We only wish the first oil news from Iraq were different

Sir, FT’s front page on May 16 spells out “First crude oil pumped by a foreign group for 35 years to flow from Iraq” which reminds us of how much better it could have been with news like “First oil revenues to flow directly to the Iraqi citizens in their history”, since that could really have meant the possibility of turning Iraq into something so much better that their current only best options of ending as a third rate democracy in the hands of an democratically oil elected mogul. How sad it is seeing so many sacrifices made by so many and missing such an opportunity to make a real difference.

It should not be about compensating losers but about distributing better the dividends of globalization.

Sir, Danny Leipziger and Michael Spence the vice chairman and chairman of the Commission of Growth and Development in their “Globalization’s losers need support” May 15, by talking about the need for protecting losers are, whether they know it or not, sending a quite wrong and negative message about globalization. A more constructive way to phrase the issue would be along the lines of “We have to make sure that the immense dividends from globalization are adequately distributed” Let us be honest, it must be clear by now that some beneficiaries are just getting more than their fair share.

If for instance a Mr Carlos Slim of Mexico is able according to Forbes to turn himself into the worlds second richest persons with a wealth of $53bn by controlling the Mexican telecommunication industry, it should be perfectly clear that this has nothing to do with globalization and all to do with bad regulators.

In this respect we only wish that Mr Leipziger and Mr Spence would give more attention to the obvious needs of scaling up global antitrust legislations and of finding ways of how to assure that the many monopolies that are created through assigning and defending the intellectual property right are reasonably exploited, instead of thinking about compensating handouts. That Bill Gates gives back is commendable, but that cannot be the basis for a government policy, when every citizen should have the right to earn his own keep, even if only employed as an unemployed.

The World Bank is needed more and more

The World Bank is less and less relevant writes Armeane M. Choksi, May 14, while the truth is that a true World Bank is more and more needed in times where there are not only billions of poor that seem more left behind than ever and everything gets, or at least is discovered to be, more and more intertwined. Of course there is a lot of intellectual capacity in the individual countries but they all need a forum where they can come together and discuss economic development from a global perspective and not only from their own local needs and the World Bank is the ideal venue for that.

Clearly the World Bank needs to undergo some deep reforms in order to face up to all the new challenges, and not only with respect to its governance. Just as example they need to reduce the research that is based only on the availability of data and scale up the research that gives us better current data, like they are managing to do with their “Doing Business” reports. I have also frequently begged the World Bank to become that really carbon-solutions neutral agency we all need so as to make sense between all the green magical solutions to global warming that are currently peddled, as well as to provide the world with some good temporary-migration-program blue prints, that make sense to all parties.

That Choksi, who presents himself as a former Vice President of Human Capital Development & Operations Policy at the World Bank can even start to think that selling their prized real estate and distributing the capital gains to their shareholders has anything to do with what the word needs, is such a shame and only comes to show that even people who have been in the Bank, never understood what it was all about. The World Bank’s current loan portfolio after 40 years stands at approximately $103 bn. The USA’s total share (16.38%) of the World Bank’s total reported net worth comes only to about $5.5bn, or less than a tenth of what the Bill and Melinda Gates Foundation have received in endowments.

There is life outside the consumer basket

Wolfgang Münchau writes about “The problem with inflation indices” May 14, and I agree with most he has to say, though it is somewhat incomplete, given that most of the real problem with them lies in the eyes of their beholders, when they feel beholden to use it for more than it should be used for. In other words, though economist, statisticians, Central Bankers and even normal people seem to ignore that there is still life outside a normal and standardized consumption basket, and that life is driven by house prices in mid London, Dow Jones indexes, US$1900 original handbags and their US$20 counterfeits.

Any investor who now thinks that by beating the inflation he has made enough to keep him abreast, should be up for solid surprises, though admittedly of a quite different kind than those problems that could face the investors who have beaten inflation by a lot when the liquidity pools dry up and all the risk that have gone into their derivative hidings start to show up.

Could the world’s financial nannies get away with anything?

Sir, the bank regulators of the world decided over the last decades to give some few credit rating agencies an immense role channelling the financial flows of the world. No matter what their reasons, I have always suspected it had mostly to do with some laid-off Soviet central planners migrating to Basel; they surely must have expected the credit rating agencies to behave in a responsible and accountable way. Now, when we hear these same agencies argue that all they do is opine and that their opinions are protected by the First Amendment to the US Constitution, those two basic premises do not necessarily seem so valid. Since any responsible parent, no matter how much they might trust their nanny would never want to leave their children in the custody of someone who thinks she could get away with anything, we now eagerly await what the regulators have to say about all this. Or do they just don’t care?

A scary Fantasy Island

Sir, Samuel Brittan as “An economist on Fantasy Island” May 10 scratches his head and just wonders. In a world where the IMF, in their Global Financial Stability Report, April 2007, could say something as surrealistic as “The persistence of global imbalances brings with it an important financial stability issue—the problem of sustaining the financial flows needed to support the imbalances” and get aways with it, he is certainly not alone. Sir Samuel Brittan then makes what in a financial world could be called a straddle by on the one hand preaching the advice of a-when-in-doubt-be-careful, coming out in favor of tighter money, while simultaneously reminding us of the “paradox of thrift” where an “excess of savings can promote a slump”. Let me feed the conundrum.

