October 31, 2006

Let the nosy naggers also have a go at it

Sir, when you opine that the “Stern review offers counsel of hope” October 31, but only if the world acts quickly to curb climate change you place though the responsibility primarily in the hands of supra national entities such as the European Union and a Kyoto protocol, though if we really are going to have a chance to save the world we must get the world into action. One small but potentially very important step all of you Europeans could take is to start shaming the Americans for their exaggerated gasoline consumption on the roads. Somehow they seem to believe gas guzzling is “macho” and you got to them it is of irresponsible wimps. For that action you can call to arms al those horrendous nosy naggers that were so horrendously effective in getting people to stop smoking.

October 30, 2006

Get hold of the right boogeyman!

Sir Larry Summers is correct when he says that “The global middle cries out for reassurance”, October 30, and one of the first things that has to be done is to make it very clear to that middle that it is not the 500 dollar per month worker in a poor country willing to do the same job that someone in a richer country aspires 3.000 for, who is the boogeyman. In fact globalization has produced extraordinary benefits to the middle but the problem is that parallel to it, there are been many other things going on that are eating up the income of the middle and thereby their capacity to enjoy it, to its full extent. Let me give you a concrete example. I pay for a mobile phone monthly plan a fee of 70 dollars and which gives me a free allowance of one thousand minutes. When suddenly, because of unforeseen circumstances, one month I had to use my mobile for 2.000 minutes, then every single one of the additional minutes was charged at the mind-boggling rate of 40 cents each and which resulted in that I was presented with a total bill of 470 dollars, and this though my mobile phone company must have incurred in minimum marginal costs. Clearly some regulators are not working as they should, and this is one of the elements that is hiding the true net benefits of globalization.



October 27, 2006

Making the accountants more accountable

Sir, in what might be a preview of things to come when the banks further consolidate into some very few, you reported on October 27 that Charlie McCreevy, the European Union Internal market commissioner, argues that the big four accounting firms need to be shielded from potentially ruinous lawsuits and that he might thereto propose a cap on their liabilities. Since there is nothing such as a cap on the harmful consequences an irresponsible audit could produce, this cannot be the right way to go about it. Perhaps what is needed, as a quid pro quo for the much easier marketing of their professional services that being in one of the four signifies, is to tighten the screws on the individual responsibility within the organizations. By following the money you could easily establish who are the real direct beneficiaries of any audit and with that what accountants to hold accountable. You want to work in one of the big four, precisely because they are one of the big four? Great, but of course that entails much more responsibility! The good news is though that a commissioner has offered to cap your individual financial responsibilities to only 100 times your earnings.

October 26, 2006

Are we detecting some envy?

Sir, in your editorial “Italy can save itself”, October 26, you prescribe fiscal discipline and no one would argue with that. But, from there on, your suggestions seem more subjective. For instance when you hold that Italy absolutely needs to change from traditional family controlled ownership to general shareholder control this ignores the effects this could have on Italy’s social fabric. Also, we agree that incurring more household debt could be good but, to claim as you do, that this could signify the start of a virtuous cycle seems to be stretching the concept too far. On Italy’s families closeness and low household debts are we perhaps detecting a hint of UK envy?

October 25, 2006

The Italian need to reflect more on their business model for their Italy

Sir, Martin Wolf argues that “Fiscal tightening and reform can rescue Italy’s economy” October 25, among others because Italy has a plentiful reserve of women not working, though it is not very clear whether having more women working is the type of reform he suggests or a response to the lack of other reforms. If the first, we guess the Italians themselves would like to have a say before going down Wolf’s reform path.

That said and in order for the whole suggested exercise to proceed smoothly Wolf also mentions the need for sustaining domestic demand, for which he neo keynesially recommends that since the government has run out of borrow and spend power, the private households should now have a go at it.

Presenting OECD figures that show that in 2004 the ratio to GDP of medium and long term-loans to household was “just” 37 per cent against 114 per cent in the UK, he thinks Italian household have ample room for more debt, though many of us humans would tend to react with some horror over the UK figure.

Whatever, before taking up Wolf’s suggestions about going into debt and given that globalization acts in many and strange ways, we believe the Italians should reflect a bit more on their business model for their Italy.

