Some properly documented could be even worse

Sir, May 31, you report “Errors in complex derivatives trade doubled last year” and you state “The surge in errors comes as dealers struggle to clean up market practices under pressure from regulators, who worry over . . . if transactions are not properly documented” but sure you must be meaning “The surge in the discovery of errors”. That said let us not also forget that even more dangerous for the market could be all those operations that though properly documented, are executed as acts of faith by the so many agents that currently are really not sure of what they’re up to.

Sent to FT May 31, 2006

Should we then pursue inequality?

Sir, Of course, if you pursue a high goal blindly, like a bull in a china-store, or hypocritically, with the intention of abusing such pursuit for your own self-serving interests, nothing good should come out of it, no matter how worthy the goal is, as almost any child should be able to tell you. That is why it is so hard to understand the added value of the recent calls to avoid a fixation on equity while fighting poverty, first by Moisés Naím in his “Let us abandon the fight against inequality” (April 17) and now by Arvind Panagariya in “The pursuit of equity threatens poverty alleviation” (May 31). If these two gentlemen are really suggesting that we should ignore inequalities, or perhaps even pursue them, to our own peril, then we would really ignite the mother of all debates, but for that they first need to make much stronger opening arguments.

As for me, for our global little world to have a chance to work out, I firmly believe that we all need to share much more equally the future, which is much better of course than just focusing on equally dividing the past.

Sent to FT May 31, 2006

Shivers running down Executive spines

Sir, After the “guilty” had been read out for Mr. Lay in the Enron case, one of the jury members stated unequivocally “To say you didn’t know what was going on in your company . . . was not the right thing to do”, and it must have sent shivers down the spines of all those responsible for public corporation who, in a world of derivatives and other complexities, are keenly aware that they are far from having a complete knowledge of what their companies are up to, as in fact, much worse, neither do many of those who design and trade these financial puzzles. It would seems like reality is now justifying some of the immense compensation packages of the Executives, on account of the risks of prison, or on account that they will now have to go back to the school, but then we guess that this is not really what they bargained for either.

Sent to FT May 29, 2006

The information Mr Market receives could also be neurotic

Published in FT, Friday May 26, 2006

Sir, Martin Wolf’s very interesting although not quite sure where-it-finally-leads-you article “Neurotic Mr Market has plenty to be anxious about” (May 24), bases itself on an argument made by William White, in a working paper of the Bank for International Settlements (BIS), that there is something intrinsically destabilising derived from stabilising inflation.

I would argue instead that it is solely the way how inflation is measured that creates the confusion.

Let us not forget that inflation as they, our monetary authorities, know it, is just obtained by looking at a basket of limited consumer goods chosen by bureaucrats and that although they might be highly relevant to the many have-nots, are highly irrelevant to measure the real loss of value of money.

For instance, who on earth has decided for that the increase in the price of houses is not inflation? And so what should perhaps be argued is that really our monetary authorities have not been so successful fighting inflation as they claim they have been.

PS. August 2020: Inflation has already returned

Might we not do better with some divergence in accounting?

Sir, Tomasso Padoa-Schiopa pleas on May 19 that the “Work on converging accounting standards must go on” on “the road towards high quality, understandable and enforceable global accounting standards”. Sounds great!, but, if we so much praise the market’s diversity in perception why should we be so set against the use of several accounting standards. If all accountants speak exactly the same language, is not the risk for a systemic disaster larger? Could not some of the accounting differences sometimes even serve as a shock absorber in an ever more interconnected world, or are we all supposed to react, immediately, with murderous preciseness, to any financial statement? Since the financial markets are getting increasingly shortsighted and look more and more into just the next quarter, might there not be a case for more flexibility instead, especially since plain vanilla Parmalat frauds will still live on, under any strict homogenous system.

Anyhow, it is interesting to see an Italian taking a Prussian stand on accounting issues… who can doubt globalization?

Sent to FT on May 21, 2006

About Mr. Martin Wolf’s own oil shock

Sir, Mr. Wolf seems to suffer his own oil shock when confusedly argues how “The blessed borrower helps the world survive an oil shock”, May 17. In fact it is the US who is partly to blame for the current oil crisis, not only because it is by far the biggest energy consumer per capita but also because it has never wanted to use its financial superpowers to enter into long term purchase and supply contracts with oil producers at “reasonable” prices for both sides. At this moment when as Mr. Wolf correctly states the US’s “back is not infinitely broad”, what it should do is to slap a $3 tax per gallon of petrol (gas) to bring its price to European levels. This would earn the US government $300 billion that would make a real dent in their fiscal deficit; reduce their current account deficit in a targeted way; and take the sting out of oil demand which would reduce oil prices for the rest of the world. To instead praise the US for borrowing on their credit cards just in order to sustain their addiction to oil does not really sound right.

Sent to FT, May 17, 2006

Yes to a floor, but go for a roof too!

Sir, Philip Gordon, May 12, suggests creating a “price floor” for oil in order to diminish the risk of developing alternatives but he could also argue it as a “price floor” applicable to oil as that would allow oil producers to invest without the risk of having its prices below those ten dollars per barrel that most thought as given late 1998. And if at it why does he not go for a roof too? I am sure that oil producers, in exchange for a reasonable floor, would also be willing to offer a nice roof to the consumers. 40 years binding purchase and supply agreements, at a price of $40 per barrel plus or minus 50% of the difference to the market spot price, would provide the producers with a floor of $30 if the spot price hits $10, and conversely a roof of $ 70 dollars to the consumers if the spot rises to $100.

Sent to FT, May 12, 2006

The world needs open pastures, not corrals

Grant Aldonas, May 14, begs WTO negotiators to “turn around (in their cul-de-sac) and head back to the road and chart a new course to achieve the development goals that were their original destination”, "Why trade negotiators need driving lessons" May 3

He is absolutely right. Currently trade negotiations, instead of opening the doors to the greener pastures we all wish for, because of their total mercantilist approach, feels more like someone corralling you in, to brand you.

Sent to FT May 10, 2006

$7 per gallon should do it!

Sent to the New York Times, May 5, 2006, destiny unknown

Levying a new federal consumption tax on gas that would increase its price to $7 a gallon, about the level at which it has been in Europe, would reduce demand for imported oil, provide the government with about $300 billions in taxes to balance the accounts and benefit the environment.

It would destroy many jobs, but it also would create new ones. Better to bite the bullet now before the current economic imbalances erode confidence in the dollar, and anyhow take the price to $7 but then with no gain to pay for the pain. That, of course, would require leadership, which is even scarcer than oil.

