May 31, 2006

Some properly documented could be even worse

Sir, May 31, you report “Errors in complex derivatives trade doubled last year” and you state “The surge in errors comes as dealers struggle to clean up market practices under pressure from regulators, who worry over . . . if transactions are not properly documented” but sure you must be meaning “The surge in the discovery of errors”. That said let us not also forget that even more dangerous for the market could be all those operations that though properly documented, are executed as acts of faith by the so many agents that currently are really not sure of what they’re up to.

Sent to FT May 31, 2006

Should we then pursue inequality?

Sir, Of course, if you pursue a high goal blindly, like a bull in a china-store, or hypocritically, with the intention of abusing such pursuit for your own self-serving interests, nothing good should come out of it, no matter how worthy the goal is, as almost any child should be able to tell you. That is why it is so hard to understand the added value of the recent calls to avoid a fixation on equity while fighting poverty, first by Moisés Naím in his “Let us abandon the fight against inequality” (April 17) and now by Arvind Panagariya in “The pursuit of equity threatens poverty alleviation” (May 31). If these two gentlemen are really suggesting that we should ignore inequalities, or perhaps even pursue them, to our own peril, then we would really ignite the mother of all debates, but for that they first need to make much stronger opening arguments.

As for me, for our global little world to have a chance to work out, I firmly believe that we all need to share much more equally the future, which is much better of course than just focusing on equally dividing the past.

Sent to FT May 31, 2006

May 29, 2006

Shivers running down Executive spines

Sir, After the “guilty” had been read out for Mr. Lay in the Enron case, one of the jury members stated unequivocally “To say you didn’t know what was going on in your company . . . was not the right thing to do”, and it must have sent shivers down the spines of all those responsible for public corporation who, in a world of derivatives and other complexities, are keenly aware that they are far from having a complete knowledge of what their companies are up to, as in fact, much worse, neither do many of those who design and trade these financial puzzles. It would seems like reality is now justifying some of the immense compensation packages of the Executives, on account of the risks of prison, or on account that they will now have to go back to the school, but then we guess that this is not really what they bargained for either.

Sent to FT May 29, 2006

May 24, 2006

The information Mr Market receives could also be neurotic

Published in FT, Friday May 26, 2006

Sir, Martin Wolf’s very interesting although not quite sure where-it-finally-leads-you article “Neurotic Mr Market has plenty to be anxious about” (May 24), bases itself on an argument made by William White, in a working paper of the Bank for International Settlements (BIS), that there is something intrinsically destabilising derived from stabilising inflation. I would argue instead that it is solely the way how inflation is measured that creates the confusion. Let us not forget that inflation as they, our monetary authorities, know it, is just obtained by looking at a basket of limited consumer goods chosen by bureaucrats and that although they might be highly relevant to the many have-nots, are highly irrelevant to measure the real loss of value of money. For instance, who on earth has decided for that the increase in the price of houses is not inflation? And so what should perhaps be argued is that really our monetary authorities have not been so successful fighting inflation as they claim they have been.

May 21, 2006

Might we not do better with some divergence in accounting?

Sir, Tomasso Padoa-Schiopa pleas on May 19 that the “Work on converging accounting standards must go on” on “the road towards high quality, understandable and enforceable global accounting standards”. Sounds great!, but, if we so much praise the market’s diversity in perception why should we be so set against the use of several accounting standards. If all accountants speak exactly the same language, is not the risk for a systemic disaster larger? Could not some of the accounting differences sometimes even serve as a shock absorber in an ever more interconnected world, or are we all supposed to react, immediately, with murderous preciseness, to any financial statement? Since the financial markets are getting increasingly shortsighted and look more and more into just the next quarter, might there not be a case for more flexibility instead, especially since plain vanilla Parmalat frauds will still live on, under any strict homogenous system.

Anyhow, it is interesting to see an Italian taking a Prussian stand on accounting issues… who can doubt globalization?

