Red lights will not do

Sir Robert Wright when reporting in “The wrong line from London to Caracas” February 24, about the quid-pro-quos that Ken Livingstone should be planning in appreciation of Hugo Chavez’s (not Venezuela’s) petrol gifts to London and that will allow to cut the transport costs for its poor (and rich?), he mentions that Transport for London, the transport authority, might help to provide Caracas with good traffic lights. Forget it! Traffic lights amounts to a too indecent mirrors-for-pearls gift in a country where the price of petrol is less than 3 cents of US dollars per liter and therefore the traffic is unstoppable, and also its President is running amok after and through any red light he sees.

In a state of continued perplexity

Sir, Christopher Caldwell with his “On parenthood and perplexity”, February 24, leaves us perplexed about the need of the late Anna Nicole Smith to serve as an excuse to discuss some of the most fundamental issues of our time, or perhaps that’s just the way it goes, the more important the issue the sillier the excuse needed.

That said let me compliment and complement the article by slipping by two comments that might help to keep us perplexed and attentive. First since the issue of genetic testing to “determine whether you have a pre-existing medical condition” was briefly touched upon, on passé, and these tests risk to exclude anyone of us from the pool of normal insurable and shared risks, leaving us out in the cold, what now any individual, and indeed the whole society most need, is an insurance against whatever could be discovered in those tests. Second, and as any honest right-to-life conviction cannot go hand in hand with any further-delay-of-life action there are some groups pushing for the adoption of frozen-embryos, which could then lead us into a discussion of primary, secondary, and perhaps even of intellectual fathers.

Vulture funds

Sir, I write to you with respect to Alan Beattie´s “'Vulture fund' in Zambia debt case gain”, February 16.

I might not like it too much if a vulture-fund-manager invited any of my daughters out to celebrate a killing in Zambia debt but, having said that, neither am I so sure that the world would be a better place without the vulture funds.

That some can find opportunities in buying uncollectible loans and squeeze fortunes out of them when others have decided to clean up their books, is just part of the circle of life, and part of the same market mechanism which signals how much, or how little, the loans are worth, since the price of a loan indicates the expectations of collecting on the loan and not the expectations of collecting on a “pardoned” loan. Yes, the vulture funds are into an ugly business, cleaning up among corpses, but, by their sheer presence, they might perhaps even help to reduce the number of corpses.

Most, or perhaps all of the scholar papers on the restructuring of sovereign debt, state as the explicit purpose of the whole exercise, that of enabling the countries to regain access to the international capital markets again (something like the torturer waking up his fainted victim) and so, if you really need to pick on one, you might also choose to do so at that moment in the circle when the new born debt-overhang-ridden countries gets thrown out to start defending itself again from the many dogs-of-finance out there.

There is so much written about freeing up the countries in order for them to access the markets while comparatively so little about how they should go about to avoid repeating the same mistakes that perhaps I should even frown when it is a regular investment banker who knocks on my door and asks for my daughter. I mean what is some hundred of percents on some few millions when compared to some basis point on a couple of billions.

PS. Nonetheless we should not allow vulture funds to be able to collect on really rotten odious credits

It is still the same old petrol though

Sir, in your editorial comment “Unconventional oil”, February 22, you express some doubts about the quality of oil produced from shale and sands. Don’t worry, at the end of the day smell it and you will not be able to differentiate it from any petrol produced by the sweetest light Saudi crude. That the crude itself is of a lower quality is just a cost factor, and thankfully not at all like as if the grapes had gone bad.

And even in terms of its final price, in Europe at least, there would be more than ample space to sell this new-same-old petrol at its current prices, but of course then the taxman would have to reduce some of his enormous current take.

In fact from another perspective it is even a better quality crude…it generates more jobs and less curse for the producer.

A mutual admiration club of superheroes?

Sir, Tom Burgis in “Chávez agrees fuel deal for London poor”, February 21, quotes London’s Mayor Ken Livingstone referring to it as “the work Hugo Chávez is doing around the world in tackling the problem of poverty”. Has your major gone nut? The way he goes about it next time he might even come up with that his superhero Hugo Chávez will also tackle the environmental problems of the world, ignoring such facts that eight years into Chavez’s peculiar to say the least socialist government, the petrol is sold in Venezuela at 3 US dollar cents per liter, transferring thereby around 10% of its GDP from the poorest of the poor to those who drive cars, damaging the environment and making it almost a mission impossible for your aspiring world-traffic-problem-tackling-mayor to allow his transport Chief Peter Hendy to find a solution for the traffic jams of Caracas.

We also read that Mr Livingstone will “actively and efficiently promote Venezuela’s image in the UK” and I cannot resist speculating on what Chávez would have said if, in Caracas, one of its majors had signed a similar deal to promote the image of for instance the USA.

We should make sure that the private education incentives are better aligned.

Sir, while we wholeheartedly agree with your support of “The private role in educating the poorest” February 17, we cannot but observe that perhaps everyone could benefit from having the incentives of the educators somewhat better aligned to the final results for the students. This could perhaps be achieved by having the educators, instead of collecting all their dues cash, upfront, receiving participation in the future earnings of those who they supposedly educate to be able to earn.

This idea of “Human Capital Contracts, that as far as we know was first advanced by Milton Friedman in 1954, is indeed a real education revolution waiting to happen, and a small company called Lumni is showing us the way having already managed to finance the education of some students in Chile and Colombia against a modest percentage of their future earnings, for some months or years.

You also mention the role that building brands could have in education by motivating the quest for quality, but there we should hope that those brands are not purely the result of advertising budgets and that the promises of those brands are backed up with the investment of some real money of their own. Ideally the “Human Capital Contracts” should be standardize in such a way as to permit their securitization, and thereby mobilize the resources that are much needed. Investing in the future earnings of our youth sounds more than reasonable, perhaps even for the professors’ retirement fund, that is of course if the professors really can deliver on their promises.

Following this route, will also diminish the risk of seeing someone suing their Alma Mater for failing in delivering its services.

The ‛rights of children’ is anything but a juvenile concept.

Sir, if the average life length of a person in UK were 80 and our democracies had anything to do with representation of interests, as in companies, then a new born should have 80 votes, a middle age 56 year old like me 24 votes and someone over eighty should count his blessings if he is allowed to keep his single vote. Of course the previous is clearly just an exaggeration, but it serves to argue in favor of the one-child-one-vote concept, in which the votes of the children are to be exercised by their mother, father or older siblings.

I say this loudly protesting the title of grownup Christopher Caldwell’s “Why the ‛right of the children’ is a juvenile concept”, February 17 and some of it contents, among it his authoritarian conclusion that “Rights over to children will either belong to parents or to the state”.

Sir, with many of our current problems such as the climate change begging for longer perspectives than next quarter’s results, is it not high time that the children, who are the ones who could really have to live in the heat, should have their interests better represented in our societies? Also, the democracies that are now turning into baby-boomer dictatorships, it could truly behoove them to allow their young to have more say, before they all in frustration decide to carry out a coup and thereafter, hopefully politely, show their elders the way to the nearest “ättestupa”, those cliffs from were supposedly the Vikings threw themselves when they became burdens to the society.

