April 30, 2007

Please, pick the cherries!

Sir, Andrew Jack reports that “World Bank agency seeks to create African health funds” April 30, and that one concern about one of its agencies, the International Finance Corporation, launching an equity fund is to “ensure that for-profit healthcare services supported by the debt and equity funds in Africa do not simply back businesses that “cherry pick” richer patients but instead reach the poorest in rural areas in the lower income countries that suffer the most.”

Clearly we should try to find the ways to bridge the horrible needs of the poor in Africa, but while doing so let us not ignore that “cherry picking” is exactly one or perhaps the most important tool for achieving sustainable economic development. If the world had used more its development funds to help Africa to persistently service the health needs of their sweetest cherries, instead of having these go to Paris or London for their health treatments, then perhaps we would have allowed many more sherry seeds germinate into cherry trees and there would be more cherries in Africa.

It is amazing how sometimes development agencies are hindered from using what has proven to be good development tools in developed countries.

April 27, 2007

How much does blissful ignorance has to do with our current financial bliss?

Sir in your editorial comment “Securitised stability”, April 27 you mention that “there are benefits from dispersing credit risks across the economy: it makes banks less vulnerable for a start, and makes borrowing cheaper for millions of companies and households.” You are in general terms right but let us not forget that, on a world aggregate, diluting the risks does not really mean eliminating them and perhaps even the contrary if the dilution allows for the acceptance of more risks, as seems to have happened with the subprime mortgages in the US… and soon with the highly leveraged buyouts.

Let me advance the idea that what we have lately perceived as benefits from the shifting of credit risks could in fact also have much to do with the creation of a larger world reserve of “blissful ignorance” resulting from having designed so much sophisticated risk camouflage. A millionaire is a millionaire not only as long as he factually is one but also as long as he believes himself to be one, and it is only when the final cash-flow realities hits him that he might wake up to the fact that his portfolio has harboured some very new and peculiar risks.

April 26, 2007

Thanks, that was much needed!

Sir, our problems on planet earth are just too serious to allow us from not spelling out some uncomfortable truths. In this respect, with your ‘Carbon markets create a muddle”, April 26, and the investigations that preceded it, and hopefully those that will follow, you are performing a tremendous service to all of us who believe that the climate change threat is for real and therefore require that the actions to combat it should also be for real. The current carbon market where we sell indulgencies for some fairly undefined sins and use the proceeds for even less defined good deeds (after paying the commissions) will just not cut it, much less so if we leave it in the hands of blind believers or of a hypocritical environmental clergy.

One little raffle would do it

Sir, Barney Jopson in “Unknown auditor? Not in my back yard, thank you” describes how though everyone knows it is not good for the markets to be so much in the hand of just four big auditing firms no one really gets around to do something about it, and so it seems that your regulator could be lacking some testosterones. Honestly, how difficult can it be to pick, through a raffle, 150 of the 300 largest companies that should be able to use a mid-tier auditor, and just ordering them to do so within a year if the want to avoid a huge fine. It is high time for the world to start thinking about taxing the largest before they become the-only-one and so from auditor firms we might then have to move to the banks.

We need some new derivatives!

Sir, Paul J Davies reports that Moody’s warns on change of control clause”, April 26, with respect to a clause that is supposed to protect the investor from the risk that a company suddenly gets swallowed up in a highly leveraged takeover and leaves him with a much riskier investment that he had originally intended. As it seems some of these clauses when the credit rating agencies downgrade the company but, if the credit rating agency did, as it should, downgrade the company before the formalization of the takeover event then, as no further downgrading should be necessary, the investors could be left out in the cold. As I read it, this seems to be just another example of a derivative market that needs to be developed in order to cover the changes in credit rating methodology and timing of announcements applied by the credit rating agencies. And, after that, perhaps the only remaining risk we need to cover before we can sleep calm under our blissful protective cover, is the regulator risk but, come to think of it, there might not be pockets deep enough to guarantee the counterpart risk on that.

April 25, 2007

Do not tax the migrants, make them save instead.