October 21, 2006

The United Nations needs to get its diplomacy in order

Sir, whether Guatemala, Venezuela or a third country is going to be a two year member of the United Nations Security Council might be an important issue, at least for the candidates, but it does not justify that circus spectacle of 35 rounds of voting until now that shames the UN. With so many serious issues waiting to be tackled all over the world we cannot simply understand how UN diplomacy has not been able to evolve into concepts like the best out of 10, or sudden deaths.

October 20, 2006

How depressed could net real western wages be without globalization?

Sir, Samuel Brittan in “Globalization depresses western wages” October 20, discusses a very delicate issue where a wrong answer could lit up a fire of protectionism that would just make things so much worse, on so many fronts, at least in the long run. Mr Brittan puts forward some interesting thoughts on how to transfer some of the gains of globalization to the losers but before doing so we might need to understand better all the other factors that might be affecting how the benefits are currently distributed. For instance, the increased tendency of awarding, through patents and copyrights, so many small, medium and large monopoly rights and that has been running parallel to globalization, could indeed be reducing the net take home for most much more than the competition in the labor market. Also, in the case of the privatization of many public services, it might very well be that some weaknesses in the regulatory agencies have allowed for the capture of private rents to exceed the efficiency savings produced. So, in the name of the worker who for a low salary toils away in poor developing countries, let me ask instead; how depressed could net real western wages be without globalization?


October 19, 2006

We must keep the wwwinding road open

Sir, Lawrence Lessig as one of the leading voices in this issue is so right when in “Congress must keep broadband competition alive” (October 19), he urges us to forbid “business models that favor scarcity over abundance”. No one would question that the internet represents potentially one of the most important roads toward a better future. Just see how far we have come, in such a short time. It would be a real shame, bordering on criminal, to go for the fast buck and allow any kind of tollbooths that difficult the access to it, before we have even really begun to understand what could lie behind its next curve.

October 18, 2006

How to save ourselves from an ättestupa

Sir, if countries were open-ended investment trusts, then if the average lifespan was eighty years, a newborn baby should have eighty shares, a fifty-six-year-old consultant (like me) should have only twenty-four shares, and anyone over eighty should count his blessings and be happy with the one he’s got left. From this perspective, the representation of the young in our current democracy is null.

Lorenzo Bini Smaghi, in “How to save the young from the burden of pensions” October 18, describes precisely the conflicts that are getting more serious by the day as the graying of the democracies in Europe (and the US too) is reducing even more the low representation of the younger generations. This though is not a problem restricted to the developed countries. The World Development Report 2007 from the World Bank titled Development and the Next Generation is a truly hair raising reading that evidences our failings as a society and that most of those coming after us are giving up on participation and hope, with damned good reasons.

It is said that in Scandinavia, a long time ago, when the older people felt that they stood in the way of the young, they threw themselves off steep cliffs known as an ättestupa. In this respect Bini Smaghi, instead of talking about saving the young would be more correct phrasing it as saving ourselves, before they throw us down an ättestupa—for damned good reasons!

You step on one corner of the dry hide and up goes another

Sir, Martin Wolf gets it right when he ends up his series on China telling us that “A domestic spending surge is the best thing for China” (October 18) though we should remember that any and they lived happily ever after would be quite premature. Since economics is like the dry hide and whenever you step on one corner to put it down up goes another, the problem of increasing Chinas domestic consumption is that on the margin a society going from bicycles into cars, might place extreme pressure on some other serious bottlenecks in the world, such as oil. But then again why should the Chinese refrain from consuming oil when for instance the US on a per capita basis gobbles it up a twelve times faster rate.

October 17, 2006

The basics are ignored at your own peril

Tony Jackson gets the point when in his “Fingers could get burned as hot money floods infrastructure” (October 17) he quotes a banker saying “what matters is not what the contract says, but whether in the long run the electorate will tolerate it.” South America is littered by privatizations gone wrong because of much advanced financial engineering that somehow forgot to take the basics into account.

