What derives from what?

Sir we used to believe derivatives derived from the market but each day that passes, with articles such as "Derivatives law sheds light on the financial ripple effect" Aline van Duyn, August 29, we suspect that it could equally be that it is the market that derives from derivatives.

This reminds me of what I have always felt about the issue of immigration and securing the borders, namely that whenever you build a wall you cannot be absolutely sure you end up on the right side of it.

The minimum minimorum of exiting Iraq!

Sir your “Exiting Iraq”, August 26, concentrates mostly on the logistics of getting out, like not leaving permanent bases and receiving legal immunity for the forces. After so much suffering can we not be more ambitious?

I was never in favour of the invasion of Iraq but, once it occurred, I pleaded for a scheme that would put its oil revenues directly into the pockets of all the Iraqis, and thereby set an example that could help to empower the democracy in all the other countries that are cursed with the centralization of their oil revenues… the mother of all oil curses. Unfortunately, the supposed builders of democracy forgot bringing with them to Iraq such a fundamental building block.

Now, when exiting Iraq, as a minimum minimorum, we should at least aspire that the next Saddam Hussein, whenever he will appear, should not find it easier to be the next Saddam Hussein… much the same like the next Bush, whenever he will appear, should not find it easier to be the next Bush.

Financial traffic jams are also caused by financial Global Positioning System

Sir we are grateful to Christopher Caldwell for drawing our attention to "Traffic" by Tom Vanderbilt, "Caught in the human traffic", August 23. From what we see that book should urgently be made obligatory reading to all bank regulators in Basel, so that they learn what happens when you impose credit rating agencies as the Global Positioning System supposed to direct the financial flows of the world.

That "Predictions about traffic become 'self-destroying'" is exactly what lies behind that systemic risk that brought us the subprime mess. They should have known it!

"Once everyone gets the same reliable real-time information about traffic everyone mobs the same route" questions the whole underpinnings of our current bank regulations, namely that you are able to measure risks without affecting the risks.

When the book quotes German physicist Michael Schreckenberg "telling them the whole truth is not the best way" we begin to understand Angela Merkel's request for a purely European credit rating agency.

We need to look at other possible explanations than trade

Sir Jagdish Bhagwati in “The selfish hegemon must offer a New Deal on trade” August 20, complains that “the labour lobbies believe, without any compelling evidences, that the American wages have been stagnant because of competition from the developing countries”. But, even if he is right, since he offers no other alternative explanation for the widening gap between the returns to capitals and the returns to labour in the economy, he is actually helping to keep the focus on trade as being the culprit.

Bhagwati would serve his worthy cause better by pointing out the effects of other developments that have run in parallel to the growth of global trade. How much of the capital-labour gap could be explained by the following?

1. The discrimination implicit in risk based pricing that has allowed the financial sector to charge some groups with extremely high interest, based on some quite dubious logical reasons. Borrowers that cannot pay the high interests should not have received the loans to begin with, at least not at those high rates, and those who can serve the loans have de-facto evidenced they merited lower rates.

2. The growing tendency to use intellectual property rights of all sort and kinds to create unregulated monopolies that capture rents.

3. The increased regressiveness of taxes that results from the tendency of turning away from taxing income to taxing consumption.

Net out the effect of those three factors and you might not have anything left to blame trade with.

Indeed how will this risk-based priced consumer generation respond?

Sir Aline van Duyn is exploring vital terrain in “Hard-pressed consumers refuse to read from script” August 18 analyzing how this generation of “risk-based priced” consumers will respond.

Just for a starter there must be a world of difference between having you credit worthiness assessed in an eye to eye conversation by a lending officer and today’s having a computer read you number. At least it must be affecting the moral implications in the “to pay or not to pay”.

I suspect we will also see a growing reluctance from the high interest rate payers to remain in that group since if they can service their debt adequately at those rates they might feel they are de-facto meriting lower rates.

Risk based pricing, which is similar to placing persons that after some doubtful genetic test are presumed to be especially exposed to an illness in a separate insurance pool, could be causing much of the growing social inequality that is currently attributed by some to globalization. Risk profiling, for a discriminatory purpose, is prohibited in most spheres of our social relations, except in lending where it is very much cheered, by most.

On unwelcome advertising

Sir John Gapper in "Advertisers will see you read this", August 14, describes very well how the advertisers wish to obtain more and better information on our habits and how this could intrude on our rights to privacy.

That said let us also not forget there are occasions when it is the website or the user who wishes to be identified better so as to avoid the messages or the publicity they do not want to see.

In Venezuela, a radical anti-U.S. website, but that still wish to generate some advertising income, because of its name revolves around "sovereignty", frequently attracts recruitment ads for the U.S. Marines. I supposed this must be of extreme nuisance to the owner of the site.

How do you nudge the Financial Times?

After having tried it and failed miserably I would love to ask Richard Thaler or Cass Sunstein about how to go about to nudge the Financial Times… firmly or gently? Any special tips?