Don't force them to swear allegiance to a flag if that's not what they want

Sent to the Washington Post, May 2, 2006, destiny unknown

Sir, while reporting on immigration (your front page today May 2) one frequently see “foreign illegal workers” used a synonym for “illegal immigrants” and they are not, and it seriously confuses the debate. Foreign illegal workers, the majority, come to the USA primarily to get a job, to earn some money and be able to go back to their homeland, and the illegal immigrants are those that come with the clear purpose of staying. Forcing “foreign illegal workers” to swear allegiance to the flag, just so they can get a job, is a wrong way to solve the problems. The fact that Americans love their own country so much should not preclude them from understanding that other can also love their own country, just as much.

We need to stop oil price vendettas

Sir, in your And the oil price keeps on rising, May 1, you correctly identify “a reason the supply response has been muted is that oil producers feared a glut of oil and a price collapse” but then you incorrectly characterize these concerns as exaggerated, and in that lies exactly the origin of all our oil problems. In a commodity with such an extremely low short term price elasticity as oil, anyone on top, whether it is the consumers demanding one barrel less than what is produced, or the producers producing just one barrel less than what is demanded, can exercise so much power that falling into a price vendetta is unavoidable. Today’s 70 dollars per barrel are 100% correlated with the below ten dollar price of early 1999 and predicted at that time, among others by the Economist, to head towards five dollars. If the world really wants to get out of this rollercoaster of prices, that benefits no one, the only alternative is to enter into long long-term supply and purchases agreements between consumers and producers, based on reasonable average boom and bust prices of oil. Anything else is just courting the next disaster for someone.

Sent to FT, May 1, 2006

With a little help from the pirates!

Sir, with respect to the music industries woes with copyright thieves you very correctly state that “Realistic pricing is a more effective weapon than lawyers – to repel pirates” (April 25). That said your conclusion also points to the importance pirates might have assisting consumers in achieving realistic prices, when confronted by those manmade monopolies known as copyrights.

Is FT on its way to take sides against Jethro Tull’s Ian Anderson? My new tune: equality on copyright, April 11.

Sent to FT April 26, 2006

Yes, that is an effective suicide method

Sir, Mr. Marcelo P. Lima is suggesting the US the “Solution - import ethanol from Brazil”, April 26. Yes, that should do it. Planting the whole Amazon with sugar cane, sounds like the mother of all effective suicidal methods that the world could come up with.

Another unforeseen consequence

Sir, I do not know whether Marc Levinson included it in his book as one of the “unforeseen consequences” of the container revolution in shipping, April 25, but as this must have reduced quite considerably the time ships stays in port to unload, it must also have impacted negatively that long honored sailor tradition of a girl-in-each-port, which is sad.

Sent to FT, April 25, 2006

Do not dare to abandon the fight!

Sir, focusing too much on fighting inequalities might indeed hinder economic growth but that is by a far stretch not a valid reason to “abandon the fight” as Moisés Naím calls for, April 18. Naím, as a Venezuelan, should be aware that it was exactly because society ignored the inequalities that the right conditions were created for that destructive Tsunami that has it currently running totally amok. Today, instead of abandoning the fight what we need is for some good drill sergeants to teach the generals not to interfere with the productive initiatives of the private soldiers, and, when trying to achieve some reasonable distribution of the produced results, that they limit themselves to the use of the strategic weapons of taxing and public spending.

Unfortunately, in too many countries the generals, for political reasons, frequently want to show off as entrepreneurs and good hearted distributors of anticipated spoils of war, and in doing so they most often turn themselves into the greatest promoters of inequalities.

We need so urgently to make certain that the future is equally shared among all that we cannot allow ourselves to be distracted trying to distribute equally the past.

Sent to FT, April 21, 2006

Go for an oil consumers' co-operative group

Published in FT, April 26, 2006

Sir, James Pinkerton suggests that “The world should get ready for a Nato-style oil alliance” (April 20), and although he makes it implicit that the Organization of the Petroleum Exporting Countries is the “enemy, he does not really explain what the alliance should be up to. Let me make three suggestions. First, forget about the NATO simile - too militaristic - and go for a simple Oil Consumer Co-operative. Second, the OCC should then start some serious introspection so as to realize that its biggest enemy, unchecked oil demand, is thriving behind their own lines. Finally it should look seriously into the alternative of offering the oil producing nations long-term supply and purchases agreements based on prices that are reasonable for both sides.

LEFT OUT:

For instance if the price offered on a 50 years arrangement was 40 dollars per barrel, with adjustment for inflation, plus or minus 50% of the difference with the spot market, this would provide the producers with a floor of 30 when the spot hits 10 dollars, and conversely “only” charge consumers 70 when the spot rises to 100 dollars. Such an arrangement would not only stimulate new oil investments but also keep the hawks (those who love the NATO part) from trying their solutions, as wars mostly tend to erupt while fighting over bargains, like oil priced at its marginal extraction cost.

Oil does not have to be that volatile

Sir, in your leader of April 17 you mentioned important ways for achieving fuel security, but failed to include the use of long term contracts between consumers and producers. If for instance nations entered into 40 years binding purchase and supply agreements, at a price of 40 dollars per barrel plus or minus 50% of the difference to the market spot price, this would provide the producers with a floor of 30 if the spot price hits 10, and conversely “only” charge consumers 70 dollars if the spot rises to 100 dollars. Such arrangements would stimulate new investments in oil since let us not forget that there are no real reassurances that oil prices, because of an oversupply created by too much investments, or economic recessions, could not dive again below those ten dollars per barrel that so many pundits predicted in early 1998.

Unfortunately it would seem that there are many economic interests in maintaining the volatility of oil for these stabilizing long term contracts to come into fruition.

Sent to FT, April 18, 2006

'American Union' passports could work

Published in FT, April 10, 2006

Sir, It is sad in today’s globalized world to still find so many local Americans who believe that when they ship a criminal band member over the border, to someone much less resourceful, they have gotten rid of their problem.

In this respect, Jacob Weisberg, ("Immigration ideas bordering on perverse”, April 6), aghast with the current ideas on immigration law reform in the US, proposes not passing any reforms but to keep going as if nothing’s happening.

Another more transparent route would be to bite the bullet and accept that an “American Union” between North and Central America already exists, de-facto, and issue a common passport for all the citizens of the enlarged American Union.

