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

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

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

Iraq debt Joanna Chung Stephen Fidler

Something will indeed explode in our face

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

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

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

Frank Partnoy David Skeel credit derivatives
Basel bank regulations systemic risks

Allow it, or call in the Righteousness Brigade!

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

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

Christopher Caldwell online gambling

What a curious argument!

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

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

Venezuela USA Citgo oil gasoline petrol

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

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

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

Thomas Hazlett iPod antitrust illegal illicit growth opportunity

About the calm and silent Mr Wolf

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

global warming

About priorities and painting firehouses

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

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

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

Hedging our emotional investments in World Cups

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

World Cup Juventus defeat France investments risks hedging derivatives

On pushing the merchandise!

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

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

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

gdp linked debt debt sustainability Stephany Griffith-Jones Robert Shiller

Mr. Paulson Drop the Big Tax Bomb Now!

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

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

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

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

Paulson oil addiction gasoline tax

Wolf’s viva la vida loca

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

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

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

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

coal global warming sustainability

Why do you then support secrecy Mr. Carter?

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

Yes, But, Yes!

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

Christopher Earl Harvey Bale Advance Market Commitment AMC vaccines poor

Let the willing consumer in on the carbon trading principle!

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

What is most at risk is Doha’s own relevance

Sir, June 30 you quite emphatically, almost desperately, pleading, ask for any results, whatever, from the current round of negotiations of the Doha Trade. Just so you are better prepared for the case of a let-down please remember that the world will still be going round and around, in an ever more inter-related way, even if all the Doha’s set their mind against it.

Just an example, look at call centers and similar outsourcings and ask yourself what on earth did Doha, or Gats, or what have you, have to do with them. In fact the most fundamental driver for the guys of Doha to produce some concrete results might be that if they do not, they will be further left behind, and risk looking foolishly irrelevant, like all those in the USA that are currently debating immigration reforms will do, when they finally wake up to the reality that they are already living in a de-facto Commonwealth with Central America.

DOHA

FIFA is too Clubalised

Sir, David Owen reports, June 29, about “Fifa fund to compensate clubs for injuries” of the players, during a World Cup, among nations, and it sure does not ring right. If a player cannot play for his country because of other commitments, so be it, but to have to insure him to compensate his club or agent sounds like Fifa is turning globalisation into clubalisation. They are even arguing excuses for why they will not cover all of the losses of the clubs. If Fifa wants to go down this route, why do they just not forget about the countries and arrange the next world cup exclusively among the clubs they find most fit.

FIFA

Energetic inflation possibilities

Sir, On June 28, Martin Wolfs ends his “Why the energy revolution will continue to power ahead” with an “anybody who thinks it will be easy to reduce energy consumption is simply dreaming”. He is wrong, as an economist he should know that it is a question of prices. Next to his there is an article by Francesco Giavazzi and Charles Wyplosz titled “When facts change so should central bank intentions” that verses on the oxymoronish issue of the transparency of central banks and comes in quite handy as a reminder that changed facts are most often not too transparently discussed.

As Wolf reminds us about, the average US consumer uses ten times more primary energy than an average Chinese, which set against a large economic growth rate in China and a limited increase in energy supplies should put extraordinary pressure on energy prices, as simple as that! In these circumstances, the US Fed, and the American leaders at large, should be speaking out to their fellow citizens telling them that if they do not reign in their consumption of oil, inflation will take off, they will have to raise interest rates, and then they will have to see jobs and property values all go, as simple as that! But Wolf might still be right, since expecting a central banker to acknowledge that other forces are more powerful than his and his buddies, or a leader to lead and not follow polls, well that could really be dreaming.

Francesco Giavazzi
Charles Wyplosz

So many servants and not even one maid or one butler!

Sir, Martin Wolf in his “Why the energy revolution will continue to power ahead”, June 28, makes a little side tour quoting the Danish scholar Bjorn Lomborg from the Copenhagen Consensus on “if we think for a moment of the energy we use in terms of ‛servants’, each with the same work power as a human being, each person in western Europe has access to 150 servants (and) in the US about 300”. On that Wolf comments, sort of smugly, that the energy revolution has brought about the (almost complete) disappearance of both slavery and serfdom . . . ended servitude and liberated woman from daily household drudgery.”

