March 31, 2007


Sir I was a bit disoriented by the title of Christopher Caldwell’s “Harsh policing goes transatlantic”, March 31, since it caused me to start reading his article as if he was discussing something going from Europe to America and not the other way round. My fault, clearly I should have remembered that in a globalized world there is no clear definition of what is here and what is over there.

Having said that Mr Caldwell left me even more confused when after he had in “Financial crime and punishment”, March 24, preached the need to be more lenient with “white collar crime” as we should understand that “it is a less serious crime” then, only seven days later, he now ends with a “get the police out of the business of ‘understanding’ the societies they police”. Of course, again it could just be that globalization causes such a short duration of any ism; or perhaps that since Caldwell’s current article has to do with multicultural problems, we should have read him before as arguing about white white collar problems; or perhaps, just as likely, that it really has nothing to do with his confused writing but only with my confused reading; or perhaps, most likely, that the whole issue is so complex it can only have muddled answers… whatever.

March 30, 2007

Incest and irony

Sir, by reading your “CPDOs add more complexity”, March 30, that states “The rating agencies are key to creating the [financial] products” and that “The “agency is working with numerous banks on various deals”, one must realize how the rating agencies have in fact themselves become more and more a part of the same product they are rating. This does present the potential for some very incestuous relations and given that so much of the decision power about where the financial flows in the world should go has been (stupidly and arrogantly) deposited in the hands of very few credit rating agencies, this is without any doubt something extremely dangerous.

Now also, while observing the ever growing financial complexities, one cannot but reflect on how ironic it is that the whole financial world is currently holding its breath, just because some extremely primary and basic mortgage lending seemingly went haywire. Could it be time to ask all those experts that work so diligently in their financial laboratories, to take a short respite, and walk around in the real world for a while?

Help the migrants to earn more and not to forget their mothers

Sir, the Inter-American Development Bank informed that the remittances sent home to the Latin American countries by their migrant workers in 2006 were $63bn and so, if we assume that this represents 15% of their gross earnings, we obtain that the gross migrant product (GMP) for Latin America should be around $420bn. The developing banks need to stop focusing so much on what in the corporate world would only be similar to the cash dividends paid out to the foreign investors. Since every dollar sent home by the son who works abroad has in fact the same economic (and spiritual) value than the dollar the mother receives from the son who stayed home, what they should be doing is helping both sons to earn more, instead of wasting so much time and resources on petty issues such as the transfer costs, and which are anyhow only reduced by real sustainable competition between those interested in that market. If there is one aspect though that is of utmost importance and that relates directly to the remittances, but that is basically ignored in all the projections of future remittances, that is the heart-drain that could cause someone working abroad to forget his home… and find a stepmother.

March 29, 2007

Why not just go to the sidelines first?

New York Times, I am a foreigner, but since what America does mean more for the world than the famous butterfly flapping its wings, I hope you allow me a question in reference to your editorial of March 29, “Legislating Leadership on Iraq”. Why is it that with respect to where the US troops in Iraq should go, we only hear about the options of keeping them on the frontline, in Baghdad, or sending them home to the backlines, to Kansas, when instead the normal thing to do would be to first have them go to the sidelines, the borders of Iraq, to see how it goes? Could it be that the US is currently so divided that this option is too middle of the road? If so, you have a much bigger problem than Iraq, since divisiveness is the real weapon for mass-destruction of a nation. Being from Venezuela, I should know.

March 25, 2007

Viva Wall Street!

In the Washington Post of March 25 Lyla Ward, in “Who needs a fence? Viva Mexico, USA!” suggests that the USA should simply go ahead and acquire Mexico and she is obviously unaware of how the financial markets work. The fact is that as Wall Street could just as easy execute a leveraged buy out of the USA by the Mexicans financed by the Chinese, they would be more favorably inclined to do so as they could make much more money than if it was the USA buying Mexico. Having said that I wonder if it really is so necessary to formalize an affair or a takeover between the two countries, in a church or in a notary, since for all practical purposes both countries have been for quite some time living de facto together, more steamily than those who are bound together in the more formalized relationship of the European Union.

March 24, 2007

Calling all the faults, and then some, should only improve his chances!

A referee, anxious about not destroying his chances with a gorgeous female basketball player by calling her fouls, but that admits to the moral hazard present if all referees did the same, asks Dear Economist for advice, Weekend, March 24. The answer he gets is that he should not collude with his fellow referee, which besides being immoral would, I guess unless they both consider her to be a public-good, not lead to a satisfactory result; or that he should just call the fouls since he doesn’t stand a chance to get her anyhow.

