The risk premiums for a suspect of human rights violating nation will increase, which, sadly, will also attract investors

Sir, Gillian Tett, with respect to how business should or could behave in cases of human rights violations, like that of Khashoggi, if confirmed, writes: “since western businesses are scrambling to maintain their investments there at a time of rising Sino-American tensions. “What will we do the next time that the Chinese toss dissidents in jail or clamp down on local journalists?” asks one chief executive. The answer is not clear.” “The Khashoggi case puts US businesses in a moral bind”, October 19.

How much has the risk premiums required by anyone wanting to invest in Saudi Arabia gone up after the Khashoggi incident, and after how Saudi Arabia reacted against Canada when its Foreign Affairs Minister Chrystia Freeland tweeted concerns about the news that several social activists had been arrested in Saudi Arabia? These must have increased a lot, and an initial public offering of the Saudi oil giant Aramco is rumored cancelled.

That costs of course the human rights violating nation a lot… but those higher risk premiums also attract… as we can notice when a Goldman Sachs finances a notorious human rights violating regime like Venezuela’s Maduro’s.

The answer to the chief executive’s what to do question, should have to include “what our shareholders have mandated us”. Unfortunately too many shareholders also turn a blind eye to ugly realities, when for instance a Goldman Sachs announces record returns on equity.

What do we lack? Perhaps the will of a responsible elite that is willing to shame those who behave in a disgraceful manner, in a completely apolitical way. We need a society whose members would not invite Goldman Sachs’ Lloyd Blankfein to have tea at their homes. 

Sir, I have not been able to find the reference to it on the web but, some years ago, in Swedish television, I remember having heard something about a Swedish king who said he feared more the opinions of Stockholm’s high societies ladies than Russia. 

@PerKurowski

In order to find common Nafta ground, US, Canada and Mexico must begin by clearing for robots and automation

Shawn Donnan and Jude Webber quote Robert Lighthizer, US trade representative, having told negotiators. “Thousands of American factory workers have lost their jobs because of these provisions.” “Canada and Mexico rebuke US as Nafta renegotiation starts” August 17.

If Nafta members take notice of what robots and automation has done to manufacturing jobs, in all of their nations, then instead of facing each other as enemies they would be sharing a challenge.

It still amazes me how the recent American elections failed to recognize the job opportunities lost to automation. Had that not happened, Donald Trump would have had to speak about a Wall against robots instead, and would not have become president… not that that would have solved much either.

Jobs lost to robots and automation is not an easy problem to handle as it does produce good results too. If I was Nafta I would begin by asking my partners: “How do we make sure our grandchildren will be able to live surrounded by 1st class robots and smart artificial intelligence and not end up with 3rd class ones and dumb AI? That would be a real positive and constructive challenge for it.

http://perkurowski.blogspot.com/2017/02/here-some-disorderly-lose-cannon.html

@PerKurowski

“Capitalism for hyenas” might be a more accurate description than “capitalism for friends”

Sir, I refer to Chrystia Freeland’s “Puttin’s populist bluster belies the loneliness of the cynic” December 29.

If for instance Andres Schipani would like to write an up to date report on Venezuela and Maduro, he would have to change almost nothing except for some names and regional references… especially now when even Cuba, as was to be expected, has also turned out to be a fair-weather ally.

But, when referring to the crony capitalists that flock around the leaders, I would perhaps disagree with the term “capitalism for friends”. In Venezuela at least, it is really not friends who are sharing those oil revenues which now represent 97 percent of all this nation's exports… it is much more something like “capitalism for hyenas”

Slow the dance but do not impose the tune

Sir Chrystia Freeland ends “Investors had little choice but to keep dancing” October 9 asking for “a more powerful regulator to be established with the authority and courage to slow down the music for everyone” and this absolutely correct. But in doing so we need to avoid by all means that the regulator chooses the tune to which the markets should dance.

I say so because the current crisis resulted from the Basel bank regulator wanting the market to dance slower and, using capital requirements based on risk, induced it to take up some slow low risk waltzes instead of fast polkas or emotionally laden tangos and which led the markets into the arms of the dangerous AAAs.

By the way there are still two dance halls open and that many feel should be closed but which proves something impossible to do while the music plays. One is the dollar, where investors all know that one morning they will wake up find the safe-haven unsafely overcrowded, and a murderous panic for the exit will ensue, and the other is the public debt here and there and almost everywhere. Who is making the preparations for when these other two dance halls close down?

Cheap money? Cheap credit? Humbug!

Sir, Chrystia Freeland in “The audacity for help” March 12, mentions “the era of cheap money” and “the end of cheap credit” May I suggest that the existence of an era of cheap money and cheap credit has just been a big bluff, promoted to make money on expensive credit, and that consumer credit is partially responsible for accentuating economic differences in the US and in most of the world.

When a consumer buys something at a rate that exceeds the rate of inflation and pays more than the risk free rate he is in fact impoverishing himself ,and would have been better off postponing any consumption and purchases he does not absolutely need.

Look just at the current reality. The US treasury pays about .01% on its short term debt and a US citizen has to pay at least 1,690 basis points more, at least 17% on his credit card. Who except a credit card salesman or credit card company shareholder, could even dream of calling that cheap money or cheap credit?

You want to see some of the wealth differentials reduced? Then teach the consumer about the worth of bargaining their purchases paying cash.

The central planners´ vendetta.

Sir Chrystia Freeland in her "Fixing the flaw", December 31 proposes as one cause of the current crisis that “perhaps the total discrediting of central planning was one reason the champions of the market developed such an infallibility of their own system”. May I suggest an alternative take, namely that the humiliated central planners decided to avenge their defeat by surreptitiously entering into the reign of the Basel Committee and fouling up capitalism by convincing the bank regulators to empower the credit rating agencies as their commissars of risks. The trick they used was to sell the idea that since the credit rating agencies were private they were true representatives of the market.

Of course, as had to happen with any central planning initiative, sooner or later, the credit rating agencies put up their triple-A signs pointing into the wrong direction and led the world over the precipice of the lousily awarded mortgages to the subprime sector. The central planners are currently laughing their heart out. Boy, what a vendetta!

Development rating agencies?

Sir Saskia Scholtes and Chrystia Freeland report that “Moody’s to revise ratings by end of year” and that it is now contemplating something to be marketed as “fundamental value”. Now, if that rating is only to be based on risk considerations then it does not really seem to be of such fundamental value to me. 

Of course a bank should be able to repay his deposits and that is why bank regulators in Basle are using risk to establish the minimum capital requirements. But a bank’s function is not only to be able to return the deposits but also to help promote growth and development and to assist the society in the distribution of opportunities. Otherwise a mattress would suffice. 

In this respect, besides the credit rating agencies, we perhaps should also be thinking of incorporating the criteria of development rating agencies and opportunity distribution rating agencies into the capital requirements of a bank. Only then would we be able to start talking about really fundamental values. 

It is very sad when a developed nation decides making risk-adverseness the primary goal of their banking system and places itself voluntarily on a downward slope but it is a real tragedy when developing countries copycats it and falls into the trap of calling it quits.

PD. Are the Basel Committees’ bank regulations good for development?