July 30, 2007

Do not ignore that bank regulators have played the leading role in finance over the last fifteen years.

Sir John Gapper in “Now banks must relearn their craft” July 30, describe how the banks that fifteen years ago were financial institution that lent people money moved into the business of investment banks, but are now thrust back to their old business as they find their balance sheet stuffed with loans that could be there for a long time.

There is nothing wrong in Gapper’s recounting of the story but strangely and like most or perhaps even all of his colleagues in the Financial Times, he does not mention the crucial role played by the banking regulators from Basel, who started it all by quite arrogantly thinking they could drive banking risks out of banking.

Well, the bank risks did not disappear; they went into hiding, just like any overly regulated business normally goes underground; and let us now pray that in this hide and seek game the world has not accumulated too many bank losses that it has lost track off.

I mention all this because if we are going to be able to handle some potentially very dangerous circumstances that might loom around the corner, we cannot afford to leave out the analysis of were the regulators went wrong, even though they are among the most respected citizens of our society, because it might be precisely in that area that we need to do a lot of fast and swift backtracking. As an example one of the first things that need to be done is to strip the credit rating agencies from much of the immense powers allocated to them by the regulators… as that can foreseeable only lead the world into worse and worse scenarios.

July 27, 2007

Without fear and without favour we need to punish the regulators!

Sir, John Authers in “Home to roost” July 27 quotes William Poole, governor of the St Louis Fed in reference to the current subprime woes saying “The punishment has been meted out to those who have done misdeeds and made bad judgments”. Forget it, soon it is going to be time to punish the real brains behind this mess, namely the bank regulators that displaying an amazing lack of wisdom, empowered a couple of credit rating agencies with so much say over the markets. Had it no been for some haphazardly awarded credit ratings the not subprime but criminally irresponsible behaviour of some mortgage brokers would have been contained in a couple of banks and not leveraged into the problem it now represents.

On your front page the same day there is also a report by Francesco Guerrera and David Wighton on “US executives find favours to analyst can secure better ratings” and honestly anyone who could be surprised by this have not walked the streets enough to be a regulator. Sir look around you and you could find more courses on how to obtain a good rating than on how to manage your real business. This all is lunacy and we are being set up for even bigger disasters and it must end, before it ends us. We need urgently to punish the regulators, at least on the count of being very naive.

July 25, 2007

Have 100% guaranteed incomprehensive financial model…will travel!

This is a great and handy tool for hedge funds when valuating portfolios and that will produce maximum commissions; and for the large US banks that have recently been authorized by their regulators to apply Basel II rules and now need to catch up with European competitors in lowering their capital requirements.

Low maintenance costs with access to an exclusive well churned and pliable data set licensed by the proprietor and that reaches back to 1840 and is equally impossible to scrutinize.

July 18, 2007

About Banana Republics and the moments of reckoning

Sir in March 1999 I published and article where I held that the effects of the global warming might be more severe than we thought as it seemed to even have shifted the parallel of the tropical Banana Republics northward, since how could we otherwise explain the current enormous fiscal and commercial deficits in the United States.

Now, eight years later, when Kenneth Rogoff in “Americans will eventually learn that deficits do matter”, July 18, mentions that “continuing inflows are probably holding down interest rates by at least 1.5 per cent and possibly more” I cannot help but to think of those investors that quite recently thought they were doing splendidly, when valued by a model, but that now have to face some crude realities when marked to a market that sometimes does not even seem to exist.

You should not give debt relief to “odious” debt.

Sir Alan Beattie in “Vultures unlikely allies in anti-graft cause” July 18 quotes Stephen Rand of the Jubilee Debt Campaign saying “Debt relief should never be used as a weapon of economic coercion by creditors” as implying that debt relief should be awarded even when governments are still corrupt.

What is this? As a citizen of a country with a government that I consider quite corrupt, I do not like anyone giving it loans, debt relief or anything whatsoever. Frankly, before corruption is ended most of any debt relief given would just end up allowing these countries and governments addicted to debt, to hit the bars again.

If the concept of odious debt is applicable in the sense that some debts should not have to be repaid if contracted in an illegitimate way, castigating the creditor, then the same concept should clearly also apply to the granting of any debt relief, punishing the debtor.