Such a strategy would make it possible for many of the over 11 million illegal immigrants that dare not leave the US because they do not know whether they can later return, to be freed from their (also de-facto) mother of all jails, and go home, even on a temporary basis.

It would also help to realize that had the US spent an Iraq-war sized budget assisting Central America, as the European Union did with Spain and others, the whole immigration debate could have been a moot issue, with exception perhaps of all the aging baby boomers moving south to find care and services.

Finally, the fact is that when you see how all the Central Americans toil away in the US and help their families back home, you have to ask yourself whether this is not just part of the process whereby the US manages to renew its working and family ethics, in order to remain strong.

PS. A letter in the Washington Post: How many of those governments not wanting to have their emigrants move back to their homeland, feel so because they do not want to renounce the family remittances that helps to keep them in power?

https://perkurowski.blogspot.com/2009/09/mcprison.html

https://voiceandnoise.blogspot.com/2003/02/snowing-in-washington-my-first.html

Might the camera lenses see more than they?

Sent to New York Times, March 21, 2006, destiny unknown

Sir, there on the first page of the New York Times is the photo of a student from an American university photographing a poor Caracas neighborhood during his visit to Venezuela, described aptly as a new leftist Mecca. One wonders whether while taking the photo he reflects even for a second on the fact that the extreme poverty in front of him exist, and might indeed even be growing, after more than seven years of a very strange revolution that is financed by an oil boom, or does he believe that the poor are just placed there by the travel agency to give him a photo op. He might also have asked himself if it is right or not that these poor people should be sending money to help the poor of Massachusetts and the Bronx, which is what happens when the Chavez-Citgo combo sell subsidized oil there.

On a lighter note, Juan Forero also forgot completely to mention the possibility that Mr. Harry Belafonte’s trip to Venezuela was in fact just to try to get back the money Matilda took from him.

Do not be too harsh on BBC

Sir, with reference to your editorial “Auntie's life on Mars” March 15, may we dare to remind you that there are in fact quite many of us out there that do appreciate, immensely, the existence of a BBC that is allowed the resources to live up to high journalistic standards without being forced to pamper too much to ratings and market whims. 

Even though a drop in their audience could perhaps be attributed more to their non-listeners’ confusions, we are certain that BBC is worrying sufficiently about it since no real or in that case even no-fake journalist likes to see that happen. 

In conclusion, please do not be too harsh on BBC, if only for the sake of informational biodiversity, we do all benefit from allowing it to go in the same way, even if the world is moving to Mars.

PS. Why has FT deleted this editorial?

Are credit rating agencies Angels?

Sir, it is not clear from Frank Partnoy’s “Take away the credit rating agencies licences”, March 13 whether he is against the system of using credit rating agencies to perform the assessment of risks in lieu of the market, as I am because of the systemic risks that are introduced; or against the market of the credit rating agencies, that he describes as a locked duopoly that does not allow for the entrance of a company named Rapid Rating.


That said I would recommend the reading of Rethinking Bank Regulations, Cambridge Press 2006, where its authors James R. Barth, Gerard Caprio, Jr., and Ross Levine, explore the possibility that regulators might not be Angels and they find proof that giving more power to authorities does indeed creates dangerous distortions. In this respect we might also need to question whether we should dare to move forward evaluating risks, with the premise that the credit rating agencies are Angels.

Sent to FT, March 13, 2006

Unpatriotic-patriotism

Given that by investing in USA ports the United Arab Emirates would have a larger vested interest in their security, some could argue that stopping them from acquiring these non-shippable-to-anywhere assets, is in fact quite an unpatriotic-patriotism.

Sent to FT, March 11, 2006

Perhaps we could do with fewer academicians in our universities

Sir, When so many vital public and global issues scream out for creative solutions it is sad to see how much of the debate has to concentrate on minor irrelevancies just because on these there is some data availability, so that the PhDs can use their methodologies and run their truth-finding regressions. I bring this up since in the discussions about academicians that Lucy Kellaway’s article let out of the sack, February 27, there might also be room to put forward the need for the world of some Universities without academicians, or at least without PhDs. I do not object to scientific discipline in thinking, but neither do I feel that we could afford that all thinking has to be scientifically disciplined, in its current, perhaps quite cozy, at least for the researchers themselves, sort of limiting way.

Sent to FT, March 7, 2006

Europe's welfare state should not be scorned

Published in FT March 03, 2006

Sir, Whatever failings Martin Wolf points out with respect to the European welfare state let us not forget that its main pillar is the sharing of social responsibilities among citizens and, in this respect its opposite, the non-welfare state, the everyone-on-his-own state, is fundamentally more rotten and unsustainable in today's global world. Most of his criticism is not about the welfare state itself but about its workings and these do indeed present some problems that need urgent corrections. Nonetheless, while reforming please do not throw out this very beautiful baby with the bathwater.

On what’s to be done with a subsidiary of an international bank

Sir, Guillermo Ortiz, February 17 discusses the very delicate question of how to make sure that a subsidiary of an international bank that operates in a developing country can survive if and when their parent bank organization runs into trouble, and he makes a good case for the divestment and listing of some of the subsidiary’s capital on local stock-exchanges so as to enroll the forces of market discipline. My feeling is that Mr Ortiz is way too optimistic thinking he stands a real chance of stopping headquarters from milking their subsidiaries, in far away countries, for all they are worth, if it feels it needs it. That said one could also argue that the home authorities of the international bank should not go totally scot-free were a subsidiary run into trouble, for whatever reason, especially since the subsidiary while helping to diversify the risks for the holding company still concentrates much undiluted risk for its own local depositors.

It is sad indeed, to only be a risk diversification, in someone else’s portfolio.

Sent to FT, on February 19, 2006

Mobility carries a hidden cost!

Sir, Andrew Ward when reporting about bottled water for the "on-the-go society", February 13, forgot to mention the fact that in many cases, in the USA at least, those that drink from the tab will have less dental caries than those who are on the “move”, since bottled water has none of that fluorine which is frequently added to tap water. Instead labeling the bottles with information about the water having zero calories, perhaps a note about this could provide more enlightening.

Sent to FT, February 13, 2006

Quitting oil this way should be easy

Sent to the Washington Post, February 7, 2006, destiny unknown

Quitting oil as proposed should be easy and, as Mark Twain said, we should be able to do it a thousand times. Analyzing what is on the table for battling the habit of oil reminds one of a new-year pledge to quit smoking based exclusively on the use of low tar cigarettes and patches of nicotine, and zero will. Before politicians dare to express the need for a substantial tax on the consumption of gas, no one should be compelled to believe in their determination. But, what about cars with lower gas consumption? Well as it just reinforces the current no-public-transport-model, this could indeed worsen the withdrawal symptoms when, on doctor’s orders, the country finally has no choice but to quit.