Well, Mr. Wolf’s home might be very well staffed, but to state that man or woman has been liberated from daily household drudgery is that sort of daring statement when most of us given a choice would gladly exchange at least 10 of those cold energetic Lomborg servants for a warm human body to help us out.

We agree fully with Mr. Wolf that slavery and serfdom is horrible, but let us not forget that serving other people is something very honorable and, if we forget that, we will soon risk be all out of jobs and twiddling our thumbs, when the machines with their Lomborg servants will be doing all the manufacture and the agriculture for us. So many countries with income per capita income over 40.000 US$ per year, and most of the households cannot afford a maid or a butler! Comes to show how this energy revolution Wolf talks about could instead be running out of steam.

Lomborg
Copenhagen Consensus

Sack some in the IEA!

Sir, Martin Wolf in his “Why the energy revolution will continue to power ahead”, June 28, concludes “anybody who thinks it will be easy to reduce global energy consumption is simply dreaming” and asks “where might all this energy come from?”, and he promises to tackle this monumental upcoming crash of trains in future columns. Nonetheless, though thankful for Mr. Wolf’s efforts, we should remember that is exactly why the OECD countries set up the International Energy Agency (IEA), that intergovernmental body that describes its mission on the Web as “advancing security of energy supply, economic growth and environmental sustainability through energy policy co-operation”.

Since we so recently could read in the world press about oil heading down towards $5 and the end of the oil age, and never heard an IEA representative forcefully negating such predictions, may I advance the idea that the first thing to be done, specially in times when we preach the worth of accountability, is to publicly sack some IEA bureaucrats, as incompetent lazybones, or worse, for misrepresenting the facts. This is no joking matter as hundreds of millions of persons around the globe will suffer if IEA, and others like them, do not get their act together.

IEA

The future very last book about Harry Potter

Sir, As the books about Harry Potter have meant so much for the upcoming generation and sometimes they even represent the only books it has read, there can be no doubt that the last Potter installment can actually seal this world’s fate for a long time to come. J. K. Rowlings, or Jo as we are instructed to call her in her Web page, is someone to watch, very closely. Not that I distrust her, but we should perhaps think about censoring her (discreetly). What will be the lessons she will imprint on her young and not so young and even quite old (like me) readers’ minds with her final book? What if she goes haywire? I guess I’ll manage it, I hope, but will the young ones?

Harry Potter
J. K. Rowlings

The rumors of advertising’s death might be slightly exaggerated

Sir, Maurice Saatchi, in his “The strange death of modern advertising”, June 22, points out that his sector is being reduced to help his clients built their “one-word equity” (oops 3 words), as finding them and salvaging for them their one and only descriptive word is what it is all about.

But perhaps there should be no reason for him to despair since in Encyclopedia Americana we find that “The vocabulary has grown from the 50,000 to 60,000 words in Old English to the tremendous number of entries -- 650,000 to 750,000 -- in an unabridged dictionary of today" and so, not only are there many more words out there, but there might even be a niche for Saatchi in creating some new words.

That said and never taking a recommendation lightly, much less when it comes from such a reputable source, I immediately proceeded to try to register a “likable.com”, since likable sounds a very likable word, and niche, and you have to get them before its too late and you have to settle for something inferior. Unfortunately for me “likable.com” was already taken and so now I am just left with the urge for a word. See how clients grow on trees Mr Saatchi?

saatchi

What? Is it not criminal today?

FT reported on June 21 “that William Parrett, global chief executive of Deloitte (one of the big four), has called for lying to auditors to be made a criminal offence worldwide, a move he believes could help deter fraud and false accounting” and I guess many readers shared my instinctive reaction of What? Is it not criminal today? Well, then no wonder!

I believe many of us would appreciate it if FT provided us a brief, in layman terms, legal explanation of where we are now, and where Mr Parrett wants us to go.

A not too transparent recommendation from Mr Wolf

Sir, Mr Wolf in desperation of achieving some positive results from the “Ten days that could shake the World Trade Organisation”, June 21, is willing to put it all in jeopardy by asking world leaders to give their negotiators carte blanche since “they can do so confident that it will not haunt them: the results would only be implemented long after they leave office; and implementation of even the most controversial deals has often passed unnoticed”.