A “Capital Controls for Dummies” could have been handy

Sir, Kenneth Rogoff illustrates his “No grand plans, but the financial system needs fixing” with some quite hair-raising examples of some unattended possibly explosive financial bombs and he discreetly hint that this has something to do with some smugness in the developing community. I am not really sure that is the problem. If a company makes a mistake it pays dearly for it, sometimes with bankruptcy but, when the developing community goes wrong, their members are usually not affected and they just keep hanging around, incapable of thinking out of their old box, standing in the way of whatever must be done…until it is too late.

The recent and so painfully bungled efforts with capital controls in Thailand is a perfect example of what I mean. Although the IMF has after decades of predicating open capital markets with no levees for many years now realized that the small economies might in fact be too exposed to the financial tsunamis the global oceans can create, it has yet been incapable to workout anything like a “capital control for dummies”, which could have been quite handy for Thailand. Of course, just in case, I am not thereby implying that those in Thailand are “dummies”, but only that they should have been better helped by those who present themselves as “experts”.

And let us not forget how the financial regulators, by arrogantly deciding they could eliminate risks from the banks, have just driven the risks underground, where these are now waiting to explode. Although they created the bombs, do they now have the humility required so as to be helpful in disarming them? I am not so sure.

When in this hole… how should we stop digging?

Sir, Martin Wolf, “In spite of economic skeptics, it is worth reducing climate risk”, February 7, is absolutely right saying that we should view our current investments to reduce climate risks as an insurance, I guess similar to those that you are the happiest with when they turn out to be lousy investments… like who loves to collect on a sickness insurance?

Having said that when Wolf mentions that some have criticized The Stern Review for ignoring the “possibility that richer future generations will also be able to adapt quite well to climate change” he should perhaps have made it more clearer that we might in fact be that future richer generation that is trying to adapt, while there is still time.

One thing that Wolf does not point out sufficiently, and that might also be the biggest cause for our inactions, is the growing divergence between the seriousness of the environmental problems described and the frequently silly nature of the solutions prescribed. Today even if we know ourselves to be in a big bad very ugly hole, we still have very few sensible ideas of how to stop digging.

When are business schools really going to make education their business?

Sir looking at the high tuition fees of many business schools one wonders if they are not setting themselves up to be sued by their graduates for failure in delivering what they promised as indeed the current incentive structure seems a bit misaligned with students investing their futures and paying for it and schools only collecting present values.

Lately there has been some talking about Income Contingent Loans as a way out for the students that get trapped between high education debts and unrealized earning hopes. The problem with these ICL is that they are mostly based on some government subsidies while it might be time for schools to really make education their business and share the risks by investing part of their fees in participations of their students’ future earnings.

Business schools might argue that they need all their money now to pay for their huge costs but, honestly, if they cannot manage to securitize those participation contracts and sell them to the financial markets when everything else seems to become securitized then they should perhaps not be allowed to call themselves business schools either.

The first who to our knowledge broadly advanced this idea was Milton Friedman in 1955 and lately Miguel Palacios of the University of California has also been writing extensively about what is called Human Capital Contracts. Their splendid ideas have yet not taken hold much, perhaps because the education providers themselves have lacked the incentives, but this might change rapidly, after the first suit.

If it is serious then one expects it to be treated seriously too

Sir, if an illness can be cured by a little pill, that will somehow take away from its perceived seriousness and something similar could be happening with the endangered environment when the sense of urgency we get from the scientists, is thereafter diluted by the wide array of solutions offered, of which many seem quite simplistic and others do seem more like commercial propositions… The world as you know it will end… unless you buy yourself a hybrid car!?

We agree fully with your “We need a clear and predictable worldwide price for carbon”, February 3, in that the way forward must include a compensation for the costs that developing countries cannot afford, but having said that we get an uneasy feeling about the suggested source of revenues, the trading of rights to emit, as societies do better if they use the markets to trade good-goods and services and not bad behaviors. Similarly developing countries, by just being poor, might be doing less damage, not necessarily, and they might have some overriding urgent needs but, to state “overriding development objectives” as an excuse for inaction of them is wrong, as it implies that either they are to be developing for life on another planet or that they are not suppose to share into the responsibilities of this one.

Finally, what does “the most efficient possible use of energy resources” mean? Before we have a real unbiased source of good solutions that make real sense, even though some of them will most likely hurt a lot, many will find it hard to believe there is a real emergency, and perhaps leading us all to cry “wolf” once too many.

Sometimes we should also beware of the experts

Sir, in your editorial “Where is all the risk”, February 3, on how financial innovations sometimes come hand in hand with diminishing transparency, you rightly conclude that “the best solution is to make sure that increased complexity is matched by increased flows of information”, though you forget the most important requirement of it, namely that the information needs to be understandable and digestible. As is we both know well that many directors of the boards of the big banks, if not all, and most of its management do not understand the information that is already flowing…does anyone?

Also, if we are going to have a chance to counter whatever the dangerous financial minefields might have in store for us, let us not only blame the “complexities” but also the arrogance implicit in ideas such as those coming from Basel about being able to drive the financial risks out from the banks, through regulations, without causing these risks to go underground, build up pressure and explode much worse. Also, as each bank risk avoided might just as well be an opportunity lost, we still have much adding to do before we get close to figure out the total cost of the whole Basel exercise. Sir, although we might indeed frequently need the help of experts, sometimes we should also beware of some of them.

Should not Higher Education be more of a joint venture?

Sir, hearing so many young professionals in the USA describing their problems with debts they incurred while studying, I guess that soon some of them could be suing their Alma Maters for misrepresentation or plain failure in delivering the services offered.

Perhaps the incentive structure of the education system needs to be revised so that at least some of the higher education providers offer to collect a part of their fees through a profit participation scheme, like for instance by receiving a small percentage of the student’s future earned gross income that is above the level that the student could have been estimated to earn without further education, during his first 20 years of work.

How are then the universities going to pay for their professors now? Easy, that is what the financial markets are for. These participations in the future of our youngsters could be securitized and sold in the markets, perhaps even as a good investment for a professor’s retirement fund… of course, that is if the professor delivers on his promises.

For a university to show a willingness to invest in their own students, because they are sure of what they are giving them, might be a better marketing tool than outright grants and “we invest our money in your future” is my slogan. Also, for students, the question of what university offers to invests the most present dollars against the smallest percentage of the expected future earnings... should rank among the first when selecting an Alma Mater into which to invest their own future.

If only we could share into the loser’s bless

Sir, John Kay while explaining interestingly why frequently sensible investors willingly exchange very tangible money for unknown financial intangibles, “Why the winner’s curse could hit complex finance”, January 23, he might have underestimated the role of the advisor and the intermediary, whose normal incentive structure is based on deals completed and not deals avoided. As a financial advisor I have many times wished for that I could receive even a millionth part of the losses I have helped my clients to avoid, so as to be able to share the loser’s bless.

Where have all the bank risks gone?

Sir, Prof Stella Fearnley, January 22, reacting over Gillian Tett´s column about the explosion in structured finance (“The unease bubbling in today’s brave financial new world”, January 19) advances with some humility the possibility that “passing the risk around does not get rid of it”. 

The bank regulators in Basel should take heed since having on the contrary arrogantly presumed they could simply get rid of risks and although they might indeed have managed to eliminate some, they now seem utterly befuddled asking themselves…. where all the bank risks have gone? Also, sad to say, even in the case of risks eliminated, no one has any idea of at what cost, as we all would benefit from remembering that any risk avoided could just as well have been a valuable opportunity lost.

