Global economic crisis hits German sex industry

By Erik Kirschbaum

http://www.reuters.com/news/pictures/rpSlideshows?articleId=USRTXE7QN#a=1

BERLIN (Reuters) - It did not take long for the world financial crisis to affect the world's oldest profession in Germany.

In one of the few countries where prostitution is legal, and unusually transparent, the industry has responded with an economic stimulus package of its own: modern marketing tools, rebates and gimmicks to boost falling demand.

Some brothels have cut prices or added free promotions while others have introduced all-inclusive flat-rate fees. Free shuttle buses, discounts for seniors and taxi drivers, as well as "day passes" are among marketing strategies designed to keep business going.

"Times are tough for us too," said Karin Ahrens, who manages the "Yes, Sir" brothel in Hanover. She told Reuters revenue had dropped by 30 percent at her establishment while turnover had fallen by as much as 50 percent at other clubs.

"We're definitely feeling the crisis. Clients are being tight with their money. They're afraid. You can't charge for the extras any more and there is pressure to cut prices. Everyone wants a deal. Special promotions are essential these days."

Germany has about 400,000 professional prostitutes. Official figures do not distinguish between the sexes and the number of male prostitutes is not known, but they account for a small fraction of the total and are treated the same under the law.

In 2002, new legislation allowed prostitutes to advertise and to enter into formal labor contracts. It opened the way for them to obtain health insurance, previously refused if they listed their true profession.

Annual revenues are about 14 billion euros ($18 billion), according to an estimate by the Verdi services union. Taxes on prostitution are an important source of income for some cities.

Prostitution is also legal and regulated in the Netherlands, Austria, Switzerland, Hungary, Greece, Turkey and in some parts of Australia, and the U.S. state of Nevada.

In other countries, such as Luxembourg, Latvia, Denmark, Belgium and Finland, it is legal but brothels and pimping are not.

"CREATIVE SOLUTIONS"

Berlin's "Pussy Club" has attracted media attention with its headline-grabbing "flat rate" -- a 70-euro admission charge for unlimited food, drink and sex between 10 a.m. and 4 p.m.

"You've got to come up with creative solutions these days," said club manager Stefan, who requested his surname not be published. "We're feeling the economic crisis, too, even though business has fortunately been more or less okay for us so far.

"Our offer might sound like it's too good to be true, but it's real. You can eat as much as you want, drink as much as you want and have as much sex as you want."

Stefan, who runs other establishments in Heidelberg and Wuppertal besides the Berlin club, said the flat rate had helped keep the 30 women working in each location fully employed.

Other novel ideas used by brothels and prostitutes include loyalty cards, group sex parties and rebates for golf players. Hamburg's "GeizHaus" is especially proud of its discount 38.50 euro price. The city has Germany's most famous red-light district, the Reeperbahn, in the notorious St. Pauli district.

Anke Christiansen, manager of the "GeizHaus," said the effects of the economic crisis were clear. "The regular customers who used to come by two or three times a week are only coming by once or twice a week now."

A "GeizHaus" client, who gave his name as Pascal, said: "Naturally we're all feeling the effects of the crisis." He added that he could no longer afford his usual two or three visits a week.

Guenter Krull, manager of the "FKK Villa" in Hanover, concurred. "The girls are complaining, too, because business is bad and I worry that it's all going to get even worse.

CONTINGENCY PLANS

Ecki Krumeich, manager of upmarket Artemis Club in Berlin, said he resisted pressure to cut prices, although senior citizens and taxi drivers get a 50-percent discount on the 80-euro admission fee on Sundays and Mondays.

"Naturally, we're keeping an eye on the overall economic situation and making contingency plans," said Krumeich, who said his "wellness club" is one of the largest in Europe with about 70 prostitutes.

"Our philosophy is: we provide an important service and even in a recession there are some things people won't do without. Other downmarket places might cut prices but we decided we won't do that. In fact, we raised prices by 10 euros in January."

Stephanie Klee, a prostitute in Berlin and former leader of the German association of sex workers, said even if a few luxury brothels were weathering the storm because of their wealthy regular clientele, many were struggling.

"Just about everyone's turning to advertising in one form or another," she said. "If the consumer electronics shop and the optician come out with rebates and special promotions, why shouldn't we try the same thing?"

While she and her colleagues might have had five or six clients per day a year ago that had fallen to one or even none.

