Ignorance is vital to keep the economy going

Sir, in your editorial “Back to work for the world’s investors” (September 9) you wisely remind us that “new paradigms often turn out to be new ways of losing money” but when you then, after only one paragraph, mention favorable possibilities in the trading of options on market implied volatility, this also reminds us of that old paradigm that says that investors go for what they least understand, since this is what allows them to harbor their largest illusions.

As someone who has extolled the virtues (and bliss) of ignorance since it helps to drive the search for greener valleys that is such an essential component of economic growth, I have been somewhat leery about the power of the web to spread too much knowledge. Luckily the duration of the information imprints are also shortening and so therefore we see that Argentina’s public debt is already back on the investor’s menu.

Finally let me congratulate you on your valiant effort to raise some sympathy for the hardships of investors and fund managers, even though it might not suffice to console those who only get their income through a salary exposed to the jaws of the global crusher.

What is really meant by international support?

Sir, Krishna Guha reports from Washington (September 8) that “The World Bank is to seek international support for a new push to help poor countries recover assets stolen by corrupt leaders and held in banks overseas” but that “Many governments have been skeptical about the plan, fearing it would overshadow the bank’s development objective, slow down disbursement of aid and lead to arbitrary decisions on which countries get help.”

As a citizen of a developing country I cannot help bit to reflect on the fact that if it only were we the citizens who voted on this issue, and not some of our governments, Mr Wolfowitz would count with all the international support he could ever wish for, not only with respect to the poor countries.

World Bank Wolfowitz corruption

The confusion is global

Sir, yes globalization is indeed a difficult and confusing issue when even a Nobel Prize winner as Joseph Stiglitz can tell us that “We have become rich countries of poor people” (September 8), totally ignoring that this has less to do with globalization and much more with how the richness is distributed locally in each country.

Also on the issue that “so many countries end up with unmanageable debt burdens” he seems to blame it primarily on that those debts were contracted in foreign currencies, exposing it to global volatility and suggests as a solution that developing countries should be able to borrow in their own currencies or in a basket of currencies, but blithely ignoring the fact that most unmanageable debt burdens are just the logical consequence of the governments having contracted excessive debts for the absolutely wrong reasons.

As a citizen from a developing country I can testify that when your country cannot pay its debts because its government has wasted away the resources you really do not care whether you problem is in dollars or in pesos. Besides, if in dollars perhaps the mistakes are even more globally shared (haircuts) since, if in pesos, most of the cost, through inflation, would fall mostly on your own poorest poor.

Finally as to the high volatility of the global markets, I cannot but invite Mr. Stiglitz to try some of our attractions and then he would really be able to talk about volatility. As a financial consultant, I have seen hundreds of good projects go belly up precisely because they were not funded in dollars but in local currencies, when inflation and interest rates teamed up to overnight transform what were ten year repayment terms into effective ten months.

Joseph Stiglitz globalization confusions

We must stop the emergence of a global lumpenproletariat

Sir, Desmond King and David Rueda do a very good job at scratching the surface of the immense problem with “Cheap labour is creating an outsider class in Europe” (September 7), especially since the problem is not only Europe’s; it is happening all over the world; the problem is growing rapidly so much that non-standard jobs are already standard in many countries; and as they mention it leads to a tendency of equating cheap labour with second-class citizenship, although perhaps the term ignored citizens would be even more appropriate.

There is an urgent need for the world to find ways of truly assimilating within their societies all these new non-standard workers, informal sector workers, illegal immigrants and workers that work in the everyday growing illicit activities because if we are ever going to have a chance of putting the global house in order, for instance in terms of protecting the environment, the last thing we need is the emergence of a global lumpenproletariat.

One of the real challenges we face finding solutions to these problems is the fact that since there is so little data available about these sectors our PhD researchers have nothing to run their regressions on, which makes many of them stand at loss as to what to do, and has them instead going back to study, again and again, the plenty data available about the formal sector and its standard jobs.

By the way the problems that we confront here are not really related to the issue of labor being cheap since the other side of exactly the same coin, is just that labor is too expensive.

Desmond King David Rueda global lumpenproletatiat

When does the “loss” really occur, when the worker has become globally uncompetitive or when his job finally disappears?

Sir, Martin Wolf, back with vigor, tells us that “We must act to share the gains with globalization’s losers” (September 6), which sounds right but when he then says that “being opposed to trade is no more reasonable than being opposed to other sources of higher productivity” he also reminds us that there really is no reason why we should make a case of specifically differentiating losers from globalization from losers affected by other factors.

Fact is that whenever there is a more efficient alternative to deliver goods or services elsewhere but countries are not using them because of other considerations, like wanting to assure employments at home, these jobs are effectively placed on artificial life support and so the “loss”, when the jobs finally disappears, has much more to do with a reduction of the subsidies or the cost of keeping them, than with globalization. For instance in the case of the orange growers of rich Florida and that are now kept in business by specific duties on orange concentrate that in some cases have been equivalent to more than 70% ad-valorem duties, the already existing losers are those consumers of poor Arkansas that have to pay a higher price for their morning juice.

By the way the whole concept of “losers” is wrong if implies having to win all races, since the real losers from globalization and from all other sources of higher productivity as well, are those that hang on too long on days gone by without moving on.

Martin Wolf globalization

Seems migration estimates were wrong all over

Sir, it was interesting to read John Kay’s piece on “How the migration estimates turned out so wrong” (September 5) where he describes the serious underestimations made in in official studies commissioned by the European Commission. These estimates stand out in stark contradiction with the extremely high unofficial estimates of millions I was told by my close to panicking European friends and family. From what we now see the estimates were normally distributed with reality coming out close to the average.

John Kay migration estimates

Bank ghostbusters?

Published in FT September 12, 2006

Sir, David Skeel ("The ghost of a crisis in equity funds hides real benefit", September 5), tells us the reason equity funds and hedge funds are "the ghosts of the market's future" is that they "may increasingly assume many of the functions traditionally handled by banks" and "use a wide array of financial instruments now available to hedge the kind of risks traditionally borne by the banks". 

If he is right then that would make them more like the ghosts of banks past and also turn the banking regulators in Basle into some slightly foolish-looking ghostbusters.

PS. Fast forward to dialoguing with AI in 2025 about shadow banking.

Global stability depends on globalization

Sir, Jan Kregel and William Milberg in their “Global stability rests on sharing the gains” (September 5) get it quite right in their title but from thereon their message seems a little bit muddled, perhaps because the authors are still suffering that wall-syndrome that makes us all want to believe you could isolate yourself sustainably from your neighbors.

Globalization, in any form, is unequivocally here and is as a bare minimum seeping through all borders with its environmental impacts and its spread of nuclear arms capabilities. Of course there are gains, and pains, to be derived from globalization but in order to understand them better we must move away from looking at short term data like this year’s GDP growth or last year’s unemployment rate and find ways to measure it more in terms of where we would have been without it, after a couple of decades.

For instance when Kregel and Milberg mention that in “the US, a strengthening of the pension systems, a substantial increase in the minimum wage and the provision of universal access to health insurance would protect against the unequal effects of globalization” they create false expectations. Better pensions and a health insurance could indeed, if provided independently, by redistributing some of the profits, help to aminorate some local inequalities (not global) but an increase in the minimum wage would just directly eat away on the possibilities of competing in the global markets, thereby willingly renouncing to capture some of the profits that could be shared.

This comment is not intended to criticize the authors but to try to illustrate the complexities of the issues. I am the first to admit taking some wrong turns in this debate, a couple of times a day.

Jan Kregel William Milberg sharing globalization

Let us then wish for a good backlash

Sir, Gideon Rachman in “Why the world may regret the end of the neo-con era” (September 5), warns us about a possible backlash that could “take America back into isolationism or a cynical abandonment of the promotion of democracy”. This sounds indeed like very awful possibilities, until you look a little closer at the significance of the terms. For instance, doing foreign affairs “my way”, “on my own and with “God on our side”, is in fact just another very real type of isolationism, no matter how many times you visit your McDonald’s across the Rio Grande. From this perspective a backlash could be good if it leads America to a more participatory global responsibility.