Sir, I could not agree more with Philippe Legrain on that Europe (and the US) need urgently to develop some large scale temporary immigration programs if they want to have a fighting chance of keeping what is happening under reasonable control. If the political price to pay for such programs is along the lines that he suggests in “A migrant tax would slash illegal entry into Europe”, April 25, namely an “extra payroll tax on foreign workers” so be it, and only because something is better than nothing. Nevertheless, let us be clear that what he is suggesting is a form of bribery offering all the “true” citizens to share into the earnings produced by the migrants, the secondary citizens. It is also equivalent to a handicap system where you place a special tax on the shoulders of foreigners, so that your homeboys can easier compete, which could have of course some long term debilitating effects for your own.

Much better is a system that looks to really guarantee the temporary aspects of it all. Not only do you have to make certain that the migrants keep up their contacts with their homelands, so as to avoid the risk of any heart-drain but also, that those same homelands manage to get better homes to return to. That you take a percentage of the migrants earnings and place it into a savings account that he will get back when he returns home, sounds much more reasonable than taxing him so that he might remain poor and impeded from returning home.

April 24, 2007

Brands are brands and that’s the way it is!

Sir, of course brands are useful when they motivate you to keep the name of the Financial Times in good standing, and me to do the same with my name. Having said that I feel you might have gone a bit overboard when in “Red Hot Brands” you defend so strongly the utilitarian value of brands, and I suspect it has to do with you feeling a bit uncomfortable with some of the questions those anti-capitalists that you refer to make, some of which are indeed quite difficult to answer. Forget it, there is no reason to be ashamed, brands are brands and just another fact-of-life that results from our human desire to identify and be identified. The next time some anti-capitalist nags you about brands just ask him about his Che.

And so, having hopefully cleared the ideological hurdle, let us now discuss objectively one of the main consequences of brands, which is that they frequently create quasi-monopolies that among other allows for wider profit margins. For instance one of the (mostly ignored) reasons for the declining shares of labour income in gross domestic products is most probably the growing importance of brands, plus of course all other type of intellectual property rights. And, so what can we do about it? I haven’t the faintest. I guess you could speculate on some progressive tax on brands depending on their market penetration but most probably, when in so much doubt, the best we could do, is to do nothing at all, letting the market to take care of that, as it sometimes seems to be doing through the pirating of brands... offering generic Louis Vuittons.

April 23, 2007

The World Bank, though in a hole, needs to dig deeper

Sir, as a former Executive Director of the World Bank (2002-2004) it is with much sadness that I have followed the Wolfowitz affair. It is clear that he should not have played a role in deciding the terms on which his girlfriend was seconded to the US state department” and that he should leave the Bank but, having said that, we need also to question the general idea of the World Bank seconding anyone, even on reasonable and non interfered terms, just to solve a conflict of interest… permitting someone to have the cake and eat it too.

In contrast I remember while an Executive Director how we spent millions of dollars of the Board’s time just in order to debate a “measly” forty thousand dollar a year increase for the then World Bank president James Wolfensohn, so that he would be able to earn as much as his counterpart in the IMF.

Now, after so much procrastination, by all parties, the only real solution for the World Bank, with or without Wolfowitz, lies in appointing a committee of true outsiders to dig deep and review all the World Bank’s current work related policies. The World Bank, when compared to other similar institutions, is very clean but of course, after 64 years of accumulating problem solving compromises, it should be time for a good scrubbing.

The world needs the World Bank to come out of all this smelling like roses and frankly its good staff deserves it.

The pastor risk is the risk that investors just share into blissful ignorance.

Sir, Wolfgang Münchau is correct when saying “A risk shared may be more risky, not less”, April 23. As arguments he presents, first the deceased US economist Hyman Minsky’s general pessimism (or may we dare say realism) that instability is an inherent part of the system, and then Raghuram Rajan’s, former director of research at IMF, who argues along the line that the investor’s increased willingness to invest in “tail risk” and their “herd” mentality could lead to a catastrophic meltdown.

I myself have been writing and warning on these specific issues for a long time, though mostly on the risk present in assigning too much market decision power to very few credit rating agencies and which introduces not a herd but a “systemic pastor” risk.

For instance in the ongoing subprime mortgages debacle, the distance between the borrower and the final lender increased too much, just because everyone counted on others to be able to provide sufficient oversight. When we now start seeing how credit rating agencies rated without even sending a team to walk the streets in order to sample how those subprime mortgages originated, we should be able to conclude that the investors besides sharing risks, were also sharing blissful ignorance.

How to get someone else’s grandson to take care of you when you are old?