Klee worries, however, that the crisis has led to "price dumping" in some cities -- fees have fallen as low as 30 euros in some parts of Berlin and elsewhere, she said.

"You'll find a lot of customers trying to negotiate prices down now," said Klee. "A 30-year-old came up to me and said 'I lost my job so will you give me a discount?'."

She and others said they were alarmed that amateur prostitutes -- mostly women with low-paid careers -- were increasingly turning to prostitution to make ends meet.

"More and more women are moonlighting on the weekends," said Ahrens. "They're not able to get by with their main job and are in pretty dire straights. For some it works out okay but it's tough for some others and they often don't stay very long.

In Japan, even mobsters bite the recession bullet

TOKYO (AFP) — They made their money with sex, drugs and gambling but then invested much of it in high finance. Now Japan's yakuza have their back to the wall as the economic crisis takes aim.

Just like the legitimate businesses they have muscled into, Japan's mafia are being squeezed by the steepest economic downturn in decades, and as profits have plunged, management has been thinning out the ranks.

One of the victims of the downturn is Taro Hiramatsu, a heavily tattooed retired gangster in his 50s who said he never felt all that comfortable with the underworld's new high-flying ways to begin with.

"The yakuza have been hit by the financial crisis because they?ve invested in the stock market among other things," said Hiramatsu, the number two of his crime gang until he was unceremoniously kicked out last year.

"For yakuza today, money buys everything, including senior positions," Hiramatsu -- not his real name -- told AFP in a recent interview, his intricately inked arms crossed defiantly over a potbelly.

"In the past, your rank was decided on courage and the sacrifices you made to the group, including being ready to give up your life," he said.

His own career as a gangster hit the skids, he said, when the cash dried up and he could no longer pay his 30,000-dollar monthly dues to the syndicate.

About one third of mid-level chiefs in his crime group, he said, have lost their jobs over the past year, many fleeced of their possessions with only their group insignia tattooed indelibly on their chests.

"Organizations are taking this economic downturn as an opportunity to sort of prune the ranks for the first time in years," said Jake Adelstein, a former Yomiuri Shimbun daily crime reporter and yakuza expert.

"It?s unheard of, the sort of numbers of yakuza who are being laid off."

Hiramatsu now works as a truck driver and, in his spare time, is learning to use computers and play the guitar -- despite a missing pinky he chopped off years ago with a kitchen knife to atone for a sin he prefers not to discuss.

Hiramatsu is proudly old-school. His broad tatooed back features a samurai warrior clasping a knife between his teeth beneath a rippling black cod. His arms are laced with sakura cherry flowers, an ancient symbol of Japan.

Sitting cross-legged in a Tokyo house, he says he doesn't have much time for the new generation of mobsters who have traded the mean streets for the corporate boardrooms, and their nine-milimetre automatics for the Nikkei-225.

In a year when exports and share prices have halved in the world's second-biggest economy and corporate giants have plunged into the red, he reckons it may be time for gangsters to dust off their ancient code of ethics.

"I think that a majority of yakuza are reflecting on whether throwing away traditional for capitalist-style values was the best thing to do," said Hiramatsu, musing on the modern ways of his centuries-old brotherhood.

"Bushido, the yakuza's samurai spirit, is disappearing. The disappearance of those values is not only bad for yakuza but for Japan as a whole."

The yakuza, who trace their roots to samurai gone astray during the 17th-century Edo period, traditionally relied on gambling, prostitution, loan-sharking and protection rackets as their bread and butter.

They have operated relatively openly, entertaining close ties with politicians and lobby groups, while police have tolerated their existence as long as they have stayed on their turf and kept down street crime.

Although police will at times go after their members, Yakuza groups themselves are not illegal. They openly operate from large headquarters, and their exploits draw large followings in manga cartoons and fanzines.

Today Japanese organised crime counts about 82,600 members, according to the National Police Agency -- nearly half of them with the huge Kobe-based Yamaguchi-gumi, sometimes dubbed the "Wal-Mart of crime syndicates".

Thing started to change in 1992 as Japan enforced new laws cracking down on their fiefdoms, crucially holding the black-suited crime bosses liable for offences committed by their foot soldiers.

The yakuza turned to white-collar crime such as money laundering, deposit fraud, cybercrime and extorting huge sums from blue-chip companies by threatening to show up at their shareholder meetings.

