advertising for business.
In 1993, the BOJ refunded a part of the penalty, but only after continued representation by CNB. By that time, of course, irreparable and irreversible damage had been done. In 1993, the bank recorded its first loss in seven years - J$35 million.

Between 1993 and 1995, the BOJ bombarded the bank with audits, reviews, inspections, investigations and just a constant stream of what could be called 'subtle harassment'. Expensive audits aside, there were demands by the BOJ for the appointment of additional directors. New directors were brought on board, but still the demands for additional audits continued.
During that time, CNB bent over backwards to satisfy the demands of the BOJ and the Ministry of Finance.

In July 1995, the Ministry of Finance issued a press release calling on CNB to provide additional capital injection of J$500 million.

It is a matter of history that the several public discussions and proposed agreements were never executed, but the public manner in which the Government conducted what should have been sensitive negotiations, the time limits given to the CNB board to raise additional financing, the frequent contradictory news releases on this sensitive issue, resulted in a lack of public confidence in the affairs of the bank.
"What was a temporary liquidity problem being experienced by the banking sector generally, and CNB in particular, was so mishandled that it created panic among the depositors and resulted in a run on the bank," Crawford said.

Minister Omar Davies has been quick to point out that what some call the meltdown in the financial sector in the mid-1990s is nothing more than normal business motions where the more efficient, resourceful and imaginative will prevail, while others will flop and fail. Can he now say that Century 'failed' because Don Crawford and his partners were reckless and did not uphold sound business practises? Can Minister Davies honestly state that CNB 'failed' because Don Crawford was a madman who took a good product and brought it to ruin?
Where, in all of what has taken place with CNB in the years 1992 until recently, has there been one single instance of business impropriety on the part of CNB or Don Crawford?

They want to imprison Crawford

To date, according to Crawford, he has never seen a statement of accounts, nor has he ever been provided with details of sale on the properties which were once held by him. In one case involving a property at Runaway Bay, it is alleged that Crawford attempted to sell his half share in it to his wife.

In a letter written to the solicitor-general dated February 1, 2007 a legal representative of Crawford states: "We would place on record that the writer had no knowledge of a Mareva injunction in relation to the subject property, although a search was made at the Registrar of Titles, nor was he informed of same by Mrs Crawford. Mrs Crawford, who has been divorced from her husband for some years, states that she had no knowledge of the Mareva injunction or the cancellation of the certificate of title or of the auction in July 2006, when the property was purportedly sold.

"Your action to find Mrs Crawford in contempt of court and to commit her to prison for contempt of court is very aggressive and difficult to understand in the context of the property having been sold at auction, in July 2006.

The Mareva injunction would have had to have been varied to permit the auction of the property, and if it was not, it clearly would have been necessary to facilitate the sale. How can you ask the court to find Mrs Crawford in contempt in relation to a Mareva injunction over property that was sold in July at auction, three months before Mrs Crawford's alleged contempt? How could this property be subject to a Mareva three months before the transaction giving rise to the alleged breach of the Mareva?"

Most strange to say the least.
The subject property is situated beside the Grand Bahia 2000, and I have been informed by Crawford that it was sold through FIS for US$80,000.
According to Crawford, the property was valued at US$200,000 15 years ago. I have also been informed by real estate experts that its market value a year ago would have been in the region US$400,00 to US$500,000.

States Crawford: "With respect to the Runaway Bay property, it was well-known by the authorities that we had a written offer for US$250,000 and a further offer of US$380,000 prior to the sale to a person or persons unknown. How, therefore, was it sold for US$80,000? Who are the purchasers? It is all hush hush."
He tells me that in relation to another property situated at 122 Constant Spring Road, a market value of US$3.2 million was informally established.

The information he has is that the property was sold for US$800,000.
According to him, he has not been provided with any information relevant to the sale, including accounting or to whom it was sold.
Crawford tells me that he has been brought into a state of poverty after having worked in the banking sector since he was 18 years of age. All of his efforts in building Century National Bank and the Century Group have come to naught because of that one action in November 1992.