The last suggestion, of calling out all the faults, is precisely right, but not at all for the reason exposed by Dear Economist. Our referee should indeed call all the fouls, perhaps even those where he is only 49% sure, since by doing so he will only be creating what in the real world is known as bargaining power, and which by the way is something quite similar to what this female player derives from her looks.

Is Caldwell singing praise Graham Nash's Prison Song?

I always read Christopher Caldwell with much interest but, this time, his “Financial crime and punishment” March 24, leaves me quite at loss about where he wants to take us.

Yes, of course there is a qualitatively difference between those who use guns and crowbars to violate people physically and those that defraud, but let us acknowledge that part of it could be explained by guns and crowbars not being the most appropriate tools for crimes in the financial world, where dirty accounting will get you much further.

When Caldwell hints that the current drive to persecute white collar crime could be a way to average out a reality where so many black, poor, or both are in jail on drug related charges, he must be aware of that he is solely speculating. With 740 imprisoned for each 100.000 of their population, compared to UK’s 124, it is clear that the US cannot afford such solution. It is indeed shameful when white collar crime get prosecuted only for political reasons, but also when the same happens to blue collar crime.

Finally let me comment about the economic crimes that are committed by those who do not live up to their political responsibility. It is never quite clear what color of collar the politicians wear, since they change them a lot depending on the audience, but yet, when we look around in the world at the damages they cause, we must conclude that most bank robbers and Skillings and Ebbers, do frequently look like very small fish. I ask, where do they prosecute a Zimbabwe’s Mugabe?

March 22, 2007

Would Jack Bauer be a good president?

Sir, although Jacob Weisberg’s much fun “How to tell a killer from a future president”, March 22, might no be that saloon-clean article you want to associate yourself with, I cannot resist but to remark on the somewhat irrelevant title since in order to elect a future president, you might not necessarily have to tell him from a killer. I mean we should not completely discard the possibilities that someone of those serial killers listed by Weisberg could in fact have turned out to be a good president (I did not say better) if given a chance for a carrier change. At the end of the day whom we elect is probably the candidate that projects our own wishes the better, and luckily, the majority of us wish more to be president than serial killers. Let us pray it stays that way… I mean in these days of Jack Bauer’s as heroes you might never really know.

March 20, 2007

Different types of sacrifices can solve the entitlement crisis. How about an ättestupa?

Sir, Peter Peterson concludes his “Sacrifice can solve the entitlement crisis” March 20, by citing the German theologian Dietrich on the ultimate test in moral society being the world it leaves for the children, and saying that “It is time for us to become worthy and moral ancestors.” To a baby boomer like me, that sounds indeed like a gloriously grand-eloquent reason for giving up some entitlements, but I have to confess though that, back in my mind, also lies the real possibility that if we don’t give something up, perhaps even quite a lot, the children will one day tell us, “it is time for you, worthy and moral ancestors, to start thinking about an ättestupa” by which they would mean those very high cliffs where supposedly the old Scandinavians, in time of the Vikings, threw themselves from, when they became a burden to society.

The Protestants and their carbon emission indulgencies

Sir, Gideon Rachman correctly points out that the issue of global warming could save the union of the European Union but of course it could also end up as just “Another European commitment that might vanish into thin (and perhaps hot) air", March 20.

Beside Rachman’s arguments this week, here in Washington, as part of the celebrations of the 50 years of EU Joachim Radkau is going to give at the World Bank an address titled "Protestantism and Environmentalism: In Quest of a Weberian Approach to Eco-History", and frankly, even though I am a protestant, I do not believe the world, or Europe, can really afford to make anything that could smell even so slightly religious-divisive out of the environment, but needs instead to keep is as a big uniting almost ecumenical movement.

Having said that I must mention that I am still quite curious about how Mr. Radkau intends to explain how so many European protestant countries now favour, in the name of the environment, the trading of carbon emission rights. Those sound to me so much like those old catholic permissions-to-sin indulgences that Martin Luther fought so hard against.

March 19, 2007

Let us pray the estimates are wrong

Sir, let us pray for that the estimate that 2.2m of American families could lose their homes and that John Gapper mentions in “The wrong way to lend to the poor”, March 19, is totally wrong. If not, then let us prepare for the worst, as the political consequences of such fallout in the sub-prime mortgage market would by far surpass whatever all other thorny issues such as Iraq and the illegal immigration could all produce, together.

What I miss in this scarily good saddening and scaring article, is some words of how it came about that some 2.2m obviously individual shaky loans could have, when all was said and done, produced the sufficiently good ratings needed to attract so much money. The credit rating agencies sure must have some explaining to do, as has those Bank regulators responsible for giving the credit rating agencies so much power to begin with.

