Ellen Tordesillas published it in full first, over at Vera Files, and people have been rolling in the aisles ever since. Just in case you have any doubt that really wrote what he did, here’s the facsimile of it:

Judge Lorredo Order 4 May 09

The background to the order being, that the Judge formerly dismissed Mike Defensor’s perjury charge against Lozada, was overruled by a superior court, and so has to handle the case.

Blogger Et Cetera Et Cetera was frankly puzzled by the order, while Manila Bay Watch was pleased as punch and Smoke was certainly amused. Every lawyer I’ve talked to says this order is unprecedented in terms of the, shall we say, pungent language used. Some lawyers think that aside from the personal pleasure the Judge undoubtedly derived from penning this order, the legal consequences of it will be to ensure that Defensor’s lawyers have a strong case with which to insist that the Judge recuse himself from the case -or be forced to do so, again by a superior court.

Manuel Buencamino in his Business Mirror column today takes a cue from Mark Anthony’s funeral oration in Shakespeare’s Julius Caesar and proclaims Mike Defensor an honorable man: see Mike Defensor does not lie (”He just sees things in a different light”).

A word on Ako Mismo, which certainly has gotten tongues wagging (and Martin Perez’s blog, AKOMISMO, getting deluged with stray hits), and not a few people feeling patriotic -or merely lusting after one of the attractive dog tags the website offers as an incentive for signing up.

When the site was heralded by a TV ad and a two-page spread in a major daily, I personally wondered if it wasn’t a trial balloon for the presidential candidacy of Manuel V. Pangilinan. Business circles have been abuzz for some months now, about the tycoon’s possible, even probable, presidential aspirations; and there have been those quietly circulating in order to sound out opinions on whether a Pangilinan bid for the presidency would get public support.

One of the site’s endorsers, Maxene Magalona, has come out with a categorical statement that her participation in the ad campaign for the site has nothing to do with anyone’s presidential aspirations. Smart Communications has categorically denied being the owner of the site. From what I’ve heard from people who claim insider knowledge of PLDT, their boss in not interested in the least in becoming the country’s chief executive.

There will be some disappointed by these disavowals, as there were those whose interest was genuinely piqued by the prospect of an MVP bid for the presidency.

There are two blog entries that help explain why the website caused some misgivings in the days leading up to Magalona’s statement. The first is in Baratillo@Cubao, the other, in Constant Random Change, who approach the site from two different ends (one, shall we say, philosophical, the other, technological) but with similar conclusions: the site was opaque in certain respects and the opacity provoked skepticism. It shouldn’t have required a Whois search, for example, simply to determine who owned the site: an advertising agency that has also categorically stated the campaign is its own, as part of its corporate social responsibility efforts.

My column tomorrow will be on Robin Hemley’s latest Dispatch from Manila, as published in Timothy McSweeny’s Internet Tendency. It details the months-long embargo on book importations that resulted from the Bureau of Internal Revenue’s discovering it could reinterpret international treaties with impunity, until booksellers, faced with escalating storage costs, cried uncle and surrendered to the BIR by paying the fees it demanded.

This brings up my past entry, What the?? concerning the long-standing problem any booklover’s had with our government -which is, its trying to impose tariffs and duties even though the law grants exemptions to the public and others.

In contrast, blogger-turned member of parliament Jeff Ooi, in a recent entry on income taxes in Malaysia, pointed out the Malaysian government makes book and computer purchases tax-deductible.

It’s marvelous that the moment word was out that he’d passed away, the radio stations marked his passing by playing this song, and the country paused to pay tribute the best way it could -with his music, part of our lives.

(image looted from the Interwebs)

My column today is Guns, goons, and gold. Basically, it seems to me more and more obvious that we have a shrinking liberal democratic constituency in Metro Manila and other urban areas of the country, while the rest of the country has been subdivided among warlords fueled by racketeering in smuggling, narcotics, and gambling.

Late last night I returned to Deceive and conquer: why Arroyo will stay in power, blogger Scriptorium’s marvelous 2007 analysis which has stood the test of time. Unfortunately, the blogger never got around to penning Part II of his analysis, although I suppose his entry on the Chief Justice, The Supreme Court and Philippine politics, comes close; and so I’d like to present an extensive extract from it by way of an introduction to the rest of this entry. Scriptorium writes,

Because of the relative political uniformity of the governing class, we had not felt the politicization of the Court immediately after 1986, but the years since, particularly the controversial accession of the President in 2001, have vastly increased the Court’s profile and the importance of its individual members. This has increased even further in succeeding years due to the polarization of Philippine society between supporters and opponents of the increasing centralization of the patrimonial system.

The supporters, whose offices control government monies, count in their camp the advocates of a patrimonialist democracy on the model of Tammany Hall and, more classily and less cleanly, the Roman Republic. On the other hand, the popular base of the opposition (as distinguished from its politician wing) is composed of non-patrimonialists, among them the urban middle class and the Catholic Church, whose alliance comprises the political Center that guards the Constitution with its Liberal-Social-Christian Democrat orientation; and the Left, both the social democratic and the national democratic factions.

