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.

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.

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.

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.

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.

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.

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

The addict and his new sourcerer!

Sir, Paulo Sotero and Edward Alden wrote about the United States and Brazil “Building a Biofuels Alliance”, Washington Post, March 8 and which in these days of climate change sound as far as it can from being a holy alliance. What a shame, when the United States should be cutting down on its addiction to cars, it is only looking for a new supplier, and when Brazil should be putting forward proposals to the world of how to keep the Amazon, they are just thinking of cutting it down in order to be that sourcerer.