March 16, 2007

We need more humility from the bank regulators

One of the greatest contradictions of our time is how those that say they value the free markets capacity to allocate resources can then so shamelessly proceed to infringe on that very same freedom. The bank regulators, working mainly out of Basel, in a world that has not even come to an agreement on an adequate homogenous system of accounting, just because such a thing does probably not even exist, have over the last decade imposed on the market the restrictive views of some few credit rating agencies who, to make it worse, also view each other’s rating results so as to find safety in homogenous outlooks.

The regulators, one of the real dominating financial forces of our time, seem almost like some re-born central-planners of those that many of us thought were dealt a final blow with the collapse of the Soviet system. When we read in the Financial Times Comment and Analysis, March 16, how falling credit ratings might turn into an avalanche of sell-outs, only because some investors like the pension funds are not allowed to invest below some ratings and are then forced to divest, in a perhaps very untimely fashion, the whole arrogant regulatory scheme seems that it could come home to roost. Next time around, in the world of risk avoidance, let us pray for the humility that is needed to accept that a risk avoided could just as well be a great opportunity lost, or even a worse risk created.

March 08, 2007

But be careful of swinging into just another “patriotically correct version”

Sir, of course “nations and individuals do not grow weaker by confronting the truth” as Jacob Weisberg argues in his “Iraq: the patriotically correct version”, March 8, but sometimes it is wiser to lay low with the truth, before you have figured out what to do, after the truth is out. Otherwise truth could be like only rubbing the salt in, for no particular good political reason at all, and could even make things much worse when everyone starts panicking for the door.

Dov Sakheim with “Why America should operate from Iraq’s borders” FT January 5 and James Fearon with “U.S. Can’t win Iraq’s civil war”, Foreign Affairs, March/April 2007, are both making the point that there could be benefits in retiring the troops a bit and allow (force) the Iraqis to work out their own solutions, and as they must do if they want to have ownership of their own destiny. This alternative seems a possible way out, but its chances to succeed would obviously be so much better if the US hang around for a while, for instance at the borders, for if it went a hundred times more haywire than it will as a minimum go, and not having because of an untimely truth retired the young soldiers back to Kansas, from where no one will get them out for ages, because of just another new patriotically correct answer.

The addict and his new sourcerer!

Sir, Paulo Sotero and Edward Alden wrote about the United States and Brazil “Building a Biofuels Alliance”, Washington Post, March 8 and which in these days of climate change sound as far as it can from being a holy alliance. What a shame, when the United States should be cutting down on its addiction to cars, it is only looking for a new supplier, and when Brazil should be putting forward proposals to the world of how to keep the Amazon, they are just thinking of cutting it down in order to be that sourcerer.

March 06, 2007

Should there be resurrection fees?

Sir, Thomas Rubin is very right in that “Copyright must be respected as culture goes online” March 6, but he sure does sound excruciatingly rightful, when instead humility is much called for in this difficult issue. Perhaps he needs to be reminded that all the new protected culture is genetically a descendant of previous culture, in the same vein that Microsoft would not be able to pay for Rubin’s services had not the computers existed. Society should respect copyrights and similar but the copyrighters should also respect the society, not only because it invests copious resources defending their intellectual properties, but because it has every right to expect it.

There are currently hundred of thousand books, movies, photos and other copyrightable matter out there, that were it not for the power of the web they would be condemned to eternal darkness. Shall now the saviors that bring them to life and light again have to pay for the resurrections? I am not sure, but then again I am no expert as Mr Rubin.

March 05, 2007

Are there other alternatives than snus?

Sir, in How Europe can help snuff out smoking John Gapper points in the direction of the Swedish “snus”, a grinded tobacco you place under your stiffly curved upper lip. I have used it, 40 years ago, I liked it, but I can also testify against its total absence of esthetics, when brown liquid tobacco drips down between your front teeth. In fact giving up smoking this way might also require giving up other things as well, like dating.

An interesting alternative was also presented in 2005 by two professors of the University of Wisconsin-Madison, Robert Haveman and Jon Mullahy who then proposed a scheme for their local community where bars could trade smoking permits as a mean let the market arbitrage the difficulties of imposing non-smoking bans. Though cute, the idea seems not to have taken off, and I suspect is primarily because if a bar wanted to be a non-smoking bar it would always come out as a seller of smoking rights, while a bar that wanted to allow smoking would always be a buyer, something that does not rhyme well with market efficiency. The possibility of assigning a fix number of smoking permits per square foot/hour and auctioning them off to the patrons on a continuous basis, with any rights so acquired expiring within a short time period, could be an option favored by the derivatives community, as it would allow for the trading in second hand smoke risk and perhaps even a market in not-smoking-guarantees.