Sir, Michiyo Nakamoto reports “Japan requires age-old wisdom on problems of productivity” April 23, on how a country of saver “who have long been happy to keep the bulk of their wealth in bank deposits” now have to start looking for improved returns on their money in order to make ends meet in an ageing society with declining workforce.

This is just the beginning of some truly important intra-generational transfer challenges that have been surprisingly little studied, and planned for, and simply accepting more risks in order to get better returns does not really cut it as a sustainable solution to this problem. For instance the Japanese society might need to take an urgent look at issues such as the saving propensity of the coming generations in Japan and the rest of the world, since if those generations do not want to save as much as theirs, then with whom are they in the future to barter with their investments and savings against the cash they need. Could it even be that they could be better off by simply cashing in their investments today and holding the cash?

Needless to say this is a question that affects many countries and I can already see a young generation of nurses in developed countries asking and getting six figure incomes… or even much more if they restrict the competition with foreign nurses.

April 20, 2007

The public private matrix

Sir, strange how terms could seem to evolve! I say this because when reading the title of Gillian Tett’s article “Multi-layered finance a defence against private equity”, April 20, the first thing that comes to mind is who would have thought it possible that FT would imply that some defence against private equity could be needed? Of course, Gillian Tett’s excellent article is perfectly clear what is meant, but then again perhaps using the term “private-private equity” would lessen the chances for confusion, and perhaps even of having it quoted by those who like Hugo Chavez in Venezuela favour the public sector to take control of some private companies. That said, in the matrix of private-private; public-private; public-public; I believe we all agree that the worst, by far, is the fourth quadrangle, that of private-public.

On the article itself, and after we have seen how fairly simple facts such that mortgages should be issued on reasonably sustainable terms were mostly not caught by the rating agencies, perhaps covering it all in some sophisticated multi-layering-finance, contrary to what is said, could in fact make it easier to obtain a credit rating agency’s letters of approval. You see, the worse the tangle, the easier to talk yourself out of it when caught wrong; it is when things are really simple, that the going gets really rough.

April 18, 2007

A rescue plan for the subprime mortgage blow-up

Sir, Desmond Lachman in “Housing bubble burst into American elections”, April 18, paints a very sombre picture that is just made much worse by the possibility that the first order of action, in this fire, will be to apportion the blame. We all must know that any plan that wants to have a chance to contain this disaster, needs to accept that its goals have just as much to do with improving borrowing, lending, packaging, rating, investing and regulating histories. No party is without blame.

1. If companies can have a Chapter 11 time-out, there should be no reason why the subprime mortgage sector should be forced to panic.

2. There is but one way to minimize the overall costs to borrowers, lenders, investors and society, which is to find the mechanisms to turn these uncollectible subprime loans into collectible prime loans and then have the costs of doing so shared by the parties, with a final settlement postponed in time, way down the road. For instance, if the borrower can only service a normal low fixed rate loan at a level equivalent to seventy cents per dollar on the actual dollar owed, then the loan has to be written write down to 70% plus a reasonable loss recovery clause applicable much later, when the real value of the houses support it.

3. In order to implement the program there will be a need for a fund that would repurchase mortgages through an auction system at the lowest cents per present value of dollar tended.

4. Those lenders, or packagers, or investors who would wish to implement a similar program on their own, or proceed directly with their foreclosures after the time-out, are free to do so, but need then to accept direct responsibility for any wrongful behaviour that could have been present during the original signing of the mortgages.

Easy stuff!

Sir, the sequencing of economics often creates confusion. For a normal person, if the US core inflations slows down, April 18, that sounds good, so the dollar should be worth more, while if the UK core inflation goes up, April 18, that sounds bad, so the pound should weaken, but then in reality, like seems to be the case, April 18, the opposite happens. Why? Because as inflation goes down you can afford making money more available while when it is shooting up you have to make it more scarce, and investors do naturally prefer to be where their money is scarce and therefore, hopefully, counts for more in relative terms.

Now, this is only the first round since if the pounds are then not as scarce or the dollars made as available as the investors expect, then the foreign exchange movements could reverse themselves. All this ceteris-paribus which in Latin means all-things-kept-equal but that in normal slang means ignore-the-complications, and , of course, within comparable realities, as we all know there are places where money will always be utterly scarce without the investors being tempted to go there.