A couple of years ago when the hundred-year-old private electric utility company that served my hometown (a South American city) was taken over by an international player, it became within a short time leveraged up to its hilt in debt, and I suspect also poison pills and golden parachutes, and I just knew we were heading into the wrong direction. When I now read about all the consolidations in Europe, which can only distance consumers from their day-to-day local electrical engineers and place their needs in some distant trading rooms, I feel the same. It is clear that sooner or later all those high valuations paid by financial wizards purchasing utilities and that are expected to be repaid by the European electricity consumers, will shatter everyone’s blissful ignorance.




Get the banks back into doing credits

Sir, the banks are there to provide a safe haven for savings but also to promote growth and distribute opportunities through their credits. Over the last decade we have seen an almost obsessive effort by regulators to drive out the risk from banks with none of them really giving an iota about the other two objectives. Are we then to be surprised that the whole credit giving business is going underground hiding out in hedge funds and other sort of murky places? You now propose that “Regulation must not hedge funds in” (October 17) and though we fully agree with what is said we still have a lingering feeling that what we really need to look for is how to get the banks back into doing credits. As the average central banker will never be able to comprehend that we also run risks trying not to run risks and that risk is what going forward is all about, diversifying the regulators might be a good place to start our quest.

October 05, 2006

What about some more fundamental accountability?

Sir, what a creditor really wants to know from a credit analysis is how much money he risks to lose given that there is a world of difference between a debtor who can only repay ten cents on the dollar and one who, though defaulting, repays 90 cents. According to Paul J Davies and David Oakley, “New stress on recovery for rating agencies” (October 5) this is what the credit rating agencies now planning to do, about a decade after they were handed over the extremely profitable franchise of measuring the risks for the market and it begs the question of what to do with all the then useless ratings given until now. Could the credit rating agencies be sued? Furthermore the fact of changes in ratings that have nothing to do with changes in debtors but only with changes in the criteria used by the raters, illustrates perfectly the immense systemic risks bank regulators imposed on the world, ever since they arrogantly thought themselves capable of controlling risks.

October 04, 2006

Why don’t they?

Sir, Martin Wolf using deductive methods he attributes to Sherlock Holmes tells us “Why Beijing should dip into China’s corporate piggy bank” (October 4) something that seems quite reasonable for a country with many needs and that now should have about a trillion dollars stacked away in foreign reserves. The real Holmes worthy mystery though, which Dr Watson would certainly ask about is, why don’t they?


Be careful with lulling us into a false sense of security

Sir, Douglas Ferrans and Peter Scales write that “Investors are taking the lead to help save the planet” (October 4) and argue that “how quickly [the institutional investors] move their investments from high carbon to low-carbon companies will, to a large extent, determine our success in mitigating global warming. We need to make sure though this does not just become another script for a massively expensive Hollywood production about some world saving heroes.

Of course it is good that investors act responsibly but, if some of them are allowed to keep on maximizing pure financial returns, without any consideration of the environment, then our heroes will just fade away and all this brouhaha has served the unnoble purpose of lulling us into a false sense of security. I am certain the authors are aware of the risk.




October 02, 2006

An UN idol?

Sir, when you say in relation to the procedure of appointing a Secretary General in the United Nations that this is “No way to choose the world’s top diplomat” (October 2) you are absolutely right. The problem though is that no other procedure, except perhaps having the whole world’s population cast their votes simultaneously on the web, which is something we should strive for because at least it puts us in the right direction and which also, with today’s technological progress, is not really that farfetched as it seems.

Meanwhile, as a temporary stopgap alternative, maybe the world should come up with 15 suitable candidates, and then leave it formally to a lottery, which in fact is what it always has and always will be.

Is this any sort of formula for social justice?

Sir, Larry Birns and Eytan Starkman, believing that “Guatemala is antithesis of the ideal member for UN Security Council” (October 2), dutifully come up with a long list of arguments as to why this post should be given to Mr. Chávez´ Venezuela. All of them could be discussed but the icing on their cake must be when they say that “Mr. Chavez has introduced into the Bretton Wood’s international financial formula the concept of social justice”. In Venezuela, after almost eight years of Chavez´ 21st century version of socialism, petrol is sold at about 3 US cents per liter (12 US cents per gallon) and with that he is effectively transferring about 10% of the country’s GNP from the poor to those who use cars. Luckily for the world, his financial formula of social justice, has been duly ignored.