Prof Fearnley ends up expressing the hope “that none of my savings are being used for circular gambling” while expressing the criteria that “if the returns look too high, they probably are.” and though she has a clear point, let us also not take for granted that the opposite, low returns, do necessarily mean lower risks.

When will they ever learn?

We need a carbon-solutions-neutral agency.

Sir, there seems to be a much growing divergence between the realization of how serious our environmental problems are and the effectiveness of the measures, or at least that is the impression one gets when reading “Business must bend with the winds of climate change” by Philip Stephens, January 19. The fact that a reputable company such as Marks and Spencer and that is surely run by capable and creative professionals will now, to help do their part, recycle unsold food into energy, seems more to evidence how much the world really needs a carbon-solutions-neutral agency to tell business and the rest of us about how to best bend. When told that temperatures are rising, fast, can we really afford for our lead corporate citizens to be wasting resources playing for the galleries or investing in magic-green-potions peddled by some eloquent salesmen?

What we really should fear about the green cars is how little we know about them

Sir, John Gapper writes “Carmakers are turning green with fear” January 15, arguing the dangers for Detroit, GM, Ford and others to sit on the sidelines in the production of more environment friendly cars. This might indeed be true but the real surprising and fear-inspiring fact is really how little we know about how efficient these green cars are in tackling our global warming problems. Yes, they do indeed consume less petrol per mile, but, at what costs? These new green cars could just be postponing some more fundamental changes that are needed; they could be creating new environment problems, for instance with the more intensive use of batteries; there could be many much more cost efficient solutions, etc, and so those on the sidelines might turn out to be the real final winners. Also, since for instance in Europe all these green cars are not sold on the basis of how much petrol the save but because of how much tax on the consumption of petrol they save then, if the society wishes Detroit to behave differently, perhaps it should be sending clearer signals, hopefully in a more timely fashion.

Which green is best for the environment and our pockets?

Sir, on January 8 FT carried on the same page stories about GM’s plug-in car and Toyota’s hybrid petrol-electric car, both of which have a market niche primarily because they are environmentally friendly, though in fact no one really knows how friendly they really are or how much that friendliness really costs. A world that is in so much need of sounder environmental behavior, which costs money, also urgently needs some truly neutral environmental advise to help it navigate and pick among all the green tonics that are currently peddled. Perhaps the best thing an environmental conscious motorist could do is to buy himself a traditional car and invest whatever he saved by not buying a green into something that is in environmental and economic terms, more efficient. The World Bank could perhaps have a role to play as that wise green arbitrator, of course as long as it can avoid being captured itself by windmill and solar panel-producers.

hybrid plug-in petrol environment global warming

Two nightmarish possibilities

Sir, Christopher Caldwell’s brilliant “Youth and war, a deadly duo”, January 6, based on the probably even more brilliant book Söhne und Weltmacht by Orell Füssli, and that now has me brushing up on my 35year´s never more spoken and originally bad German, brings me two visions. The first is about a clash-of-generations pitting the baby boomers and other older people all over the world, wielding their wealth and political power, against hoards of desperate barehanded youths, and the other, of a big global arena were a mass of old Neroes are enjoying the spectacle of young gladiators killing each other. Let us pray we are wise enough to spare ourselves either nightmare.

Caldwell Füssli Söhne Weltmach youth

On trusting and hacking

Sir, Benn Steil’s “Digital gold and a flawed global order”, January 5, serves quite well in reminding us about not digging too deep into the reasons for this extraordinary trust that a generally very suspicious world has shown most of their politicians over the last few decades by being willing to accept their printed money against the sole backing of the imprint of a “In God we trust” and, to top it up, this in days were fever people seem to trust God, at least by church going standards. The other thing the article does is of course to alert us to the significant retooling those old Fort Knox plunders have to do in order to be able to hack themselves into the vaults of digital gold.

Steil gold trust

The problem with Marxism is that it does not have an owner like Coca Cola

Sir, if we look at how globalization like a sunflower that looks for the sun orients its production facilities towards low salary environments and if we instead of the ownership of physical productive capital assets think about intellectual property rights and other modern means to acquire the control of markets that allows for the extraction of surplus rents, well then of course John Thornhill could argue his rebirth of Marxism in “Behold Marx’s twitch” December 28. But, we also need to remember that is we really set our mind to it we could in fact take any philosophers book or treaty and twitch and read anything we want into it.

Coca Cola was launched after Karl Marx death but long before the last volume of Das Kapital was published and it contained cocaine; was sold in fountains; bears very little resemblance to today’s vanilla coke but is still 100% more Coca Cola than what today’s so many Marxism are an original or even a Classic Marxism… whatever that now signified. The problem with Marxism is that contrary to Coca Cola there is no owner of the brand and so anyone is allowed to lift his hand up and proclaims himself a Marxist or a communist and, if he finds enough people to scare and are willing to serve as his amplifiers, then he can bask in the shine of a historical movement and sell himself as an ideologue with a vision.

Of course we all know it would be difficult for politicians to market themselves as brittneyspearists even when such a label could be more indicative of their movements but, as so many real problem exists out there in the world and for which so many new solutions have to be developed, it really behooves us all not to make things more difficult by allowing for the use of misleading labels. Marx missed his train, it is over, let us now please move on.

Thornhill Marxism IPR

Valium or placebos?

Sir, Lawrence Summers with “A lack of fear is cause for concern”, December 27, put his finger where it really hurts since many of us never imagined possible the huge discrepancies that exists between how nervous most investors seem to feel, in private, and how little of this risk perceptions the market seems to be transmitting through its public pricing.

Somehow it looks like either the market has lost the connection with the investors or that someone somewhere is peddling some real potent valiums or extremely credible placebos. At least when Summers says “As institutions have become more sophisticated in their approach to risk they have felt comfortable in taking positions they might have been reluctant to hold even a few years ago” we know someone has been gulping down a lot of medicine lately. So let us now pray it is what the doctored ordered and that it does not have too bad side effects.

Summers risk fear

Should we let the market really work the migration flows?

Sir, I subscribe almost entirely to Martin Wolf’s “Why immigration policy must be a compromise”, December 22, and the almost is there as I find it hard to understand how his view “that work permits should be auctioned” to the best bidder is related to a “compromise”. Will the one offering the most for the work permit be the best worker or is he just the one needing or capable of paying the most for a shelter?

If Wolf really believes that the market mechanism should be used to optimize migration flows then anyone wanting to move out of his country should also have the right to sell his “place” in the market. We could thereby create some real incentives for people to sell an expensive UK residence right and buying themselves a dirt-cheap Tanzania one, with view of making a huge capital gain when this last poor country gets developed.

In the debate on immigration we must never forget that no matter how much we take shelter behind reinforced borders, at the end of the day, we are all still living, ever more cramped, on the very small planet earth.

Should then the ageing population emigrate?