Between fakes and originals which has the more real market?

Sir Guy de Jonquieres, January 23 has never heard of anyone being killed by a fake handbag but still he might do well refraining from questioning the authenticity of the bag of someone coming out of a Gucci store so as to avoid getting seriously handbag-banged on his head. Tough clearly the originals and the fakes both need each other to survive it might very well be the original that has most to gain in this love-hate relation, as the only way a buyer could justify to himself paying their extraordinary prices is the extraordinary demand that exist for the fakes. Agreed, it is a quite confusing issue, not made easier by the fact that the fakes might represent the real markets while the originals seem to have more to do with fake markets.

Sent to FT, January 25, 2006

Who told you life in the “curse” lane was easy

Sir, yes Chad could not resist messing around with the mechanism of the transparency initiative for managing their oil income, and yes the World Bank could not just let them do so. But why should anyone believe that this first experiment needed to work in order to be useful. The fact that FT dedicates a full page about oil income being deviated from its originally intent of use, is already much more than what is normally written about all those other millions of oil income spillages that happens in the rest of the world. The important part is now to find a way forward, perhaps through some open-minded arbitration, instead of feeding the difficulties to satisfy the gluttony of all the salivating “we told you so”.

Sent to FT on January 23, 2006

A lack of alternatives is a de-facto compulsion

Sir, Benn Steil says “The developing world should abandon parochial currencies”, January 17, and replace them with international accepted ones, arguing that the “key is to refound globalization on moneys that people will hold without compulsion”. In doing so, he somehow seems to forget that having no other alternative, results in just the same as having a compulsion. At this moment any developing country that has adopted the US dollar, or even any holder of dollars, must feel somehow uncomfortable knowing they are bound to face significant losses, in real terms, just because the USA wishes to address some of its current parochial economic imbalances through exchange corrections, asking, begging or coercing China to revalue... so they can avoid to devalue. Hah!

Benn Steil

Market reforms are in many ways yet untested vaccines

Sir, Marifeli Pérez-Stable in her “Populist delusions block Latin America´s progress”, January 16, makes a renewed call for market reforms, and although they are surely the right vaccine against the disease of populism in Latin America, we should not forget that while not yet sure of how to apply them, and in what doses, they might indeed create even more fertile conditions for the populist virus. Venezuela is a perfect example of this in that by eliminating its import substitution economy, purely as an act of faith and without replacing it with any other job generating mechanism, it almost immediately, as a direct consequence, brought us a Chavez. And that could hardly qualify as a success.

Sent to FT January 16, 2006

Massachusetts, please show some dignity!

Sent to Boston Globe and Boston Herald, December 2005, destiny unknown

Late in 1998, the price of a barrel of oil fell under 7 US$, but we never heard anyone volunteering to help out Venezuela’s poor. In December 1999, Venezuela suffered some horrendous mudslides, but, when the US sent some well-equipped engineer corps to help out, Hugo Chávez, the president of Venezuela, refused them. Massachusetts has a yearly per capita income of US$ 41,801, while Venezuela has slightly less than a tenth of that, US$ 4.020

The ad in which Citgo, the oil company in the United States owned by PDVSA, the Venezuelan state owned oil company, announces the program shows a picture of a large, two-story, typical Massachusetts detached house, with a small garden and a big tree in front, beautifully decorated with what looks like Christmas ornaments, and a completely lit up porch. Please compare that house with our shanty towns in Venezuela. Of course it is a wrongly chosen photo, and your Massachusetts poor do live in bad conditions, but, in fact, that they were not even able to choose the right picture just adds salt to our national injury.

The same ad, spelling out the partnership between PDVSA and the government of Hugo Chávez, ends with the statement: “The fuel assistance program isn’t about politics. It’s about offering humanitarian aid to those who need it. What could be more American than that?” The radical leftist Noam Chomsky recently described this as “one of the more ironic gestures ever in the North-South dialogue,” but I, as a Venezuelan, can only classify it as a gesture of utmost cynical insolence.

Many Venezuelans are upset with Chávez giving away money all over the world, while our own country has so many very much poorer people but, currently at least, there is very little we can do about it and much less so after the elections for congress held on December 4, 2005. Although everyone knows that Venezuela is a country where opinions are highly divided, the result was that 167 representatives who favor the government of Hugo Chávez were elected, and none, zero, zilch, of who differ with him. There are many explanations for these results, but, at the end of the day, they are all irrelevant since a 167-to-0 ratio is plainly not acceptable. Just as Democrats would not stand for a United States Congress made up 100% of Republicans, and just as Republicans would not stand for a Congress made up of 100% Democrats, this principle is just as true in Venezuela.

In these circumstances, I wonder, would it be too much to ask for some dignity in Massachusetts? Do you really take any gifts from anyone? Where is the limit?

What is the financial world to do with a Venezuela?

Sir, In Venezuela, as in most other countries, Congress is supposed to exercise control over the executive branch and its Constitution establishes that ‘No contract in the municipal, state or national public interest s determined shall be entered into with foreign states or official entities, or with companies not domiciled in Venezuela, or transferred to any of the same, without the approval of the National Assembly.’

Now, even though Venezuela is currently known as a very polarized nation, after the elections of December 4, 2005, its Congress includes 167 members who are in favor of and obedient to him who wishes to be called ‘Commander’, and none, zero, zilch, of those many who are not in the least in agreement with Chávez´s confused vision of a twenty-first-century socialism. This should pose some serious questions about the Congress legitimacy and therefore serious challenges for those who issue those opinions needed by the financial sector.

For instance, what are legal counselors or credit-rating agencies to do after they might receive a letter from a Venezuelan citizen (or perhaps even read this letter in FT) informing them that sooner or later the debts now contracted by Venezuela might be questioned as ‘odious debt’, as they are not duly approved by a legitimate congress (167-0), nor are they needed, as can be evidenced by the many donations Venezuela, with its own so many very poor, has recently made, among them, to the somewhat poor of Massachusetts.

Sir, if a company like Nike has to worry about the labor conditions in the factories to which they outsource their production, why should the financial world be allowed to ignore civil representation issues in those countries it helps to finance?