This is exactly the type of non-transparency that would make it impossible for WTO to live up in the long run to its global institutional purposes, and it reminds me so much of some privatizations I witnessed, when the order of the day was to postpone any major increases in tariffs a couple years, so that consumers would not be able to connect the dots.

It is also wrong of Wolf to hype the demands for results of the upcoming negotiations too much and even mentioning “potentially devastating consequences of failure”, as this could spill over into those disappointments that feed the self-realization of prophecies. Instead, we need to put forward the argument that independently of the results, WTO has a vital role to play since the world cannot afford to lose “a highly successful dispute settlement system” and it also needs a world-class coordinator to give support to whatever other negotiations, multilateral regional or bilateral, that could help the world to keep moving forward in the vital issues of trade.

It is strange that although Wolf tells us “Personally, I believe these rounds no longer make sense”, he should still feel the need of ordering us to bet our last clean shirt on them.

The public sector keeps some de-facto public debt off its balance sheet.

Sir When a country provides its citizens with public services directly and does not have the resources for the required investments, then it contracts public debt, registers it as such, and collects tariffs and taxes from the citizens to service it. But, when instead a government decides, for whatever reason, to have the private sector perform that public service on its behalf, as for instance supplying electricity, then no public debt is recorded, notwithstanding that their citizens still have to pay for it and which all results in governments being able to keep society’s long term obligation with its private public service provider off the books. Yes, someone could argue that it is not really a public debt as no one is really forced to use electricity but, come on!, that argument assume that all the society could stop using electricity. As is, every time an Argentinean turns on a light at home, he is unknowingly helping to service a public debt that though never formally accounted as such, is a very real de-facto public debt and, in his particular case, mostly a foreign one.

One of the things we should expect from any good accounting is that it allows us to make valid comparisons, in the case of the private sector between companies and, in the case of the public sector, between countries, but, in this case, how do you compare France and the UK?.

Another problem with not recording the true societal debts and therefore the true societal costs is that the government starts to loose track of its real weighted average cost of funds, something we are taught to quite handy when having to select what projects to carry out.

Today instead of investing so much effort looking for the exact worldwide convergence of the accounting standards for the private sector, we citizens might do much better looking for some better approximates for our public sectors.

Mama Mia what a mountain of debt!

Sir, Zachary Karabell and Dan Chung in their “Alive and well under a mountain of debt”, June 20, look to provide comfort to the holder’s of the American’s Consumers Debt portfolio, and they are not doing such a god job.

First they draw our attention to some figures that even though they themselves do not seem too very upset about them (American stiff upper lips?), makes it hard for an ordinary reader to refrain from letting out a Mama Mia! Against a total market value of assets of $52,000bn, which includes the value of homes, they tell us American consumers owe $11,500bn. This whooping amount is not invested in a very well diversified portfolio either, as most of the income of the debtors and the value of the assets given in guarantee depend on the state of the US economy, which, to add salt to injury, is quite a prolific public debtor itself.

To top it up, the authors find their main ray of light in that “the world is awash with labor which combined with favorable demographics in the developing world, means that inflation should trend lower and rates more likely to be 2 per cent than 6 per cent the coming years” which only implies that they expect foreigners to keep on working hard in order to reinvest their surpluses in this portfolio at bargain rates. If so, they need to be reminded that this does not repay the American consumer’s debt, this does just postpone the day of reckoning.

Finally the authors refer twice to Poor Richard, which is also quite surprising given the topic as all we can remember he said in reference to debt is that “Industry pays debts, while despair increases them.”

Zachary Karabell
Dan Chung

Al Gore’s crusade against global warning is not yet warm enough!

Sir, Al Gore’s crusade for a better environment has now an official web site http://www.climatecrisis.net/. The site includes a long list of recommendations on how citizens could help, where we find all the standards like driving less and recycling more but also requests to shift up gears and go for planting a tree and refraining from eating meat, since cows are one of the greatest methane emitters.

Unfortunately in the list we cannot find a “write to your Congressmen and ask for a tax on gas (petrol)", which by cutting that demand that consumes one of every seven barrels of oil in the world just on American roads and highways, would be the best and most concrete evidence of really wanting to help out the environment… and also the American economy at large.

As a result we have to conclude that Gore’s crusade has not yet warmed up enough.