However, as we pointed out earlier… the urban middle class is increasingly enfeebled by social forces, while the loss of her paramount leader and the weakening of her middle-class allies have weakened the Church politically (as we saw when the movement to extend compulsory agrarian reform was defeated in the landlord-dominated Congress, despite vocal support by the Church and a bishop’s actually joining the farmers’ hunger strike). As for the Left, it is too divided between the various hues and sub-hues of revisionists and reaffirmists. This leaves, as the main institutions of Liberal-Social-Christian Democracy, the noisy but fangless Senate and the passive but powerful Supreme Court. The Court in fact has waged a subtle campaign over the past few years to strengthen democratic institutions and human rights, like when it sponsored efforts against the killing of Leftist activists.

Enter the movement to revise the Constitution and create a federal, parliamentary, and unicameral government, which would get rid of term limits, separation of powers, and the gadfly Senate, the main barriers to smooth patrimonial government. With the ambiguity of the provision on constitutional amendment (which, because it was copied from the unicameralist 1973 Constitution, doesn’t say whether the 2 house of Congress would vote jointly or separately), the 1987 Constitution must be interpreted by the Supreme Court to determine whether the Senate can block, as it will certainly try to block, the proposed revision. This makes the decision of the Court critical, and its internal politics much more significant.

His description of the Philippines as a patrimonial democracy is a precise reference to a Sociological term, Patrimonialism:

“a type of rule in which the ruler does not distinguish between personal and public patrimony and treats matters and resources of state as his personal affair.”

An illuminating example is Douglas Webber’s paper on Indonesia as a “Consolidated Patrimonial Democracy”:

The smooth functioning of patrimonial politics requires political competition to be confined to elites and mass political action to be suppressed or at least strictly controlled… Particularistic policies that are the hallmark of patrimonialism can hardly reach – or benefit – directly the masses of voters whose support parties and politicians require for their political survival. Rather – also in Indonesia - they offend widely-held notions of equality and fairness. Hence, effectively patrimonial parties are forced to appeal for or mobilize support on the basis of ‘communal affiliation’, personality the (in the case, for example, of Megawati, ‘inherited’) charisma of their leaders or the moral authority of village heads and/or the coercive capabilities of the military or police…

An interesting note, yet again, is what an Indonesian told me, which was that when the decision was made to directly elect the President of Indonesia, the Indonesians looked at the Philippines and settled on runoff elections to avoid what they believed to be the greatest post-Edsa liability of our system, that is, electing minority presidents. Consider Webber’s description of the Indonesian political pros finding their well-ordered political lives destabilized by more independent-minded voters:

The post-Suharto elections have produced growing signs, however, that the traditional structures and relationship patterns on which successful election campaigning along these lines depends are breaking down. Parties and leaders that are widely perceived to have ‘failed’ in office and/or been very corrupt have been severely punished. Thus, the PDI-P’s vote collapsed between the 1999 and 2004 Parliamentary elections by almost half and its candidate Megawati was comprehensively defeated in the presidential elections. Despite having by far the best party ‘machine’, the Golkar did much less well in the 2004 Parliamentary and presidential elections that it had hoped and anticipated. Despite the party leadership’s support for Megawati in the second round, voters who identify with the party voted massively instead for Yudhoyono, who defeated Megawati by more than 20 per cent and ran his campaign with a ‘loose’, but extensive ‘network of grassroots organizations’, pitting ‘“people power” against Indonesia’s traditional mighty party machinery of the Golkar and PDI-P’ … Political parties and leaders steeped in patrimonial traditions seem likely to face harder times in Indonesia: ‘The assumption that money politics and a strong party machinery are enough to deliver votes no longer holds’ … Within many of the established parties, the pressure for internal reforms and more accountable leadership is intensifying. There seems to be a growing chance that the pressures of electoral competition will force parties and politicians to make a break with inherited patrimonial norms and practices. Polyarchal… democracy may thus possess the capacity to propel Indonesia away from its patrimonial political legacies towards a more liberal-democratic political future.

The party machines failed Jose de Venecia in 1998, they didn’t keep Estrada in office in 2001 and didn’t quite hold the line as much as should have been expected for the President in 2004 and in the legislative elections in 2007. The dilemma faced by Indonesian party stalwarts is one similarly faced by their Filipino counterparts, as Scriptorium pointed out.

And here’s something else Scriptorium wrote in his entry on why the President will stay in power, and it has to do with the military:

Lastly, the military will not move against the President. First, it has never moved without a clear opposition-Church-middle-class alliance (the initial 1986 coup and the Oakwood mutiny fizzled out for lack thereof), and such an alliance, as shown above, is presently impossible. Second, the years after 2001 have led to a re-emphasis not on the military’s activist tradition but on its “professionalism”, interpreted in the narrow Prussian sense of allegiance to the State. Third, the military leadership has a vested interest in the continuity of the GMA government, especially since her regime, in membership if not in structure, has to a large extent become a civilian-military complex. For one, retired officers now populate appointive posts; and, though the custom of appointing them began under FVR, the present practice is to appoint indiscriminately, whereas FVR at least sifted for true officers and gentlemen like Rodolfo Biazon, Renato De Villa, and Arturo Enrile.

Over the weekend, a text went around advising people to expect a “Retired Military Manifesto” to be posted at General Danny Lim’s blog. The text came from an operator in the camp of former President Estrada, which has been proposing an Estrada-Lim-Puno Triumvirate. As of this writing, the manifesto hasn’t appeared on line. But it does indicate a kind of burning desire to stay relevant as the country seems poised to finally take the plunge and head towards presidential elections in 2010.