Sir, Martin Feldstein argues in his “Immigration is no way to fund an ageing population” December 14, that immigration would generate very little additional tax revenues as immigrants “generally earn less than native Spanish workers” but which is something that with time, and increased scarcity of younger working people, is and should not necessarily be true. That said by giving the example of Spain where “the number of working-age people per retiree is expected to fall from 4.5 today to fewer than two in 2050” he also brings forward evidence that seems to prove that without immigration there would be no way to fund or manage an ageing population… unless of course the ageing population emigrates. The way out of this conundrum that Feldstein proposes is to “supplement the tax-financed benefits with increased saving and investments” but what that has to do with immigration is somewhat hard to understand, since whether they can afford it or not, the elderly will still need help, and also someone should be doing the jobs they all do now in Spain, unless you want that nation to behave like an old soldier and just fade away.

Martin Feldstein immigration ageing population

Thankfully the victims in Darfur do not read FT

Any poor victim of Darfur’s genocide like killings who might have invested his last few hopes in someone coming from abroad to save him, would have collapsed in despair had he read Christopher Caldwell’s “It is best to stay out of Darfur”, December 16. Of course we must agree with Caldwell that no country should be expected or even have a carte blanche to enter anywhere for anything but, if the world cannot find an expeditious way of taking care of the worst kinds of political hooliganism, then it will stand precious little chance of solving the many other challenges that are increasingly posed by a globalizing world. And so Mr Caldwell do you really not believe that your XXI century country with 37.600 per capita GNI, together with some others likeminded, do not have in them the capability of designing an effective plan of what to do in the XIX century 640 per capita GNI Darfur? If no, then, if it is not too late, may I humbly suggest that it is also best for you to stay out from bringing new children into this world.

Christopher Caldwell Darfur genocide

Some might not want to face the competition from the dead or forgotten

Sir, you are absolutely right defending that the term of copyrights and patents should not be extended. Just to think about all those great works out there that are condemned to live in the twilight zone between not being considered economically viable for republishing but not yet either worth any other effort while they are copyrighted, make us want to cry. In fact sometimes it might not be about protecting intellectual property at all, it might just be that many new writers out there just do not want to face the competition from the dead or forgotten.

Having authored a book that I believe great and relevant and might yet not find its way to the general public during my lifetime, I at least relish the idea that someone will discover it in the future and then push it in any way he can.

copyright

Too well tuned?

Sir, Stefan Stern in “The supply chains that could bind unsuspecting managers”, November 28, argues that when everyone strives to be lean and efficient this could on a global scale create greater risks and vulnerability. He is right though it extends to much more than supply chains.

Martial arts legend Bruce Lee, who died at the age of only 32 is an example of how an organism could be in such a highly tuned and perfect condition that it could not resist a small external shock if the rumors that his death were caused by some sort of aspirin are true. In the same vein companies nowadays, pressured by the stock market’s expectations for the next quarterly results; the latest theories in corporate finance as to how squeeze out the last drop in results; and, perhaps, even some bit of creative accounting, might be so well-tuned (no little reserve fat left) that they would not be able to withstand any minor recession.

PS. Whenever I expose this theory, I can see in my wife’s eyes that she believes this is just my preparing an excuse for my growing—ok, grown—midline.

Stefan Stern supply chains risk

Iraq needs mercenaries for peace

Sir, as Venezuelans know so well, it is impossible to build a real democracy upon abundant oil. Democracy is about creating a level playing field, and, therefore, if you want a real chance at democracy in an oil-rich land like Iraq, you need first to distribute their oil revenues equally among all their citizens. For Iraq, distributing their oil revenues upfront, in cash, would carry a special significance since not only would it help to solve the problem of their oil being located only in some parts of the country, but it would also foster an additional bond of national identity among all the Iraqis, be they Sunnis, Shiites, or Kurds. The possibility for each citizen to receive perhaps a couple of thousand dollars a year would promote interest in reaching normality. The World Bank could be the perfect candidate to help implement a very transparent sharing of the oil revenues for Iraq.

In a world where so frequently mercenaries are used for wars, why don’t we help Iraq contract their own citizens, using their own money, to be mercenaries for peace?

Iraq Study Group Baker Hamilton Bush Blair

European blindness

Sir, you must excuse me using Philip Stephens’ (November 3) “A bitter crop from our failure to tend to global warming” for a somewhat different discussion but when he says that “Europeans . . . are beyond rational calculation: bad for George W. Bush by definition must be good for everyone else” that must be exactly the reason for which many Europeans have not distanced themselves completely from a Hugo Chavez, who has positioned himself as a big time Bush foe, and have been turning a blind eye on issues such like that in a notoriously divided country the Congress of Venezuela has 167 members in favor of Chavez, and none, zero, zilch, of those who differ with him. I said a “somewhat different discussion” because in fact, with respect to global warming, they have also wanted to ignore that petrol is sold domestically in Venezuela for about three euro cents per liter and thereby producing runaway consumption and the transfer of about 10% of it GDP from the poor to those who have cars. Indeed, how hatred can make you blind!

Philip Stephens George Bush Hugo Chavez

What discount rate should be applied to analyze the benefits of the unborn?

Sir, Nicholas Stern, in order to tell us that the “Gains from greenhouse action outweigh the costs” (November 8) had also to argue that “we cannot avoid the ethical issues involved in allocations between generations” so that he could be allowed to use the low discount factors that validates his cost-benefit analysis. When so coincidentally FT´s front page that very same day carried the story on “Big Four firms in call to switch to real-time reporting” this really helps to illustrate the conflicts between the short terms results we all expect and the long term actions the world needs.

Recently I read a small publication titled “Faiths and the environment” that spoke about some pioneering work supported by the World Bank aimed to furthering whatever links could exist between those two and since given that religious groups are in fact one of the very few driving forces behind helping us to take a longer perspective on issues they could by prioritizing more the environment really assist us in lowering the high discount rates that prevail out there.

The second thought picks up on what Stern says about “the needs of future generations should be represented in decision-making” which reminds us of the urgent need to get some more real representation of the young and perhaps even the unborn into our democracies… and I mean before they are completely taken over by the baby boomers.

Long and short position abuses frequently come hand in hand

Sir, in your “Do not sell us short”, November 3, you correctly argue that we should not identify the abuse of false bad news with the mechanism of the short sale. Usually we do not react to it the same but false good news that inflate the value of a stock is exactly as much an abuse than bad news that deflates it and often both long and short positions abuses come hand in hand.

Distribute the gains but also try to avoid their concentration

Sir, in your “Politicians must focus on middle America” November 3, you identify other causes for the stagnation of their real income than the migrant or foreign worker, such as “the rise of winners take all markets” and for which you should be commanded. You then suggest (to democrats) that we need to be very careful not killing off globalization, as it generates many benefits but also (to republicans) that we need to redistribute the benefits better from winners to losers, through higher taxes. Given that the market value of many public services franchises and of the “winners-take-all-markets” are in some cases so extraordinary high that it proves the absence of a real regulator, may we also suggest that some more efforts are invested in avoiding the concentration of those profits that you suggest to afterward tax.

globalization democrats republicans middle America

Though that could also be good news

Sir, Richard Lambert scares us with his news about how “Too many people are tuning out of the news” November 1, until we reflect upon the sad fact that in some cases that could in fact be good news, given the very low quality of some of the news.

Richard Lamberts news

A compelling case for the right actions

Sir, we should really wait for next weeks conclusion to Martin Wolf’s “A compelling case for action to avoid a climatic catastrophe”, November 1, but meanwhile we should point out the fact that the more compelling the case is, the more should be the need to take the correct actions. Until now, unfortunately, much of what is being done in this field seems more like having to do with peddling commercial solutions than with solving the real problems. For example all that money that with good and decent motivations is invested in hybrid cars, would do much more to avoid a climatic catastrophe if invested in other ways.