Al Gore

With or without strawberries the basket might still not matter

Sir Wolfgang Munchau in “Why they take the strawberries out of the basket”, June 19, states that “the purpose of monetary policy . . . is to maintain the purchasing power of fiat money” and of course we all know he is wrong, since it is much more than that.

But when he then enters his very interesting discussion on core and headline inflation, developed to take care on timing differences and avoid knee jerk reactions, either for technical or political reasons (perhaps just another difference in timing) he also seems to ignore that the basket is just a bureaucratic product, designed to follow the cost of living for an average consumer, and as such, it might still, with or without strawberries, not be able to assure us that the fiat money is not loosing its purchase power.

When one observes how in a land with a per capita income of 42.000 US dollar per year so relative few can afford having a maid, much less a local maid, we might have the right of viewing with some more suspicion the real purchasing power of current fiat money.

Sent to FT, June 19, 2006

Does it smell a bit rotten in the Republic?

Having to read in FT, June 17, two full pagers about the electoral possibilities for the wife of a former president to become president of the United States of America, while the country is ruled by the son of another former president, should perhaps make Americans question the current state of their Republic.

Sent to FT, June 17, 2006

The ugly wart ignored

Sent to the Guardian UK, May 15, 2006, destiny unknown

The left is frequently looking to reassess its relation with Hugo Chávez of Venezuela, in an effort something similar to when the right looks to reassess their relations with George W Bush.

Surprisingly enough, in most of their analysis, we see that in Chavez's case they always ignore the most concrete and convincing piece of evidence of why they should cut all relations with this dubious military ex coup-man, who quite unauthorized is taking cover behind their ideological mantle.

Currently in Venezuela, after soon eight years of a “socialist” government, petrol is sold at less than 4 cents of dollar per liter, compared to the 160 cents per liter paid, with taxes, by consumers in Europe, 40 times more, 4.000% more. By selling the petrol at 4 cents instead for the 64 cents he could get for it for anywhere exclusive of taxes, the “Socialist” Chávez transfers effectively 60 cents of dollar per liter to those “with cars” from the resources that could directly been used in favor of those “without cars” and, to make it worse, creates simultaneously horrendous incentives against the environment.

The previous is such an absolute aberration of public policies for most people, especially in Europe, especially for the left, so it is so hard to understand how they can ignore it. Perhaps it is because sometimes a wart it is so ugly that you just have to look away… but please, do not!

Little guys will still be little guys

Sir, Moisés Naim’s well written piece …the little guy is calling the shots, June 13, reads a bit like a nostalgic reminiscence of a time when the air was cleaner and power was power but, rest assure, little has changed and the little guy will remain the little guy. Yes, faster and more importantly cheaper communications do augment the possibility for local upstarts of becoming a nuisance but the real chances of the David’s beating the Goliath are about as slim as ever.

That said what really seems to be calling the shots now, both for big and small guys alike, are just plain old time fundamentals, like the environment and the availability of energy. Naím begins his article with the example of big Shell giving in to a small Bolivia but he knows very well that in a world of 5 dollars per barrel, as actually some major pundits spoke about as late as 1999, nobody would give a jota for a small southern-hemisphere hillbilly who happened to strike it rich and who probably would misspend his fortune soon anyhow. Had only the Big one act responsible and checked his runaway consumption of oil, then Bolivia would sadly still be forgotten and perhaps Baghdad a non issue.

Finally, and since Naím pits the Vatican against Pentecostal Christians, we should not forget that in this particular case, they in fact both work for the same supreme power.

Sent to FT, June 13, 2006

The global work-force needs some global representation too

Sir, The head of IBM, Sam Palmisano in his (local) Multinationals have been superseded, June 12, makes a passionate defense of the “globally integrated enterprise” in order to diminish the dangers of that neo-protectionism that is dangerously lurking around and that could create havoc for the world economy. But all of his arguments also remind us that currently, absent of any true independent representation of Mother Earth’s long term interests the World Bank seems more a “Pieces of the World Bank, and the International Monetary Fund an association of very local central bankers. In this respect, in the frequent discussions about the need for updating the different voting rights and the Executive Boards of these institutions to current economic realities, what could be most beneficial is to find ways giving representation and voice to the real new kids in town, meaning all those workers, skilled or unskilled, legal or illegal, who nowadays represent jointly one of the largest and most vibrant economies of the world.