It is impossible to fight graft when its origins are in the centralization of a big oil income

Sir you write in “Nigerian graft”, August 12, that “the most important battle at home looks likely to be lost” and yes, at current oil prices, the battle was lost before it even began. Any country where the oil revenues are centralized in the hands of government and where they come to signify more than for instance 5 percent of GDP and thereby make the government wealthy, independently of its citizens, will be swamped by graft, in whatever shades or colours it comes, whether open, hidden, informal or de-facto, whether in pseudo-democracies or real autocracies, whether in Nigeria, Russia, Saudi Arabia or Venezuela.

What an opportunity was missed in Iraq when someone decided not to implement an oil revenue sharing plan for its citizens! That way Iraq was condemned to a non functioning democracy and to living in graft.

Is FT backing Paris Hilton?

Sir you quote Paris Hilton saying something funny and smart on your first page, August 9, and then you have John Gapper write "The president of hedonism" with the leader of "The LA heiress is no average airhead" just to end up informing that what was quoted, "the script" as it is called, was written by somebody else. What on earth has happened to FT? Let the celebrities fight out among themselves but FT has nothing doing blatantly favouring one over another. This is a perfect opportunity for transparency and so, without fear, please disclose how this article came about.

And what about the AAA sails?

Sir Niall Ferguson, in “How a local squall might become a global tempest” August 8, tries to analyze how “primarily a US affair” and that according to him “has its origins in a US real estate bubble fuelled by easy money and lax lending standards” could extend globally and go nuclear in strength. I am sorry but he completely misses the story.

To talk as Ferguson does about howling winds and a perfect storm in the world of finance and ignore the existence of the new sails that were able not only to capture the smallest breeze but even to change the direction of the winds, is to turn a blind eye on what happened . The outlandishly bad mortgages given in the back-yards of some American cities would not have gone anywhere, and the capitals of the world would not have travelled to these back-yards either, had it not been for the “AAA No-Risk” sails hoisted up by the risk kommissars appointed by the financial regulators, namely the credit rating agencies.

Finally on “decoupling” what on earths is he talking about? The credit ratings risk assessments is what has coupled the whole financial world and these couplings, or shackles, are still in place. Q: Which was the first bank that lost out on the subprimes? A: A German bank. Q: And what have China, Russia and many other countries lost in official investments coupled to the subprimes? A: Anyone’s guess, though I have a feeling I would not like to be in their financial advisor’s shoes right now.

You’re free to go anywhere… but use my guides.

Sir in trying to place the “Credit crunch in a century context” August 8, you mention that the “financials flaws and perversions exposed by the credit crunch are on a par with 1920s” giving as an example “the moral hazard that allowed lax mortgage lending, because the risk would ultimately be sold to a third party via securitization”.

In doing so you keep on ignoring that what made it possible for the lax mortgage lending to make its way into securities for which there was a market, were the prime ratings awarded to these instruments by the credit rating agencies, the supreme risk surveyors appointed by the bank regulators.

You also conclude that “The free flow of international capital is not under threat”, but try to tell that to all those that were led over the subprime mortgage precipice by those traffic signs saying AAA No Risk. With the information on risks already concentrated in the few hands of the official guides and whose “opinions” are imposed on the markets forcefully by the regulators, it is hard to sustain the notion that freedom of flows and free markets still prevail.

A good piece on Venezuela

Having been quite critical of some of Benedict Mander’s previous reports on Venezuela let me just express that I found his “Venezuela’s televised revolution”, August 8, accurate and balanced… though I guess that Mander will be exposed to criticism from any of the extremes that crowd our airwaves, c’est la vie… I write weekly in Venezuela in green but most of my readers there can only read me in yellow or blue.

Given the inevitability of the bust we need to make more of the boom

Sir Willem Buiter in “Welcome to a world of diminished expectations” August 6, takes the role of a neutral and detached observer when he rightly acknowledges the unavoidable boom-bust cycles in the economies around the world and looks into the future for clues. That is good, but how much better would it not be if he had dared to make some recommendations on how to go about to make the most of the boom-bust cycle itself. I mean, when I have a hangover, much of the way I feel about it, has to do with whether the party was worth it or not.

At this moment we live in a world where financial regulators are only concerned with avoiding the bust, but is it not time for them to start thinking more in terms of helping to make the most out of the boom? The worst part of today’s headache with the financial system, is that the party seems not having been that good, except of course for some of the financial intermediaries who enjoyed it enormously.

Competitive financial markets and risk information cartels do not go hand in hand

As global public goods go credit ratings have certainly not proven their worth. Alan Greenspan, the former chairman of the US Federal Reserve, now has the galls to tell us “The world must repel calls to contain competitive markets” August 5, after having been absolutely silent while the credit rating agencies, empowered by the financial regulators as risk information cartels, imposed their opinions on the markets in clearly uncompetitive ways. Why do not regulators, like soldiers, just fade away?