Martin Wolf Nicholas Stern global warming

For regulation in a world without borders you need minds without borders

Sir Walt Lukken writing about “Exchange regulation in a world without borders” November 1, correctly concludes that “Individual regulators, no matter how big, do not have the resources to monitor properly an entire global market” but then recommends that “They must enlist the expertise of other regulators with similarly high standards” which sounds like the creation of the coalition of the overrun. Instead we believe that a complete and very humble rethinking of what can and should be regulated in a global world that does not necessarily equate high standards with the right standards, is a much better place to start but, for that to occur, you will need to bring in a new generation of regulators that are not so stuck in their current geographic framework

Walt Lukken regulation globalization

If reforming democracies, don´t forget the young

Sir, Deanne Julius and John Gault opine that “American democracy needs reform”, November 1, and though we agree with their recipes, especially the term limits, we wonder whether they carry sufficient punch to bring about that revival of democracy that seems to be needed, not only in America, to capture the attention and the compromise of the quite disenfranchised younger generations. Some of us believe for instance that there is now an urgent need to introduce a much more direct representation for the young to balance out for the baby-boomers.

Deanne Julius John Gault democracy

Let the nosy naggers also have a go at it

Sir, when you opine that the “Stern review offers counsel of hope” October 31, but only if the world acts quickly to curb climate change you place though the responsibility primarily in the hands of supra national entities such as the European Union and a Kyoto protocol, though if we really are going to have a chance to save the world we must get the world into action. One small but potentially very important step all of you Europeans could take is to start shaming the Americans for their exaggerated gasoline consumption on the roads. Somehow they seem to believe gas guzzling is “macho” and you got to them it is of irresponsible wimps. For that action you can call to arms al those horrendous nosy naggers that were so horrendously effective in getting people to stop smoking.

Nicholas Stern climate change global warming

Get hold of the right boogeyman!

Sir Larry Summers is correct when he says that “The global middle cries out for reassurance”, October 30, and one of the first things that has to be done is to make it very clear to that middle that it is not the 500 dollar per month worker in a poor country willing to do the same job that someone in a richer country aspires 3.000 for, who is the boogeyman. In fact globalization has produced extraordinary benefits to the middle but the problem is that parallel to it, there are been many other things going on that are eating up the income of the middle and thereby their capacity to enjoy it, to its full extent. Let me give you a concrete example. I pay for a mobile phone monthly plan a fee of 70 dollars and which gives me a free allowance of one thousand minutes. When suddenly, because of unforeseen circumstances, one month I had to use my mobile for 2.000 minutes, then every single one of the additional minutes was charged at the mind-boggling rate of 40 cents each and which resulted in that I was presented with a total bill of 470 dollars, and this though my mobile phone company must have incurred in minimum marginal costs. Clearly some regulators are not working as they should, and this is one of the elements that is hiding the true net benefits of globalization.

Larry Summers globalization middle class

Making the accountants more accountable

Sir, in what might be a preview of things to come when the banks further consolidate into some very few, you reported on October 27 that Charlie McCreevy, the European Union Internal market commissioner, argues that the big four accounting firms need to be shielded from potentially ruinous lawsuits and that he might thereto propose a cap on their liabilities. Since there is nothing such as a cap on the harmful consequences an irresponsible audit could produce, this cannot be the right way to go about it. Perhaps what is needed, as a quid pro quo for the much easier marketing of their professional services that being in one of the four signifies, is to tighten the screws on the individual responsibility within the organizations. By following the money you could easily establish who are the real direct beneficiaries of any audit and with that what accountants to hold accountable. You want to work in one of the big four, precisely because they are one of the big four? Great, but of course that entails much more responsibility! The good news is though that a commissioner has offered to cap your individual financial responsibilities to only 100 times your earnings.

Charlie McCreevy European Union commisioner

Are we detecting some envy?

Sir, in your editorial “Italy can save itself”, October 26, you prescribe fiscal discipline and no one would argue with that. But, from there on, your suggestions seem more subjective. For instance when you hold that Italy absolutely needs to change from traditional family controlled ownership to general shareholder control this ignores the effects this could have on Italy’s social fabric. Also, we agree that incurring more household debt could be good but, to claim as you do, that this could signify the start of a virtuous cycle seems to be stretching the concept too far. On Italy’s families closeness and low household debts are we perhaps detecting a hint of UK envy?

Italy

The Italian need to reflect more on their business model for their Italy

Sir, Martin Wolf argues that “Fiscal tightening and reform can rescue Italy’s economy” October 25, among others because Italy has a plentiful reserve of women not working, though it is not very clear whether having more women working is the type of reform he suggests or a response to the lack of other reforms. If the first, we guess the Italians themselves would like to have a say before going down Wolf’s reform path.

That said and in order for the whole suggested exercise to proceed smoothly Wolf also mentions the need for sustaining domestic demand, for which he neo keynesially recommends that since the government has run out of borrow and spend power, the private households should now have a go at it.

Presenting OECD figures that show that in 2004 the ratio to GDP of medium and long term-loans to household was “just” 37 per cent against 114 per cent in the UK, he thinks Italian household have ample room for more debt, though many of us humans would tend to react with some horror over the UK figure.

Whatever, before taking up Wolf’s suggestions about going into debt and given that globalization acts in many and strange ways, we believe the Italians should reflect a bit more on their business model for their Italy.

Martin Wolf Italy

The United Nations needs to get its diplomacy in order

Sir, whether Guatemala, Venezuela or a third country is going to be a two year member of the United Nations Security Council might be an important issue, at least for the candidates, but it does not justify that circus spectacle of 35 rounds of voting until now that shames the UN. With so many serious issues waiting to be tackled all over the world we cannot simply understand how UN diplomacy has not been able to evolve into concepts like the best out of 10, or sudden deaths.

United Nations circus diplomacy

How depressed could net real western wages be without globalization?

Sir, Samuel Brittan in “Globalization depresses western wages” October 20, discusses a very delicate issue where a wrong answer could lit up a fire of protectionism that would just make things so much worse, on so many fronts, at least in the long run. Mr Brittan puts forward some interesting thoughts on how to transfer some of the gains of globalization to the losers but before doing so we might need to understand better all the other factors that might be affecting how the benefits are currently distributed. For instance, the increased tendency of awarding, through patents and copyrights, so many small, medium and large monopoly rights and that has been running parallel to globalization, could indeed be reducing the net take home for most much more than the competition in the labor market. Also, in the case of the privatization of many public services, it might very well be that some weaknesses in the regulatory agencies have allowed for the capture of private rents to exceed the efficiency savings produced. So, in the name of the worker who for a low salary toils away in poor developing countries, let me ask instead; how depressed could net real western wages be without globalization?

Samuel Brittan globalization wages

We must keep the wwwinding road open

Sir, Lawrence Lessig as one of the leading voices in this issue is so right when in “Congress must keep broadband competition alive” (October 19), he urges us to forbid “business models that favor scarcity over abundance”. No one would question that the internet represents potentially one of the most important roads toward a better future. Just see how far we have come, in such a short time. It would be a real shame, bordering on criminal, to go for the fast buck and allow any kind of tollbooths that difficult the access to it, before we have even really begun to understand what could lie behind its next curve.