Sent to FT, December 18 and December 28, 2005

Fuel advertisement rubs salt into Venezuelans' wounds

Published in FT, December 7, 2005

Sir, Andy Webb-Vidal got it absolutely right when he pointed out the incongruence of Venezuela, with its abounding extreme poverty, distributing subsidies through cheap heating oil to the less well-off in a Massachusetts, US, that has more than 10 times its per capita income.

But as Mr. Webb-Vidal most probably did not see the advertisement that ran last week in some US newspapers, he left out some details about what really rubs salt in the Venezuelans' wounds.

First, the picture in the ad, which is the one to be compared with the shanty towns in Venezuela, depicts a large, two storey, typical Massachusetts self-standing house, with a small garden and a big tree in front, beautifully decorated with what looks to be Christmas ornaments, and completely lit up, porch included.

Second, the ad ends with the statement: "The fuel assistance program isn't about politics. It's about offering humanitarian aid to those who need it. What could be more American than that?"

Remittances and their cost of transfer is only the tip of the tip of the tip of the iceberg.

Sir, in your weekend editorial about computers being no silicon panacea for developing countries, you make a comment with respect of the remittances to the developing countries saying they “are weakened by the crippling cost of transfers that cost as much as $30 per transaction.” This is truly looking at the tip of the tip of the tip of the iceberg.

For many immigrants having to pay thousands of dollars to get smuggled to an opportunity in life just because no functional temporary immigration programs have been enacted; being easily cheated in their new surroundings because no one cared about teaching them a foreign language; paying fortunes in phone calls to communicate with their families; having to live in cramped quarters paying exorbitant rentals; incurring many costs just because they are not allowed a drivers license; and making all type of other sacrifices in order to send some help home, the fees they pay for that might indeed be high, but, frankly, they are among the least of their problems.

Trying to understand the economic effect of immigration by looking at the remittances is a bit like trying to understand the world’s economy by looking only at the cash dividends paid out by corporation.

Development banks have looked more than enough at the issue of remittances fees and it will be solved, in due time, with competition among service providers. It is now high time to move on.

Sent to FT, November 20, 2005

Careful with the growth of the market for illegal and illicit products

Sir, let us hope that Moises Naim’s book Illicit: How smugglers, traffickers, and copycats are hijacking the global economy, Doubleday, 2005, and discussed by Martin Wolf, November 16, opens up a long overdue debate on some issues that have been considered almost sacrosanct.

For instance, when society awards intellectual property rights and is thereby expected to invest scarce resources enforcing them, there is an implicit assumption that these rights are to be reasonably exploited. When then one of these manmade properties rights is violated, like through pirated CDs, this might be the market answer to a lack of regulatory control over the monopoly. In this respect, under some circumstances, pirates and counterfeits could indeed perform a useful regulatory service to the society, like when vultures do the cleaning.

As the temptation-ratio to use a pirated good, defined as the potential savings in relation to the income per capita, is obviously larger in poor developing countries than in the rich developed countries, does this fact mean that the poor countries should have to invest relatively much more in fighting piracy?

Also though you need an original to create a fake parasite, who is to tell us that the original is not sometimes well served by the existence of its fakes? Might not the value and the number of buyers of truly original Louis Vuitton in fact be larger because all the rest of the world has to settle for fakes? Should then the pirates get a fee?

Another related issue and that needs much discussion is whether society is well served by criminalizing behaviors that are the subject of any significant social sanction, as in these Intellectual Property Right matters hypocrisy is truly rampant.

Finally, every time something is declared illegal or illicit by society an economic feasibility study should be required, not only to see if we can afford the enforcement, or if the protected should have to pay for the protection, but also, mucho more important, that we do not stimulate those markets to grow faster than our legal economies, as they could then turn into the more powerful.

Sent to FT November 18, 2005

Does going local outperform going global?

Sir, recently, November 9, The Lex Column presented a very interesting value adding exercise with respect to the shares of Altria. It was easy to understand how two such different businesses as Philip Morris (tobacco) and Kraft (food) could benefit from splitting out and being able to play to each of its market but, to hear about value creation from separating PM-USA from PM-International, truly stopped us in our tracks. Is it really so that going local these days outperforms going global?

Disasters in waiting with banks playing hide and seek

Ivar Simensen in his report on November 4, "CDS leveraged loan hits the market" describes the appeal of the product as follows. “Many [bank portfolios] have exposure to names they may not be entirely comfortable with but hold in order to maintain business relationships. Now this exposure can be hedged out”.

Sir, I ask, if the banks with their credit analysts and their direct business relationship do not feel entirely comfortable with the risk, who should? This is exactly what is wrong in the current development were markets are allowed to play hide and seek with risks, with big disasters just waiting to occur. On the contrary, it could be much healthier for the financial system if the banks were simply not allowed to hedge at all their direct lending risks, except perhaps by the sale of participations to other banks.

Chavez 21st-Century social vision! My oh my!

Sir, if Mugabe’s Zimbabwe had Venezuela's oil, would he perhaps also be associated with a “vision” of “21st-century socialism”? When writing about Chavez promoting his vision, don’t forget that we Venezuelan citizens would all be much happier if indeed Chavez really had a vision, of any sort? Then we would at least know where we were heading, and what to do about it. What we now have is just plain confusion, ineptitude and corruption financed by the mother of all oil curses, and that is as far away from a vision as you could possibly be. To really understand the Chavez phenomenon you need to think of him as the most fabulous stand-up improvisators ever; performing in front of an audience with an immense and justifiable appetite for hopes about a better future; and finally drawing most of his material from the traditional anti-Americanism tree, and which as you know has lately been able to provide unusually much energy for its parasites to munch on. Under such favorable conditions, can you doubt Chavez’s success?

Outside “objective” observers though, like FT, would also do good to also reflect upon the media’s huge capacity of inadvertently advancing the voice of figures like Chauncey Gardiner in Jerzy Kosiński’s Being There. Chavez is a haunted man, running ever faster forward and, any day now, the majority of his followers are going to suffer an immense deception. Honestly, they don’t need or deserve that.

China does not take away anything in the World Bank from sub-Saharan Africa

Sir, Desmond Lachman, November 3, asks for the World Bank to withdraw from lending the majority of its resources to a handful of middle-income countries, e.g. China, instead than to the really poor, like those in sub-Saharan Africa. It all sounds very reasonable but perhaps he should ask himself whether his proposed change of strategy would result in more effective assistance to the very poor. Indeed, it could mean less. As is, China and Mexico and other middle income countries do not take away anything from the World Bank and on the contrary they provide the volume of operations that allows the bank to keep in place an impressive cadre of development professionals, able to generate that type of technical assistance capability that as he correctly implies should perhaps also benefit the victims of the Hurricane Katrina. Finally since in calling for his reforms Lachman argues that this would result in more “bang for its taxpayers’ buck”, it might be timely to remind him that in reality there is unfortunately an immense lack of taxpayers’ bucks going for development.