Should he come to Jamaica he would be immediately arrested. His mother, who is close to 90 years old, was, up until recently, being pushed out of her house. According to Omar Davies in a July 11, 2006 letter to Crawford, "The GOJ (Government of Jamaica) has already demonstrated compassion in terms of dealing with your case. Specifically, we have decided not to pursue the claim against your mother, Mrs Alma Crawford. We did not pursue a possible claim that she was not the true beneficial owner of the seven properties of which she is one of the registered proprietors. As a result, if and when these properties are sold, half of the net proceeds of the sale would be paid to your mother. The same applies to your wife Claudine, and son Donovan Jr."

Lawyers afraid to take his case

It seems all academic now, considering that Crawford has been brought to the brink of despair and poverty. But whenever a matter arises that calls for legal representation, even if he has secured someone willing to defray the legal costs, there is more than a 'feel' in Jamaica that any lawyer who deals with his case will be 'blackballed'.
Basically, Crawford has taken the position that a judge who had sat in judgment of one of his cases should not have done so because the US Supreme Court had deemed him unfit.

"Ordered that said respondent be and hereby is commanded to refrain and desist from the practise of law in any form, either as principal or agent, clerk or employee of another, and is forbidden to appear as an attorney and counsellor-at-law before any court..."

In the most recent instance (March 2007) in which he and his former wife were each ordered to pay $1.5 million or face 30 days in prison for contempt of court, the submission from the solicitor-general, Mr Hylton, referred to Crawford's disrespect for the Jamaican judiciary with respect to comments of 'bias'.
Again, it seems all academic now. Everything that has happened to Crawford and CNB seems to have hinged on that Parliamentary rebuke/reprimand in 1992.
What followed was nothing more than a horrible nightmare brought to reality.

A man who represented the very best that our business class could offer was deemed by some to be playing political games. In this terrible misjudgment, they responded. And even if Crawford was playing a political game, would he be so stupid as to have irked those in power, knowing that our political village is filled with little men having too much power at their disposal?

Again, even if he was playing politics, the system is wrong which allows government fiat a certain ease in unsettling those whom it deems unfriendly.

If someone from inside the PNP government can tell me honestly that CNB was brought to its knees by something other than that Parliamentary reprimand, I would love to hear from them.
In a February 2007 letter to the solicitor-general, Crawford states, among other things: "Mr Hylton, as I started this letter, I confessed that I am not blessed with legal knowledge, and no longer have the resources to assist family members who must rely on my support, such as my 86 year-old mother and, of course, Mrs Claudine Crawford, both of whom depend totally on my enabling, and both of whom require ongoing medical care. The brutal acts of hostile injustice, and inhumanity to them, not to mention my children and grandchildren, certainly signal a new era in the life of a nation which once embraced love, dignity and integrity.

"We shall continue to uphold the true values of life in a united way."
We elected them in 1989. The square-pegged thinkers trying to operate a round-holed economy. With words, powerful words, they have been able to issue decrees and direct the motions of those who toiled throughout the night, building their businesses, employing Jamaicans and making the country proud.

With their words they have brought flat what the doers did, what the men and women of action and resourcefulness built. And yet, they dare to pretend that they are business friendly. It is all hollow, and worse, it is all about power for the sake of holding it and feeling taller. Some do when they stand atop what others had built. But eventually it is in their nature to trample it underfoot.

Others, many others, have their stories and quite a number of them have sat with me and related their tales of horror. One man's wife shot herself to death. As I spoke to him, he cried openly. Another, who died recently, saw his impending death as release from his tribulations brought on by the madness of the PNP's monetary policy of the mid-1990s.

Another who had an outstanding loan amount of just under $1 million in the 1990s was being pressured to find over $100 million, the amount it had grown to. He had lost his house, his wife and his potency. And he was not ashamed to tell me.

That Don Crawford has not already succumbed to the unbearable pressures can only be said to be due to the true mettle of the man, his strong belief in a divine power and his added belief that while there is life, there is hope.
My heart weeps with him.

observemark@gmail.com

[Karl]

Just got awake after a 200+ mile trip I took this morning and saw the article and was about to post it when I decided to read the post under your headline first.