Enter the movie Valkyrie, which I saw last week. In Valkyrie, General Ludwig Beck advises his fellow conspirators, “Just remember this is a military operation: nothing ever goes according to plan.”

A year ago, in The seven year itch, I pointed out that those who felt the President had to go had fallen into a trap: the idea that political events can be made to proceed according to a formula: unpopular president + explosive revelations + economic downturn + angry prelates + an appeal to past greatness, based on shared values + get enough people on the streets + officer corps defects = regime change. And yet, as Beck pointed out, “nothing ever goes according to plan.” The politically adroit either plan for all contingencies, or marshal their resources to strike when opportunity arises or as contingencies unfold.

In Cory Aquino: An Intimate Portrait by Friends, there’s a piece contributed by Teodoro Locsin Jr. in which he recounts how Aquino left nothing to chance and didn’t rely on only one plan:

I had just spoken to—well, I suppose I still can’t say the name of this businessman who had just talked to the US ambassador about sending in warplanes. Things weren’t going too well for our side.

I was walking across the sward fronting the Palace over to the office I retained in the Guest House after being fired from the president’s staff—I kept it to the last day of her term.

Amid sharp sounds of gunfire and shelling from not too far away, a presidential security guard, crouching as though he were approaching a helicopter, came up to me. He said the president wanted me at the Arlegui house. I hadn’t told her yet what the businessman, the US ambassador, and I had been up to. I thought it might be about the same matter, but then again it might be about something else. You never knew with her. Cory Aquino never allowed current circumstances to dictate her agenda.

The door opened and I was shown into a parlor rather too sumptuously decorated for both our tastes. “I just had to have you try this cake,” she said and, turning to the maid, added, “give him a generous slice. Maur made it.”

I must say I could not disagree, and I always spoke my mind to her. The cake was just properly moist, excellent in every respect. Most of the thick curtains were drawn so flying glass would not hurt the children, she casually explained, except over the tall window that threw sunlight on the tea table between us. It was afternoon, that time of day.

Meanwhile, the arrangements she had secretly put in place long before, without telling any of us, even her closest advisers, were about to go into effect. Key and hitherto unknown combat officers whom the rebels assumed would side with them would suddenly turn their men and guns on the rebels. In retrospect, I can only compare—but only in respect to the quality of shared aplomb—that placid setting in the soft morning light to the one of Al Pacino standing godfather as the priest intoned, “Do you reject Satan? Do you…” and his men quietly went to work.

This revelation -over a decade after the events described- brings up the interesting problem of trying to learn from, or at least react to, events whose actual circumstances we still don’t clearly understand or fully know.

When the President’s own husband recounted their strategy for bringing down Estrada (see my entry, Mike and Joe: The Second Battle of the Books, where I reproduced Mike Arroyo’s interviews with Nick Joaquin) soon after the events concerned, he did so in a moment of celebratory candor. What strikes me as interesting is that a few years after that, the President’s enemies and former allies seem to have failed to take into account how the tactics that toppled a government in 2001 could have helped keep the successor government in office.

Consider events of more recent vintage, namely 2005. The President had achieved that rare thing, the election of a Vice-President who was her running mate. And yet, as her enemies closed in on her, there was obviously the possibility that the Vice-President would get it into his head that the time had come to step in and offer himself up as a successor. Surely matters must have seemed headed in that direction when, at the height of the unfolding crisis, the Veep flew off to Hong Kong.

One version has it that the Vice-President, upon returning from Hong Kong, was met by a general close to the President and was sternly warned that his life was on the line. Another version, strenuously denied by former Senate President Frank Drilon, is that when the Veep showed signs of being willing to take on the mantle of the presidency, Drilon et al. demanded they should be the ones to select who would be the Executive Secretary -faced with the possibility he’d be a figurehead president, the Veep balked and went home.

Consider, too, that even as all the building blocks of People Power were put in place, the old pros who’d decided to bring down the President failed to bring in an ex-President, Fidel V. Ramos. Faced with being inconsequential, the crafty FVR decided to throw his support behind the President and saved her job.

Consider, as well, 2006, when the armed forces was faced with the dilemma of turning its back on some of its most respected officers and remaining loyal to the President, or turning their backs on their commander-in-chief and betraying what Scriptorium calls their Prussian-style loyalty to the State. One version has it that the Chief of Staff was inclined to support the withdrawal, and that everyone else was poised to fall in line, when negotiations broke down because General Esperon asked for assurances that he wouldn’t be investigated for his possibile complicity in electoral fraud in 2004. The hotheads allegedly refused and denied a win-win solution, Esperon then countered the moves of the hotheads and this caused the Chief of Staff to waver. (Interestingly enough, Ramos in the same book shrewdly notes, in the book on Cory Aquino, in a kind of pointed aside, that no act punishable by the anti-coup law took place in 2006.)

Now we have to consider the background behind the supposed inclination of the top brass of the armed forces to seriously consider, instead of immediately dismissing out of hand, the plan to withdraw support from the commander-in-chief. One could argue that the military was essentially more democratic and civilian in orientation than civilians like the President and her close advisers, as they sought ways to stay in power.