July 13, 2007

Yes we need a Peeping Tom free free trade core

Sir I could not be more in agreement with Mr Grant Aldonas’ suggestion for the first part of “A fresh free trade agenda for Doha”, July 13, namely that of a “plurilateral agreement among all WTO members willing to move directly to free trade on a global basis”. Just like in a nudist camp we need to separate the real nudists from the Peeping Toms, as only this would allow us to conform a true and honest free trade core

It is clear that many of those who profess a belief in free trade fake it, since how could you otherwise explain the sort of perverse satisfaction many show from entering into negotiating processes that hinders the free trade from really advancing. The true spirit of free trade does not stand a chance against these saboteurs and who are simply too scared of taking off their protections, but want to enjoy the view anyhow.

July 11, 2007

Some subprime heads need to roll.

Sir, The Lex Column of July 11, with respect to the subprime-mortgage-backed-securities and the rating agencies affaire duly says “Could the rating agencies have acted sooner? Possibly. True, it is not their job to simply react to market moves”. Nonetheless the column opens by citing John Maynard Keynes with “When the facts change, I change my mind. What do you do, Sir?” and this is highly inappropriate and exculpatory since the basic truth coming out is that there has been not one single factual change but only the discovery of some amazing sloppy job, not only by those issuing the subprime mortgages but also by those rating the resulting securities.

I have until now not heard a single word about one single credit rating employee fired because of such an obviously shoddy work and if there is no one made responsible at this stage the future will only set us up to even much worse result. I am not suggesting anything like the recent execution of a regulator in China for what there was a clear case of corruption but, figuratively speaking, some subprime heads got to roll too… and of course some wallets be emptied.

July 10, 2007

Go where the beef is

Sir, I really do not understand how, in “Latin Lessons”, July 10, you can even think about achieving a better US engagement in Latin America by entering the field of establishing comparison between the simple propagandas of “the $20m being spent on a four-month-long humanitarian health care mission, involving a visit by the Comfort hospital ship to 12 countries, to the scale of the health care plans launched by Mr chávez and his Cuban ally, President Fidel Castro”. That is like assessing the cultural efforts of Brittan in terms of how long the British Museum lends out their Tutankhamen collection to the world.

Of course the real dealings with Latin America have to occur in the real areas you mention such as energy, trade and of course migration, and there, if the US was to find a more constructive approach to Latin America, it needs primarily to start looking for a more constructive and consistent approach among themselves, in Washington at least.

The Inter-American Development Bank recently reported that the working migrants of Latin America remitted to their home countries $62.3bn in 2004 and if these represented 15% of what the workers earned, we are then talking about a yearly figure of around $415bn, of which the US contributes almost all, and clearly this beats anything that what Castro and chávez can come up using the money obtained by selling Venezuelan oil.

July 09, 2007

All we need is “outsourcing”

Sir, after reading John Gapper’s “A cleverer way to build a Boeing” extolling the virtues of almost full outsourcing with as opposed to chaining itself down an as close to 100% local component production as possible, I cannot but sadly reflect that in my country Venezuela, if offered to help produce a 2% of the A380 it would currently have rejected it on the grounds that I must be an effort by the Empire to penetrate it.

Outsourcing seems as a constructive road to world peace there is and in this sense we should perhaps promote a rule that states that no country shall be allowed to contribute more than 5% of the components of any weapon. I can almost hear John Lennon rewriting a song.

The world has no representation either

Sir, Wolfgang Münchau in “This gentlemen’s agreement fails Europe too”, July 9, makes a very clear case for why Europe by splitting up the European representation in international institutions such as the International Monetary Fund (he argues that it is to preserve many plum jobs) ends up in fact with having no real representation at all. I understand and agree with his point of view especially since it goes hand in hand with my opinion that since all the votes, and all the Executive Directors, and the Presidents, and so many of its staff are assigned on pure local considerations, it is the “international world”, the global order, or mother-earth itself, whatever you want to call it, that ends up being the most under represented party in these global institutions.

If we are going to be able to manage the global challenges it is urgent we look for means to break away from our parochial local chains. What about splitting at least 50% of the shares among varied constituencies such as migrant workers, multinationals, media, educators, environmentalists, NGO’s, accountants, farmers, manufacturers, service providers, and so on?

The only constituency that has currently a representation in IMF, a 100% one, is the constituency of central bankers and this need to be changed. Europe, if you must insist on naming the next managing director in the IMF then at least do the world the favour of appointing some finance knowledgeable person that has never worked for any central bank. That would provide us with much more needed diversity than just appointing another central banker based on the local consideration that he is from Asia, Africa or Latin America.

And this is no joke. Incest is about the most dangerous limiting factor when it comes to impede clear thinking and effective actions.

We need to slam Moody too!