The same could be said about democracy since when we outsiders observe the ever increasing powers of the lobbying industry in Washington and on how the representation of its younger citizens is diluted by the aging baby-boomers, some of us would argue that it could be good for America to take a time out from selling its democracy worldwide, so as to give their own an overhaul first.

That said what we truly need to worry about is if a backlash would change America from having a we-care-for-the-world attitude into a we-don’t-care-a-damn about them but that does not seem to have much to do with neo-cons either, as they sometimes have shown to care just a bit too much for their own good (and ours).

neo conservative isolationism democracy

IMF cannot be the independent central bankers' clubhouse

Sir, In your editorial "What is the IMF for?" (September 1), you qualify the original formulas used to assign the quotas determining responsibilities of nations to deposit cash and the rights to borrow it as "arcane". Yet you seem to favour a recalculation that will just produce a reshuffling of the local interests. In a world where we see multinationals getting rid of their "home country", it might instead be time to introduce some representation in the International Monetary Fund that is not bound by pure arcane geographical considerations.

You mention a lack of credibility and legitimacy but seem to believe this could be solved by giving the professional staff a free rein. It is much more difficult than that. One of the reasons the IMF has lost credibility is in fact the mistakes of its staff and these go much further than the handling of the Argentine debt crisis. If you take a closer look, you will find them backtracking on so many of their "cast-in-iron" policies. The world needs not less accountability in the IMF, but much more.

In my view the Fund's problem is that it has now turned into the clubhouse of the "independent" central bankers. What instead we need the IMF to do is to open up its executive board and diversify the recruitment of its staff so there is a better chance for the board to have a healthier perspective of what the IMF's role should be.

Though I agree completely with you that the top job should not be reserved for a European, since "he must now defend interests wider than those that put him in place", may I also advance the idea that it should not be reserved for a central banker either?

Published in FT, September 5, 2006

Who told Dear Economist that parents are more able negotiators than children?

Mr. Gill Harnsley, September 2, in sheer desperation over his young children’s behavior that drives him crazy and sometimes makes him spank them reaches out in what most probably he considers a last resource to an economist for advise and comfort. Dear Economist though, believing he is being consulted on a much earlier stage responds with the whole shebang about creating a rational financial incentive system where in an open cry market of stars and black marks their weekly allowances are to be decided.

Little does Dear Economist realize, perhaps he is not yet a father, that Mr. Harnsley’s problems are way beyond that stage and has much more to do with his children turning out to be more able negotiators than he, having already developed their own charts with immediate rewards that go from hugs to the screaming out of accusations such as, mommy, daddy spanked me!

At the end of the day, of course it is all an issue of negotiation but where does Dear Economist get the notion that the children are more hooked than their parents to immediate gratifications? Since he blurts out something about children’s high discount rate and short term horizons I must ask him to look around and see the many non-existent savings rates and fiscal deficits that are out there in the world of the parents, just to finance their current consumption.

Dear Economist child rearing immediate gratification spanking hugs allowances

It is still good old Swedish pragmatism!

Sir, as you so correctly state in “Sweden’s decision”, September 1, many countries around the world do indeed follow with much interest what those Swedes are up to and so it is very important to be very clear about what they really do. For instance when you mention to “combine a vigorous private sector with high taxes”, we know that many in the developing countries would read that as having high corporate taxes, though in fact in Sweden high taxes are applied primarily to the individuals, after fairly low taxes on the corporations have allowed the individuals to find well paying jobs. In this respect my reading on what changes are currently on the menu in Sweden, especially those related to payroll taxes, sounds very much like traditional standard fare of old Swedish pragmatism and that looks to make it easier to create those jobs they intend to keep on taxing, just the same.

Sweden

The death of the hydra of inflation is also a myth.

Sir, Kenneth Rogoff’’s “The myth of how central banks slew the hydra of inflation”, August 30, correctly concludes after analyzing the effects of globalization that “there is some urgency in the need for central bankers to take greater pains to avoid taking too much credit for upside performance”.

I myself, in my book Voice and Noise, wrote a while ago that “to put some check on their egos, every time I see a central banker I urge him to take a shopping trip to the closest IKEA so as to see who really should get the credit of controlling inflation as we currently know it.” 

That said the issue is not really about who should get the credit for the death of the hydra of inflation, that is of secondary importance, as its demise might also have been a big myth. The way inflation is measurd by looking only at a cost of living basket while mostly ignoring the price of assets, might have in fact lulled us all into a very false sense of security. 

When Rogoff mentions “The advent of modern independent and anti-inflation oriented central banks is one of the great success stories of modern economic science” I also beg to differ. We should all know by now that placing your full trust into a non-accountable club of mutual admirers will, more sooner than later, induce incestuous thought processes that guarantee disasters.

When I also read in FT that “inflation-linked municipal bonds, a small and relatively unknown part of the US municipal bond market, have had a surge of issuance this year”, I start shivering at the pure thought of the consequences of having to restate inflation figures.

Has Dear Economist gone raving mad?

Dear Economist, August 26, when asked by Mr. Holden, a father preparing his will, whether he should favor more the daughter that being single is therefore more likely to provide him assistance in his old age, responds with a proposal of paying for the care services by the hour. Has Dear Economist gone raving mad?

Mr. Holden is a member of that union free cooperative called family and so when at last it is getting to be his turn to have someone else carrying the load for him, and he should most be in need of maintaining the institutional principle that a father loves each daughter more than anyone, equally, here comes Dear Economist and wants to upset the whole relation. Come on, they never paid Mr. Holden by the hour!

Dear Economist has to be one of those disoriented persons willing to release society from its responsibility of caring for him just in order to have the illusion of getting that extra percentage of earnings on his private pension plan, and which he knows will anyhow disappear into foggy fees. Perhaps he wishes also to suggest some fast competitive tender procedure on the open market for the hourly fee when needing to urgently contract the services of a policeman.

No, Dear Economist should know that in view of the many current financial and economic uncertainties, now it is more important than ever not to tangle with the family institution, treating therefore every daughter in exact equal financial terms, yet giving each one of them that special love that makes them feel different.

When reading Dear Economist’s answer to Mr Holden it reminded me again of how rarely we see in sophisticated studies on social security and pension plan issues elaborated by multilaterals, such as the World Bank, any mention of the importance of family, much less of the importance of having many daughters.

Sincerely,

Per Kurowski, a father of three loving daughters and who is aware that they, as individuals and as a portfolio, constitute the only real pension plan that he can afford but that he also wishes for.

PS. That he might end up paying for his daughters services by taking care of grandchildren well although that is a different issue it will neither be dealt with hourly fees.

Dear Economist

Great, now it is that you are concerned with Chávez? You’ve got to be kidding!

Sir, Venezuela is a notoriously divided country and yet its current Congress has 167 members in favor of Chávez and zero against. Its government is handing out 100.000 Kalashnikovs rifles to sympathizers, subsidizes oil consumers in Massachusetts, and 8 years into their surrealistic 21st Century Socialism sells petrol for less that 4 cents per liter and effectively transfer about 10% of GNP from the poorest poor to those who have cars. On pure impulses, without telling or asking anyone, we are taken out of the Andean Pact. Crime and corruption is rampant and of around 20.000 prisoners in jail-hells half of them have not been judged and last year more than 400 inmates were murdered. And we could go on and on.

Yet, on August 25, "Watching Chávez" you now say that the world should be concerned because he is trying to buy himself with our money a very expensive place in the United Nations Security Council? Sorry, but as a Venezuelan citizen my reaction was… you’ve got to be kidding! Your only true concern should be your lack of concern for us.

What you really need to exorcise the curse!