Whatever, the difficulties enocuntered in the area of quitting smoking should be used when analyzing the practical and ethical aspects of quitting carbon emissions, like for instancce when we think of leaving the solutions for the climate change in the hands of the trading of carbon-emission rights, and which though reminiscent of the indulgencies (shamefully) traded by the Catholic church centuries ago, lately seem to have captured the interest of some mainly protestant countries.

Divide and conquer?

Sir, your article “Embattled Wolfowitz seeks more cash”, March 5, personalizes too much the issue, since in reality it is an embattled world that needs solutions. At this moment we can only hope that the donor countries will live up to their commitments and replenish the International Development Association (IDA) so as to allow the World Bank to do whatever it can to keep the heads of as many poor as possible out of the water. But, having said that, the fact is that there is also a world of needs for a World Bank (of knowledge and ideas) to act on behalf of the world at large, and this does usually create the conflicts that typically break the weakest links, namely the poor. For instance now when if we heed what the scientists tell us about the climate change we seem to need more than ever an institution that can, as neutral as possible, analyze and tell us in what green solutions the world should invest its scarce resources, this could indeed step on many donor toes. Imagine if for instance the World Bank came up with an analysis that said that hybrid cars, wind energy, and biofuels were either wasteful or harmful solutions, some would indeed be upset, but should the poor in Africa pay for that?

Could this signify that it is time to split up the World Bank into a global World Bank and an IDA World Bank? To do so would at least introduce some more clarity in the institution, which is sorely needed. When you mention that some board members challenged a “frustratingly vague” budget proposal introduced by Wolfowitz, I can only smile since this has obviously nothing to do with him. You put the ten best renowned corporate leaders of the world to budget among the thousands of operations, loans, grants, research projects, seminars and what-have you, and that evolve around the more than 200 development topics, where no one knows or even asks what are the ten things that work the best (to scale them up) or the ten worst (to shut them down), and I bet my last shirt they would also be equally vague. Vague is the nature of the beast, and tame it we must.

March 01, 2007

A single line law could be more than just a Band-Aid

Sir, Jacob Weisberg makes a good description of the “Symptoms of an unsustainable system” that the American healthcare is showing, March 1, but he seems to miss out on the worst which is that while being a non-insured might be bad enough, it is really than having to pay for the insured that makes it truly miserable. Currently the non-insured that has to negotiate on his own always ends up paying many times more for his medicine and healthcare services than those insured whose price negotiations were handled by powerful and knowledgeable insurance companies. A small single line law, “thou shall not charge the weak and lonely any higher prices than you charge the strong in company”, could eliminate most of the current injustices but, then again, that might also be against the nature of the so many Americans that seem to find a somewhat curious masochistic pleasure in fending for themselves.

Though be careful with any incest

Sir, in “Such devoted sisters”, March 1, where you discuss the relations between the World Bank and the IMF and sort of imply that it would be good if they spoke with “one voice”, I would like to remind you though about the possibilities of incest. Those two organizations are designed to pursuit very different agendas, which by nature are often in conflict, and so their role is to debate all the issues openly, laying out the pro and cons, instead of shutting them up in the name of any harmonization gospel.

For instance, each credit risk avoided by any commercial bank as a result of the regulations coming out of Basel, something that could be viewed favourably upon by the IMF since it has the avoidance of a bank crisis high up among its objectives, could and should perhaps be regarded with utter suspicion by the World Bank, since it could also have been a splendid development opportunity lost.

The World Bank needs urgently its ten best and ten worst list

Sir, if your child received a grade five in an evaluation but you have no idea whether he was being graded on a scale of 5, 7 or 100, and or of how he where in relation to his fellow students, you would not have the faintest idea about how he is really doing. I make this comment with reference to your “Such devoted sisters”, March 1, and where you say that the World Bank “should introduce more rigorous external evaluations of its programmes”.

As a former Executive Director, what I most missed while in the Board was being able to tell after reading through the evaluations of any of the World Bank programs, whether that particular program was among the ten best, the ten worst, or just average. Before the World Bank’s management produces a yearly the ten best and the then worst list there will be no real evaluation and, before that happens the Executive Directors will not really know where they should be scaling up and where they should be correcting or closing down programs, and will waste all their efforts muddling though in the swamp of thousands of average programs. Sir, think of it, it is frightening when an organization does not make explicit what is working and what is not. Try yourself to budget and allocate scarce resources in such circumstances!