Sir, “Moody’s slams private equity” is how Francesco Guerrera and James Politi title their report on July 9 about the strong criticism that this credit rating agency is making about the private equity industry; and I believe it is high time for us to slam Moody as clearly the powers they yield over the markets is getting to their heads. Who do they think they are? Is a neutral credit rating agency supposed to get involved into what business their clients do? If they do not like how the business is structured, and believe it will affect negatively the credit ratings, then they should say so, in their ratings. To come up with unsolicited a priori advices that could only bias their future outlooks is not what they are supposed to do. Next time they might just opine on the cars that GM should produce to get a rating.

Let’s face it, if we do not stand up to the credit rating agencies we will help to create and strengthen some real financial Frankenstein monsters, authorized to dictate their feelings about anything. And, do not get me wrong, there is not a world in Moody’s comment about the private equity industry that I would object to, I just object, totally, that they should be the messenger. The credit rating agencies have already far too much power for their and our own good.

July 07, 2007

Christopher Caldwell risks being sent to Speaker’s Corner.

Sir, Christopher Caldwell’s “Healthcare as horror movie”, July 7, where he discusses Michael Moore’s latest film Sicko dares to touch upon something that is clearly more sickening than what a truly horrific healthcare system could be, namely the big business present in feeding the insatiable and bias craving radical extreme misconceptions with even more bias so as to allow them to be even more extreme and hungry.

This reinforcement of beliefs business which has created and promoted stories such as the 9-11 incidents having being carried out by the US government itself; or the migrants workers plotting to assassin, rape and take over countries; and so many other lunacies, are slowly leading us into neo dark ages characterized not by the lack of information but by a massive overload of it, and that has us all screening in terms of what best tickles our preconceptions. Now, why do I qualify Caldwell’s comments as daring?

In 1872, the British Parliament decreed Speaker’s Corner in Hyde Park of London as a place reserved for free expression, and initially it attracted all those extremists who, although qualifying as nuts, still had the right to vent their opinions. Lately though, we have all witnessed how the original Speaker’s Corner speakers moved into Speaker’s Studios and now radicalism, anarchy, or fundamentalism is voiced on prime-time television. All of us others, modest low-key analyzers or rational in-betweens, have to settle gratefully for slots in after-midnight cable television, dubiously sponsored by the most traditional professional services.

As rationality could soon be viewed as symptomatic of a modern nut, we might all have to line up at Speaker’s Corner… and so we’ll see you there Christopher Caldwell.

A not so transparent someone else’s life

Sir in “A transparent life” July 7 you mention that “privacy is so last century” and comment about how the new internet technologies risk us losing our privacy. That may well be so but simultaneously you just need to go to any of the millions of web based discussion forums to notice that very few speak in their own name but hide out behind strange pseudonyms and avatars. I myself have opted for always using my own name, as the best way to assure I will never forget who I am and start talking in someone else’s name. And so, while we definitely must help to assure the right to privacy for the right private person we also need to simultaneously deal with the multi-personality disorders created on the web.

Gazprom in a public-private partnership?

Sir, in your “Putin’s piste”, July 7, you sort of allude that there might be a public-private partnership between Russia and Gazprom. Nonsense. That is just a public-public partnership that uses private sector flexibility to avoid the constraints that reason imposes on public spending. If Gazprom is anywhere like the Venezuelan PDVSA that I know, then whatever it does beyond their basic oil and gas exploration, production and refining business, is just a way to non-transparently lose or distribute some of their oil and gas profits previuosly made.

Private or informal?

Sir when looking to analyze “Private equity’s risks and rewards” July 7, it might be useful to always differentiate between what could happen when someone goes into private practice from what could be the results from hiding out, going informal. The freedom to be private must always be defended, just as the forces that drive the growth of the informal sector must always be opposed.

My timely warning about Jo!

Sir, as the final book of the Harry Potter is about o be released, just in case anything dark happens, let me remind you all that at least I did my civic duty by including the following warning in my book Voice and Noise in 2006.

“As the books about Harry Potter have meant so much for the upcoming generation and sometimes they even represent the only books it has read, there can be no doubt that the last Potter instalment can actually seal this world’s fate for a long time to come. J. K. Rowlings, or Jo as we are instructed to call her in her Web page, is someone to watch, very closely. Not that I distrust her, but we should perhaps think about censoring her (discreetly). What will be the lessons she will imprint on her young and not so young and even quite old (like me) readers’ minds with her final book? What if she goes haywire? I guess I’ll manage it, I hope, but will the young ones?”

Are the Scots entrepreneurial or gullible?