Sir, Wayne Murdy is clear about what he can do in “Mining companies can help lift the resources curse”, August 25, and we much appreciate his efforts. That said and as a citizen of a “cursed” nation I know all his efforts will come to naught until we get rid of the prime voodoo rite used. When in a non-resource rich country you elect your governments they work for you and you pay their salaries with taxes, but when you elect them, for instance in an oil rich Venezuela, they get the keys to the vaults and you are thereafter reduced to having to beg them. If you then also happen to be living an oil boom things get even worse since with so much money and so much begging these very simple vault-guards begin thinking of themselves as gods.

Therefore since the only way to build a country is to make its citizens responsible for the resource dividends these should of course be paid out directly to them. Unfortunately there are just too many interests, everywhere, in declaring citizens not up to snuff and so as to be able to negotiate on their behalf. That day that Murdy instead of referring to a “partnership between companies and government” could refer to a partnership with the people, most of the curse would just vanish.

Wayne Murdy resources curse

We were many and then granny gave birth

Sir, there’s a Spanish saying that goes “we were many and then granny gave birth” and it applies so well when a shrinking planet in need of so much urgent collaboration, for instance to protect its environment, could certainly do without many divisive issues, such as the patents on medicine.

When (August 24) you say that “the moral and practical case for providing poor countries with access to essential medicines, at a price they can afford to pay” is compelling, no one can disagree, but when you state that “The Industry’s incentive to innovate would be weakened if widespread erosion of patent protection enabled generic drug makers to eat away its profits” I must confess having at least some doubts, such if whether this type of protection does not also breed its own inefficiencies.

Whatever, in this vital matter of patents on medicines, the world needs and deserves some clear answers and also transparent ways of arbitraging among any conflicting objectives. Is it really impossible to gather a group of independent professionals with no conflicts of interest in order to get some credible answers? Since the United States has been much accused of working for the big laboratories, as an outsourced mercenary branding the weapon of trade agreements, they have obviously the most to gain from any clarifications, especially since in terms of their brush with bad reputation, lately, granny seems also to have been very active.

medicine patents

Letters to the editor

Do you think that all our comments to a newspaper such as Financial Times sent to letters.editor@ft.com are read right away by the editor of FT? Wrong! They go there so that a blue-collar editor can first make heads and tails out of our comment. Only then does it get forwarded to Sir.

Do you know who is a good editor? One fine day, you find yourself agreeably surprised by the fact that they have actually published your letter in FT and you say to yourself, “and this is exactly what I said, so this time I must have written it well.” I challenge you to go back to your original and find out how many changes were really made, some of them with feathers, but others with axes.

And so, talking about editors, this is an as-good-as-it-gets opportunity to thank them all.

For my letters to the Financial Times I have been able to identify two editors of my words, Heather Davidson and John Munch. If there are more of you over there, please tell me or consider yourself thanked in absentia.

For the editing of my one and (so far) only book, and of my many English-language major statements, my editor-in-friend is James T. McDonough, Jr., Ph.D., whom you can find through JTMcDJrPhD@aol.com.

Finally for all my writing in Spanish, it is my wife Mercedes who helps me out, not so much with feathers though, but I will not give you her e-mail address as she is exclusively retained by me. (Shhh! She doesn’t know it!)

And so, friends, the next time you read a posting in this blog and you don’t understand what Per Kurowski is talking about, most probably it is because his letter is still in the bottle, it never got there, or it was just hopeless.

Dear editors, once again, thanks!

Per

A global monetary fund needs foremost to go global

Sir, we agree with Peter Costello that “The global monetary fund needs to reform its quotas”, August 21, but we do not believe this is achievable by reshuffling some local interests. In order to globalize the International Monetary Fund what it really needs is to get free from many of the constraints imposed by outdated geographical considerations. In this respect the world has to find ways of providing the Fund with a representation that is more independent from borders, perhaps even giving a Chair to the Constituency of the International Rovers by which we mean all those workers, skilled or unskilled, legal or illegal, who nowadays represent jointly one of the largest economies of the world.

It is also somewhat contradictory with democracy being promoted around the globe to still hear that the voting rights in multinational organizations should be based on some dubious relative economic weights. Dubious? Yes indeed! Who says that it is the gross national product of a country that should be determinant? What about the net results (quality of life), what about the balance sheet (market capitalization), what about cross border trade, what about idea generations, what about other real power sources?

When I was an Executive Director in one of the international finance organizations, the World Bank, 2002-2004, what most worried me was how extremely underrepresented “Mother Earth” really was. It behooves us more to get a fix on that.

Peter Costello IMF World Bank quotas

Long-term benefits of a hard landing

Published in FT, August 23, 2006

Sir, While you correctly argue (“Hard edge of a soft landing for housing”, August 19,) that “even if gradual, a global housing slowdown would be painful” you do not really dare to put forward the hard truth that the gradualism of it all could create the most accumulated pain.

Why not try to go for a big immediate adjustment and get it over with? Yes, a collapse would ensue and we have to help the sufferer, but the morning after perhaps we could all breathe more easily and perhaps all those who, in the current housing boom could not afford to jump on the bandwagon, would then be able to do so, and take us on a new ride, towards a new housing boom in a couple of decades.

This is what the circle of life is all about and all the recent dabbling in topics such as debt sustainability just ignores the value of pruning or even, when urgently needed, of a timely amputation.

PS. At World Bank 2003: “Burning a little each year, thereby getting rid of some of the combustible materials, was much wiser than today’s no burning at all, that only allows for the buildup of more incendiary materials, thereby guaranteeing disaster and scorched earth, when fire finally breaks out, as it does, sooner or later.”

PS. When the moment came, 2007-08, they preferred to kick the can down the road. This would have had a better chance of success if they had eliminated the distortions in the allocation of credit to the real economy that the risk weighted capital requirements for banks cause. Unfortunately they did not, and the crisis can is still out there and it will roll back on us... ever so much

PS. December 2018: “What goes up too much must come down too much. The best countercyclical policy there is, is the elimination of the procyclical ones.” 

Can the markets do more for the moviegoer?

Mr. Arthur Spilling a socially conscientious moviegoer from Rochester, NY, commented that he felt a bit bad when watching a big-budget flick knowing he was paying the same price that those poor folks who were watching a cheap run-of the mill movies and so decided to ask Dear Economist August 19 in FT-Weekend, about why do not movie theaters have adjustable pricing.

Dear Economist answered with a set of very good arguments like that it was not really a question of movies being purchased but of screening time; multiplexes not wanting to sell cheap tickets that could be used to sneaking in on more expensive ones; no one wanting to be associated with discount movies (don’t know why? I would, if the pay is right); and the rumored possibility that the whole movie industry might in fact just be fronting for a much more profitable popcorn business.

I am no one to argue against such insightful comments but, nonetheless, especially since Dear Economist never really answered why more efforts were not made to get every seat in the house full, I felt that something went amiss. So let me try to deepen the discussion with humble comments.

First, if it really was screening time that was being sold, then of course the question would be how come Mr. Spilling who probably sat there with a partial view of screen and a totally stiff neck looking up could accept to subsidize a Mr. Poor Folk who most probably was enjoying something more close to a private screening. Then also Dear Economist, as an economist, should take us though the world of elasticity of demand in order to help us understand better how moviegoers would respond to differential pricing. One big issue is of course how markets could help? Is there room for a market in futures in-a-year-from-now-screenings-on-stage-4-at-7pm and, if so, could there be some derivatives through which you could cover bad movie risks and, if so, what critics might get a hold on the movie rating monopoly?

Honestly, I think we are just scratching the surface of issues that besides Mr. Spilling, must be concerning a lot movie producers and screen time or popcorn vendors in these times of confusing entertainment patterns, when movie industries are still able to sell an expensive experience based primarily on sharing it with others, in times when iPods are threatening with extinction such rock solid sharing concepts as “our song”.

Of course a more in-depth study could occupy Dear Economists a full year ahead and since we are aware there are many other economic anxieties out there in need of guidance, a good question would be how Dear Economist allocates his column space.

Dear Economist movies prices

How does FT know this is not a teenage prank?