Profits were reinvested in stocks, construction and real estate, but also new sectors like entertainment and media, or squirreled away in offshore accounts, say experts who have studied Japanese organised crime.

As Japan relaxed financial regulations after the asset price bubble burst in the early 1990s, plunging the country into recession, the yakuza set up a host of front companies.
Adelstein said some gangs now resemble legitimate corporate giants.

"People think of the yakuza as wielding swords and having tattoos and missing fingers," he said. "What you should be thinking of the modern-day yakuza is Goldman Sachs with guns."

The yakuza collectively became Japan's largest private equity investors, with a cashflow that allows them to "do whatever they want," said Adelstein, who estimates their income at tens of billions of dollars.

"They are very good at gambling, and the Japanese stock market especially is like a huge casino," he said.

"They have their own securities and auditing firms, their own money to come in and invest. And they're going to win every time."

Tomohiko Suzuki, an author and a former reporter for a yakuza magazine, said around 50 front companies of various crime syndicates are listed on the Japanese stock market and the New York-based Nasdaq.

About 1,000 unlisted front companies have also been identified by police in Tokyo alone as the yakuza have moved into everything from funeral and marriage services to talent agencies, according to Suzuki.

Even management books have been written for the yakuza, including one by the former head of the Yamaguchi-gumi, who is now in jail.

"It?s a lot like any management book you would read by the head of General Motors, except he makes some interesting observations," said Adelstein. "Like, 'the reason we are the most powerful crime organization is, we are the most violent'."

For his part, ex-mobster Hiramatsu doesn't entirely regret closing the door on his past.
"I am nostalgic for the old days," he said, "but I also have a distaste for it. I don?t think I?m suited for the new type of yakuza anyway."

S&P's price to 10-year average earnings (P/E10)

Historic Price-to-Earnings (P/E) ratio using reported earnings (as opposed to earnings estimates), that for "earnings" part can be found on Standard & Poor's website, where the latest earnings are posted on the earnings page.

The number we want is the sum of the reported earnings for the previous four quarters. Since the first quarter of 2009 earnings aren't available, we'll use the Q4 2008 earnings, which, subject to revision, is $14.97 per share (as of March 31). Thus the 2008 year-end P/E ratio for the S&P 500 is the December closing price of 903.25 divided by 14.97, which gives us the stunning P/E ratio of 60.3 — the highest in the history of the S&P Composite since 1871.

The average P/E over this timeframe is only 15. In fact, at the top of the Tech Bubble in 2000, the conventional P/E ratio was a mere 30. It peaked north of 47 two years after the market topped out.


If we calculate earnings based on Standard & Poor's earnings estimate for the first quarter (again, as of March 31), the number drops to $8.18. That gives us a P/E at yesterday's close of 102.

As these examples illustrate, in times of critical importance, the conventional P/E ratio often lags the index to the point of being useless as a value indicator. "Why the lag?" you may wonder. "How can the P/E be at a record high after the price has fallen so far?" The explanation is simple. Earnings fell far faster. In fact, Q4 earnings were negative — something that has never happened before in the history of the S&P Composite.

The P/E10 RatioLegendary economist and value investor Benjamin Graham noticed the same bizarre P/E behavior during the Roaring Twenties and subsequent market crash. Graham collaborated with David Dodd to devise a more accurate way to calculate the market's value, which they discussed in their 1934 classic book, Security Analysis. They attributed the illogical P/E ratios to temporary and sometimes extreme fluctuations in the business cycle. Their solution was to divide the price by the 10-year average of earnings, which we'll call the P/E10. In recent years, Yale professor Robert Shiller, the author of Irrational Exuberance, has reintroduced the P/E10 to a wider audience of investors. As the accompanying chart illustrates, this ratio closely tracks the real (inflation-adjusted) price of the S&P Composite.

With this method, the historic P/E average is 16.3, with a March monthly average P/E10 of 13.5 and a monthly close at P/E10 of 14.2. The ratio in this chart is doubly smoothed (10-year average of earnings and monthly averages of daily closing prices). Thus the fluctuations during the month aren't especially relevant (e.g., the difference between the March average and closing P/E10).

Of course, the historic P/E10 has never flat-lined on the average. On the contrary, over the long haul it swings dramatically between the over- and under-valued ranges. If we look at the major peaks and troughs in the P/E10, we see that the high during the Tech Bubble was the all-time high of 44 in December 1999. The 1929 high of 32 comes in at a distant second. The secular bottoms in 1921, 1932, 1942 and 1982 saw P/E10 ratios in the single digits.