Sir Stefan Stern’s “Billions made so far from home” July 7, where he comments on so many “of the UK’s richest . . . are Scottish born – though most have found it necessary to leave the land of their birth to make their fortunes”, led me to think about Richard Llewellyn's “How green was my valley” and John Ford’s Oscar winning movie adaptation of it, even though that particular green valley was welsh.

I once used the “green valley” allegory in a speech to extol the development virtues of blissful ignorance, which allowed Venezuelans go to the USA, Americans to Europe and Italians to Venezuela; and everyone daring to do business just because they lacked information about how difficult the local circumstances were; and since nationals knowing about the hardships too well would never dream of doing anything.

And so the question that now goes around in my head after reading Stern is whether the Scottish born have an especial entrepreneurial sense… or are just an especially gullible lot.

July 06, 2007

Do we really know how currencies behave when nude?

Sir, the concerted and concerned called for “We must act when currencies become misaligned” July 6, by four US senators, seems timely and reasonable even though it is hard to detect much real urgency as the unemployment levels in the US are low. In the dark ages, less than forty years ago, these currency imbalances would take care of themselves once the gold had moved over from the strong currency country to the weaker vault, and which made a reshuffle of the exchange rates required in order for the game to go on. Not any longer, now the currencies have no specific backing, they are all naked, which makes the issue much more confusing.

One of the attractions of asking someone else to revalue their currency is that somehow, because of some magic that would make the Hogwarts curricula proud, you seem to avoid having to communicate that you are devaluing yours, or that in essence you are declaring a big domestic salary decrease when measured in international purchase power terms.

The senators rightly say that there is no one single answer to America’s international economic and of course they are right, even though I fail to fully understand how “responsible healthcare” is an instrument of this particular toolbox. Sir, the world has never really been in this territory of major currency misalignments while in a nudist camp, so let us pray that everyone tinkers very carefully with them, while we learn, and at least while it all seems to be working not too bad.

July 05, 2007

Global leadership should be global

Sir, when in “A chance to exert global leadership” July 5, you argue against the fact that Belgium has more votes in the International Monetary Fund than India “despite the fact that it does not even have its own currency” you really get it wrong. Belgium does indeed have their own currency, the Euro, and the fact that they are willing to share it with others could perhaps even argue in favour of them having more votes.

But what really bugs me is the déjà vu feelings I get reading the article, as I am sure that exactly the same things were said when Rodrigo Rato was appointed and, worse yet, that the day when voting rights finally get reshuffled using a new geo-economical realities, we will discover it really did not mean that much. In order to take the IMF and the World Bank to the next level of multilateralism in a globalized world what is needed is a formula more helpful to break those geographical ties that keeps them so chained to sometimes very parochial issues. Besides, if whom you are going to appoint to the IMF’s Executive Board are just central bankers you will never get any real diversity, no matter what country they come from and which just implies of course the slowly build up of another systemic risk.

July 03, 2007

What we first need is an insurance that covers the risks of the discoveries.

Sir, Stephen Cechetti argues in “A future of public healthcare for all” July 3 that the advances in genetics and that will be able to provide for better individualized projections of expected health costs will translate into a market failure that will force the private health insurance system into the arms of the public sector. Actually it is not a market failure that will do so since in fact the market could only benefit from knowing more about the risks, it is the market results that will be unacceptable, or at least let us hope so, since if those prognosed as much healthier sneak out from sharing the risks, society could turn much much nastier. For instance, there is nothing to stop a good health prognosis to also influence such variables as the admittance to universities.

Before we put any new safeguard system in place, which will certainly only happen when it is much too late for many, what we most need is an insurance that covers the risks of whatever extra costs we could suffer because of what they discover in our genes, and have everyone subscribe such an insurance, before they are allowed to take any genetic samples

On the fashion of titles

Sir, John Dizard’s “Where money is lost there are winnings to be made” July 2, is a valuable reflection on the yen carry trade, though I must say the title sounds quite démodé. From what we have been reading lately about mark to markets through models of markets, the titles in vogue are more in the nature of “Where winnings have been made, losses wait to be recorded”.

July 02, 2007

A myth or a plain vanilla fraud?

Sir Tony Jackson in “Myth that could undermine credit derivatives”, July 2, describes the possibility that the traders on both ends of a deal could, by using their own models, show themselves to be making a profit for years and collect bonuses on these. Jackson describes these mark to market mechanisms in terms of myths, though I would read them slightly more like frauds. Anyhow it all makes me think that the hedge-fund-derivative traders could in a near future be facing the same type of difficulties a tourist has when he needs to talk himself out of a serious problem in a language no one understands... well until now they have all at least gained a lot in the translation.