“A powerful cocktail of data for predicting recession” by Simon Ward, August 17, tells you that by mixing “four key indicators of monetary indicators, both lagged and current . . . blended together appropriately” you turn into a especially good crystal ball reader. Sir, how does FT know this is not a teenage prank?

Simon Ward

Has the fat lady really sung for the libertarians?

Sir, as someone who has understood and accepted some of the fundamentals of the libertarian arguments but just as frequently opposed the too fundamentalist solutions they offer, I cannot but reject Michael Lind’s “The unmourned end of libertarian politics” August 17. The presence of any ideas and opinions should never be evaluated in terms of if they win or not politically, but in terms of how much they can contribute to the debate.

A world without extremes would be a very grey and dull world as Mr. Lind should do well remembering as he comes out as a sort of smugly satisfied self proclaimed pyrrhic victor.

And so, to all those libertarians out there, remember that there are many of us who hear you, respect (most of) you, appreciate much of your arguments and really feel you should keep on arguing just as we will keep on arguing our dissent.

Michael Lind

Forget the global warming fund and help instead the US to overcome its addiction.

Sir, Jagdish Bhagwati proposes that “A global warming fund could succeed where Kyoto failed”, August 16, and argues that “it is hard to imagine the US objecting to making nations pay for their total pollutions . . . [as] Such as tax is only way of creating a missing market”. Where has he been?

The US is a country that has gone berserk consuming petrol and therefore a tax to put some break on that would be a perfectly natural thing to do, and not only for environmental reasons. Nonetheless, such is the depth of its problem that even their high priest Al Gore does not even dare to mention a tax, not even as a possibility.

Since a fund, in order to function, needs that all its partners share in its objectives, and values, Mr. Bhagwati should instead join us in telling the US, as friends tell each other the truth, that it is really not worthy of sitting down to discuss global warming, until they have reduced their per capita consumption of petrol, at least 20%. Besides, if successful in helping the biggest oil addict to fight his habit one would, in environmental terms, have accomplished more than any ambitious global warming fund could ever dream of achieving, in more than a decade, or two.


Jagdish Bhagwati global warming fund oil addiction

WTO, please take your time!

Sir, Fred Bergsten’s “Plan B for world trade: go regional” August 16, reads a bit like a bewildered courtiers screaming out “The Kings is dead, long live the King” anxious to regain their footing and sense of order in life.

As I see it though, instead of rushing into new negotiations, desperately looking for results, any results, more could be gained from using the declared time out for some very serious house cleaning activities, destined to put some order into what is frequently described as the spaghetti bowl of trade agreements. Any global trading system, in order to be credible, needs at one point of time to be understandable and there is a feeling that there has been quite a long time since ordinary subjects, as I, have been able to understand and much less identify with what the monarchs were up to.

I have recently had the luck of being able to participate in a course about the Integrated Trade Solution (WITS) software being developed by The World Bank in collaboration with the United Nations Conference on Trade and Development (UNCTAD) and that helps to provide access to the major trade and tariffs data. After that course, the real unanswered question for me was how on earth did we get anywhere without instruments like these? Or, does anyone really know where we really are as a world in terms of trade? WTO, please, take your time before you start rushing again, otherwise you might really lose us.

The through-the-eye-of-the-needle index

Sir, “It is easier for a camel to pass through the eye of a needle than for a rich man to enter the Kingdom of God” (Matthew 19:24), and so, as you note on August 15, the Washington-based Center for Global Development should be commended for their through-the-eye-of-the-needle index that ranks 21 rich countries on how likely their policies are to promote development. That said, unfortunately this is yet another wishy-washy instrument in that it dilutes the useful though uncomfortable specificities into less tranparent and more debatable averages and you yourself end up with an “It is astonishing that we still know so little about what sort of aid works.”

If you have a thousand movies to see but only time for ten you sure appreciate a list of which could be, even speculatively considered, the 20 best and the 20 worst so as to have an inkling of which to see and which to avoid. Well, in terms of the World Bank and other developing agencies, there is nothing that even closely resembles a best and worst program and loan list and so therefore they have little choice, as you also say, than that of embracing the latest fashions, and on which FT will also duly report. Sir, speaking in the name of all the poor in need of developing policies that really works, please help to ask for a best and worst list and then let us get some real debate.

Center for Global Development Commitment for Development Index wishy-washy

Not much fizz but way too much oil consumption!

Stephen Roach warning that there is “Not much fizz left in the global economy”, August 14, is on the dot reminding us that what has kept the economy going lately has been the hot air provided by the foreign willingness to hold dollar assets and the US consumer spending stimulated by the boom in the housing market. He then goes through the list of support alternatives, comes back empty-handed, and declares the need for “back to basics”, which in this context must clearly mean getting some balance to the US economy. Since if the rest of world is going to help out sustaining some growth it will have to draw down on its dollar assets (do you remember recycling?) and consequently rates will go up and consequently the US must find immediate and drastic ways to curtail their various deficits, fiscal, energy, current account and the environmental responsibility in the most effective way, which of course could best be achieved by imposing a sufficiently large tax on the runaway consumption of gasoline in the US.

It is quite amazing to see how Roach can ignore the issue of the excessive oil consumption in the US, to such an extent that he even mentions that “big oil producers would also feel repercussions from a Chinese slowdown”, even though the US consumes about fifteen times more oil on a per capita basis than China. Being capable of sending away their sons to faraway places to die but not of putting some breaks on runaway consumption of oil is mind-boggling but there must be something so inconvenient about having to tax gasoline oil consumption in the US that even Al Gore finds it convenient to ignore it. Nonetheless, history will look back and shame the lack of leadership in the US for not being able to act on this issue in time, before the crisis.

Stephen Roach Al Gore inconvenient truth

Is it getting too close to home for comfort? Well do something real about it!

Sir, Christopher Caldwell in his “Utopia with border control”, August 12, lets no doubt shine through how even writers in a globalized paper find it hard to come to terms with globalization when it produces extensive migration to their own very local backyards.

Caldwell says that “after years of proclaiming a “solidarity” based on inclusion and values, the EU is beginning to practice a less utopian solidarity based on exclusion and defence” ignoring the important fact that true solidarity and inclusion needs not to be practiced only by keeping the gates to the city wide open, but could be carried out much more effectively for everyone by helping to make the conditions outside of the city much more bearable.

Another a bit unhelpful way of framing the choices is when Caldwell mentions that it is not moral guidance of Europe that citizens of poorer countries want but money and safety, as if these wishes were of any lower standing than moral guidance, and as if the European citizens themselves were in Europe primarily for moral guidance.

It should be very important at this moment for a paper such as FT to perhaps have a staff retreat where they can really talk over their role in a globalized world since it is important that some at least understand the simple fact that whenever you build a wall, it becomes thereafter quite difficult to ascertain who are the really excluded and who are the included, and that role reversals could very easily occur, most specially on a small planet where environmental problems are already breaking down all borders.

Whatever, we FT readers have the right to expect that it does not endorse the possibility of being able to get rid of a problem just by rounding it up and tossing it over a border, like we already hear some in the USA arguing in terms of their illegal immigrants.

Christopher Caldwell Europe migration

Are children responding more cleverly?

Sir, your “Are children getting cleverer?, in the FT-Weekend of August 12, did not fully answer the question but instead left me with the feeling that us adults might be getting more stupid, as I was not able to answer correctly any of your stupidly easy question examples, though I suspected the Stoker-Dracula connection, for no particular reason at all, least intelligence.

That said, and since you felt that your international readers were not in need of any help and did not supply the answers, I did what the young are supposed to do, I googled them and came up with the answers, which felt good, but again left me with the feeling that this had little relevance to intelligence.

The report, though quite interesting, reduced itself too much to the measuring of intelligence in terms of answers to questions, when we as a society are more interested and in need of clever responses. Why on earth should we benefit from having geniuses running around if they all insist on behaving like lunatics?

clever children

Dear, it is just Tim Harford’s book!”