On HSBC

CLSA highlighted some numbers on HSBC ....

US, UK businesses. HSBC has US$272bn in loans in the US and US$313bn in loans in the UK, accounting for 62% of total loans. This compares with US$94bn in capital as of December 2008. It is worth remembering that the bank has US$64bn in commercial real-estate and construction loans in the US and UK combined, or 65% of its equity base today where writedowns are likely.


In the US book, it is worth reiterating that half is subprime lending, with average delinquency rates of 22% and all other at 5%. We should also caution that HSBC’s US credit-card loans amount to US$19bn, which grew 24% during the go-go years 2005-07 and where industry data are worsening fast here. Winding down HSBC Finance.


HSBC announced that it will stop writing new business for its consumer lending at HSBC Finance, where it had US$62bn in outstanding loans as of 2008. Where these loans are held for sale, we expect some writedowns. CEO Michael Geoghegan said in a recent conference call that ‘US credit-card unit faces a “difficult” two years as the economy deteriorates’.

With worsening economics in the US, this is likely to lead to significant losses and HSBC Finance may need support from its parent. A quote from Page 66 of the group’s annual report, ‘Based on management’s forecasts, HSBC expects to provide capital support to its US operations in each of the next three years’.

大龍鳳

Bailed-out banks eye toxic asset buys

By Francesco Guerrera in New York and Krishna Guha in Washington
Published: April 2 2009 23:20 Last updated: April 2 2009 23:57

US banks that have received government aid, including Citigroup, Goldman Sachs, Morgan Stanley and JPMorgan Chase, are considering buying toxic assets to be sold by rivals under the Treasury’s $1,000bn (£680bn) plan to revive the financial system.

The plans proved controversial, with critics charging that the government’s public-private partnership - which provide generous loans to investors - are intended to help banks sell, rather than acquire, troubled securities and loans.

Spencer Bachus, the top Republican on the House financial services committee, vowed after being told of the plans by the FT to introduce legislation to stop financial institutions ”gaming the system to reap taxpayer-subsidised windfalls”.

Mr Bachus added it would mark ”a new level of absurdity” if financial institutions were ”colluding to swap assets at inflated prices using taxpayers’ dollars.”

Participating in the plan as a buyer could be complicated for Citi, which has suffered billions of dollars in writedowns on mortgage-backed assets and is about to cede a 36 per cent stake to the government.

Citi declined to comment. People close to the company said it was considering whether to take part in the plan as a seller, buyer or manager of the assets, but no decision had yet been taken.
Officials want banks to sell risky assets in order to cleanse their balance sheets and attract new investments from private investors, limiting the need for the further government funds.

Many experts think it is essential to take these assets from leveraged institutions such as banks that are responsible for the lion’s share of lending, into the hands of unleveraged financial institutions such as traditional asset managers, where they will have much less impact on the flow of credit to the economy.

Banks have three options if they want to buy toxic assets: apply to become one of four or five fund managers that will purchase troubled securities; bid for packages of bad loans; or buy into funds set up by others. The government plan does not allow banks to buy their own assets, but there is no ban on the purchase of securities and loans sold by others.

“It’s an open programme designed to get markets going,” a Treasury official said. But he added: “It is between a bank and their supervisor whether they are healthy enough to acquire assets,” raising the possibility regulators may prevent weak banks from becoming buyers.
Wall Street executives argue that banks’ asset purchases would help achieve the second main goal of the plan: to establish prices and kick-start the market for illiquid assets.

But public opinion may not tolerate the idea of banks selling each other their bad assets. Critics say that would leave the same amount of toxic assets in the system as before, but with the government now liable for most of the losses through its provision of non-recourse loans.

Administration officials reject the criticism because banking is part of a financial system, in which the owners of bank equity - such as pension funds - are the same entitites that will be investing in toxic assets anyway. Seen this way, the plan simply helps to rearrange the location of these assets in the system in a way that is more transparent and acceptable to markets.

Goldman and Morgan Stanley have large fund management units and have pledged to increase investments in distressed assets.

This week, John Mack, Morgan Stanley’s chief executive, told staff the bank was considering how to become “one of the firms that can buy these assets and package them where your clients will have access to them”.

Goldman and JPMorgan did not comment, but bankers said they were considering buying toxic assets.