Is Benedict Mander trying to hide the fact that this supposedly socialist government is taking way over 10% of Venezuela’s GDP from the poor people who have nothing and giving it to those citizens who have a car?
As a former Executive Director of the World Bank I know that the columnists of the Financial Times have more voice than what I ever had, and therefore they might need some checks-and-balances. For more see "A Blog is Born" at the very bottom.
Would a child shouting out “the Emperor is naked” have his observation published in FT? Would he now need a PhD for that to happen?
May 31, 2008
What kind of reporting is this?
Is Benedict Mander trying to hide the fact that this supposedly socialist government is taking way over 10% of Venezuela’s GDP from the poor people who have nothing and giving it to those citizens who have a car?
If you have to handle uncomfortable truths, go for the right ones.
May 30, 2008
When in Rome, do not try to see every attraction but do not miss what has to be seen either
Since this food crisis relates more to economic growth and energy related than to unforeseen weather disasters, and there are many official watchdogs like the International Energy Agency, the Consultative Group on International Agricultural Research, even the World Bank, supposed to keep their eyes open, my suggestion of an 11th point, I believe far more important those point 4-10 suggested by Zoellick, is to figure out why world has been so taken by surprise with this food crisis and what can be done to improve the foresight.
Rating the rating agencies would be just digging us deeper in the hole.
Sir, “Who rates the ratings agencies?” May 30, starts from the premise that the credit rating agencies need to keep the immense powers that regulators have awarded them and that they therefore need to get better. You are wrong on that! The way to go is to reduce the powers of the credit rating agencies and so that the rest of the market have better incentives to analyze credits, for instance banks could instead of rating readers and rating predictors employ credit analyst again.
If the banks were just needed to report as an information the minimum capital requirements as judged on the basis of the assessments of the credit rating agencies but were actually not forced to apply these capital requirements, and for example go for a fixed percentage of capital to credit instead, then that would make of credit rating agencies what they are supposed to be, information providers, and not what they are, regulation enforcers.
May 29, 2008
Let us also free the development experts!
Easterly bases his conclusions on Friedrich Hayek’s teachings on the need of freedom for “multitudinous individuals to figure out their own answers” arguing that experts cannot impose this freedom from the top down. He is right but having, as a former Executive Director of the World Bank 2002-2004, witnessed myself how the risk aversion of those who manage the business of development; the vested interest of those who hire the development experts, the governments; and the experts own often non functional peer reviews all conspire against creativity and promotes useless development jargon, we should not forget that the experts are also in need of much more freedom.
May 28, 2008
Humans and animals are still challengers to oil.
In a world where cyclists and animal pulled carts are going over to cars and trucks, in many places, high oil prices, just makes humans and animals real alternatives again. Of course we could get some petrol out of coal, but, when push comes to shove, that is just another sort of oil, though perhaps slightly dirtier, no matter what the clean coal slogan says.
When it comes to oil FT does not write without fear and favour.
You talk about that driving is getting costly, but you do not dare to specify the components of that cost, could that be because the taxman still gets more than the oil man?
May 21, 2008
Hey, you missed the story!
The real story is how these agencies could have been regarded as infallible by the regulators who empowered them, and thereby forcefully or suggestively induced the market to blindly follow their ratings.
The article states "Credit ratings are hugely important within the financial system because many investors – such as pension funds, insurance companies and banks – use them as a yardstick to restrict the kinds of products they buy, or to decide how much capital they need to hold against them" and this gives the impression that the use or not of the credit ratings is a voluntary issue, which is clearly wrong. The investors mentioned, use the credit ratings because they have been strictly ordered to do so by their respective regulators.
Now if they managed to get you to spin a story about a once in a lifetime crazy mistake event that is never ever to happen again, then let me assure you that someone is shamelessly using you.
Yes, it is awfully hard to have the cake and eat it too!
Let's face it, globalization is awfully hard to discuss when "like most of us do we try to have our cake and eat it too and Martin Wolf's "How to preserve the open economy at a time of stress", May 21, is but another example of it. I agree with it all, full-heartedly, yet I have not the faintest idea of what I really have agreed with. It might be that we need to simplify the whole globalization equation in more manageable pieces.
Martin Wolf mentions for instance "redistributing the spoils of globalization, not sacrificing them" and which sounds a quite sensible thing to do. But that would have to start by identifying the spoils and perhaps wake up to the fact that the spoils are not to be found in a faraway country but in your own neighbourhood, in your own friendly neighbours courtyard.
Trying to speculate about where the non-obvious spoils are to be found, as those arising from higher prices of commodities are easier to identify, I frequently end up making two questions that might indicate possible new direction, exactly the purpose of questioning.
The first is. Is it logical that profits made by competing nakedly cost to cost in an efficient market should be taxed at the same rates that profits derived from an activity to which society has provided special shelter, like intellectual property rights?
The second, much more mundane, is why should a sportsman that earns a fabulous amount because he plays in a franchise with global reach pay income taxes based on where he slugs or kicks it out? Should he not pay it to his homeland or proportionately to where his audiences are?
Many of the consumers have had oil at $130 for decades!
May 16, 2008
Oil was at almost 10$... and heading south!
May 15, 2008
Could we please have our active commercial bankers back?
Should central bankers be allowed to own assets?
May 14, 2008
Americans, how sure are you it is not Mr. Jones that you should blame?
Clearly, if an American holds that the world has to stop growing, immediately, so that he can go back to his 2 dollar per gallon of gas, he has a point, though he would also have to explain what to do with a paralyzed world.