I would have in the post have the setting of these in the following itemized order -

This development is often overlooked by the simplistic criticism of mismatching of assets and liabilities. The fact is that Dr Davies's high interest rate policies in the 1990s created serious funding problems for the life insurance companies and it was not just mismanagement that drove Mutual Life, Life of Jamaica, Island Life and Crown Eagle into financial straits.

As minister of finance,

- never has he achieved any forecast of economic annual growth in his entire career.

- Never has Jamaica seen such deterioration in its trade balance with Caricom and the rest of the world.

- Never has Jamaica seen its national debt reached the level of 150 per cent of Gross Domestic Product.

- Never has Jamaica seen sustained fiscal deficits hovering around 5 per cent of Gross Domestic Product.

- Never has Jamaica seen such levels of devaluations.

- Never has Jamaica seen such a deterioration in outflow of investment income abetted by profits to overseas interests from the fire sale of the domestic banks and life insurance companies.

- Never has Jamaica seen such a widespread collapse of businesses from every industry.

- Never has Jamaica seen such widespread obliteration of entrepreneurs.

All of these negative results of failed financial policies must be blamed on the lack of understanding by Dr Davies of how the economy works and what must be done to achieve economic progress. Any careful assessment of what happened under Dr Davies's watch must lead to the conclusion that there was no sound theoretical economic model to support his unrelentless preoccupation with building up net international reserves as the cornerstone of policy.

Aside: I must admit that anytime a manager/leaders institute policies which causes those who where targeted as the followers to not follow...matters not the whys are wherefores...the mangers/the leaders have failed.

The monied classes said their piece. Omar Davies, in response, has said his piece. Paul Chen-Young follows and while admitting bad managment practises within the financial sector lays greater blame at Omar Davies' feet.

There is no escaping that within the exact same climate spoken of by those members of the monied class who gathered to make nice to each other and by Dr. Paul Chen-Young, a very many financial institutions weathered the storm and along with a very many new financial institutions that have since come on stream made tremendous profits...have become financial successes...and have done well for the many who entrusted their savings and investments to them.

Whatever were the intentions of Omar Davies - saving the 'financial sector'/saving the people's money...or, clearing the way for a new dispensation - Paul Cchen-Young is correct history shall be the final arbiter.

[Karl]

That 'bad taste of Finsac' - Squaring all the facts
published: Sunday | August 5, 2007


Wilberne Persaud, Columnist

In my book Jamaica Meltdown: Indigenous Financial Sector Crash 1996, I argued that opinion on the nature and efficacy of Finsac is often coloured by political affiliation.
I should add that it is also coloured by the extent to which - like Paul Chen Young in his book of blame to government policy - one stays in denial, avoiding owning up to mistakes and taking responsibility.

That was true then; it is true now. But the Business Observer report 'Bad taste of Finsac still lingers' takes incompetence to another level.

Mr. Stewart, who hosted a luncheon for "corporate players", argued that "Government used Finsac to gag" and that the Government "was promoting Finsac as the saviour of the nation. Out there, the propaganda from the Government was so powerful that the larger community thought this was the only way forward."

Let me declare interest: I served as board member and chaired FINSAC-intervened entities. I assisted in policy determination. I am non-partisan politically, and not organically connected.

A former student once said to me: "Mr. P, your problem is that you won't pick a side; in Jamaica you haffi pick a side, man."

Well, I picked a side, decades ago. That side is Jamaica and the Caribbean. I am a Caribbean nationalist and anti-colonialist. That said, even if disbelieved, I now continue.

Propaganda and spin
Mr. Stewart is in a unique position to discuss propaganda - to quote late American journalist Abbott Joseph Liebling, "Freedom of the press belongs to those who own it."
He owns a piece of the press and uses it for promotion. It is, of course, his right so to do. Recently, my reading of his newspaper suggests he has taken on another dimension. Instead of publicly endorsing the JLP to take office, he is apparently using his newspaper to attack the PNP.

He is free to do all this, but it is a bit unfair.

The practice in our admired neighbour to the north is endorsement. Mr. Stewart should endorse Mr. Golding and the JLP.