Now, in these circumstances, the only thing that is expected from an intelligent investor is to know where he finds himself; where the rest of the market is; what the gatekeepers the Fed and the Bank will be up to; and what other surprises, normally busts and other ugly affairs, could interfere with the way you infer things should be heading. Easy stuff!

April 17, 2007

Should we then go after the intellectual perpetrators?

Sir, John Dizard in “A reform unlikely to dent rating agencies’ armour”, April 17, mentions that the credit rating agencies believe they are immune from legal liability from their work because now matter how careless they are, for instance when rating mortgage backed securities without even doing a representative survey on how those mortgage loans were awarded, their “opinions are protected speech under the Constitution.” I am no expert on constitutional issues to opine on this but, whether that is true or false, I do not believe any constitution would allow for forcing people to obey the ramblings of the opinionated, and so perhaps then we would need to go after the intellectual perpetrators, namely those financial sector regulators who have found it convenient to delegate so much power into so very few hands.

April 16, 2007

The world needs the cleansing and energizing forces of volatility

Sir, Tim Young in his letter on “How Japan’s investment was paralyzed”, April 16, asks the very relevant question “whether the cumulative loss of output [of following a conventional low interest rate policy] is less than might have been suffered if macroeconomic policy had allowed the asset price bubble to pop rather than deflate slowly.”

I certainly believe the losses of letting a problem fizzle out are in the long run, in average, always larger than having the bang and getting on with it, and so do you, for instance when in employment policies you commend the American styled labour flexibility that allows for easier firing so that resources can be better and faster reallocated. Sir, if you can lose your job, on the dot, because it is good for the economy, what would make losing 30% of the value of your house any different? What is better, keeping the high value of your houses or allowing your kids to afford a house?

It is time the world starts to think again about the cleansing and energizing forces of volatility and remembers that the absence of tremors could just mean a bigger earthquake in the making.

April 15, 2007

It is more of a wondrous world!

Sir, “when on April 12 you wrote that “The IMF reports on a wonderful world” the adjective wondrous could have been more appropriate. IMF, in their Global Financial Stability Report, April 2007, has the following to say on page 15. “The persistence of global imbalances brings with it an important financial stability issue—the problem of sustaining the financial flows needed to support the imbalances.” I rest my case!

April 14, 2007

Distraction from destruction?

Sir, in the Global Financial Stability Report prepared by the International Monetary Fund (IMF) for their meetings in April in Washington we can read (Box1.1, page 8) that “$220 billion of the outstanding stock of subprime mortgages and second-lien loans packaged into asset-backed securities (ABS) in 2006 was comprised of noninvestment-grade tranches, most of which were repackaged into collateralized debt obligations, CDOs . . . [with] about $175 billion of senior tranches, $40 billion of mezzanine tranches, and only $5 billion of equity tranches”. Since the previous quote reads so eerily close to a technical description of what could be a financial weapon of mass destruction, it is really hard to fathom how little attention it received, even recognizing the distractions.

From my perspective, although some will look to camouflage these problems and their roles in creating them with arguments such as a weakening conditions in the housing market, there can be no doubt that the market for these investments were in fact exposed to too generous credit ratings. I have no clue about the quality of the $ 40 billion in mezzanines, but to think that only $5 billion in equity tranches could serve as a reasonable shock absorber for the risks in the remaining $215 billion of paper is almost laughable, since we all know that the protective worth of those $5 billion has probably all been readily consumed by all the expenses and success fees generated in order to put in place the deals and market the paper. In an almost humorous note, the IMF worries about the worth of these $5 billion of equity tranches, while of course what they need to worry about is the remaining $215 billion, wherever they can be.

Therefore, one of the main problems that should have been analyzed more in depth during the spring meetings was the possibility that having awarded so much power to some few credit rating agencies in determining the capital flows in the world, might have set it up to some very dangerous financial systemic risks, and then of course on what to do about it.

April 13, 2007

The problem with the sub-prime mortgages is just the tip of an iceberg.