Lawrence Lessig internet neutrality

How to save ourselves from an ättestupa

Sir, if countries were open-ended investment trusts, then if the average lifespan was eighty years, a newborn baby should have eighty shares, a fifty-six-year-old consultant (like me) should have only twenty-four shares, and anyone over eighty should count his blessings and be happy with the one he’s got left. From this perspective, the representation of the young in our current democracy is null.

Lorenzo Bini Smaghi, in “How to save the young from the burden of pensions” October 18, describes precisely the conflicts that are getting more serious by the day as the graying of the democracies in Europe (and the US too) is reducing even more the low representation of the younger generations. This though is not a problem restricted to the developed countries. The World Development Report 2007 from the World Bank titled Development and the Next Generation is a truly hair raising reading that evidences our failings as a society and that most of those coming after us are giving up on participation and hope, with damned good reasons.

It is said that in Scandinavia, a long time ago, when the older people felt that they stood in the way of the young, they threw themselves off steep cliffs known as an ättestupa. In this respect Bini Smaghi, instead of talking about saving the young would be more correct phrasing it as saving ourselves, before they throw us down an ättestupa—for damned good reasons!

You step on one corner of the dry hide and up goes another

Sir, Martin Wolf gets it right when he ends up his series on China telling us that “A domestic spending surge is the best thing for China” (October 18) though we should remember that any and they lived happily ever after would be quite premature. Since economics is like the dry hide and whenever you step on one corner to put it down up goes another, the problem of increasing Chinas domestic consumption is that on the margin a society going from bicycles into cars, might place extreme pressure on some other serious bottlenecks in the world, such as oil. But then again why should the Chinese refrain from consuming oil when for instance the US on a per capita basis gobbles it up a twelve times faster rate.

Martin Wolf China oil

The basics are ignored at your own peril

Tony Jackson gets the point when in his “Fingers could get burned as hot money floods infrastructure” (October 17) he quotes a banker saying “what matters is not what the contract says, but whether in the long run the electorate will tolerate it.” South America is littered by privatizations gone wrong because of much advanced financial engineering that somehow forgot to take the basics into account.

A couple of years ago when the hundred-year-old private electric utility company that served my hometown (a South American city) was taken over by an international player, it became within a short time leveraged up to its hilt in debt, and I suspect also poison pills and golden parachutes, and I just knew we were heading into the wrong direction. When I now read about all the consolidations in Europe, which can only distance consumers from their day-to-day local electrical engineers and place their needs in some distant trading rooms, I feel the same. It is clear that sooner or later all those high valuations paid by financial wizards purchasing utilities and that are expected to be repaid by the European electricity consumers, will shatter everyone’s blissful ignorance.

Tony Jackson infrastructure

Get the banks back into doing credits

Sir, the banks are there to provide a safe haven for savings but also to promote growth and distribute opportunities through their credits. Over the last decade we have seen an almost obsessive effort by regulators to drive out the risk from banks with none of them really giving an iota about the other two objectives. Are we then to be surprised that the whole credit giving business is going underground hiding out in hedge funds and other sort of murky places? You now propose that “Regulation must not hedge funds in” (October 17) and though we fully agree with what is said we still have a lingering feeling that what we really need to look for is how to get the banks back into doing credits. As the average central banker will never be able to comprehend that we also run risks trying not to run risks and that risk is what going forward is all about, diversifying the regulators might be a good place to start our quest.

credits risks hedge funds banks regulation

What about some more fundamental accountability?

Sir, what a creditor really wants to know from a credit analysis is how much money he risks to lose given that there is a world of difference between a debtor who can only repay ten cents on the dollar and one who, though defaulting, repays 90 cents. According to Paul J Davies and David Oakley, “New stress on recovery for rating agencies” (October 5) this is what the credit rating agencies now planning to do, about a decade after they were handed over the extremely profitable franchise of measuring the risks for the market and it begs the question of what to do with all the then useless ratings given until now. Could the credit rating agencies be sued? Furthermore the fact of changes in ratings that have nothing to do with changes in debtors but only with changes in the criteria used by the raters, illustrates perfectly the immense systemic risks bank regulators imposed on the world, ever since they arrogantly thought themselves capable of controlling risks.

credit rating agencies

Why don’t they?

Sir, Martin Wolf using deductive methods he attributes to Sherlock Holmes tells us “Why Beijing should dip into China’s corporate piggy bank” (October 4) something that seems quite reasonable for a country with many needs and that now should have about a trillion dollars stacked away in foreign reserves. The real Holmes worthy mystery though, which Dr Watson would certainly ask about is, why don’t they?

Martin Wolf China foreign reserves

Be careful with lulling us into a false sense of security

Sir, Douglas Ferrans and Peter Scales write that “Investors are taking the lead to help save the planet” (October 4) and argue that “how quickly [the institutional investors] move their investments from high carbon to low-carbon companies will, to a large extent, determine our success in mitigating global warming. We need to make sure though this does not just become another script for a massively expensive Hollywood production about some world saving heroes.

Of course it is good that investors act responsibly but, if some of them are allowed to keep on maximizing pure financial returns, without any consideration of the environment, then our heroes will just fade away and all this brouhaha has served the unnoble purpose of lulling us into a false sense of security. I am certain the authors are aware of the risk.

Douglas Ferrans Peter Scales global warming

An UN idol?

Sir, when you say in relation to the procedure of appointing a Secretary General in the United Nations that this is “No way to choose the world’s top diplomat” (October 2) you are absolutely right. The problem though is that no other procedure, except perhaps having the whole world’s population cast their votes simultaneously on the web, which is something we should strive for because at least it puts us in the right direction and which also, with today’s technological progress, is not really that farfetched as it seems.

Meanwhile, as a temporary stopgap alternative, maybe the world should come up with 15 suitable candidates, and then leave it formally to a lottery, which in fact is what it always has and always will be.

Is this any sort of formula for social justice?

Sir, Larry Birns and Eytan Starkman, believing that “Guatemala is antithesis of the ideal member for UN Security Council” (October 2), dutifully come up with a long list of arguments as to why this post should be given to Mr. Chávez´ Venezuela. All of them could be discussed but the icing on their cake must be when they say that “Mr. Chavez has introduced into the Bretton Wood’s international financial formula the concept of social justice”. In Venezuela, after almost eight years of Chavez´ 21st century version of socialism, petrol is sold at about 3 US cents per liter (12 US cents per gallon) and with that he is effectively transferring about 10% of the country’s GNP from the poor to those who use cars. Luckily for the world, his financial formula of social justice, has been duly ignored.


Birns Starkman lobbying Chavez

"In the US we trust" becomes global term of economic faith

Sir, Martin Wolf’s “America could slow us down” (September 27) somehow ignores the possibility that just as the Americans did when they accepted the “In God we trust” printed on their bills as an act of faith when the dollar abandoned its convertibility into gold, the world is now willing to live with an “In America we trust”, at least while there is such a world shortage of better alternatives. 

If this is so, one could argue that we have still far to travel on the roads of the American current account deficit currently used by the world to dollarize since the fact is that, if you want to lay your hand on a dollar, you have to sell or give something for it.

