The UBP is right when it calls Mr. Tucker's method of departure disrespectful as it isn't just disrespectful to his former party, it is also disrespectful to those who voted for him.  Mr. Tucker should at least make his reasoning be known.  It is bad enough he suggests his admiration for Premier Brown's dictatorial approach.  Sure it might have been done with good intentions, but frankly how would Mr. Tucker feel if Premier Brown kicked him out of his home and gave it to the homeless?  While it may be a 'humanitarian' move, the homeless could certainly be cared for in a more respectful fashion that doesn't require such rediculus actions, such as dedicating tax dollars to the much needed improvements of the homeless shelter rather than jet setting around the world like a rich playboy.
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Butterfield performance bond

The announcement
that Butterfield Asset Management has frozen its Liquid Reserve Fund is
definitely not a good sign.  To put this into context, the 'liquid' fund is one
step above Butterfield's money market fund and is considered the kind of place to store your cash when the market
is too risky to invest in, but is supposed to be as readily accessable as cash.  The fact that Butterfield has frozen its liquid fund is a rather scary turn of events when you consider that the Bermuda Government has effectively provided Butterfield with a $400 million performance bond (a $200 million guarantee @ 8% annually over 10 years)

Butterfield's liquid fund collapsed because it didn't ensure that what it was investing in followed its objectives.  As we noted back when we condemned the 'bailout', businesses and investors have the obligation of performing their own due dilligence when they invest in something.  Ideally, the Bermuda Government should have setup our own form of Federal Deposit Insurance Company to protect those who simply were saving their money as in a worst case scenario, not provided guarantees for Butterfield.  The consiquences now are that if Butterfield goes bankrupt, not only does the taxpayer get hurt, so do those who kept their savings at Butterfield.  Those who bought the preferred shares win but might severely damage Bermuda's credit rating as a result.

Anyway, reviewing the investment
 of the Liquid Reserve Fund raises serious questions as to the due dilligence undertaken by Butterfield Asset Management's investment team.

Investment Process

Emphasis is on a portfolio of short dated, high
quality fixed and
floating rate note instruments.

High quality fixed and floating rate note instruments?  Let's rereview the Royal Gazette article to find out what they invested in.  

According to a Standard and Poor's ratings report from February 2009, the fund invests mainly in corporate floating and fixed-rate securities, as well as asset-backed securities (ABS), mortgage-backed securities (MBS) and a collateralised debt obligation (CDO).

In all fairness the rating agencies share a considerable portion of the blame as they rated many of these instruments far too highly.  However, the expectation is that an investment manager would perform the due dilligence necessary to figure out the proper value of what they're investing in on behalf of their clients rather than simply taking the rating agency's word for it.  By not having done so, they invested in worthless paper in a fund that should have restricted itself to high quality reliable federal and corporate bonds only.

Overall this news is very disconcerting.  The fact that Butterfield has found it necessary to freeze its liquid fund is a very concerning development.  This suggests people are now unable to access that money and suggests that Butterfield does not have the capital to keep the fund liquid enough for people to redeem what is left of their investments.  One can hope that this is the only element of their portfolio and balance sheet that was in need of extra capital and that the recent preferred share offering will provide the funding to right this situation.  However, it is entirely possible that if Butterfield exposed their lower risk liquid funds to these faulty investment instruments that they also exposed significant portions of the rest of their portfolios.  Eventually time shall tell.  What we can hope however is that the Bermuda Government didn't make the same mistake as the BIU by guaranteeing something that they did not ensure would live up to the obligation.
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The bubble bursting

So, as we suspected (see here and here) it looks like we were in a housing bubble which is now bursting.  Bermudians borrowed more than they saved, Banks were too desperate for business and government policy weighed in.  While this may be a good thing for some, it is certainly bad for others. 

Let’s recall the always trusted word of realtors (you know, the ones who are paid to sell homes) from July of last year.   Remember “Now’s a great time to buy a home’?

"… in the case of the coveted single-family dwelling, [prices have] levelled (sic) off. They are not decreasing, but we're not seeing the growth we've seen in the years past.”

"Depending on the property and where it's located, you're probably seeing a growth of 5 per cent a year.”
"For the person looking to buy a house it's a good opportunity for them”

Hmm, it 30% decline doesn’t sound like things have ‘leveled off’ at all.  Hopefully you don’t make a habit of trusting a fox trying to sell you a hen house.

Anyway, as we noted there are a number of factors contributing to the decline.  Bermudians have been borrowing more than they save.  Banks here got loan happy much like they did in the states and rushed to give out loans to people who couldn’t actually afford them by transitioning from moderate down payments to 5% then 0% and finally interest only.  Finally, government introduced policies like term limits, restrictions on Non-Bermudian married to Bermudian home ownership and a raft of affordable housing projects.

So for those of you in the market for a home and not terrified of the prospect of Premier Brown taking your home because he feels ordained to do so, things are looking brighter.  We couldn’t say now is the time to be buying but we’re getting there.  For those already owning homes, things don’t look so good.  Rapidly falling home prices means if you bought your home in the last few years when housing was peaking, you may well now owe more on your home than it is worth.  Worse, with the downturn rental incomes are also beginning to slide which means if you’re relying on renting out part or all of your property to help cover the mortgage, you may now be covering more than you budgeted for.  Negative equity is never a good thing.

Beyond the tragedies of individual Bermudian’s trials with homeownership we can look at the greater implications for the Bermudian economy.  With the economic downturn many people are finding themselves without jobs and not just those at the lower rungs.  Some of those people could have recently bought 0% down payment or worse interest only loans only to find themselves without the income to pay for it.  Suddenly not only do they have to pay interest, they now can’t pay back the money they owe by selling their home.  This doesn’t lead to good things for our economy.