Sir, Gillian Tett when saying that “Subprime proposals could broaden litigation risk all around”, April 13, she mentions at risk those who originate the lousy mortgages that have not considered sufficiently the debtors financial realities, the Wall Street banks that later repackage these in order to resell them to the public, even New York that might lose out in its standing as a financial center, but she does not yet mention the credit rating agencies who have been assigned most of the responsibility for certifying the quality of the final products. The fact that we live in a world were some credit analyst can rate a portfolio of mortgages without even thinking about leaving their desk and go for a field trip to check up on some of the actual individual real loans, points at one of the principal problems of the current bank regulation framework that has been coming out from Basel over the last decade, namely that of wanting to install a system that allows for monitoring from a distance, based on historical risks assessments, without having to get your feet dirty.
Sir, here and there, the financial world is being exposed to some extreme systemic risks, and it behooves us to be aware that this problem with the mortgages is just the tip of one of many icebergs.

Are there triple standards too?

Sir, I have just sat through a two day seminar in Washington organized by the World Bank Institute on the “Effects of mass media on public policy”, listening to conclusions of research papers that, among other, track media bias using tools such as counting how many times some word appears or do not appear in the context of the discussion of some specific theme.

Richard Beales, in “A whiff of double standards”, April 13, assigns the responsibility for the sub-prime mortgage mess in the following way “Some borrowers have no doubt misled by brokers. Some brokers have surely misled borrowers. Some lenders have been lax and some investment banks may have been blasé and glossed over a few risks in selling securities.” That “borrowers and brokers mislead” while investment bankers are merely blasé might raise some eyebrows, but, what the word counters of tomorrows would most notice, is that the credit rating agencies and those that gave the agencies so much power, are not even mentioned. Are there triple standards too?

April 12, 2007

What an opportunity we seem to have missed!

Sir, Daniel Smith writes that “Politicians cannot control Nigeria’s corruption crusade”, April 12, and of course he is right, since absolutely no one could do that, at least not while oil prices are high. He writes about Nigeria saying “its politics remains a stark scramble for power in which elites compete for domination of the state apparatus to reap the benefits of control over enormous oil revenues” and as happens, the population then elects a government to whom hand over the oil revenues that in reality belongs to themselves, only to thereafter have to spend the next couple of years licking boots in order to get some of that same oil money back, while the elected government officials, arrogantly, not in need of other tax income, couldn’t care less about them. It is only when you get to understand this that you really get a feeling for what a wonderful opportunity the world seems to have lost in Iraq. Can you imagine what having helped to channel the oil revenues directly to the Iraqi citizens in a transparent way could have done? That could really have been called democracy building, and setting a great example for the citizens of Nigeria, Venezuela and all the other oil cursed nations to follow.

April 11, 2007

What about all the rents that go to the intellectual property rights?

Sir, Martin Wolf in “Employment policies can ensure a fair share of the feast”, April 11, when commenting on the declining shares of labour income in gross domestic products, in reference also to the latest World Economic Outlook of the International Monetary Fund, describes it as either being a consequence of globalization, in terms of the production being allocated where salaries are lower, or of technology changes. Neither IMF, or Wolf, consider the possibility that there could be other reasons (or “culprits”) involved, like for instance the much intensified award and defence of intellectual property rights around the world, and that has created so many new monopolies that are not really that much regulated, and that frequently manage to extract incredible rents. I mention this since having quite recently heard about the outlandish proposition that “tax saving strategies” should be awarded a patent, it should be clear that any patents like this, when thereafter sold to an investor, will of course then provide immediate and guaranteed returns to capital, and not to labour.

Withdrawal to where?

Sir, you are right about there being “No easy route to an Iraq withdrawal” April 11, but one of the main reasons for that is perhaps that the where-to-withdraw has not been very clearly defined. Withdrawing to a place close by, perhaps even to the borders of Iraq, to see how it goes means a world of difference from a withdrawal to Kansas, USA, from where no politician is going to be able to suggest to take any American troops out, for decades.

April 05, 2007

Let us not waste this opportunity to make a very significant reform at the World Bank

Sir, on the web of World Bank (WB) we find an interview with Suzanne Rich Folsom the Director of the World Bank's Department of Institutional Integrity (INT), on the theme of fraud and corruption. When questioned "What sanctions are imposed on those misusing WB's funds?, she answers "when we find that a supplier has engaged in corruption in a project, we take actions to debar them – which means to make sure they can't get any more contracts for a while. We also publicly debar – we list their names on our website. 'Naming and shaming' is a huge deterrent." This sounds of course reasonable, especially considering that INT is not a court that could send anyone to jail.