Desmond Lachman
Middle Income Countries
World Bank

Arrogance

Sir, With respect to Company X’s pension woes you inform that the company recorded a return of 5 per cent in the first half of the year, putting it on track for its assumed annual return of 9%, but, that if X’s pension funds produced the same poor returns as equity and bond markets this would of course have a dramatic negative impact. What is thereby implied makes a case for developing a formula that calculates how much arrogance a X and so many others must need in order to put forward an assurance of being able to earn 9% on funds over a lifespan, and/or that it will continuously be able to beat the market.

A de-facto USA enlargement

When we read that in the greater Washington metropolitan area alone, there already are 550.000 persons who come from El Salvador, there can be no doubt whatsoever that the Central American countries are already a de-facto part of an extended USA Commonwealth. Put another way, the USA—surreptitiously perhaps—has gone through its own European-style enlargement. This demographic fact shows that the current debate in the USA on immigration reform could benefit by being split into two parts: immigration reform as such; and a debate about some laws and regulations affecting cohabitation in a commonwealth. Doing so would allow urgent reforms to proceed more constructively and keep the debates from being taken hostage by extreme proposals like building new Maginot Lines or Berlin Walls.

Not long ago, some enemies of the recently negotiated CAFTA agreement started spreading rumors that, through it, the United States had accepted conditions that in effect bypassed current immigration laws. This is not true, far from it. However, perhaps the CAFTA negotiations were indeed the perfect opportunity to start open and transparent discussions about what I call the de-facto enlargement of the USA. As it is, trying to look for solutions to some huge but still quite particular problems through a general immigration law is really picking the wrong instrument of change.

By the way, if I were a truly desperate builder of a wall to surround the United States, looking at the map, I would perhaps have to settle with some water barriers such as the Bering Strait and the Panama Canal.

Sent to Washington Post, April 2005, destiny unknown

migration Cafta border

Today, unfortunately, I am truly disappointed with FT

Sir, I am absolutely flabbergasted with Andy Webb-Vidal’s report “Chávez puts chocolate factories back on map” and that praises a “cocoa revolution” and concludes that for a “small chocolate factory in the tropics, life has never been sweeter.” I cannot understand how a sophisticated paper like FT would fail to identify that this is but another perfect example of how haphazardly leaders of developing countries, especially when their egos are insufflated by a well endowed checking account fed by the oil, can come to consider themselves as visionary economic planners and perfect substitutes for the decision making process of the private sector. You’d be surprised by how many exact replicas of this chocolate project you could find over the last five decades in Venezuela and, in fact, when we read about “reopen a derelict chocolate factory”, it could very well be referring to a project that might initially have been advanced in exactly the same way, by for instance a Carlos Andres Perez government, 1974 - 1978. It is so sad that you fell for the anecdotal Willy Wonka cuteness of the story, instead of writing it from the perspective of a country in desperate need of some rational economic behavior. The need for a strong and effective government that helps to create a climate propitious for investments cannot be satisfied by a government making the investment themselves.

Sent to FT, September 27, 2005

Europe, you need electrical, not financial engineers (like me)

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 with poison pills and golden parachutes, and I 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 foreign trading rooms, 

I feel the same, although clearly, if Europe is now an all-of-the-same Europe, I could be wrong. What I do know, though, is that all those high valuations paid by financial wizards purchasing utilities will, sooner or later, need to be repaid by all those European electricity consumers who are currently living in blissful ignorance.

Sent to FT, September 8, 2005

It’s an oil boom stupid!

Sent to The Economist, August 30, 2005, destiny unknown

Sir, In March 1999, in “The next shock?” The Economist wrote that “in today’s conditions the price [of oil] would head down towards $5 [per barrel]” Now again, for the umpteenth time, The Economist, so serious and clearheaded in most issues, loses it all when it comes to oil. In “Counting the Cost” of August 27 and even while assisted by a clear chart of the real prices of oil in 1980 terms, your editorial staff insist on labeling an oil crisis when the index is getting close to 100 and not when that index in 1998 dropped to only 20. That was the real oil crisis, and that is what the world is paying for today!

To top it up, The Economist seems also to be preparing the terrain to blame oil for the collapse of the high property prices that they duly classify as a “boom”, instead of looking at much more plausible culprits. Come on, we expect more from you.

Take note, the Cold War might be back in town!

Sir, On July 13th the House Armed Services Committee in Washington held a hearing on the potential national-security implications in the possible merger of the China National Offshore Oil Corporation with Unocal Corporation. It is not our role to qualify what was discussed but hearing so many arguments about energy survival, rumors of cadres of spies and of bad and conspiratorial intentions all so eagerly and emotionally juggled around, we wish to advance the possibility that, as of this date, the Cold War is back in town. Take due note!

Sent to FT, July 13, 2005

What is lacking in the Sarbanes-Oxley Act

Sir, Requiring all senior management and board members of companies to disclose publicly what they understand and what they do not understand of the business they are in charge of would do wonders for corporate governance, especially when we start hearing so many cries of ‘I did not know’. For instance, when using sophisticated financial instruments such as derivatives, we could suddenly realize that no one upstairs has a clue of what they, the experts downstairs, are up to, and this could be a quite instructive for the market and the credit-rating agencies when they assess the risks of a corporation.

By having clues I do of course not refer to any specific know-how needed to take apart and put back a carburettor, as very few would be able to do that, and in fact I am not even sure carburettors any longer exist. No, what I refer to is whether they to have a good working knowledge of some basics, like how a car drives, how it brakes, how much petrol it consumes, and what to do if a tyre explodes or an airbag suddenly inflates.

To oblige recognition and acceptance of where the buck really stops both in theory and practice and before mishaps occur could also be useful for shedding light on some systemic risks that, like lava in a volcano, might be building up dangerous pressures underneath the world of finance. It could also provide immediate relief to all those executives living out there, burdened with the constant stress of having to feign that they are in the know.

Sarbanes Oxley SOX corporate governance accounting

Migration is much more important and transfer fees much less so!