Frightening? Yes, but is not the world itself a frightening place that needs many acts of faith in order to make life bearable?

Published in FT, October 4 2006 (Censored?)

PS. That is of course as long as USA does not lose its military supremacy

Sir, keep it simple please

Sir, in “Undead Pensions”, September 30, you describe well the risks that a higher than expected longevity could have for any pension plan, but be careful though that this does not turn into the perfect useful excuse that hides the much more serious consequences of too much optimism with respect to the estimated return rates. Now after rightly mentioning the role of the “real insurance company” you thereafter go into some not easily understood sophistications asking for “a market in longevity” and that if I read it correctly seems like a proposal for hedge funds that trade in longevity derivatives and cover themselves by going long in avian flu risks and look to settle their trades within their own lifetime. Financial Times in its great knowledge should never forget that there is also some wisdom and some value to keeping things simple, especially in such certain things as death and taxes.

In immigration you cannot and should not have the cake and eat it too

Sir, Marin Wolf’s suggestion that “Immigration can no longer be ignored” September 29, is a perfect example of how muddled this issue is since his prime recommendation that “the focus now should be on bringing in skilled people who are most likely to make a big economic contribution to the country” will of course only deepen that divide that makes unskilled labor even more willing to risk their life’s crossing it. When we think about the capital labor relation that economics is really all about going Wolf’s way makes us just think about “if only we poorer countries could classify the capital as skilled and unskilled”.

Wolf’s skilled/unskilled dilemma also reminded me of a new development of expensive houses close to Washington, where the new owners had to get together and build some low price houses, so that persons willing and capable of being firemen could afford to move in close enough to be able to arrive before the houses had burned down. Also, in the long term, it is very difficult to see how a country could be better off keeping the relative incentives for their domestic low skilled workers high, while imposing competition on the skilled ones since to me it sounds like a sure recipe to end up as servants to the newcomers.

Finally when Wolf tells us that “Countries matter . . . as communities with a shared destiny” he, as a columnist that thrives on globalization, should also remember that whether we like it or not, all these communities are part of a bigger humanity living on a small planet.

Martin Wolf immigration skilled

Ooops, we expected 30 seconds, or 30 minutes at the most

Sir, Timothy Geithner, Callum McCarthy and Annette Nazareth make a call for “A safer strategy for the credit products explosion” (September 28) and they clam us by giving credit to the industry for acting in advance of a crisis. But, since they also mention that “confirmations outstanding longer than 30 days have been reduced by 85 per cent” which sounds truly scary for any outsider like myself that would be expecting 30 seconds, 30 minutes at the most, I guess we all better knock on wood and pray they are right and that we are not riding on a full-blown crisis, only to be confirmed when the market really catches up with what it is doing.

Timothy Geithnert Callum McCarthy Anette Nazareth

Don’t suppress the fund’s board, allow it to function instead

Sir, Charles Wyplosz asks “Why not suppress the International Monetary Fund’s board altogether?” (December 27) and he is wrong. What you need to achieve though, and here I speak as a former Executive Director of the World Bank, a quite similar institution, is that the board has a chance to effectively perform its functions. Currently the board is literarily drowned in mind-boggling thousands of documents on thousands of issues. The day the management of the Bank and the Fund has to report on what they consider the best ten and the worst ten projects or programs, that day the board can really start working on what they should, instead of muddling away and diluting all of their voice on the grayish middle spectrum. What is stopping this from happening? The fact is that a list of the ten best and the ten worst is also an immensely effective tool for holding the management accountable.

World Bank IMF Executive+Board

I am looking for the 50 most influential bartenders, barbers and taxi drivers to discuss my blog

Sir, I just sent a letter commenting on a Martin Wolf article but I guess it is going to be hard for it to reach the presses now that he has appointed 50 of the world’s most influential economists to discuss his articles. What a splendid idea! I as a much smaller and humbler voice will now try to look for the 50 most influential bartenders, barbers and taxi drivers to discuss my blog. By the way with my choice of feedback I probably risk less to limit it incestuously to a club of mutual admiration.

Martin Wolf

What they need is some good ghostbloggers

In all modesty I have what I presume is the best blog THIS ONE, but if I dared check it, it probably receives very few clicks. In this respect I found Gideon Rachman’s “Apostles of the blogosphere may just be political Pooter” (September 26), where he describes the unsuccessful efforts of some politicians to create good blogs very interesting as it opens up new possibilities for establishing those PPP’s (Public Private Partnership) that are currently so much favored. As I see it many of our public sector figures are in deer need of a ghostblogger and I could be a good one, if only I could feed my needs some other ways, since blogs are, by all means, the poor man’s best ego trip.

Gideon Rachman students ego trip

Just no cell-phones or private consultants

Sir, as a reply to your article “MBA Students cheat the most” September 21, Guy Wroble replies with a suggestion of creating a SEC-like body “to police the academic performance of MBA students something that only has value from a job creation perspective. Instead examiners should develop open books exams because this does indeed reflect better the future working conditions of any MBA but they don’t do it, because they are lazy and it is easier to ask questions when designed for closed books. The way examinations are being done is stacking the MBA deck in favor of the cheaters, which presumably could have some negative societal consequences. The only tools I would keep out of any MBA examination rooms are cell phones and private consultants.

MBA students cheating

Stop egging them on!

Sir, on September 25 you tell us that “European critics inflict defeat on Wolfowitz” but reading it over and over again I cannot really fathom how you can even try to look for a victor in squabble where the only defeated will most ceartainly again be the poorest of the poor. We did not pick Wolfowitz, we might not like how he was picked, but the fact is that he was picked and given the extremely important real battles the World Bank has to fight out, it is now our responsibility to be as helpful as possible and call upon the discussant to reach workable agreements, instead of egging them on.

World Bank Wolfowitz

Is it time for a Victorian inflation measure?

Do we need a basket of consumer assets?

Sir Samuel Brittan in “It’s not he labour market, stupid” (September 22) talking about what his Victorian forebears did is sort of hinting at the need for a new inflation measure that instead of measuring the value of a basket of consumer goods just in term of dollars, pounds and what have you should also measure it in terms of a basket of consumer assets. Though perhaps too Victorian for many, it might not be a bad idea.

Samuel Brittan inflation

Tax gasoline rather than anything

Sir, since on the margin there is nothing that could help reduce the threath of global warming so much as to have the US reduce its gasoline consumption, and since on the margin there is nothing as effective for that than to tax it more, you are absolutely right when in your editorial (September 22) you spell out the truth telling your american friends to “Tax gasoline rather than sue carmakers”. This is what friends are for, even when the truth is so inconvenient that even an Al Gore does not dare to mention it. Next time though and since they are really in a full blown denying mode about their addiction, please do take the full step and make clear that they should tax gasoline… rather than anything.


global warming US gasoline tax

How do you diversify for the investment advisor’s risk?

Sir, in “For many rich people, wealth is a consequence of being succesful, Peter Scholla, himself an investment advisor, tells us that “the rich through the hiring of independent advisers with broad ranging responsibilities and powers. . . end up employing a variety of firms” meaning private banks. This sounds like a good suggestion for a diversification technique although the follow-up questions would of course then be, how many independent advisors do you need to hire to diversify yourself out of the investment advisor’s risk?

