Schadenfreude (IPA: [ˈʃaːdənˌfʁɔʏ̯də] Audio (German) (help·info)) is pleasure taken from observing the misery of another. The word referring to this emotion has been borrowed from German by the English language.
It is really unfortunate how this phrase can be seen here in Kuwait; it seems that wherever you go you meet people who are talking about the fall of Global Investment House and it is evident that some if not most people are pleased to see it all collapse. I kept wondering what’s the reason behind that, is it because Global is the leading investment house in the region? Or is it because its represented by a woman, Mrs. Maha Al Ghunaim? Or is it because of its’ aggressive trading techniques? Each has his own reasons to loathe, but I realized that most don’t know the impact of the fall of Global on the market and Kuwait’s economy as a whole.
The whole reason that triggered the crisis is excess leverage against bad assets that eroded the book value of those companies. The size of Global doesn’t help it from being isolated as many local and international firms and individuals are exposed to it.
Lets take the case where Global goes bankrupt and gets liquidated; shareholders will be affect by the decrease of their portfolios, and will be more damaged if they have their portfolios as a collateral on their loans as the case of many individuals and companies. Many companies that are owned by Global will have a huge decrease in their stock price due to the vast selling in the market with the low volume of trade and if they own treasury shares their book value will be eroded. Global with a bad debt of KD800 million (I don’t have the breakup of the loan but I’m sure many Kuwaiti banks are exposed to this debt) will defiantly affect the banks which are the heart of the economy. Many of the banks’ loan portfolios will be impaired and thus taking it from the book value as well. As you can see if Global goes down it will bring more firms and people down with it. So if your satisfaction is fed by Schadenfreude then think twice as you might be harmed as well.
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Greetings from Vienna,
If the global financial crises teach us anything, that is, no one is too big to fall. I think it is normal for some people to talk about the fall of Global or any other fast growing, succesful company facing problems. This was brought up by the companies themselves! We easily forget about how these companies used the media extensively to reach the masses and often portray themselves as public figures or politicians!
There are always valuable lessons to be learnt from these episodes for shareholders, investors and market watchers. let us hope that people shall learn and remember this time around.
Guten Tag,
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I sure hope so too that people learn from these mistakes. Many small investors who follow the rumors instead the fundamentals should now think twice about investing directly into the market rather than put their money in mutual funds.
Yeah I agree that its normal for people to talk about the fall of any company; we’re all doing it, but I’m talking about the people who gloat and not realizing they’re gonna be affected. BUT if your not affected then gloat all you want and watch them all burn
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Personally, I consider myself to be emotionally agnostic when it comes to the survival/failure of any company. Only fundamentals speak to me.
So Oikonomia, is KD800 million TOO BIG to fail considering that the profits of NBK alone where KD255.3M in 2008? Is Global too big to fail if the government is naively spending KD1.5B to shore up the Kuwait Stock Exchange? Lets assume Global permanently default and goes under, so what? The banks which gave them loans are hurt? They can take it! Especially considering that a big chunk of the outstanding loans is to international banks. KD800M is simply NOT that big considering the money the government is spending on its bailout plans. Banks worldwide have written-down more than $1 Trillion! Why can’t we write-down KD800M?
EVEN if the Global was too big to fail, isn’t it about time we set a precedent in Kuwait that the government isn’t always coming to the rescue? Think of all the potentially risky future investments that will not be prevented! Think of the line of companies queuing up to claim their prize of the government bailout money. Not only that, but think of the private individual debt-holders asking to be forgone.
Kuwait has the perfect opportunity to STOP the EVER-increasing cancerous MORAL HAZARD. The US did it with Lehman, why can’t we?
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And you suggest Kuwait should for once let the invisible hand do its magic; in that I agree with Keynesian. However, dont you think that deregulation is what led us to this?
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Again, our friend Ra’ad said that if there is anything we learned in this crises is that nothing is too big to fail and I completely agree with him, we saw not only major institutions going bankrupt and defaulting, but we saw counties as a whole defaulting; so for sure Global isn’t immune nor it’s too big to fail.
Moreover, although banks are making huge profits relative to the 800mil owed by Global, you should know that Global is only the first in line aside by Al Dar, I’m sure we’re gonna see more companies, financial and non-financial going bust and it will have a huge effect on the banks. Banks in Kuwait don’t have a good loan portfolios, most of their customers are investment companies, real estate companies, non-financials who are highly exposed to the market, and the owners of those companies.. unlike other countries in the region Kuwait doesn’t have much industry and most of the business here is financial. And here Im only talking about their loan portfolios and not speaking of their investments which might also put the bank in trouble as it did to Gulf Bank, so in my opinion i don’t think the banks are safe.
And Keynesian, I agree with you and I don’t want people to depend on the government to bail them out of everything but this time I think the government should intervene to prevent what seems to be a gloomier future.
Back to the point; I’m not defending Global but all I’m saying is that people should be more aware of the size of the crises and don’t expect it will all end with only one company down.
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Sal,
Keynesians believe that when the invisible hand is “invisible” we should be spending our way out of a recession. Further, I totally agree with your point that the lack of regulations is one of the main culprits of this crisis.
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Dear Gents, I’ve enjoyed your deliberations. I believe we managed to draw the line between emotions and logic!
Keynesian, keep up the good work.
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Ra’ad,
Welcome to your blog. This and the other posts would’ve been an arid perspective without your/your fellow open-minded intellectual comments. Keep up the interaction!
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I am also agnostic when it comes to the survival/failure of any company but I think in times like these the government should take extreme measures and nationalize/bailout certain companies and let others fail. You brought Global as an example, Global is one of the best companies in the region but it was pulled by the tides of the assets revaluations and hence made it on the verge of bankruptcy. I do think that some local companies have a really big potential of being one of the best companies in the world if given a second chance.
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KSEtrader, you nationalize or bailout with the aim of saving the situation NOT by keeping the old guard of management and board members. You don’t give managers a second chance with manageing other peoples money. The issue here is trust.
The crisis proved that CBK can not perform the regulatory process alone on public companies, neither can the Chamber of Commerce, we need an independent regulatory authority if we want to have a vibrant and serious stock exchange and capital market in Kuwait.
In this business, you are only as a good as your last result/achievement not, what you may be able to do next.
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KSETrader,
I second Ra’ad.
A vital point to bear in mind is that SAVING an institution or bailing it out ISN’T equal to REWARDING stockholders. The US bailed out Freddie Mac and Fannie May which may have helped the economy, but it definately punished equity holders (both stocks are trading at $0.47 cents from a 52-week high of approximately $35.00).
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Yes for sure the government wont give out free money that will encourage others to screw up.. the govenment should should take equity stake and dilute previous shareholder, and then they should investigate in case by case whether the managment should be changed or not
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I can only totally agree with u KSEtrader!
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Case by case, sounds difficult. When government takes control of the board, they must act proactively by appointing new management.
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Ra’ad read the older posts
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