Sir, Tim Harford, August 12, in trying to explain why his book is priced £17.99 and not rounded to £18.00, as this does seems insulting a buyer’s intelligence, reaches deep into his bag of excuses and proves to all of us that, in this department, he is a quite resourceful young man, mumbling something of having to come up with change reduces the risk of the salesman pocketing the full 18. Now, I as a writer, who also have a book listed at 17.99, albeit payable in much more humble US dollars, would just point my finger to the merchants. In fact, when I asked for my book to be priced at 18.01, as I wanted to send a clear message that it was worth 18, and then some, my request was blithely ignored with a very hard to counter “we know more about book buyers than you”.

Giving second thoughts to this whole pricing issue, it appears to me that a 17.99 also gives the transaction a quite attractive bona-fide ring since when it appears on your credit card statement no one would ever think of it as something else than book or something similarly serious. From here on whenever I have a couple of drinks with my friends I will ask the bartender to make out the tab to 17.99 so that… “Oh Dear, that’s Tim Harfords’s book!” If they would just send me the £0.01 for the copyright to this idea I could then probably afford to give away my book, for free, though, unfortunately, few read a free copy. (Why is that? Mr. Harford?)

Tim Harford

Thinking is being outsourced

Sir, you end up your editorial about future travel conditions on August 12 with a “computer junkies trapped in long-haul will have an unusual privilege foisted upon them: time to think. Not everyone will enjoy that, but it is scarcely a fate worse than death”. With it you quite elegantly let through your thoughts about computers being substitutes for thinking but gallantly ignore the fact that the average non computer carrying traveler might also be doing a lot less of that.

This is not meant as a defense of the computer but more as a denunciation of the generalized lack of thinking and that is spreading as a virus to such an extent that even many that presumptuously refer to themselves as think tanks are not feeling much responsible for doing it. How this sad evolution has come about takes more than a brief letter to discuss but it has to do with how responsibilities have been so haphazardly delegated. Two examples of it are how the elites of a society have delegated completely the management of it in the hands of politicians, and bankers, the credit evaluation to a couple of credit rating agencies. In other words, what has been happening is that thinking itself is being more and more outsourced, unfortunately, not necessarily to the best providers.

Let the Transparency Initiative come home

Sir, Robin Harding’s “Why business must back congestion charging”, August 11, leaves us with the feeling that we are getting somewhere, though we end up a little bit dizzy after the so many right and left turns that he takes, perhaps avoiding congestion charges. It should be clear though that the whole system is much more transparent when the congestion charges are paid in cash-tax than when they are paid in some more difficult to measure costs such as minutes of delays payable in individual currencies. That said everyone would benefit from knowing more where the cash goes. In this particular case the Extractive Industries Transparency Initiative comes to my mind. Why do you not do as has been done to Chad and put all the congestion charges, petrol taxes as well, into a big transparent pipeline so that everyone knows what’s up? We know it is difficult to be a prophet in your own land but, in this particular case, since the EITI is a UK idea, you would not have to pay royalties on it either.

Rober Harding congestion charges transparency
EITI

Drive out the risk out from where there should be none!

Sir, Andrew Hill in “A thirst for the most vital liquid asset”, August 7, serves a very good cause analyzing the finance of long term infrastructure projects through long term sources such as pension funds compared to the short term funds, and views, provided by actors such as private equity firms. But somehow, by concentrating too much on the time horizon, Hill misses the issue of risk. Given that providing long-term public services such as water should be the absolutely safest investments it is clear that society should do its utmost to benefit from attracting to it the cheapest and most risk-adverse money, widows and orphans. Problem is that currently, through leveraging-it-up-to-the-hilt and other mechanisms, they seem mostly to be attracting that risk-hungry money that can only signify more expensive water, electricity and others.

risk water electricity

It is just an Indian Summer

Sir, over the last couple of weeks we have read about the strong growth of the US tax revenues and that has somewhat shrunken their immense anticipated fiscal deficit. But, the wording used to describe this event, which to me seems only an Indian summer before winter, has been quite surprising since reading between the lines one gets the impression that mature minds might be close to thinking that the winter is over and the spring is here. Trying to find an explanation for this utterly strange behavior I suddenly recalled that I heard an expert warning about warning the elderly too much about the risks and way bouts of frauds and embezzlement schemes, since just a few repetitions of the warnings could by themselves, creepily, but indeed also quite creepy, breed in the recipients a sense of familiarity that increased the possibilities they would fall for the scams. And so it seems that all the warnings about the impending US financial disasters could now have morphed into signs that confirms that everything is normal, as it should be, so let us then go on, as if nothing.

US fiscal deficit

Basel is a monstrous factory of systemic risks.

Sir, Daniel Tarullo with his “A Simple escape route from the gridlock of Basel II”, August 4, reminds us of how the good intentions of building up a system of minimum capital requirements for the international banking system are turning into the greatest financial systemic risk factory ever seen. For instance the system favors bigger banks which will only signify placing more eggs in the same basket. It has delegated the diversified views of the market into the hands of a couple of few credit rating agencies in such an incestuous fashion that Paul Davies, FT August 3, reports that Fitch Ratings is going to launch a service predicting the likelihood of credit rating downgrades. It helps to tilt the financial markets towards doubtful areas such as the public sector finance incentives and away from the much more vital small entrepreneurs. And finally, to top it up all Basel mechanisms might just end up regulating nonexistent entities since much of the financial activities are responding by going elsewhere, to shadier places, where they are allowed to work as they best seem fit and can perhaps easier escape the Basel risks.

Basel systemic risk

Just a new crop of banana republics!

Sir, Desmond Lachman in “The disturbing deterioration of developed economies”, August 3, correctly informs that the distinction between emerging market economies and developed market economies is becoming more blurred. What he missed though was to make the right, though perhaps “inconvenient”, link to global warming, since there are some of us out there in the hot that sustain that the best evidence of it, is how lately the parallels of the banana republics have been moving north!
Regards from a sweltering Washington with over 100 degrees!

Desmond Lachman banana republics

You could also let out some hot air!

Sir Jacob Weisberg in “Sanctions help to sustain rogue states”, August 3, has us picking between economic sanctions and constructive engagement to topple Dictators but forgets to mention the possibility of other sensible tools such as ignoring them or plainly laughing your hearts out at them. The Dictators do normally have weak and problematic egos and so if there are ways to ridicules those in front of their followers, much of their strength and support would dwindle. Problem is that frequently the oppositions to these Dictators have weak egos too, which tempt them to make huge monsters out of their enemy, so they can be perceived as maid rescuing champions, and so we just end up with a lot of hot air balloons flying around, some quite colorful, but others just plain awful. Among the United Nation’s peacemaking arsenal we need some good ego shattering directors and producers from Hollywood and Bollywood. Where is Chaplin when we need him the most?

Jacob Weisberg sanctions rogue states

All cannot be that bad with Mr Blair!

Sir, there has to be something personal, otherwise for a foreigner - an outsider - it seems impossible to understand the viciousness of Rodric Braithwaite’s “Mr Blair it is time to recognise your errors and just go”, August 2, and for a start it seems to contain far too many adjectives for it to even have been published by FT. That said and sidestepping the issue of Mr Blair’s support to the Iraq war, we should never forget that there are also other things in life. At this moment when concluding reading the UK White Paper titled Eliminating World Poverty – Making Governance Work for the Poor, though I would of course debate some issues, let me as a foreigner assure you that this is indeed a document that should make any Englishman proud, and even make Mr Braithwaite recognise that with Mr Blair all is not bad, by far.

Blair Rodric Braithwaite White Paper UK OK poverty
governance

We need obnoxiousness indexes

Sir Adam Lerrick’s “Good intentions at the expense of the poor”, August 2, is full of good intentions when suggesting to NGOs to shut up but fails to be convincing as it gives little guidance to when they should not. He presents the case of Kiani Kertas pulp mill in Indonesia but, if only ordinary citizens were provided with some idea of how this specific pulp mill could classify on a scale of five, in a worldwide obnoxiousness of pulp mills index, this would help NGOs to focus better their good intentions, and perhaps even help out in getting finance for a Kiani Kertas so as to be able to request the closure of a worse pulp mill sinner. As is, the NGOs have unfortunately only the next in line project to go after and many of these just happen of course to be in poor developing countries. These obnox indexes are needed for ports, dams, power-plants and many more. By the way, obnoxiousness indexes would also allow for a more rational approach to solve the not-in-my-back-yard syndrome that affects many projects needed in developed countries.