Are journalists in Jamaica unfree? Apart from a very few, whom one can perhaps count on the fingers, they are, because there is literally no competition. Their training has generally been substandard; their pay rates low, their perception of their role unclear.

They operate in a society in which the barely competent, the journeyman, is hailed as genius; the mundane elevated to electrifying. It may be that small societies are consumed by need to establish importance. Regardless, we have a problem.
Serious, far-reaching, reputation-busting claims made are reported in the mode of press release.

Godfrey Dyer, former Jamaica Hotel and Tourist Association president and north coast hotelier, claims he would be begging in the streets were it not for the courts.

Patrick Lynch, Sandals Group finance director, declares: "We had a banking crisis which was mis-managed ... the problem could have been handled in a way that would have been less devastating. It had the unfortunate effect of demonising some of the indigenous bankers who are now living overseas, and are treated like thieves when they are not all crooks."

Banking crisis myth
Jamaica had no banking crisis. Bank of Nova Scotia and other foreign banks managed not to achieve bankcruptcy. We had an indigenous financial sector crash - insurance companies, commercial and merchant banks, building societies and investment houses - permitted by lax legislation and policy, fuelled by greed, market euphoria, incompetence and in cases actual fraud as found by the courts.

All but one of our high-profile indigenous financial sector operations, First Life, went bankrupt. It took more than J$19 billion to rescue National Commercial Bank depositors - most of its loan portfolio went sour like rancid limes dropped off the tree. Mutual Life Assurance Society bled more than J$1 million daily.

Mr. Stewart's business benefited from FINSAC through lease and purchase of former Ciboney Hotel - anyone with a modicum of commercial exposure knows by the nature of the sale and parties to the transaction this would have to be a good deal for Sandals - lose a competitor, gain a collaborator.

Mr. Dyer may have avoided begging in the streets courtesy of the courts, I couldn't say, but he did benefit from Finsac debt forgiveness. Same Finsac he would now vilify.

All I have said above is readily available in the public domain - not secret in FINSAC archives.

wilbe65@yahoo.com

[Muadib]

Just got awake after a 200+ mile trip I took this morning and saw the article and was about to post it when I decided to read the post under your headline first.

I would have in the post have the setting of these in the following itemized order -

This development is often overlooked by the simplistic criticism of mismatching of assets and liabilities. The fact is that Dr Davies's high interest rate policies in the 1990s created serious funding problems for the life insurance companies and it was not just mismanagement that drove Mutual Life, Life of Jamaica, Island Life and Crown Eagle into financial straits.

As minister of finance,

- never has he achieved any forecast of economic annual growth in his entire career.

- Never has Jamaica seen such deterioration in its trade balance with Caricom and the rest of the world.

- Never has Jamaica seen its national debt reached the level of 150 per cent of Gross Domestic Product.

- Never has Jamaica seen sustained fiscal deficits hovering around 5 per cent of Gross Domestic Product.

- Never has Jamaica seen such levels of devaluations.

- Never has Jamaica seen such a deterioration in outflow of investment income abetted by profits to overseas interests from the fire sale of the domestic banks and life insurance companies.

- Never has Jamaica seen such a widespread collapse of businesses from every industry.

- Never has Jamaica seen such widespread obliteration of entrepreneurs.

All of these negative results of failed financial policies must be blamed on the lack of understanding by Dr Davies of how the economy works and what must be done to achieve economic progress. Any careful assessment of what happened under Dr Davies's watch must lead to the conclusion that there was no sound theoretical economic model to support his unrelentless preoccupation with building up net international reserves as the cornerstone of policy.

Aside: I must admit that anytime a manager/leaders institute policies which causes those who where targeted as the followers to not follow...matters not the whys are wherefores...the mangers/the leaders have failed.

The monied classes said their piece. Omar Davies, in response, has said his piece. Paul Chen-Young follows and while admitting bad managment practises within the financial sector lays greater blame at Omar Davies' feet.