The background to the 2006 attempt to withdraw support is thus the foiled plan to impose martial law in 2005. According to Ellen Tordesillas, the plan was as follows:

A Malacañang source said that in October 2005, when Arroyo was shaking from what the people heard in the “Hello Garci” tapes, she and her hardline advisers were almost ready to impose martial law. They would call it by some other name but the effect would be the destruction of democracy and in its place an Arroyo dictatorship.

The plan, the source said, was to explode a bomb at the Senate at 5 a.m.. Casualties would be avoided with the early morning timing but the explosion in one of the three branches of government would give Arroyo justification to declare martial law. Exactly like the fake ambush of then Defense Secretary Juan Ponce Enrile which was used by Ferdinand Marcos to declare martial law in 36 years ago.

A businessman in the Arroyo’s circle of “hawks” asked if the defense secretary (Avelino Cruz) and AFP chief of staff (Generoso Senga) were into the plan. They were not.

When Cruz and Senga were told about it, they objected. A visit by John Negroponte, then the US Director of National Intelligence, who conveyed American disapproval of the martial law option, forced Arroyo to abort the plan.

Newsbreak’s Glenda Gloria in 2007 looked at the foiled martial law plan and the 2006 declaration of a state of emergency as follows:

July to December 2005 was the toughest time for the President. Nearly half her Cabinet left her, she felt under attack, and most of the power blocs surrounding her reinforced that siege mentality. “Each time somebody opposed her, she felt that person wanted to bring her down. She would defend a decision by saying, ‘but they’re attacking us,’” recalls a Cabinet official.

The First Gentleman had been forced into exile and the President’s other pillar, her brother, had turned overnight from a “dove to a hawk,” notes one of the private advisers of the President. Buboy Macapagal soon became the “shadow string-puller in the Palace,” as one senator puts it…

We have it on good authority that Macapagal and Gonzales tried to persuade the President to declare martial law during this period. This move culminated in a visit of Gonzales to Washington, D.C. to drop hints about it to Philippine Ambassador Albert del Rosario, who opposed the idea, according to a friend of Del Rosario’s. (Del Rosario was sacked in June 2006.)

There was a series of top-level meetings about extreme measures to save the President (i.e., media and Left clampdown, arrest of “corrupt” politicians), says an insider, but in the end the idea flopped largely because the security forces—the police and military leaderships—displayed enough body language that said they didn’t have the stomach for it.

Martial law further divided the shadow Cabinet. Drilon had by that time stopped attending the group meetings, but the extreme measures likewise didn’t sit well with Cruz and Villarama, among others.

Buboy Macapagal, too, had stopped attending the meetings, aware that some of his former allies now disagreed with him. The big three businessmen, however, remained influential with the President.

Executive Order 464, which banned Cabinet secretaries from appearing before Senate probes without Palace approval, also divided her official family. Presidential adviser Gabriel Claudio cautioned that this “was a declaration of war,” knowing this would create problems for the chief executive. Justice Secretary Raul Gonzalez and Gutierrez, who was then presidential legal counsel, saw nothing wrong with it, however…

Then came the foiled military coup in February last year. The President declared a state of emergency and, when agitated Marine soldiers tried to barricade their headquarters on February 26, considered shutting down the Lopez-owned ANC cable TV station, which was covering the incident live.

It took a phone call to the President from “someone” in the Iglesia ni Cristo for the hotheads to cool off, says the same Cabinet official. The discovery and subsequent defeat of the coup toughened the view that by this time had begun to run through all the loyalist groups.

It went like this: she’s survived the worst because her opponents are weak and the public doesn’t care. This allows us room to push hard for changes and look even beyond 2010. “We had become very comfortable with power,” the Cabinet official concedes.

It’s been said that even when the President decided to proclaim a state of emergency in 2006 -using language literally cut-and-pasted from Marcos’s martial law proclamation in 1972- two factions in the cabinet pretty much squared off, with one faction saying it essentially granted the President martial law powers, while another faction, to which the then-Secretary of National Defense Avelino Cruz Jr. belonged, publicly stated there were all sorts of limitations to the President’s powers during a state of emergency.

Returning to Scriptorium, he pointed out that the President took care of “the activist Marines, who were then fed to the cannons in Jolo.” And there they and all officers inclined to insubordination continue to languish.

In a footnote, Scriptorium points to two new blocs that have political potential, as of now, still untapped:

Two special cases should be mentioned: (a) the urban poor, which first became a cohesive bloc as the mass base of former President Estrada, but was neutralized by the suppression of the pro-Estrada protests of May 2001; and (b) organized labour, which has tremendous potential power but whose organization and numbers are exerted for economic and not for political ends. The political mobilization of these groups, as partially occurred for opposing sides in 2001, would end the unchallenged hegemony of liberal-patrimonial politics in the Philippines, but is not likely for the moment.

The question is whether these two “special cases” will matter in a 2010 electoral scenario.

Anyway, returning to the movie, and the dilemma it covered, a point of deep relevance to us is this work, How Much Obedience Does an Officer Need? Beck, Tresckow, and Stauffenberg–Examples of Integrity and Moral Courage for Today’s Officer by Major (General Staff) Dr. Ulrich F. Zwygart. Stauffenberg himself said, “It is time to act. But he who dares must be conscious about the fact that he will be a traitor to German history. If he refrains from doing it, he will be a traitor to his own consciousness.”