Adam Lerrick good intentions Kiani Kertas obnox index

Migrants is just what the doctor orders for an aging society

Sir, yes of course “Migrants mean money”, July 31, but they also mean so much more and do not belittle it. By being able to attract that kind of entrepreneurship, drive to move forward, restlessness, non-conformity and so much more that is embedded in the migrant spirit, aging societies are able to get that vitamin they need in order to keep up with a world that does not stop just because you might be happy where you are. Anyone that pushes away migrants or just wants to accept “adequate” migrants, with PhDs, do so at their own peril, since standing still you will just fall back.

migration aging society

How can we make “possibilism” more possible?

Sir, Richard Lapper, July 31, while reviewing Latin America’s Political Economy of the Possible by Javier Santiso, MIT Press, makes a very good point bringing forward how “Chile controlled its exposure to world financial markets [resulting in] a relative smooth encounter with globalization.” Controlling the short term capital flows is indeed one of the most important musts for any small nation that has to travel the oceans in a bathtub. Many countries should be adopting something similar to Chile’s flow controls but instead even Chile was prohibited from using them any more, for no very good reason at all, when this was so required by the United States as a condition to sign the US-Chile Free Trade Agreement. Sir, is there any way you can think of how to get Washington to be less extreme in their preaching on free-market faiths? This would no doubt be the best way of helping the Latin America’s economies to avoid finding so much attractive in extreme populism and allow them to go more for the rational way that Santiso calls “possibilism”.

Javier Santiso Chile possibilism

Should they now sue their Central Banks?

Warning, believing in your Central Bank is lethal for your pension plan!

Sir, Samuel Brittan, in “Central banks need not divine bubbles”, July 28, tells us, quite blasé, almost like shrugging some dust of his shoulders, that inflation, as measured, does not measure inflation, because although wheat, consumer goods, are cared for, cattle, capital assets, are royally ignored. 

The adjectives he uses in the process are ludicrous and absurd, but concludes in “Yet that is the perceived central bank doctrine today”. We are left a little bit confounded though with what he really means with “perceived” since reading further from what Brittan has to tell us it seems that it is indeed state of the art in how central banks try to measure inflation. 

Which leaves us now with the question, what are all those poor blokes that believed the inflation figures reported by their central bankers were for real and did such stupid things as invest in government debt, instead of a house, thinking it paid enough to cover for inflation? Should they now sue their central banks and central bankers for misrepresentation? 

Whatever, it sounds like making nursery rhymes out of Enrons and Parmalats. It is not that we believe it is easy to measure inflation and in fact it might be impossible. Nor can it be easy do to a central bank's job for that matter, but it is the arrogance by which they sell us the how good they are at it that really kills us.

 

It is a sad day when think-tanks are found out not to have been thinking for many years.

Who is a threatening who?

Sir, Jim Kolbe’s warning that “Baby-boomers threaten the war on global poverty” July 27, seems a bit off the mark since, as threats come, it should be quite clear by now that global poverty is a much larger one to the baby-boomers themselves.

Kolbe is of course right when he explains about how much the competition from entitlement programs might signify for what’s-over-for-aid-and-alike, in terms of cash budget allocation, but if we are really going to be more explicit about the links between them, then he should also explain that it is much more than about money. Equally no one would object that the US needs to be much more careful with its international stature but, also, even in this case, it is not really the amount of aid-dollars paid that will break or make the day, and believing that it is only a question of hard money, is about the surest way of loosing international stature. When Kolbe says that “Nothing provides as much tangible evidence of America’s leadership as foreign aid” we, the good friends of the USA, do not know where to look.

Nonetheless, let us not despair, who knows if satisfying the high expectancies build up by the baby-boomers could not turn itself into a real growth opportunity for the many poor, far superior in effectiveness than aid itself, and all in line with frequently heard clamors such as “give us trade not aid”. Mr. Kolbe, do help in fixing your entitlement overhangs, not so much for the poor of the world, they would hardly notice it, but try doing it for your own soon to be poorer baby boomers.

Jim Kolbe baby boomers poverty foreign aid entitlement

Are we consuming hypocrisy in an unsustainable way?

Sir, Jacob Weisberg’s “A path between puritanism and excess”, July 27, makes a great description about some of the legal and moral issues involved with decisions such as declaring illegal gambling on the internet.

Among his observations, we find that “Further restrictions will breed even more disrespect for the law, while creating exciting new opportunities for criminals” stands out as an issue that needs to be much more seriously considered, so that society stops fertilizing the markets where evil forces thrive and that, through any available means, are always trying to go for a takeover of the world.

It is high noon to call in some good economic analysis into any legislative procedure destined to prohibit something, to ascertain there is a due analyst of the supply and demand curve for the to-be-prohibited, and of the available resources for the fight. If the demand for the “bad” in question is inelastic, meaning that the “marginal” human urge for it is very strong, and the supply elastic, meaning that better returns will immediately place more offers of “bad” on the markets, and finally, the resources scarce, meaning mostly there is not a sufficient social consensus about the need for the fight, well then we are all better off forgetting it.

As a society we should never forget that hypocrisy, as a last ditch resource, has its limits too, and we should be careful not to consume it in an unsustainable way.

Jacob Weisberg illegal internet gambling unsustainable consumption hypocrisy

Yes anything could indeed happen!

Sir, Andy Webb-Vidal’s report “Bush told to plan for Chávez oil shock”, July 24, ignores the fact that oil prices are highly contagious and transmittable through world markets and in this respect it is absolutely impossible for Venezuela to launch an oil boycott that would only target the United States. The only real beneficiaries of a boycott of this sort are as always the well informed intermediaries and the shipping industry that will be asked to service longer delivery routes.

But, with respect to that anything could happen, in Venezuela, with Chavez, this could perhaps be better understood by your readers if you also had informed them that at this moment, almost eight years into Chavez’s XXI Century Socialism, gasoline is being sold in Venezuela at 3.7 cents of dollar per liter or less than 15 dollar cents per gallon.

With this marvel of a public policy Chavez, besides stimulating a runaway consumption of gasoline with all its environmental consequences, based on the international cash-opportunity cost manages to transfer a regressive subsidy of about 10 billion dollars, or about 10% of Venezuela GDP, or about 100% of the GDP of a country like Bolivia, from the poor who do not buy gasoline, to those that love to guzzle it up.

For comparison the gasoline price in an oil country like Norway that seems to been doing things right is 52 times higher and in the USA of Mr. Bush, Chavez´ sworn enemy, and the Cuba of Castro, Chavez´ best buddy, the price is only about 25 times higher. Even in the land that has inspired the term of oil-Saudism the price is seven times as high.

Now you try to draw your own conclusions of what Chavez is all about! Are you clear now?

Now so you can also understand the current opposition groups that are against Chavez, let me inform you that they do not mention this issue either. Are you clearer yet?

Chavez XXI century socialism gasoline petrol prices

We need to find and fund our global National Parks

In the first of his energy & environment trilogy Martin Wolf expressed some worship of King Coal, in his second he warned us against crying wolf and panicking with respects to the global warming and so, suspecting limits to how far anyone would be willing to stretch green incorrectness, we felt he was setting us up for some conclusions that would bring him back into their arms again, with big fanfares. His “Taxation can give earth a chance, July 19, places himself squarely on the side of investing in new technologies and a carbon tax applied globally is a very good effort, that should make him presentable again, tough perhaps without the fanfares. When Wolf refuses to cross the bridge and says that each country would “keep their revenue” from the tax so to only have a “limited need for politically unpopular transfers of income across countries”, he gives up on all the efficiency gains that could be obtained by using those funds where most needed, and he complete misses out that for our earth to give us humans a chance, we need to learn to find and fund some global national parks.

carbon tax global warming Kyoto

Are they really sure it is enforceable?