There is no escaping that within the exact same climate spoken of by those members of the monied class who gathered to make nice to each other and by Dr. Paul Chen-Young, a very many financial institutions weathered the storm and along with a very many new financial institutions that have since come on stream made tremendous profits...have become financial successes...and have done well for the many who entrusted their savings and investments to them.

Whatever were the intentions of Omar Davies - saving the 'financial sector'/saving the people's money...or, clearing the way for a new dispensation - Paul Cchen-Young is correct history shall be the final arbiter.

What productive activities have these many 'successful' companies been involved in ?

What entrepenuerial activities ?

Could you be referring to institutions trading in Govt Paper ?

Please describe these MANY financial institutions that weathered the storm and made tremendous profits....

Start off with a listing and lets take it from there..

[Karl]

Why do you not make a list of those financial institutions that were around before that time and are still operating?

From that list select those that are failing?

[Willi]

Why do you not make a list of those financial institutions that were around before that time and are still operating?

From that list select those that are failing?

MultiNats like Scotia and CitiBank dont count. They have deep pockets and can call resources from Head Office to weather most any storm. Besides, where do the profits get repatriated to?

Govt policy encouraged many fly by nights to come up. They encouraged the overblown stockmarket in 1992 with reckless monetary policy chasing after the carrot of US$400m in debt forgiveness by the Americans. In the end, they got about $280m forgiven, but had a wrecked financial infrastructure.

[Mosiah]

Willi, I seem to remember even a company like Xerox Ja getting into the real estate business. Of course, it was not a successful venture. Perhaps a better economy would have supported such ill-advised ventures, but what about the idea of sticking to your core business? Photocopying and real estate - maybe not the greatest mix.

The point is, I think many companies got into some businesses that they had no business getting into. They cannot blame the govt. for that. Even in a sound economy, it would not have been wise for them to stray as they did.

[Willi]

Yes you can Mo.

The monetary policy of the day encouraged such foolishness. The role of the Central Bank is to nip that crap in the bud. I was working in the capital market at the time. it was a complete casino type of situation.

Knowledable people knew and predicted the eventual outcome. What kind of Govt sits back and allows that without some heavy intervention???

Omar is a dilettante and Portia should have dropped him like a hot potato, but she did fraid.

[MdmeX]

Mr. Crawford get HELL!! What kind a conscience some of these people have?

[Assasin]

While I can understand somewhat you are saying but look at all the big companies like GE, Phillip Morris, even Grace Kennedy and Butch Stewart, Even Bearn Sterns and others. Them tell you have to diversify and put some in real estate and other financials. Some however didn't take the proper care but imagine if you building a house when is 5-1 and suddenly there is a devaluation to 22-1, wouldn't your cost for building the house explode? If you were borrowing at 15% interest rate and it suddenly went up to 30% is either you stop build or force yourself inna more debt.

The government have to take a lot of the blame still. Plus the lack of proper regulations some that didn't go in place until after the crash. That can be blamed on the government before also.

[MdmeX]

Willi, I seem to remember even a company like Xerox Ja getting into the real estate business. Of course, it was not a successful venture. Perhaps a better economy would have supported such ill-advised ventures, but what about the idea of sticking to your core business? Photocopying and real estate - maybe not the greatest mix.

The point is, I think many companies got into some businesses that they had no business getting into. They cannot blame the govt. for that. Even in a sound economy, it would not have been wise for them to stray as they did.

I recall that at one point Xerox participated in the Financial industry as they owned an Insurance company - Constitution Reinsurance

[Willi]

Do you guys remember how crazy the early 1990s were?

I worked in the epicentre of it and the experience then taught me that the dot.com bubble in the US was based the same recklessness.

Easy money, ie reckless credit expansion is a hell of a thing. That is why the US housing bubble, which is just the evolution of the dot.com bubble, again the evolution of the underlying credit bubble makes me real scared for the future. We have managed to avoid the worst so far, but the underbelly not so pretty as the surface.

[Assasin]

Xerox core business has changed as they concentrate on selling laser printers becuase of the downturn in their former core business as copiers and printer became cheaper.

Look at Sears, they have a big real estate holding company. What is Butch Stewart core business? Suppose Issa never changed their core business?