Sir, in today’s editorial, June 10, The Global Workforce when mentioning that it refers to 3 percent of world population you are really underestimating the importance of current migration since, in some countries, more than 40% of their able workforce has migrated. Also you fall into the trap of making a big fuss about financial institutions “creaming” off large commissions on the remittances sent home by migrant workers. Honestly, in the life of a poor migrant these commission are just the smallest of their problems and had many developing agencies not spent fortunes navel-gazing this particular issue, they would have been able to advance much more in solving real problems and in helping to develop know-how about workable temporary legal migration programs. The expensive transfer fees that do not only affect migrants will be taken cared of in time by the time-honored tools of competition and technology.

migration
remittances

Come on Europe, wave away gloom

Published in FT, June 8, 2005

Sir, For those who believe that the world needs Europe more than ever, the latest events are very disconcerting, not so much because of the No votes themselves but more so because of the ensuing reactions.

 

What a gloom! After the incredible advancements of a Europe over past decades it is unbelievable how this little setback could create so much fuss. 

The votes on a messy, too voluminous, uninspiring and basically unreadable document, was an as- good-as-it-gets opportunity to grunt a bit about bureaucracy, but now they allow the same bureaucrats to deflect this perfect valid criticism by equating the votes with a rejection of Europe. 

Europe, pick yourself up! Just wrest whatever Delacroix’s flags are waived from the current bearers, and keep moving on. We will be cheering.

We need a more win-win CAFTA

Sir, You rightly lend your support to the Central American free trade agreement, CAFTA, especially since not doing so would make it seem like you are joining the ranks of those opposed to free trade and also because in today’s world any relations are always better than none. Nevertheless, you need to reflect more closely on the reasons why it is so difficult for CAFTA to gain general acceptance and why, if finally approved, it might not be able to deliver on its promises.

CAFTA, as all trade negotiations in vogue, concentrates basically on how to split the ever shrinking cake of manufacturing and agriculture; how to impose a stricter respect for the intellectual property rights of the developed nations; and how to be able to enforce it, but, as often happens, it shies away from treating the issues that really seem to matter for the future. When currently 40% of Central America’s workforce works abroad, mostly in the US, mostly in services, it should be clear that it is really in the area of services and immigrations that these two partners need better and more generous free trade pacts. For instance instead of exchanging a few textile jobs that could soon anyhow be lost to other places of the world, why do not the partners look for economic growth and jobs in areas such as health and attending the needs of the rapidly aging population. That seems much more like a win-win CAFTA to me.

CAFTA services

Market risks and counter-party risks, they all live in the same world.

Sir Mr. Greenspan recently reminded the participants in the derivatives markets that the counter-party risks are still linked to the market risks, one way or another, which is true, whether you wish to ignore it or not. As we all operating more and more in one single world market it behoove us to remember that if you insure your office property against fire with an insurance company that happens to own the building where your office is located, then, if fire breaks out, your insurer might be in much worse shape than you.

A sensible country would raise tax on petrol, so what is US waiting for?

Published in FT, April 2, 2005

Sir, it is hard to understand the United States of America!

It has a huge fiscal deficit; it has a huge current-account deficit; it is by far the world’s biggest oil consumers both in absolute and in relative terms; now willing to explore for oil and gas in Alaska, it shows itself to be aware of the difficult energy outlook the world faces; it seems aware and resolute about the environmental problems (ignore the Alaska part) as it imposes other expensive environmental regulations, such as recycling—which, as no one likes to do it, requires the hiring of Salvadoreans; it speaks all over the place about having to reduce the vulnerabilities of its oil supplies. 

As any other sensible country would, in similar circumstances, increase the taxes on petrol consumption and substantially help to solve all the above-mentioned problems; and as the US has always shown willingness to pull together as a nation, recently even to the extent of going to war on shaky grounds, the big question remains: why is it that the leaders of the US do not even want to talk about a substantial tax on petrol?

Give us a dam index!

Most of the recent discussions around the proposed Nam Theun 2 hydroelectric project in Laos have been centered on the income it might generate and how it is to be distributed. These are indeed important issues but we should also to consider whether the project could have a positive environmental impact in as far as it replaces other more contaminating energy sources… regionally. I am no expert in dams but having had the luck of being able to visit and fly over this particular site, I must say it seemed a good site for a dam, when compared to other places. Let my be clear, I am absolutely not an expert on these issues, not even an engineer, but sometimes I trust more my layman eyes than those experts who are looking through glasses colored by interest.

That said and as an ordinary citizen who just wants to be able to understand, I surely miss the fact that the experts have not been able to develop an index that classifies prospective and existing dams in terms of the harm they can do to environment. With such an index it would be easier for all us to know when we should not waste time fighting against a new project and when we, in compensation, should instead ask for the decommissioning of an old dam. Behaving like green bullies or environment chasers, hindering developing countries from accessing hydro power, just because we can, is not how the world is going to solve its extremely urgent environmental problems.

Nam Theun 2 environment hydroelectricity

So that Argentina will not have to cry, again

Sir, If Argentina, in a sovereign way, would just offer to include in the current restructure a little clause that states that if they were ever to take on new foreign public sector debt, all of it’s outstanding foreign debt would come due, then the future of that great country would truly shine bright.

As is, the recipients of any new exchange bonds will worry that the debt alleviation given will again tempt foreign investment banks to build up new short term exposure; as is, the argentine citizens will only have to brace themselves for history to repeat itself. Today more important for Argentina (and many other) than to solve its current debt overhang is to make sure it does not happen again. Doing so will open up investment flows to the private sector, Basel [Committee] willing, the only sector where these flows should always have gone to.

Sent to FT on November 24, 2004

Basel is just a mutual admiration club of firefighters seeking to avoid crisis

Published in FT November 18, 2004 The link is gone! You will find the copy below.

Sir, If a citizen from a developed country wishes to obtain finance from his local bank to buy a pricey retirement home in his local overheated market, then Basel poses no problem.

But should he want to buy a much more affordable home in a developing country and have his bank finance him, then Basel slaps such capital reserve requirements on the bank as to make it an impossibly onerous proposition.

This is just one way by which our bank supervisors in Basel are unwittingly controlling the capital flows in the world.

We also wonder in how many Basel propositions it will take before they start realizing the damage they are doing by favoring so much bank lending to the public sector. In some developing countries, access to credit for the private sector is all but gone, and the banks are up to the hilt in public credits.

Please, help us get some diversity of thinking to Basel urgently; at the moment it is just a mutual admiration club of firefighters trying to avoid bank crisis at any cost - even at the cost of growth.