Unfortunately, immediately thereafter, Folsom also has to say the following: “We’re often asked why we don’t publicly name WB staffs that are terminated for fraud and corruption as well. The WB’s rules don’t allow such disclosures…”, and this, no matter how you look at it, is of course something completely unacceptable and represents a truly ugly wart on the public face of what in so many respects is the best managed of all our international organizations.

Perhaps these days, when the World Bank’s President’s and a former staff names are publicly mentioned everywhere as having done something not correct, FT April 5, this could be the best opportunity ever for getting rid of whatever crazy disclosure rule stops the World Bank from living as it preaches.

Our valuable reservoirs of gullibility

Sir, can you imagine if we were not able or allowed to be gullible? What an awfully boring world it would be, drowned in rationality without being able to let our fantasies run wild, like Jacob Weisberg does when after drinking several cups of some green tea that on the label sells “a wisdom beyond wisdom” he comes to the joyful conclusion of a “I do believe it works”, “Green tea, the elixir of false virtue”, April 5.

And that is nothing when compared to analyzing gullibility from an economic perspective. Without it, can you imagine how much we would have to wipe out of the world’s GDP? In a world where so many jobs are currently being lost in the name of efficiency there can be no doubt that our last hopes of respectful employment lie in the hands of our reservoirs of gullible behaviours, and which thankfully seems to be quite renewable, at least as long we keep gullibility destroyers like Ralph Nader very far away from them.

As my own humble contribution to job creation I am currently giving a lot of credence to that innovative urban rumour that says that for an elevator to be able to offer a smooth and really “lucky” ride, it needs to be manned by a lift attendant who plays a solitary game on his or her computer while working.

Does Le Pen want a patent?

Sir, once when reading an analysis of the cash flows derived from the sale of a music CD went, I was surprised to see how much went to the record company, how much to the taxman and how relatively little to the musicians and composer, being these last ones those you really think of in terms of being defended by the intellectual property rights. I mention this because when reading Krishna Guha’s “IMF says workers’ share of income pie is shrinking” April 5, we are presented with only two possible culprits, globalization (in terms of placing productions where salaries are lower) or technological change, while perhaps the intensified award and enforcement of intellectual property rights that has lead to the creation of so many non-regulated monopolies might have a lot to do with the salaries being less and less of the cake. Hearing about the possibility that patents could be awarded on such exotics as tax saving strategies and also reading, in the same FT, a headline that states “Rivals are stealing my ideas, says Le Pen”, I guess that we who live on salaries better have a much closer look on this issue than what the IMF has done.

Sir, excuse me! I just read your editorial of today “Capital versus labour” where you as the cause for the growing share of profits also mention “globalization and technological innovation” and where you with globalization limit yourself to "competition in labour markets” and so I guess my previous comments of intellectual property rights that might have gone berserk, applies to your editorial too.

How are the fines split?

Sir, Patti Waldmeir starts of very well with “Bribery is not just a cost of doing business”, April 5, but then it sort of fizzles out in some “we need to be as competitive as our competitor” language, and giving examples of the recent upping of some fines which on the contrary only reaffirms the whole issue as just an increased cost of doing business.

There are some things we should be very clear about and that is that bribery is a criminal and vulgar behavior and that, if allowed to continue, it will in this shrinking world haunt everyone, whether a developed nation or not. Many of your current problems with excessive illegal migration or even the wars you are, or will be fighting, might indeed be rooted in some acts of bribery performed by your own ancestors. If I was invited to your home and bribed your butler to serve your finest French while you had in mind only to offer me a decent Australian, what would you say? Exactly! It behooves everyone to get a global grip on this problem if we are ever going to have a chance to get a grip on other problems, such as the environmental. In this respect I guess that before we see the first couple of executives from big corporations sent to long jail term in their own countries, because they have bribed some bureaucrats in the poorest nations we won’t get that far.

Finally, on a more practical note, when Walmeir mentions that a UK company had to pay “$26m for the privilege of paying $2.1m in bribes to Nigerian officials” can you tell me how much of that fine has gone to Nigeria, the hurt party? Nothing? Golly does that not sound a bit like doing some innovative business! If I was a Nigerian citizen, could I sue the UK Company in the US?