Peter Scholla diversification risk
investment advisor

We all need global communications to be a pure global commodity

Sir, Stephen Littlechild tells us that “Brussels has got it wrong on roaming charges” (September 22) and that “regulation undermines market discipline and incentives” which coming form a former UK electricity regulator could seem as a sign of very little solidarity with his brothers in arms but this is not so since until the fuel-cells arrive and free us from the need of the electricity lines the electricity sector is fundamentally different from the mobile telephone sector that has already been freed from the telephone lines. That said neither is Littlechild’s statement as pro free-market as it seem since there is currently no reason for not allowing free open global competition in the mobile phone sector. Having a good number of satellites flying around up there offering to connect us with anyone anywhere and turning communications into a pure commodity that is really what we the consumers are all waiting for, in Europe and everywhere.


Stephen Littlechild Europe mobile phones

Should we really give IMF management carte-blanche?

There is no doubt that the International Monetary Fund needs to evolve but that “The fund’s ancien régime will have to give up its privileges” in order for this to happen as Martin Wolf says (September 20), is not a foregone conclusion. Reducing the European representations, allowing the managing director to be from any country and giving more independence to management which are the three things that Wolf consider needed seems a bit like putting some order in your desk while you are thinking about what to do.

Wolf mentions that the IMF has the potential to play a valuable part in managing the world’s transition to an integrated global financial system and tough it sounds very right it would be good if he shared with us some concrete examples of what this would entail so that we can better share into his act of faith. As an outsider that has very respectfully questioned many of the Fund’s actions over the last decade, before giving what in Wolf’s French amounts to a carte-blanche to management, the least I would expect from them is a detailed plan of action which of course should also include the terms on which they themselves will be held accountable to stop them turning into even a less legitimate new ancien régime.

Martin Wolft IMF Fund

Why don’t you just try moving in together

Sir, I found Gideon Rachman’s “Clashing civilisations on the banks of the Bosphorus” (September 19), both interesting and confusing. Though I must confess ignorance about the specifics of the Turkey-Europe issue the fact that when it comes to sensitive issues such as borders knowledge does not guarantee much either I dare to put forward some thoughts that came to my mind.

The first is whether in a world that is globalizing you should still be looking to draw the borders along their natural lines, Bosphorus, cultures and what have you, or whether you might be better off placing those borders on more greyish terrain so as to not exasperate the differences. The second question, more pragmatically, is if instead of marrying why don’t you just move in together and see how it goes. You should never forget that a relation is always a two way street and so even while Europe might like the set up, Turkey might not. Finally, in case of separation, the “I am not good enough for you” has shown itself innumerable times to work much better than any alternative, not only because it is also frequently true.

Gideon Rachman Europe Turkey

Help parents to pick among school-brands

Sir, James Tooley in his “Low-cost schools in poor nations seek investors” (September 18), explores the immense possibilities that private sector education has to offer the poor in countries where weak institutions do not allow for good public sector education, and he is very right about it this especially when considering that competition is also useful for keeping strong public institutions strong. He also correctly hints at the important role that school brands could have in developing good standards but this is of course only as long as the value of the brands are based on educational facts and not just publicity stunts. In this respect we recently read about some extremely simple tests that the World Bank used in Peru and that by just measuring the number of words a child could read in one minute, were capable to tell very much about the quality. These tests which empower parents to navigate between school “brands” during those vital early years of their child’s education are extremely important tools, perhaps even for rich parents in rich nations.

James Tooley education private schools brands

IMF is enyoying the calm in the eye of the hurricane.

Sir, in his “Why bad news for the Fund is excellent news for its clients” September 13, Martin Wolf tells a story of countries that have finally learned that there is such thing as a limit to the inflows to your economy that can be productively digested but, since they do not want to stop these inflows by allowing an appreciation of their currency, as this would make them lose job-creating competitiveness in a global world, they instead accumulate foreign reserves. Does this mean that the problem is solved and that IMF is no longer needed? Of course not! The only thing that is happening is that instead of spreading around the imbalances around the world we are now putting them all in the same basket, the US and clearly when that unsustainability is not longer sustainable, and then IMF will be just too much back in business. Let us pray that IMF does not use this calm in the eye of the hurricane to diversify into other businesses but to build up their forces and their spirit to confront the perfect storm when it arrives.

Martin Wolf IMF Fund

The value of the inflation figure really depends on what you need guidance for

Sir, Stephen Cecchetti though making a good point explaining why “Core inflation is an unreliable guide” September 12, ignores the fact that depending on what you really are looking for guidance on, headline inflation might be just as off the charts. 

If we need to measure inflation for an “average” worker to make a cost of living adjustment then headline inflation could be alright but, if the inflation figure is to be used by an investor to make sure he is not losing purchasing power, then headline inflation might not mean anything at all. 

As an example let us imagine a world with just one product, a house, that can be either bought or rented. Since inflation as normally measured reflects the cost of renting houses and not their prices then, if the rent is not increased you will record zero inflation, even though the reason for it was that much savvier investors were all running to buy houses to protect their purchasing value and avoiding to rent like pest. 

When you consider that many public debt issues include inflation adjustments clauses one could be tempted to ask if the real meaning of inflation is truly transparently disclosed.

What institution is not maladapted?

Sir, in the editorial of September 11 you mention the World Bank Group as maladapted for life in this century but, frankly, what institution is not? Although we believe, as much or more than you that the World Bank has a vital role to play in a world of ever-growing interdependency we are not very sanguine about the possibilities of it being adequately reformed when the reformers themselves are those truly maladapted countries who do all they can to hang on to the illusion of being independent.

On another issue and observing how in the fight against corruption there seems to be more and more work to be done each day, we cannot think of one single reason why you feel the need to hit down so hard at Mr Wolfowitz qualifying his drive at it as obsessive. I have no doubt that the billions of individuals that suffer at the hands of corruption would all love him to be obsessive about fighting it, as long as he is was also effective.

World Bank Wolfowitz corruption

About life in the buffet lane

Sir, this week, September 9, Dear Economist had to answer the question how to get the most out of a buffet and without falling into the trap of complicating life with analyzing whether the marginal utility of that extra carb lies on the frontier of the efficiency curve of the calories where it intersects with best value per spoonful, something which would be very hard for us normal economists without PhDs to follow, he does a superb analysis of the motivations of the kitchen telling us, if a restaurant, wait until the end since they want to fill you up early with the cheap stuff or, if a wedding, go for the hors d'oeuvres since they’re out to impress you and wedding cakes make lousy fireworks.

These are valid suggestions indeed and they would suffice for most occasions. Nonetheless knowing a bit myself about life out there on buffet lane, where sharp elbows compete, let me just add a couple of pointers. Mind you, just in case, for the record, let me assure you that I have never ever tried them myself, as I would hate to get entangled with some transparency advocates just because one of my parents spoiled what would otherwise be the perfect genetic map of a gourmet by spilling gourmand chromosomes all over it.

First, just as a precaution, always remember to keep a plastic bag in your pocket, for your doggy. Second do not ever sub-estimate the value of privileged information and so while looking like you’re looking for the men’s room always try to get a peek into the kitchen to see what’s cooking. Finally, numero uno, workable everywhere, even in private weddings, is to put a ten dollar bill into the hands of a waiter of your choice and then relax knowing you’re in for a special treat.

Dear Economist buffet

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.