The British historian Robert Evans, in Why did Stauffenberg plant the bomb? Argues that the Count, always contemptuous of parliamentary democracy, a romantic nationalist, an unreprentant aristocrat,

There can be little doubt, however, that this would have brought huge military advantages to the Allies, and that the war would have come to an end several months sooner than it did, with the consequent saving of millions of lives.

That alone was justification enough for Stauffenberg’s act. In failing, he failed comprehensively. The war continued: millions more were killed. Anti-democratic, elitist and nationalist, he had nothing to offer the politics of the coming generations, still less the politics of today. In the end, too, for all the desperate heroism of Stauffenberg and his fellow-conspirators, Germany’s honour was not rescued. The conspiracy encompassed only a tiny minority of the German people. The vast majority continued fighting to the end. Most were shocked by the news of the assassination attempt and relieved at Hitler’s survival. As a moral gesture, Stauffenberg’s bomb was wholly inadequate to balance out the crimes that had been committed in Germany’s name and with the overwhelming support, or toleration, or silent acquiescence, of the German people. As the Catholic schoolteacher turned army officer Wilm Hosenfeld noted on 16 June 1943, more than a year before Stauffenberg’s attempt: “With this horrendous murder of the Jews we have lost the war. We have brought an indelible shame upon ourselves, a curse that cannot be lifted. We deserve no mercy, we are all guilty together.”

Yet in A Worthy Conspiracy William Doino Jr. makes this essential point:

Certain academics have an “unappealing habit” of dismissing the 20 July plotters as reactionaries, “while earnestly extolling the self-sacrifices of the underprivileged Communists,” to quote historian Michael Burleigh. But there are no heroic Communists in Valkyrie, and shouldn’t be: most Communists opposed to Hitler, after all, were Stalinists, who simply wanted to replace one murderous dictatorship with another. The honorable Resistance, in contrast—ranging from social democrats to conservative aristocrats—were fighting to rescue and preserve Western civilization.

bonhoefferblog points to the Schwarze Kapelle (Black Orchestra) entry from The Oxford Companion to World War II and in New American, there’s Selywn Duke’s entry on what’s admirable about Stauffenberg and Co.Also see Valkyrie: When is Character Defined? by Julian Park.

The thing that kept bothering me while watching Valkyrie, was that so many cast members had appeared as villains in Conspiracy, yet here were some of the same actors, playing Germans yet again, but this time, with most of them as “good” Germans.

Conspiracy happens to be one of my favorite historical films. Informing it is the concept of the “banality of evil,” as Hannah Arendt made famous in observing Eichmann,played in the film by Stanley Tucci.

(Philippines Free Press editorial cartoon by the late E.Z. Izon, circa 1961)

To all readers, may the New Year bring you all you wish for, and for all of us, may it bring peace, a measure of prosperity, amity and understanding.

By all accounts this will be a tough year for everyone, may we mind a way to restore a sense of community that crosses class, religious, ethnic, and other divides. But not at the expense of recognizing there are things important enough to require fighting for.

I apologize, without any mental reservation or equivocation, to those I have offended among my readers this past year. We will probably continue to disagree in the coming months but yes, let us remember to agree to disagree when called for. Better one day red than three days blue, but best of all is finding a way to be tolerant of each other’s opinions while remaining intolerant of those who would use force to blunt the power of public opinion.

I thank you for your readership, the time you take to express your opinions, and special thanks go to those who drop by and read, but who don’t comment.

Season’s Greetings to all regular and occasional readers! Thank you for keeping me company during 2008 and here’s to 2009!

There’s are some changes and such in store for this blog in ‘09. But until then, this blog is going on holiday hiatus until the first or second week of January.

I hope everyone gets to spend time with friends and family.

The following was forwarded to me, and I assume that it is genuine. It may be useful to readers in terms of planning their family and personal finances for the coming year. Montinola expects two major difficulties: first, as Chinese exports to America are affected, Philippine exports, mainly oriented towards China, will be affected; second, layoffs of Filipinos overseas will start having an impact on remittances and investments.

Fellow Unibankers,

Attached please find a piece that I was supposed to write for an outside publication - unfortunately, I cannot submit it as the ending is perpetually changing.

What I thought to be a gathering storm to hit in the first quarter of 2009 has hit our beaches yesterday - the Philippine Stock Exchange had its highest (12. 27 %) drop in history a single day, and the Peso Dollar exchange rate is creeping back from around P 41: $ 1 to almost P 50 : $1. Like other markets in the region, the PSEI has dropped 50% ytd, and people are getting nervous.

It has now become a Fundamentals versus Emotion issue - Philippine economic fundamentals relative to the world and even Asia are good, and the banking system is stable, but Bloomberg 24×7 Television, local media reports, and cocktail party talk make people fear the worst, and then expect the worst.

We know however from experience that Filipinos are resilient and have survived the economic crises of the foreign debt moratorium in the 1980s and the Asian Crisis in the 1990s.

BPI remains well capitalized, strong, and prudent - and both our customers and the market analysts appreciate this. 2008 will show lower earnings than our banner year in 2007, and we must now worry about what 2009 will bring.

As in the past, this negative cycle will eventually pass, but in the meantime, we will have to prepare for the typhoon.

Let us all work together to take care of our customers, and in the process, keep BPI strong and our employees safe and secure in their jobs.

