If there were any residual hope of returning to the very far from ideal way that the world economy operated prior to the pandemic outbreak in Q1 2020, that hope should now have been completely expunged. As previously noted, financial markets’ reaction function has been so dulled by a decade of central bank ‘largesse to excess’, as well as conditioned (as per Pavlov) to respond in ways, which may well prove to be a case of ‘being hoist by one’s own petard’. But we are now being confronted with the reality of having to reconsider the concept of ‘safe assets’. If everything can be weaponized, as would appear now to be the case: e.g. food, energy and raw materials supplies; and sanctions and asset seizures are not just reserved for the worst form of criminals (be that rogue states, terrorists or murderers; people, drug or weapons traffickers), then there is in principle no such thing as a ‘safe asset’, and the underlying idea of free capital flows (which has long been an illusion) are exposed as a myth on which the world can no longer dine out.
As with so much of the fall-out from the pandemic and other recent events, this is not so much a ‘turning point’ for the global economy, but rather more a ‘fast tracking’ of nascent if not already extant trends. While some may disagree with this, the 2017 moves by Saudi Crown Prince Mohammed bin Salman which forced the country’s richest people to hand over some of their personal fortunes to the state as part of an “anticorruption campaign” can be construed as an earlier example of asset seizure. Naturally it was perceived to be a one-off event in a country whose political and economic ‘modus operandi’ is clearly different to those in Europe and North America, just as prior examples of asset seizure in emerging economies in Africa, Asia and Latin America were also seen as relatively unique events in unstable environments, which would not happen, or at least would be highly unlikely to
happen in the western world. For clarity’s sake, this is not to say that the ethical and moral rationale that underpinned the political decision to impose these measures on Russia are wrong, but rather to make the point that if such ‘unprecedented’ measures can be undertaken, then any definition of ‘risk free’ or ‘safe’ assets has to take this into account.
Seen from the perspective of financial sector regulations that cover KYC (Know Your Client) in respect of sources of wealth, above all in regards to sanctions protection, money laundering, fraud and financing of terrorism and illicit drugs trade, one might argue that this is already very much in the mainstream. However the point is that all of this behoves risk, legal and compliance departments to be even more meticulous in conducting checks on all transactions, per se slowing up the process. In some cases, this may result in freezing assets temporarily, while due diligence checks are carried out, or in other cases seeing approval for a transaction, or for the financing thereof, blocked, because the ‘paper trail’ is potentially too long, either in time or cost terms, or both. To be sure there will also be always be institutions who will see an opportunity to take this business from a more risk averse competitor, but in doing so demanding higher premiums for such a transaction, in order to account for the extra time, cost and risks.
AS WITH SO MUCH OF THE FALL- OUT FROM THE PANDEMIC AND OTHER RECENT EVENTS, THIS IS NOT SO MUCH A ‘TURNING POINT’ FOR THE GLOBAL ECONOMY...
20 | ADMISI - The Ghost In The Machine | Q1 Edition 2022
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32