April 04, 2007

A spaghetti bowl might give more jobs… to some

Sir, Martin Wolf makes a splendid case for how the free trade reforms could be handled better than when “A Korean-American strand enters trade’s spaghetti bowl”. What he might turn his eyes blind to (quite appropriate for a columnist of his statute) is that many or perhaps even most of those working on free-trade-issues might be following their own expanded agenda of working-on-free-trade-issues and in that respect, to try to make sense out of a spaghetti bowl, seems to guarantee much more jobs than a straightforward single WTO. I do concur with Wolf when he mentions that “a single trade agreement open up to any single country prepared to sign up” could be a much more useful template since indeed, if free trade is really as good as we say it is, then why should we negotiate about it. I mean, you do not go to a nudist camp to play strip-poker!

Bank needs products

eSir, your “Bank seeks customers”, April 4, in which you describe the headaches of someone who is losing a valuable market niche, in this case the Asian Development Bank (ADB) as its clients have grown richer and don’t need it anymore, reminds us about a not so well known flip side to that saying that a bank only lends you the umbrella when the sun shines and asks it back when it rains. Your title might not be entirely correct since the customers are still there and so what they really have to seek are new products. No interest income? Go for fees! In questions about the environment and energy there is much need for some really independent and neutral advice, as the world might be wasting its last chances of fixing its climate change problems by falling for some well marketed but inefficient hybrid solutions. And in terms of the increasing global migration, why does not ADB develop a temporary worker program that meets everyone’s expectations and needs, then patent it, and charge for its use.

April 03, 2007

Sorry I must have done something terribly wrong!

Sir, yesterday I suddenly received a pop-up in my computer informing me that since I had sent one same message on one same day to 500 recipients, Gmail had reasons to believe I was involved in some very dirty spam activity and so they had decided to sentence me to 24 hours suspension, which luckily did not include receiving emails. The sentence was carried out immediately, there was no court of appeal, and when I write this, I am already on my 36th hour and yet no release.

What did I do? I had just created a blogspot that contains some fresh questions that I think should be made to the candidates for the presidency of the US in 2008, so as to get to know them better, and I was communicating this to a list of professors and PhD students that I had found on the official web sites of the universities. To be able to send my other routine emails, as well as this one, I had to speedily open a competitor address ,yahoo, though I still shiver at the thought of what would have happened if they had suspended my incoming mail too leaving me totally incommunicado.

I am absolutely certain that in one of those small printed documents of understanding that I must have clicked I have accepted Gmail´s right to do as it pleases with me, but does this really mean they have the right to do so?, without any forewarning?, when they also make a living by transmitting their spam like ads with our private e-letters? I really do not know how to answer those questions but at least I immediately confessed to my wife and daughters what had happened, and they took it well, which lifted a very big load of bewildered shame from my shoulders.

Yours truly,
(Name withheld)
A presumably dirty spammer

April 02, 2007

The mother of all systemic risks

Sir, when Richard Beales reports (April 2) that “Uproar forces Moody’s into U-turn over bank ratings” he gives compelling evidence to what some of us have been voicing for almost a decade now, namely that to give some few credit rating agencies so much decision power about how the world’s financial flows should be allocated will, sooner or later, implode or explode into a crisis, as that carries within itself the genetically coding for the mother of all the systemic risks. By reading their “theological discussion” of “how to factor into ratings the possibility that some banks were unlikely ever to be allowed to fail even if they appeared financially weak” you surely must conclude that we might have all been placed on a vicious circle that could perhaps only end with the demise of the by then the world’s only remaining bank. On a side issue, can you sue your credit rating agency for the losses caused by the additional market volatility that his change of heart creates?

Don’t cry for the bank regulators

Sir, Wolfgang Munchau in “Cross-border banks require a single regulator” (April 2) explains that this is now becoming a European Unions issue as a consequence of the cross-border mergers of some European banks. Munchau should not forget though that for many of us living in developing countries, where sometimes the majority of our local deposits are held in banks controlled by foreign interests, the question of who really is the final responsible regulator has always been present, especially since we know how relatively easy it would be for banks in times of crisis to decide who are left holding the bag. Could a foreign regulator be sued for not doing his job properly? As to the consolidation among the regulators themselves and that could imply some of them losing their jobs, we shed no tears for them, since they must have known they had it coming when the bank regulations coming out from Basel so much favour the consolidation between the banks.