Devesh Kapur, Pratap Mehta and Arvind Subramanian, “Is Larry Summers the canary in the mine?, May 14, worry that American liberal intellectuals might now team up with Lou Dobbs and produce a pure local US knee jerk reaction, which would be both dangerous and unproductive for the whole world, instead of teaming up with them in finding some valid solutions for all. They are very right about that.
Americans should know that when you build an isolation wall the worst part is how difficult it is to be 100% sure that you got stuck on the right side of it and so, before shutting themselves out, they would de well trying to get at the root of who are really capturing a larger share of the GGP, since besides from those obviously benefiting from the commodity boom, one of the culprit might even be their next door neighbour, Mr. Jones.
But we did what the market told us to do not long ago!
Martin Wolf also quotes the International Energy Agency in order to establish a case for extremely tight oil markets but what was this agency saying just a few years ago? Why are they to be more credible now?
What Martin Wolf does not mention are the alternatives to the short term markets in oil and that some long term take up contracts between producing and consuming countries, based on some reasonable in between prices, could create stability and reduce volatility in the oil markets for the benefit of all...less the short term speculators of course.
There is indeed a case for a league of “real” democracies
Sir Robert Kagan writes about “The case for a league of democracies” May 14, and of course there is such a case, as long as we are talking about real democracies. Many citizens around the world pray for the existence of a club where only governments that show their own people their utmost respect could be members, and where not belonging to it, helps to send an unequivocal shaming message.
Now for this to be a true example-setting club, it should not be possible to become a member by sheer political wheeling and dealing, but only by meeting a set of very strict criteria that go much further than just having a popular vote.
For instance Venezuela though presumably having a popular elected government, should not be able to be a member of such club since though it is a very polarized country it yet has a Congress that includes 167 members who are in favour of him who wishes to be called ‘Commander’, and none, zero, zilch, of those many who are not the least in agreement with that. Additionally Venezuela, as an oil cursed country that by centralizing the revenues from the oil in the State has a government that is wealthy and powerful independently of its citizens, should obviously not be admitted to a club of real democratic leaders.
May 12, 2008
And then on top of it all there is the regulatory tax on risk.
Under the current Basel I Standardized Approach, a low risk corporate loan (rated AAA to AA-) requires a bank to hold only 20% of the basic 8% capital requirement, meaning 1.6 in units of capital, while a much riskier loan (rated below BB-) requires it to hold 150% of the basic 8%, meaning 12 units of capital. If the current cost of capital for the bank is 15%, then the bank's carrying cost for the low risk credit is 0.24% (8%*20%*15%) while the bank's carrying cost for the high risk credit is 1.80% (8%.150%*15%), thereby producing an additional cost of 1.56% that must be added on to the normal spread that the market already requires from the higher risk credit when compared to the lower risk one.
This mind-boggling 1.56 basis points regulatory tax on riskier but frequently more needed credits when compared to low risk but often not so productive loans, dwarves any Tobin tax proposals both in terms of costs and distorting signals, but it is blithely ignored.
May 09, 2008
What is the purpose of the financial institutions?
In fact given that the current purpose of the financial institutions seems to be extracting as much profits and bonuses as possible from them, some could even argue that there has been quite a lot of ethical behaving lately.
What is the purpose of our banks?
How long has it been since any bank regulator has asked himself the question of what is the purpose of the banks? It cannot be simply that of avoiding a bank crisis as that is just stupid.
May 08, 2008
But in all this slicing and dicing there is no cube with the fathers and mothers of the US
To this we would then also add the slicing and dicing that the US Census Bureau does when reporting on the characteristics of citizens who voted or not in the elections and which, to Jurek Martin’s components adds: Nativity Status (whether born in the US or naturalized), Marital Status, Educational Attainment, Employment Status, Tenure (whether they own or rent the house), Duration of Residence at the place where they now live, Veteran Status and the Region where they originally come from.But surprisingly, at least to me, no one seems to be interested in the cube represented by fathers and mothers! Since the backbone of a nation is its people and the backbone of its people is God and families one has to wonder whether someone is taking the US backbone for granted.
May 07, 2008
The bankruptcy of the finance sector regulations
The first is a definition of what we should have the right to expect from the regulated financial sector since hopefully it must be something more than just for it to avoid defaults. And how can you regulate without an objective?
Second, when Wolf mentions that “Capital requirements must be the same across the entire financial system, against any given class of risk”, this is way too important to leave at that, since it signifies that the fundament basis for all current Basel regulations, namely minimum capital requirements allocated on the basis of risk of default alone, has proven to be a bankrupt concept; with in this case “bankruptcy” being an unusually appropriate term.
By tinkering with risk and forcing upon the markets the “opinions” of the credit rating agencies overall societal risk has only increased and this has to change. Basel, do not go forward to Basel II or III, go back to the drawing board altogether!
May 02, 2008
Don't forget to sack some regulators too!
Our bank regulators have now for two decades forced upon us a system which sole objective has been to avoid financial turmoil, as if that is all that banking is about, and they have not even delivered on that!
Come on, that the bank regulators should get sacked when they do not perform must be the first pillar of any reform. This is turning out to be the mother of all the non-accountabilities.
We also need to review "normality"
Just because they are private doesn’t make the credit rating agents less bureaucrats
I just ask what if those credit rating agents had worked for the regulators. All hell would have broken loose. Our confusion arises from not being able to see through the veil that the outsourcing to the private sector signifies, so as to comprehend that the credit rating agents are just simple credit-risk-measuring-bureaucrat-commissars.