PS. Another letter in FT 2006: “IMF cannot be the independent central bankers’ clubhouse.” 

PS. Just before the fall of the Berlin Wall, statist/socialist/communist regulators, decided banks need to hold zero capital when lending to the governments in their domestic currency but must hold 8% when lending to their unrated citizens.

PS. To top it up: It is what’s perceived as safe which is most dangerous to our bank systems.

PS. Here my 2019 letter to the Financial Stability Board

PS. Here my 2019 letter to IMF: Risk weights are to access to credit what protectionist tariffs are to trade, only more pernicious.

PS. Here is a current summary of why I know the risk weighted capital requirements for banks, is utter and dangerous nonsense.

PS. Here are my dialogues #AI ChatGPT – Grok, about Basel's risk weighted bank capital requirements.

Towards a countercyclical Basel?

Sir, the financial system is there to safeguard savings, to generate economic growth by channeling investments, and to promote equality by providing full and free access to capital and opportunities.

Currently, our bank regulators headquartered in Basel are primarily concerned with the first goal, that of avoiding bank collapses, and how could it be otherwise, if you have only firemen on the board that regulates building permits.

Now, one of these days, the financial system, neatly combed and dressed in a tuxedo, but lying more than seven feet under in the coffin of financial de-intermediation, is going to wake up to the fact that it needs the presence of others in Basel. At that moment, perhaps we might start hearing about flexible capital requirements, moving up to 8.2 % or down to 7.8% by region, in response to countercyclical needs.

Meanwhile it’s a shame that even their first goal might turn out to be elusive, since although the individual risks have fallen with Basel regulations, the stakes have increased, as those same regulations accelerate the tendency towards fewer and fewer banks. 

PS. This letter that, while being an Executive Director of the World Bank I sent to the Financial Times. It was not published. But, because of its importance, I included it in my book Voice and Noise of February 2006

Big Responsibilities

Published in FT May 29, 2004

Sir, The Big Four accounting firms became that big by marketing the value of their size. Now they want to have their cake and eat it too, asking to be sheltered from ruinous lawsuits. If accountability is to mean anything in accounting, we cannot afford to turn the concept of professional responsibility into a risk model of affordability.

Individual professionals and small firms lay their names on the line, day after day. If the Big Four cannot handle it, they had better let go. Then we might all be better off. At least the systemic risks will be smaller.

Hurrah for the Queen!

Sir, facing the need of a career move, it was interesting to read in The Economist, two weeks ago, an announcement, by the Buckingham Palace, requesting an Assistant Private Secretary to H.M. the Queen. I finally did not send my c.v. to www.royal.gov.uk., not because it was not tempting, but because I thought that although I could offer good global perspective on many issues, the Queen might really be looking for someone with more local know-how (cricket) than what I (baseball) could provide for.

That said, Buckingham’s announcement is noteworthy as it evidences that, even in the Monarchy, good governance issues are deemed so important that they include the statement “The Royal Household is committed to equality of opportunity”. And so, in terms of transparency and equal opportunity in hiring, how does the IMF currently stand up in its search for a Managing Director when compared to the British Monarchy? Perhaps, even though born republicans, should not refrain from a “Hip Hip, Hurrah” for the Queen.

Sent to FT, April 17, 2004

The search for transparency in an oil-consuming world

Published in Financial Times, December 24, 2003

Sir, There has been a lot of talk lately about a curse that, through corruption and other distortions, is stopping oil-rich countries from turning income into development. The Extractive Industries Transparency Initiative, championed by the UK and endorsed by the World Bank, has been named an exorcist and is starting the rites by applying a much-welcomed transparency to projects such as the Chad-Cameroon pipeline.

In the name of that same transparency, let us also remember that for every $1 received by any oil producing country (which forever sacrifices a non-renewable asset), the public treasury of many oil consuming countries receives, net, at least $4 and is therefore a likely victim of the same curse, albeit stricken by different symptoms. For instance, in many oil-consuming developed countries, the curse has now created such an addiction to petrol taxes that their whole fiscal structures would be completely unsustainable without them.

Transparency would also, perhaps, not be a bad rite to use to exorcise this tax man’s curse, since most of the petrol consumers in these countries are not remotely aware of the real extent of the taxes and much less of how the proceeds are used.

For instance, having been told that these taxes were environmental, they would be surprised to learn that probably less than 0.5 per cent of the $100 bn collected yearly in Europe, just in taxes on lead-free petrol, goes to the environment; and, worse, that much of it goes in subsidies to the even less environmentally friendly coal.

Also, today, as the possibilities of satisfying the world’s demands of energy seem quite uncertain and the world becomes more aware that the final cost of cutting, or not cutting, the trees of the Amazon will be paid by all, whether they like it or not, it is clear that the world needs to become much more penny-wise when developing alternative energies; and we all know that the best and only companion of the penny-wisest is transparency.

So, after the pipelines, when do we start with the Exchequer’s bag?

PS. I don't find any longer the letter on FT's web so I will scan a copy of it when I find it. It was reproduced by OGEL too

Credit ratings for developing nations are just a new breed of systemic error

Published in Financial Times, January 11, 2003

Sir, Except for regulations relative to money-laundering, the developing countries have been told to keep their capital markets open and to give free access to all investors, no matter what their intentions are and no matter for how long they intend to stay. Simultaneously, the developed countries have, through the use of credit-rating agencies, imposed restrictions as to which developing countries are allowed to be visited.

This Janus syndrome – “you must trust the market while we must distrust it” – has created serious problems, not the least by leveraging the rate differentials between those liked and those rejected by our modern-day financial censors. Today, whenever a country loses its investment grade rating, many investors are prohibited from investing in its debt, effectively curtailing the demand for it just when that country might need it the most.

Everyone knows that, sooner or later, the ratings issued by the credit agencies are just a new breed of systemic error to be propagated at modern speeds. Friends, please consider that the world is tough enough as it is. 

PS. At the World Bank, April 2003, I made a similar point: "Nowadays, when information is just too voluminous and fast to handle, market or authorities have decided to delegate the evaluation of it into the hands of much fewer players such as the credit rating agencies. This will, almost by definition, introduce systemic risks in the market"

PS. Also included in my 2006 "Voice and Noise"

PS. In 2008 the GFC detonated with AAA rated MBS and assets covered by AAA rated AIG’s default insurance, because at that moment European banks and American investment banks needed to hold only 1.6% in capital/equity against these assets… a mindboggling leverage of 62.5 to 1.