All the best,

Gigi Montinola

FINANCIAL TSUNAMI 2008

On Sept 15 2008, the unthinkable happened. Lehman Brothers, a Triple A credit rated, 4th largest, and 158 year old US investment bank, filed for bankruptcy. Merrill Lynch was rescued and sold to Bank of America, and one day later, AIG, the world’s largest insurer, announced its effective nationalization. This set off a chain of notorious “firsts” - a $ 700 billion bailout of the US banking system that almost did not pass, a country (Iceland) almost going bankrupt, and the largest UK banks in trouble.

By the IMF meeting on Oct 13, two additional unthinkables were unfolding. Global stock markets had fallen 20% in a week, the entire global banking system had almost collapsed, and it took the collective resolve of 27 European governments and the US to institute forceful emergency circuitbreaker measures to temporarily calm the world and prevent a catastrophic breakdown of financial markets worldwide. However, in the most free market oriented countries of the developed world, the US and the UK had effectively partially nationalized the largest banks without a public outcry.

How did this happen, and what is the effect on the Philippines, and the Pinoy citizen?

Act 1 - 2007 Housing Collapse

Home ownership ($ 20 trillion) and equities ownership ($ 20 trillion) are central to the American middle class dream of becoming wealthy. Borrowing money is equally ingrained - the US household debt today is larger than what the US can produce through its GDP (Gross Domestic Product). America became the world’s largest consumer of cheap imported goods, and China became the world’s largest producer.

Through a confluence of events, a deadly cocktail was being concocted.

First was increased home ownership demand in a boom time. Next was easy credit (1% US Fed Funds rate), and commercial banks relaxing credit standards (zero down payment) to lend to subprime borrowers (with minimal income) due to the belief that home prices would forever rise and therefore this would protect the loan from default. Third were investment banks securitizing or packaging a pool of these loans (”mortgage backed securities” ) backed up by credit agencies rating the top slices as Triple A credits. Finally, there were commercial banks and hedge funds with sophisticated risk models who greedily bought into these instruments as a means of increasing the yields on their books.

Initially, home prices soared 20% as the bubble grew with triple leverage (housing loan, investment bank securitization, and hedge funds buying). What was not apparent was that due to lax US regulations, investment banks had leverage (debt to equity ) ratios of 35 to 1, and unregulated Hedge funds had a 30:1 debt to equity ratio. Going up (2002 to 2007), everyone made money.

Suddenly, in 2007, some subprime borrowers defaulted, homes were foreclosed, and home prices fell. Countryside Financial, a US institution, almost failed, while Northern Rock, a UK institution, failed due to bad loans and falling house prices. The housing bubble had burst, and attention shifted to major commercial and investment banks with exposure to the housing sector.

Act 2 - 2008 Financial Markets Meltdown

First to go were the investment banks and AIG.

By regulatory fiat after the Great Depression, investment banks were separated from commercial banks. By anti regulatory bias in the past decade, Alan Greenspan, the US free market “maestro” of financial policy, and the Federal Reserve Bank took away a 12:1 debt to equity regulatory ceiling, and allowed investment banks to use “sophisticated” risk models to justify 35:1 debt to equity levels and help sell billions of dollars of CDOs (”collateralized debt obligations” ) that eventually peaked at $ 55 trillion, which is the size of the world’s GDP! Worse, AIG sold $ 400 billion CDSs (”Credit Default Swaps”) insuring against the default of housing related securities.

The result should have been obvious. Normal leverage is 2:1 for a manufacturing company, 3:1 for a trading company, and 12:1 for a commercial bank. At 35:1, an investment bank happily made a 35% return on its capital if its position income only rose 1%; however, if the position dropped 10%, it would lose 350% of its position, and severely erode its capital.

Banks operate on liquidity (free flow of funds), solvency (amount of capital to pay for obligations) , and Trust (market confidence in normally operating institutions) .

Once the market saw the falling home prices deteriorating into potentially illiquid asset prices, counterparties started holding back and stopped dealing with suspect investment banks. Bear Stearns was rescued by JP Morgan at fire sale prices. Lehman had $ 19 billion in cash the day it went bankrupt; not enough counterparties could be found to deal with them. Merill Lynch was rescued by Bank of America, and Morgan Stanley by Mitsubishi UFJ. Even the proud and mighty Goldman Sachs announced it would become a commercial bank with lower leverage.

Next to go were the global stock markets, which acted more in unison even if the events were initially US based., In the Great Depression, 90% of the stock market value was lost from 1929 - 1932. Today, $ 9 trillion and 40% has been lost since the 2007 peak, and RBS, the largest UK bank, lost 40% in a day! Bloomberg became the most watched 24×7 television show in the world, and fear and panic begun to spread. Most felt “poorer”.

Third to go were the commercial banks.

Regulators, analysts, and banks themselves started becoming suspicious that other commercial banks held more “toxic” (illiquid or low priced) assets that they admitted, and that potential solvency issues lurked if asset positions in a suspect bank wiped out capital. Recent “Fair Value ” accounting practices amplified reporting earnings volatility, as once any item (housing prices) dropped, the industry was compelled to “Mark to Market” these items to the new low level. If Lehman could go, so could a commercial bank.

Since 2007, banks have reported $ 633 billion in losses, but have raised only $ 418 billion in new capital. If things got worse, who would they raise additional capital from?