Sent to FT on June 10, 2006

An Ättestupa for Mr Lind

Sir, Mr Michael Lind in his “A labour shortage can be a blessing, not a curse”, June 9, sees himself in old age pampered on a chaplinesque modern times assembly line, and happily concludes that technology will take care of the current demographic imbalances. 

Of course, his vision, where it would seem that all the remaining young concentrates on helping the elderly, ignores that a country besides that very laudable activity, also has to think of a present and a future, and generate that kind of economic growth that will help it among other to educate their new young, defend themselves and service their debt. 

If going down the Michael Lind route then the applied technology will more probably be in line with going down an “ättestupa”, meaning those high and steep cliffs supposedly used by the Nordic elderly a long time ago to throw themselves from when their time to serve society had passed. By the way, when discussing immigration with those who vigorously oppose, it is amazing how a “well if you want to take care of repaying you public debts on your own so be it” dilutes much of the certainty in their eyes. 

Sent June 9, 2006 

Note: For this letter I based myself on myself as in my Voice and Noise you can read

The practical solutions available for solving the shortage of caretakers in developed countries are the following four:

 

1. Increase their productivity, but unless you wish to run the risk of being dehumanized on a Charlie Chaplin Modern Times assembly line cared for by robots… there might be a limit to how much this can help. 

2. Move the careneeders to another place (if there are caretakers available anywhere else), and this you should do as early as possible if at an older age you do not appreciate finding yourself in strange surroundings as much as you did when younger. 

3. Import caretakers, and this you should do as early as possible if when older you do not appreciate finding yourself in the company of strangers as much as you did when younger. 

4. Give incentives for having more children and grandchildren—which is not such a crazy idea when you start considering how much society is, one way or another, currently rewarding people for not having children. (Talk about externalities!)

Just a reshuffle among the “locals” in the Fund won’t do it

Sir, you and others seem to opine, June 8, something like if only the composition at the board of the International Monetary Fund better reflected economic size then for instance, like magic, China would speedily devaluate and all the current global imbalances disappear. It might not be as easy as that and by the way why would GDP and share of market trade more important than market capitalizations for assigning votes at the IMF and also, if we at it, why should we not go for a full democratic reform and use populations as the basis?

Much of the problem in these days of globalization lies in that it is mostly the “local” perspectives that are represented, making in fact the globe at large the most underrepresented constituency. In this respect, instead of just reshuffling the deck of card among the locals, more could perhaps be gained if some of the current chairs at the IMF Board were to be occupied by independent Executive Directors, who are there to think and represent exclusively the global perspective and interests, with the horizon of our grandchildren.


That the Fund’s professional staff could somehow act in the name of the world, well that is nice, and we all hope they do, but “Mother Earth” could still benefit from some additional support at the board level, and besides there is always the need of making sure that we don’t fall into the hand of even smaller and more parochial interests, as has indeed happened with many corporations that have de-facto been taken over by their management teams.

Sent to FT June 8, 2006

A Blog Is Born

I like reading The Financial Times, or FT as it is known, and I frequently write letters to the editor and some of them that have indeed been kindly published, for which I feel honored being mostly unknown outside of my country Venezuela.

But then I realized that all those letters to the editor that for reasons impossible for me to comprehend were never published, were condemned to an eternal silence not of their own fault, and so I decided to, at a marginal cost of zero, to resurrect them and keep them alive, right here.

English is not my mother language so bear with me and you’ll probably note when my letter has been published in FT by its correctness. Swedish is my mother language but I have not written anything serious in it for about 40 years and last time I tried, they just laughed their hearts out because of my outdated expressions. Polish is my father language but, unfortunately, I do not speak a word of Polish, much less write. Yes Spanish is my language, as I am from Venezuela and although I trust I write in it with great flair, I would never dream of publishing an article in Spanish without having it edited by my wife.

And so friends here is my Tea with FT blog with my old and new letters to the editor. I hope you will share them with me now and again, and then again.

Welcome, and cheers, as I believe they say over there.

Per

PS. Just so that FT does not get too cocky and believes they are my only window to the world, I will now and again publish a letter sent to the editor of another publication.

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