Sir, in “Banning net gambling would serve no point”, July 18, you make some very good observations analyzing the pro and cons of this issue, though perhaps not sufficiently about the risks that are present from the needs to enforce any prohibition. Yes we read that they managed to capture some of those responsible for betting on the web, but that was the easy part, those were the ones who were looking to formalize their activity. Now comes the tough and expensive part of finding out how to handle all those operators that until now have been operating semi-informally and that after this will go into deep hiding, as will their clients, and who might very well even include some of the enforcement agents.

How long will legislators around the world be allowed to go on declaring things illegal without giving sufficient considerations to whether they have the enforcement capability and the full backing of the society’s social sanctioning mechanisms? If this is not ascertained then all what will be achieved is to take society further down on that slippery road of loosing credibility and hand over on a silver plate a new growth opportunity to those who prosper from participating in illegal and illicit activities.

banning net gambling enforcementsocial sanction

Is there some state-of-the-art anti corruption tool we do not know about?

Sir, Patti Waldmeir, Stephanie Kirchgaessner and Richard Water’s report “Google campaign tests power of cash versus votes in Washington”, July 18, will have many of us from developing countries scratching our heads, for the umpteenth time, trying to understand how all that “money-talks” is not corruption when in our corrupt countries it would definitively be considered so. Of course money-talks, we all know that, but a legislator or any other government official is supposed to be above it and resist the temptations, but here you speak so brazenly open about it, without even the slightest effort of hypocrisy, so we must be missing out on something. Might there be a special state-of-the-art-legislation that permits this to happen and that we could copy since that sounds like a fresh though perhaps somewhat strange approach for getting ourselves out from the awful corruption trap we sadly confess we are in.

lobbying corruption net neutrality

Why was not 6 cents on the dollar offered before the invasion?

Sir, Monday 17, Comment & Analysis gives a very complete report on the restructuring of the Iraqi debt which “by 1990, when the United Nations imposed sanctions after Iraq had invaded Kuwait, all the debt was in default” and “by the time the US-led invasion toppled the regime in April 2003 the build-up of interest owed meant the debt had grown to $140bn, making Iraq one of the world’s most indebted countries relative to the size of their economy”.

What remains a mystery though is how, under such circumstances, no one thought of making a debt purchase offer, let us say of a quite generous 6 cents on the dollar, before the US invasion, since not only is that what you would rationally expect from any normal rescuer willing to stick their neck out for a bankrupt company/country, but also, in this particular case, since it would probably have been the most effective way of transmitting the seriousness of the American threat. As is, when having to read all the front page horror stories about the Iraqi tragedy, it is hard to know whether to laugh or cry, when you describe their recent efforts “to develop a creditor profile in international markets and debt management capabilities.”

Iraq debt Joanna Chung Stephen Fidler

Something will indeed explode in our face

Sir, Indeed “Credit derivatives play a dangerous game” and they could and will explode in our face, at least if Murphy has his say. That said we feel that Frank Partnoy and David Steel in their article, July 17, are not sufficiently forthright in making clear that this is just another side of that same coin that was haphazardly thrown in the air when banking regulators in Basel arrogantly thought they could drive out risks from banking, but, the way they are going, risk only to drive banking out of banking.

On July 10, in FT, Jeremy grant reported on how “Regulators ‘face challenge posed by multiple ownership’” and have to work overtime trying to identify who are the owners of all those hedge funds that are taking bets on credits in order to understand their conflicts of interests and, that very same day, Giles Tett describes how “Credit officers are hot to trot in a fired-us up market for loans” and now leave the banks to work for hedge-funds.

It seems the world did not learn enough from overly centralized economies falling into pieces, as otherwise there is no way of explaining the blind support it has given to that systemic risk factory that has been set up in Basel.

Frank Partnoy David Skeel credit derivatives
Basel bank regulations systemic risks

Allow it, or call in the Righteousness Brigade!

Sir, Christopher Caldwell in “Online gambling can be regulated”, July 15, does not get to the real dilemma which is whether society can afford to prohibit something when doing so could mean opening up another growth opportunity for all those informal illegal and illicit activities that, if we are not careful, might one day signify more than the legal and formal economy. Before anyone is allowed to prohibit anything he should first have to present an enforcement plan that makes sense in terms of recourses and results, and that foremost has the backing of his constituency. Prohibiting online gambling while allowing Vegas and when gambling itself is exposed to a minuscule fraction of that social sanction that weighs down on smokers, does not make a lot of sense.

Since even online gamblers would probably like to know who they are dealing with, and at least who deals them the cards, perhaps much more could be gained by allowing online gambling and developing some good governance principles. Alternatively, let society bear down its full weight on gamblers. Most of us who have stopped smoking have not done so because it was prohibited, in fact in many cases that might even been the reason why we started, but because there is a quite obnoxious but extremely effective social pressure against it and which, to top it up, does not cost a lot of taxpayer dollars.

Christopher Caldwell online gambling

What a curious argument!

Sir, Andy Webb-Vidal reports from Caracas, July 13, that “Venezuela is to halt petrol supplies to 1,900 filling stations” and quotes the spokesman for the Venezuela owned Citgo that distribute petrol (gasoline) in the USA through 13,100 brand bearing franchises as saying “We are short [of] about 130,000 barrels a day of gasoline that’s required to meet our customer obligations and we have to purchase that on the open market and that places us in a competitive disadvantage”.

What a curious argument that is! Anyone would have thought that buying gasoline in the open market and distributing was what that business was all about. If Citgo can’t distribute petrol profitable to these 1,900 filling stations, then it sounds like they should perhaps retire from the other 11,200 too.

Venezuela USA Citgo oil gasoline petrol

Careful though with giving the illegal and the illicit markets (the IIM's) another juicy growth opportunity

Sir, I am no iPod listener since I prefer radio and when I hear music I feel that sharing it is part of the experience. That said Thomas Hazlett “Antitrust regulators must listen to reason on iPods”, July 12, caught my attention when it said “Were Apple to exploit its users, its market would be ripe for an upstart”. I have some difficulties in understanding in this context the meaning of the word exploitation since if it is getting more out of the consumer by offering them something very attractive and leveraging that on his lack of choices then I would say that the consumer has most probably already been exploited by iPod, for quite a while.

Now, if I read Hazlett right, he seems to suggest that it is better to allow some time for competition to provide the market with the alternatives before calling in the trustbusters. He is probably right, I agree, though I would also have to warn against waiting for too long, since it is always preferably to legally bust a trust (if there is one) than to allow for yet another new growth opportunity for the illegal and illicit forces of evil to start pirating and copying the iPods. By the way, are there already some fake cheap iPods out there? Hey, just asking!

Thomas Hazlett iPod antitrust illegal illicit growth opportunity

About the calm and silent Mr Wolf

Sir, walking in the smog of Mexico City, flying over the Amazon jungle and seeing it being deforested in order to grow soybeans for China, and soon perhaps even ethanol for the US, and seeing how the most powerful country in the world still structures its American way of life around the car, is more than enough to know that something is wrong and that something needs to be done. It is then utterly confusing to read Mr Wolf’s “Do we need to cry now that the climate wolf is at the door?”, July 12, that poses such questions as “is the warming itself a bad thing?” and “is there any chance that we will, in practice, find a workable way of dealing with it?” since with these type of doubts he could run the risk of justifying inaction, but perhaps Mr. Wolf suffers from a special phobia against “crying wolf”. Of course, we should be very careful with panicking, and with all those salesmen out there offering lousy escape doors and not really wolf-proof doors, but that does not mean that with respect to the world’s environment, it is not high time to scream out wolf!, at the top of our lungs.

global warming

About priorities and painting firehouses

Sir, Edwin Truman in “Time is running out to rebuild the Fund, Mr Paulson”, July 12, screams out for putting the IMF fire-brigade in order so that it will be better prepared to confront whatever disasters might come out of the global “massive distortions” of which some of these, for instance the doubling of foreign exchange reserves over the last five years, he suggests has somewhat occurred as a response to a “weakened Fund” Wow! Yes, a good functioning Fund is an absolute must for the World, it needs new equipment, it needs new young forces and it probably needs a totally new mindset, and so let us make it really sure that we are not just rearranging the drawer or painting the firehouse, just to calm our nerves.