In simple terms, Trust, as expressed in interbank (banks lending to each other) lending availability and price, is the Oxygen of the financial system. When it slows to a crawl, the whole system is prone to massive cardiac arrest. Most businesses and consumers operate on a certain assumed debt level, and once this breaks down, prices rise astronomically if funding disappears.

Suddenly, from easily accessible global financial markets fuelled by cheap and available money worldwide, an “Ice Age” of banking started. Banks with high loan to deposit ratios requiring them to borrow from the previously free capital markets were hit badly. Neither a US $ 700 billion troubled asset purchase program (”TARP”), or piecemeal European home country deposit guarantees initially helped.

Washington Mutual was bought by JP Morgan, and Wachovia by Wells Fargo in the US. The European solution was government based, as the UK, Dutch, and French governments offered massive government capital to save and strengthen household names like RBS and ING.

Effectively, 27 European governments voted together for 3 measures - partially nationalizing large “significant” banks, partially guaranteeing retail deposits, and guaranteeing interbank lending. The US followed by offering funding and partial nationalization to 9 banks, and direct lending to US corporations through the commercial paper market. The IMF put a brave front announcing the measures, but many wondered why the IMF was not more active in the process.

Act 3 - 2008 Countries in Crisis

Even countries started running into trouble - as of press date, Korea, Pakistan, and Argentina were in various forms of funding problems, and the latter two were rumored to have to go to the IMF. Iceland became the first Western country in 40 years to seek IMF help.

Act 4 - 2009 Real Economy Recession

Clearly, the next wave would be a real economy US and European recession, which would then overflow to the emerging market countries.

In the US, massive deleveraging has started, and unemployment has risen. The consumer spends 75% of a $ 14 trillion economy, and financial sector debt is 115 % of the GDP. Working capital bank lines are cut, while people strive to pay back credit card debt. Businesses are closing, and consumer related industries will suffer the most.

In Europe, the housing collapse in Spain and Ireland has spread to the financial services layoffs in the UK to overall demand cut everywhere.

A year ago, Asia hoped to “decouple” from the US; today , this is fantasy. Once the world’s largest buyer (the US) stopped buying, the world’s largest producer (China) would have growth cutbacks, with corresponding effects on the rest of Asia. GDP in the US and Europe could fall to zero or negative, but in Asia it would be lower growth, but still positive.

The Philippines - A Gathering Storm

Fortunately, the Philippines is small, far away, and of less marketing interest to sophisticated financiers. Also, its banking and insurance industries are more heavily regulated. In addition, the painful 1997 Asian crisis has left Filipino businessmen and bankers more cautious and more resilient than their Western (former) idols.

Given this, the Philippines dodged the Housing Subprime bullet, and was only minimally affected by the US investment bank and UK commercial bank crisis.

Philippine local currency banking operates normally, as Sept yoy lending growth remains close to 20%, while the deposit market remains fairly liquid.

We will go through dollar funding strain just like all other emerging market countries, but hopefully this storm will pass.

Banking is all about Growth and Earnings in good years, and about Liquidity, Solvency, and Trust in bad years. While growth and earnings will be significantly lower in 2008 and 2009, hopefully they will still be positive. Liquidity and Solvency should be manageable for as long as Filipinos continue to Trust the banking system to function normally.

However, we will be hit hard in 2009 - the first wave will probably be trade related, as the US cuts back on imports from the Philippines and China (which imports from the Philippines) .

The second wave could be more fearful - a significant drop in OFW remittances as some lose their jobs or need more for their overseas needs. Today, we contend that we are more insulated due to global OFW diversification and higher level jobs, but in a global recession, we will not be spared.

What to Do

Just as we prepare for a typhoon, we have to prepare for potentially rainy days in 2009.

For businesses, your balance sheet will become critical. You must reduce your debt to acceptable levels, and you must think through your business model in a low growth economy. Fro example, can a 20% drop in revenue cover your overhead? If not, some serious cost cutting is needed.

For consumers, it will be time to reduce unnecessary expenses (electricity consumption, gasoline, impulse purchases) and to start saving even a small portion of your monthly income. Capital preservation is critical, so think through your KYC (”Know Your Counterparty” ), and your asset allocation. If you can, keep 25% in cash or bank placements, and 75% in fixed income instruments until you are brave enough to reenter the stock market.

If you want to spend anything, either ask yourself twice or postpone the decision for a day - you will be surprised how many items will feel less necessary or desirable the day after.

However, we Filipinos are resilient, and we will survive this crisis as we survived the bank moratorium in the 80s and the Asian Crisis in the 90s.

Good luck to us all!

AURELIO R. MONTINOLA, III

President

Bankers Association of the Philippines

President

Bank of the Philippine Islands

October 27, 2008

(Above, prewar Philippines Free Press editorial cartoon)

Today is Blog Action Day, with the theme of Poverty.

I am republishing an article I wrote in two parts, the first when I was still in college, the second, a decade later upon rediscovering what I’d written a decade earlier…

Apology not accepted

YOU were standing by the jeepney stop in front of the Faculty Center. How you got there, I don’t know. It was early afternoon.

The weather was pleasant. I was in one of my endless sophomore years. You had on one of those simple dresses of 1940s cut, which the modest of means never gave up wearing long after the originals which had arrived during Liberation had out served their usefulness. I think your dress was a pale yellow; I know it was scrupulously clean, and I wondered whether you used Superwheel or Tide, or Perla and starch.

