Think this was a CEB print, in Battaramulla.
So, a bunch of political hacks thought they could gamble with the big boys on oil hedging. And lost anywhere from $400-700 million dollars. Sarath Silva – pulling jungi over trousers – became Super Justice and stopped the payments. And everyone in Metropolis lived happily… oh wait, no. Because the Supreme Court can’t actually order debt into non-existence. Now that debt burden has fallen on the banks. So Commercial Bank in particular is tumbling on the stock exchange. In fact, dudes are so scared that the whole damn thing is going to crater that they will automatically suspend trading if the market drops more than 5% (LBO, all LBO). Which inspires confidence.
To reiterate, the Ceylon Petroleum Corporation, not content to lose over $170 million locally decided to gamble internationally.
“People were saying oil would go up to 200 dollars a barrel at the time,” [CPC Chairman De Mel] said. De Mel says he had the chance to cut the position by paying a fee when oil prices started to come down but “everyone” including Goldman Sachs and Citibank was saying it would go up.
Goldman Sachs almost collapsed due to bad bets made in debt markets (LBO)
Of course, no one saw this coming. Oh wait… here’s a May 2007 Sunday Times article by Upul Arunajith.
The Ceylon Petroleum Corporation got into a ground breaking agreement with the Standard Chartered Bank earlier this year. The agreement was to provide upside price protection to the CPC from escalating crude oil price in a spot market. This agreement was a trailblazer initiative that introduced the concept of commodity hedging using Derivative instruments for the first time in Sri Lanka. By introducing hedging, the CPC created a precedent in Sri Lanka. However, despite having a hedge model in place to provide upside price protection the CPC had to increase the retail fuel prices in the recent months. Rationally, these recent price increases from a laymenâ€™s analysis, potentially disputes and questions the very validity of the hedging process.
The thing about many of these crisises (crisese? fuck) is that laymen could see something coming. Like, maybe you shouldn’t give house loans to people that can’t pay them. Like, maybe Sri Lanka shouldn’t gamble on beating the global oil market (which has been pretty consistently thrashing us for years). But you know, fuck it. Everyone kinda assumed the people in charge knew what was going on, but they didn’t, and now we all have no pants.
But Chief Justice Sarath Silva is Superman and he’s just like ‘Stop fucking round y’all’ and everything’s cool. Except, no, because he’s just a local god, a household deity, and there’s bigger forces at play. That domino of debt was about to knock over our foreign reserves, making it entirely impossible for us to buy iPod nanos and oil and food and stuff. But Sarath Silva was like, fuck it, and the domino fell on the banks instead. Which given the fact that banks all over the world are collapsing and crashing national economies may not have been, shall we say, prudent.
Now Commercial and People’s Bank are like WTF? And their shareholders are like WTF? and the market is like ‘go fuck yourselves’. Sri Lanka is trashing its international credit rating at the time of a global credit crunch which might be, how do you say, dumb. And now dudes are standing ready to unplug the stock market in case that, you know, crashes.
Which is to say, I think a lot more stockbrokers would be jumping out skyscrapers, except we never had the economic success to build them. Which is the unique paradox of Sri Lanka. We’re fucked, but we’ve always been fucked, so fuck it.