I for one have for a long time sustained that the way the Fund has given in to their bank regulator chums in Basel, forcing the substitution of some few credit rating agencies for the diversified views of a free market, has just been one of the most incredible build up of systemic risks the world has ever seen and so, to me, enhancing the Fund’s legitimacy, post Argentina, needs a lot more “than redistributing voting shares and executive board chairs” based on whatever concocted ratio someone might deem appropriate. The reshuffling of pure local interests will not lead us anywhere in a global world. Where I do agree completely with Mr. Truman is in his call against the “irresponsible fiscal position” of the US and that on remedying this is where the new Secretary “needs to exert leadership at home to achieve results abroad”, perhaps even to such an extent that he should instead ask Mr Paulson to forget about the Fund for now, do not even go to Singapore!, less it becomes an excuse for him painting his firehouse too.

Edwin Truman Paulson IMF Fund IBS Basel systemic risk USA fiscal deficit

Hedging our emotional investments in World Cups

Sir, Dave Shellock, July 11, reports that Italy’s victory in the World Cup final gave a boost to the shares of Juventus, the Turin club that aligned several players in the team that beat France. A bit late though since had we only known about it earlier, many of us could have used this possibility to hedge our emotional investments in our respective favorite teams. Let us not worry though, by next World Cup, the market should have created some derivatives against the risks of defeat.

World Cup Juventus defeat France investments risks hedging derivatives

On pushing the merchandise!

Sir, Stephany Griffith-Jones and Robert Shiller in “A bond that insures against instability”, July 11, discuss the possible role of bonds that are linked to the growth of a country’s gross domestic product and, yes, the service of a debt linked to results should be easier than one that is not. That said and as this proposal is clearly aligned with all the current discussions on debt sustainability that are so in vogue we need again to warn that by focusing primarily on how much debt can be served you risk relegating to a remote second place, the far more important issue of what all the contracting of that debt should achieve.

In this respect and since the authors mention the positive experience with Argentine GDP-Warrants, which ironically is only the results of the Argentina economy bouncing back after the crisis, they should also have tried to answer what would have happened if all of Argentina’s debt had been contracted their way. As I see it Argentina would just have been able to contract more debt, and the fall would have been even more severe, some few months later.

There are a couple of truths in life you cannot just structure yourself out of and to try so, could only make things much worse. With respect to developing countries and their public debt, it is high time to leave this “how-much-can-we-load-them-with-before-they-break” thinking and go back to basics, perhaps to the financial “innovation” of contracting debt that repays itself!

gdp linked debt debt sustainability Stephany Griffith-Jones Robert Shiller

Mr. Paulson Drop the Big Tax Bomb Now!

Sir, your must-do list for Mr. Paulson as a new US Treasury, Comment & Analysis, July 10, is very long but nonetheless you sort of forgot the “whatever-you-do-just-remember-your-wedding-anniversary” item in it.

The only thing really worthy for sticking out a reputable neck such as Mr. Paulson’s at a time like this, would be to promote a substantial new tax on gasoline consumption in the USA, thereby killing many sick birds with one single shot, and bringing much rewards for the neck-owner, the nation and the world at large.

For instance when so many remind Paulson about the need for Social Security reform they should not forget that whatever he does there will come to naught if the USA does not solve its most fundamental structural weakness, its excessive consumption of oil. Now reduce oil consumption and you need to do much less about Social Security, financial crisis, fiscal deficits, trade-deficits, oil dependency and, the top of the heap, Gore’s environmental sermon.

Let us hope Mr. Paulson does not go for a pellet gun and starts to dilute all his personal goodwill capital handing out one little aspirin here, and another one there. Let us hope he has already spoken with his perhaps willing but until now completely ineffective oil-addiction-fighting boss, about the need to Drop the Big Tax Bomb Now!

Paulson oil addiction gasoline tax

Wolf’s viva la vida loca

Sir, Martin Wolf is absolutely right in that “Coal and open markets are the best hope for energy security”, if of course he means our own generation’s energy securities, though I must say that I had come to believe, perhaps mistakenly, that part of the civilization process, of which Mr. Wolf with his column is presumably one of its anointed spokesmen, was to work on trying to make a better world for the next generations.

Now, if it is just about how much our generation can rip off the planet abandoning itself with gusto in the hands of the markets to feed their gluttony of oil and coal, then I do not really see why Mr. Wolf would exclude seizing energy resources from other countries with power, as it “would create serious global insecurity and even war” since, at least in moral terms, we are already effectively at war securing by brute force resources from our descendants.

Nonetheless as Mr. Wolf made it absolutely clear that he left the whole global warming issue pending for the next week, I guess the world will just have to wait and see. Meanwhile his voice sent a comforting message to all our political viva-la-vida-loca promoters. It said “Boys, we still have time, so take it easy and whatever you do, do not rock the boat, “the future lies. . . with old king coal”!”

For how long does the fact that we should all have started action along time ago provide us with a valid excuse for delaying it just a little bit more?

coal global warming sustainability

Why do you then support secrecy Mr. Carter?

Former president Jimmy Carter lectures us today in the Washington Post with a “We Need Fewer Secrets” where he solemnly advises us that “access to information advances citizens' trust in their government, allowing people to understand policy decisions and monitor their implementation.” Well as this is something that most citizens would full heartedly subscribe we need to ask Mr. Carter what he was then up to when in Venezuela his Carter Foundation gave support to an election where the opposition was not allowed to scrutinize what they felt was a very murky list of eligible voters, or access to the vote counting carried out by programmable electronic in a quite non-transparent way. Carter ends up declaring “We cannot take freedom of information for granted. Our democracy depends on it.” Mr. Carter, as a Venezuelan, might I humbly advance the possibility that so does our.

Yes, But, Yes!

Sir, Christopher Earl’s and Harvey Bale’s “A market remedy that can bring vaccines to the poor”, July 3, is very hope-lifting as they describe how Advance Market Commitment funds could give incentives for the research of medicines mostly needed by the very poor. That is of course until we get to the “once the fund was exhausted, the company or companies supplying the vaccine would have to lower its price to ensure market’s sustainability, but a reasonable return on investment would already have been achieved”, and which crudely brings us back to reality check one. Nowadays when we even hear about how the patented rights of fully amortized medicines are purchased in order to raise the prices to consumers, we need to better understand whether the concept of a “reasonable return” can indeed be mentioned in the context of creating the right incentives for research. That said, of course this is a good idea to be explored, and why not to the extent of forcing perhaps a small percentage of all the medicine costs in the developed countries to feed into these funds. The way the world is getting more and more contagious who knows if medicine developed through these systems for the poor will also benefit the rich tomorrow.

Christopher Earl Harvey Bale Advance Market Commitment AMC vaccines poor

Let the willing consumer in on the carbon trading principle!

Sir, James Macintosh in “The car industry needs carbon trading”, July 3, puts the full responsibility for carbon-trading on the car manufacturers and also mentions the problem that “automotive carbon trading might not provide politicians with the image boos they get from driving a hybrid car or filling up a car with ethanol from Iowa’s cornfields”. Well, he misses the most important part of the story. As the environmental conscientious consumers are the ones actually purchasing the hybrids and the ethanol, the most important thing to be done is to make them aware that there are more efficient ways for them to help out. Let them get their real image boost by placing a sticker on their window shield stating that though they drive normal cars, with normal fuel, they are contributing all of their cash savings from not using hybrids or ethanol, to smart and cost-efficient environmental projects, like for instance a reforestation of a couple of acres in Tanzania, and that they could perhaps even watch growing on the web.