Funny. It was a pleasant afternoon but you had one of those little collapsible umbrellas, the most inexpensive kind, made of the thinnest nylon the manufacturers could inflict on their consumers.

A slight breeze lifted a wisp of your white hair, which you patted back in place. You had a half-smile -did I imagine the twinkle in your eyes, perhaps? You looked like a woman with a sunny disposition. Perhaps it was just the softening effects of age.

When you were young, your family and friends probably told you that they found you pretty, because of your fair complexion. Did you marry? Were you courted, in school? And what did you do over the years, I wonder. What sort of jobs did you hold?

Students hurried past you; occasionally particularly indiscreet passers-by stared at you, but you just stood there, looking around. You must have been used to being stared at, because of your skin. I have never managed to find out what your skin disease is called -if can be properly called a disease; maybe medicine has a more exact term for what you had. I’ve seen pictures of people -all elderly, if I recall correctly- with the same affliction. Little globules (of what? solid flesh? skin with something underneath?) covering every inch of the body.

Globules in the shape of lumps, others in the shape of small nuts which seem to have sprouted on the skin, ready to fall off. Growths whose composition I have always wondered about -growths which reduced you to a mass of protrusions and made you a sight for the idle to gawk at.

Disconcerting, how your affliction managed to shock without provoking disgust. Or maybe i’m wrong. In remembering the day I saw you I might be retroactively censoring my real feelings. Yes, I was disturbed. How can you live with such a disease, with such disfigurement, made all the more startling because no one can fathom its origin. You have no scars. You’re missing no limbs, you have nothing that can be attributed to the effects of a birth defect or some tragic experience. Although of course having your body covered in strange lumps and bumps must constitute a tragic experience in itself.

From the little I know -mainly from the testimony of an old man in a news article I clipped and since lost- you were not born “that way” (what a phrase!). What provoked the growths? The depredations of age gone more completely awry than usual?

Then you went up to me.

“Can you spare some money,” you asked, gently.

Flustered, I said no.

You smiled. And said. “I’m sorry.”

I said, “it’s ok.” And then I walked away.

The feeling one has when one’s soul wants to vomit: why did you say sorry to me? You should have said, “apology not accepted”.

***

YUKIO Mishima once wrote, “I came out on the stage to make an audience weep and instead they burst out laughing”.

Since you apologized over my apology, I have encountered many who remind me of you, though none exactly like you. Just the other week, and what has it been –a decade?- since we briefly met, I saw a man with no legs, sitting on the sidewalk by the wall of Camp Crame leading to the LRT, holding a plastic cup.

He was looking up at another man, dressed neatly in a kind of dutifully-washed-and mended polo shirt. The man was engaging him in conversation. Was the man a writer, perhaps, or simply someone on his way to work, engaging the man with no legs in conversation?

People rushed past. They gave the two troubled looks. What is more disturbing: to see a man with no legs begging on the pavement, or a countryman pausing to converse with him, man to man?

I saw that scene only briefly. We only see such scenes briefly, if at all. Just the other day, there was the scene, awful, and heart-breaking if only we weren’t so used to it. The parade, my writer’s mind tells me to call it, of the dispossessed. In front of St. Paul’s College, Quezon City, there is, day in and out, a man in his early fifties, piteously deformed; almost, it seems, a Thalidomide baby condemned to advanced years. He has become such a fixture that surely every person passing him by day to day has come to memorize his every twitch, his slack-jawed fatalism. On some days, a sign hands around his neck. Over the holidays it said, “Merry Christmas, God Bless you.” I gave him coins once. He tried to say thank you. Part of me was glad he was incapable of mouthing the words.

But of that parade, and they come in every shape, age, sex, and size –there is the blind old lady, with white hair, clothes of charitable origin, whose gaping eye sockets mercifully cannot see what her seeing-eye guide, probably a granddaughter, sees minute by minute, hour by hour, day by day. The knock; the look of muted pleading; the counter-knock from the impatient, saying, “your petition is dismissed”; the shuffle on to the next vehicle.

Yesterday there was a man. He was missing a hand. He did the ritualized shuffle, too. Knock, plead, suffer rejection, shuffle on to the next, repeat. Around him and ahead of him swarmed children doing the same thing. One child was particularly passive; she knocked on one window, was rejected, sat on the sidewalk and sulked. Some others made it a game. One little girl got no coins, though a motorist handed her some crackers. She smiled the smile of a Pacquiao.

That man, though. One motorist was particularly curt. The man reacted with a look of rage. I have seen that look of rage more often now, than ever before. I never used to see it. He was not even given an apology. But as for his condition, he could at least express his hate.

circa 1994 and 2004. It is 2008, and they are still there, in front of St. Paul’s.

On YouTube - Broadcast Yourself. you can view my recent Explainer show where former NEDA Chief Cielo Habito presented his views on the economy and prospects for the remainder of the year.

You can also view the following, below: first, the presentation he used on my show; the more comprehensive presentation on which it was based, which he presented at the Philippine Daily Inquirer. And after that, his presentation last year, and also, one by DLSU economist Dr. Michael Alba, from three years ago.

it may be useful, at this point, to take a look at this report: “14 Food Subsidies in the Philippines: Preliminary Results”, by Marito Garcia. See: ppa88ch14.pdf” t