So the question facing us now is where do we go from here?  Quite unfortunately it has been our view that housing prices can and should come down.  It’s a necessity to begin balancing the cost of living in Bermuda.  This blog still holds the view that the root of the housing problem has been a lack of housing geared towards expats.  Homes won’t be ‘affordable’ until Bermudian families no longer need to compete with house sharing expats, though $5000-$8000 a month one bedroom apartments aren’t what we’re talking about.

While we still encourage price declines there is no reason why the decline needs to be drastic.  Thus, we may be looking at a good time to let market forces take over and ratchet back on the ‘affordable' housing projects.  Beyond that restrictions on Bermudian/non-Bermudian family home ownership can be relaxed such that it is easier for these individuals to buy homes.  If we find the rate of decline in the ex-pat population is simply too fast, we can also look to relax immigration restrictions to abate the decline, though as we’ve mentioned before, infrastructure considerations should be taken into account.

So welcome to life after the housing bubble, it’s been quite the wait.  Hopefully we’re seeing Bermudians save a bit more, banks being less greedy and considerations being given to changes in government policy.  While we can’t say this decline is the best thing for everybody it is likely that over the long term Bermuda and its people will benefit.

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Act of god

Defending his actions regarding the Guantanamo Detainees imported to the island Premier Brown is quoted as suggesting:

"I was performing an act of God that might not have been approved by the Queen, but I can assure you it was ordained by a higher power."

An act of God?  This is the same kind of thing terrorists say before blowing up buildings full of innocent people.

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Choose your own adventure

You're sitting in your car and an active news bulletin comes up over the radio.  Apparently police are hunting a chain saw murderer that has been seen in your area.  Just then, a friend pulls up next to you in a truck.  He motions to a plaid clad man with a chainsaw sitting in his cab and suggests he was giving him a ride but is now heading in a different direction but had promised the man a ride where he's going.  He asks if you'll take him since you're headed his way.  Do you:

A.  Slam on the gas pedal and drive away as fast as you can

B.  Accept the guy in your car with open arms because your friend tells you he's just a harmless lumberjack and don't ask for anything in return.

C.  Ask your friend for details on how he met this man and evidence of how he knows he's just a regular lumberjack given the recent radio reports and negotiate a deal for how your friend can make it up to you for helping him out.

Remember, this is the same friend you suspect has been spreading rumors to your girl that you're cheating on her in hopes that he can win her over.  She listens to him so you'll need to choose wisely.

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An open letter to the Governor

Sir Richard Gozney,

Thank you for taking the time to review my remarks concerning an amicable solution to our Premiers distasteful means of offering refuge to the former detainees of Guantanamo. 

May I suggest a solution to this crisis could be putting the decision of whether these individuals can remain in Bermuda to the people via a referendum?  Further, should the people of Bermuda opt in favor of this referendum it could be on the condition that the Uighurs be granted permanent residency as opposed to status. 

Such acts would adequately reverse our Premier’s rather dictatorial actions, gain favor of the people of Bermuda and ultimately resolve the issue of risks associated with the Uighurs being given status and ultimately rights to UK citizenship. 

In the interests of promoting this idea to as wide an audience as possible I have opted to post a copy of this letter on my website, www.21square.com, as well as having forwarded it on to the local newspapers.

Thank you once again for taking the time to review my remarks.


Denis Pitcher


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While some may be busy contriving mass global conspiracy theories on why we ended up with former Guantanamo Bay detainees it seems the blatantly obvious has been far too readily discounted; Premier Brown was already on his way out.  When we really get down to it Brown at best had months to go before a formal challenge of his leadership.  With his recent failures to get support for his bills in the house it was becoming increasingly apparent that the end of his reign may have been nearer still.  Brown knew it as did nearly everyone else, so why would Brown choose this as what could be his last act in office?

Premier Brown may be said to be many things but he is not an idiot when there is something to be gained.  He has proven far too cunning to be caught up in a move of simple ignorance to the potential fallout of a so called ‘humanitarian’ act gone wrong.  Is it really likely that Brown was so corrupt in his self belief in this being a good idea that he would not only disregard the biggest complaint that has ever been lodged against his leadership but also do so in such a grandiose fashion that turned this into an international incident?  This to take such a massive gamble for something to which he negotiated no upside aside from ‘doing the right thing’?  This simply doesn’t fit.

Certainly Brown could have negotiated something for Bermuda, anything really.  A cleanup of the waste at Morgan’s Point is something the United States should be doing anyway but would have been welcome and would have earned him at least some points.  How about resident as opposed to international school fees for Bermudian students?  Some concessions when it comes to this tax haven malarkey?  Surely there are a dozen ideas of what could have been negotiated that would have made this deal more palatable for Bermudians so why would we negotiate no compensation?  It simply doesn’t add up, why would Brown turn down the perfect opportunity to sweeten the deal?  It just doesn’t sound like his style.  That is, unless the deal really was sweetened, we just don’t know how and who will ultimately benefit.

So the question stands why Brown would take the chance of this being his legacy, his last act?  Why would he turn down the opportunity to come out looking like he’d gotten a great deal for Bermudians?  Why would he continue to perform as the one man band when it increasingly gets him booed off stage?  Why would he risk making this act his legacy?  Perhaps one more theory can be garnered through examining Brown’s infatuation with American politics and independence.  Could we wonder if perhaps the last acts accorded a leader of an independent nation served as an inspiration for his own last act?

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Not sure how to respond to the news that the Uighur's are being granted status here in Bermuda.  Thus far it isn't looking like a smart move.  Perhaps after some time to digest it I'll post something more substancial.

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