Sent to FT on May 21, 2006

May 17, 2006

About Mr. Martin Wolf’s own oil shock

Sir, Mr. Wolf seems to suffer his own oil shock when confusedly argues how “The blessed borrower helps the world survive an oil shock”, May 17. In fact it is the US who is partly to blame for the current oil crisis, not only because it is by far the biggest energy consumer per capita but also because it has never wanted to use its financial superpowers to enter into long term purchase and supply contracts with oil producers at “reasonable” prices for both sides. At this moment when as Mr. Wolf correctly states the US’s “back is not infinitely broad”, what it should do is to slap a $3 tax per gallon of petrol (gas) to bring its price to European levels. This would earn the US government $300 billion that would make a real dent in their fiscal deficit; reduce their current account deficit in a targeted way; and take the sting out of oil demand which would reduce oil prices for the rest of the world. To instead praise the US for borrowing on their credit cards just in order to sustain their addiction to oil does not really sound right.

Sent to FT, May 17, 2006

May 12, 2006

Yes to a floor, but go for a roof too!

Sir, Philip Gordon, May 12, suggests creating a “price floor” for oil in order to diminish the risk of developing alternatives but he could also argue it as a “price floor” applicable to oil as that would allow oil producers to invest without the risk of having its prices below those ten dollars per barrel that most thought as given late 1998. And if at it why does he not go for a roof too? I am sure that oil producers, in exchange for a reasonable floor, would also be willing to offer a nice roof to the consumers. 40 years binding purchase and supply agreements, at a price of $40 per barrel plus or minus 50% of the difference to the market spot price, would provide the producers with a floor of $30 if the spot price hits $10, and conversely a roof of $ 70 dollars to the consumers if the spot rises to $100.

Sent to FT, May 12, 2006

May 10, 2006

The world needs open pastures, not corrals

Grant Aldonas, May 14, begs WTO negotiators to “turn around (in their cul-de-sac) and head back to the road and chart a new course to achieve the development goals that were their original destination”. He is absolutely right. Currently trade negotiations, instead of opening the doors to the greener pastures we all wish for, because of their total mercantilist approach, feels much more like someone corralling you in, just to brand you.

Sent to FT May 10, 2006

May 06, 2006

$7 per gallon should do it!

Sent to the New York Times, May 5, 2006, destiny unknown

Levying a new federal consumption tax on gas that would increase its price to $7 a gallon, about the level at which it has been in Europe, would reduce demand for imported oil, provide the government with about $300 billions in taxes to balance the accounts and benefit the environment.

It would destroy many jobs, but it also would create new ones. Better to bite the bullet now before the current economic imbalances erode confidence in the dollar, and anyhow take the price to $7 but then with no gain to pay for the pain. That, of course, would require leadership, which is even scarcer than oil.

May 03, 2006

Don't force them to swear allegiance to a flag if that's not what they want

Sent to the Washington Post, May 2, 2006, destiny unknown

Sir, while reporting on immigration (your front page today May 2) one frequently see “foreign illegal workers” used a synonym for “illegal immigrants” and they are not, and it seriously confuses the debate. Foreign illegal workers, the majority, come to the USA primarily to get a job, to earn some money and be able to go back to their homeland, and the illegal immigrants are those that come with the clear purpose of staying. Forcing “foreign illegal workers” to swear allegiance to the flag, just so they can get a job, is a wrong way to solve the problems. The fact that Americans love their own country so much should not preclude them from understanding that other can also love their own country, just as much.

May 01, 2006

We need to stop oil price vendettas

Sir, in your And the oil price keeps on rising, May 1, you correctly identify “a reason the supply response has been muted is that oil producers feared a glut of oil and a price collapse” but then you incorrectly characterize these concerns as exaggerated, and in that lies exactly the origin of all our oil problems. In a commodity with such an extremely low short term price elasticity as oil, anyone on top, whether it is the consumers demanding one barrel less than what is produced, or the producers producing just one barrel less than what is demanded, can exercise so much power that falling into a price vendetta is unavoidable. Today’s 70 dollars per barrel are 100% correlated with the below ten dollar price of early 1999 and predicted at that time, among others by the Economist, to head towards five dollars. If the world really wants to get out of this rollercoaster of prices, that benefits no one, the only alternative is to enter into long long-term supply and purchases agreements between consumers and producers, based on reasonable average boom and bust prices of oil. Anything else is just courting the next disaster for someone.

Sent to FT, May 1, 2006