From Volume 37, Issue 23 of EIR Online, Published June 11, 2010

Global Economic News

Hedge Fund Post Their Biggest Losses Since Lehman Collapse

June 1 (EIRNS)—Hedge funds have posted their biggest monthly losses since the Lehman Brothers collapse in the Fall of 2008. Funds lost an average 2.7%, and some, like Paulson's Advantage Fund, have lost as much as 6.9% or even, in the case of Bacon's Moore Global, 7.7%. This, compared with the 3% average loss during the Lehman collapse. Bloomberg reported that "almost every strategy lost money in May, according to Hedge Fund Research Inc."

Meanwhile a study done by Guillermo Baquero, of the Berlin-based European School of Management and Technology, showed that hedge funds "pose a serious risk to investors and the financial system." Baquero noted that hedge funds never reveal the level of risk that they take, which they call investment "styles," but only reveal their performance. (You trust them, right?)

"We have a twofold issue here: whether investors' naivety is leaving them overly exposed to risk they are not properly evaluating, and whether the growth of the hedge fund industry, combined with that naivety means the sector poses a threat to financial stability," Baquero is quoted as saying in today's London Daily Telegraph. "We should not be scared to tighten the regulatory screw on the hedge fund industry and for considerably great disclosure. Now is the time to discuss deep, substantial and effective regulation."

China: Economic Collapse Continues; Postpones Implementing CDSs

May 31 (EIRNS)—Chinese Premier Wen Jiabao warned today that the world must stay alert to the risk of relapsing into economic crisis as Europe's problems continue. "Some people argue that the global economy has already recovered and that we can now take stimulus exit measures, but I think that judgment is too early," Wen said in a speech to business leaders in Tokyo. "We need to prepare for (future) difficulty. The debt crisis in some European countries may impede Europe's economic recovery and bring change to European markets," he said. "China will make sure it maintains a sense of crisis," he added.

In line with this thinking, China has postponed a plan to introduce credit default swaps (CDSs) to its domestic market, after regulators objected and senior officials vetoed the proposal.

The plan to launch a CDS pilot project in China had initially gained support from the central bank. But other regulators opposed the plan amid growing international concerns about the impact of derivatives after Germany banned naked short selling in some securities.

Chinese Workers in Coastal Export Zones Win Big Raises

June 2 (EIRNS)—The discontent in China's Coastal Export manufacturing and assembly zones became clear early this year when many migrant workers who had gone to their native villages over Spring Festival (Chinese New Year) did not return to take up their old jobs or similar positions, even though the worst of the 2008-09 production slowdown in China was over. This year there were jobs, the same old jobs with low wages and working conditions, but at the same time, the government's massive push for infrastructure investment, especially in the country's interior, meant there were alternatives.

Now, a season later, a string of suicides at Foxconn, the Taiwanese contractor on the mainland for Apple's iPad and other name electronic gadgets, and a strike against Honda that closed all of the carmaker's China production, has started some big changes.

Honda, which had been unable to settle the strike with a 20% wage increase, announced on June 2 that it had resolved the strike by agreeing to give 1,900 Chinese workers a 24% pay raise. Then Foxconn said on the same day that it would immediately raise the salaries of many of its Chinese workers by 33%, only to raise it a further 66% on June 7—a total raise of 122%.

Local governments in the region are also responding to demands to deal with the low wage rates, as Guangzhou increased its minimum wage by 20%, and Shenzhen by 10%. The official news agency Xinhua reported today, "Analysts at the All-China Federation of Labor in Beijing said recent labor disputes indicated that it was vital to increase wages and adopt better working conditions for laborers."

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