The world has been painting itself into a corner where if it wants to solve disequilibrium while keeping up growth, China is now its consumer of last resort. There is nothing wrong with that, except for: first we are not really certain about what could happen when China tries to cash in on their international chips to pay for their consumption, and second, given that the consumption demands of China could differ a lot from the current, whether we have sufficient environmental space so as not to burn up in a global oven, or the sufficient commodities so as not have all fizzle away in another bubble. Some Fantasy Islands are indeed great; others are just a little bit too scary.

We need an insurance for what could be discovered mapping our genes.

Sir, Patti Waldmeir in “The Dangerous new age of the genome”, May 9, writes about some legislative initiatives in the US that look to combat the “genetic discrimination” that might result from mapping the genes. This might be a good start but as I wrote in an article titled “Human genetics made inhuman” that I published in 2000, I submit that a better, or at least a more practical approach, might be to ask the insurance companies to come up with an insurance that covers any increased health insurance costs that can result from such a mapping when compared to an average citizen, and then require evidence that such an insurance has been contracted for before allowing at least any young person to have his or her genes mapped.

Sometimes the original and the pirated copies are just each other's parasites

Sir, Hugh Williamson reported May 8 that “Counterfeiting losses are less than claimed, says OECD” and mentioned that the upcoming results of some studies could prove embarrassing to some international business lobbies which have used high estimates to further their causes. I looked further into the details of such studies and found worrisome that OECD seems to put counterfeiting and piracy in the same sack of problems, where they do not belong.

A counterfeit is an imitation made with the intent to deceptively represent its content or origins. This is not only clear criminal behaviour but besides the direct costs, implies often great dangers, as for instance in the case of falsified medicine.

Piracy, the copying of a trademark or patent covered product to be sold at so much lower prices that no one could think of deceit, is comparatively speaking more of a venial sin, and about which we need more debate before declaring it so illegal that it should be hounded down, at any cost, and as a consequence increase the growth potential for those in the society that are dedicated to criminal and illicit activities.

Just as an example let me ask you the following: What is worth more, an original Vuitton handbag in a ladies lunch where all the ladies carry Vuitton, Gucci, Prada or Hermes Birkin (my daughter’s favourite, she is now looking at a pre-owned simple hand bag going for $9750) or that same handbag in a ladies lunch where all other ladies use pirated Vuitton bags. Exactly! The worth of the original is increased by the willingness of people to use cheaper copies of it. And in this respect the $900 dollar bags has nothing to do with the $20 dollar copy except as mutual parasites. You would never ever be able to sell the true bag at $900 were it not for the $20 dollar fakes, and also less of the $20 dollar fakes without the $900 original.

I have written a great book, Voice and Noise, and that is slowly turning itself into a collector’s item on account of so few reading it. I would love to have it pirated, if that would help me to reach thousands of readers. Any willing pirates out there? Then I could easily have my original retail for $190.

In immigration policy the perfect is also the enemy of the good

Sir, you write about “the mess over US immigration policy” May 9, and, as usually happens, most of the mess is created by those who want to court their followers by showing off that they want it all and perfect for them, when perfect, as always, is the enemy of the good.

Instead of what you imply I say for instance that if the price for getting some order back into immigration policies, before dirt hits the fan, is to have the migrants pay some punitive fees for their permits, so be it, that is still much better than having them paying the much more expensive punitive costs of not having permits. Let them put the price on the table and, after we haggle a bit, we will find the ways and means to help the migrants pay those fees.

That they must go home for extended intervals? Well we could argue about the length and the timings of such home-goings but it is not really a preposterous thing to ask of temporary work programs to include clauses that could keep their hearts warm to their homelands and lessening the risks of that heart-drain that could make their return much more difficult.

Sir, we sincerely appreciate your good intentions but please, don’t embrace us too much, and help us instead to get as many workable pieces of a solution formalized as fast as possible, before the problems get out of hand. Already having 12 million flesh and blood earthlings called illegal aliens is no minor problem.

If it was an entrapment that is almost irrelevant.

Sir, there are now some arguing that Mr Wolfowitz fell into an entrapment created by the World Bank's Ethics Committee and let me make it clear that whether this is true or not, it has nothing little to do with the real issue. Mr Wolfowitz, as the President of the World Bank should be able to know that just because an ethic committee says something might be ethical, that does not necessarily make it so. He should know that having the poverty fighting World Bank seconding someone at a foreseeable cost of US$ 2.700.000 (180.000 plus 50 % benefits times ten years) just to manage his conflict of interest is plainly wrong no matter who might say it is right.

The overwhelmingly good staff, management, board members and presidents, present or past of the World Bank, as well as a world that needs a respected multilateral institution where global challenges can be discussed, they all deserve that this issue should exclusively be about right or wrong and not just a banal pro or against Wolfowitz political row.

Mr Mander should apologize

Sir, Benedict Mander reports, May 9, that “a parade of rowdy and at times hysterical protesters yelled and whistled their way through central Caracas recently in a desperate attempt to be heard before Venezuela’s oldest and most popular television is silenced forever” and I just ask who is he to come and characterize the protesters as “hysterical”. Has he any idea of what it is to live in a country where all the judiciary and the military respond and obey blindly one who loves to be called “The Commander” and the Congress has 167 members that support him and none, zero, zilch against even though the whole world knows it is a highly polarized country, and where now they are going after the free media?

I truly think Mr Mander owes these protesters an apology.

What we need is some good carbon-solution neutral advice

Sir Jonathan Guthrie's "How I was deluded by my own carbon footprint", May 3, illustrates in a funny way the tragedy of what many of us have been saying for years, namely that to counter the serious climate change challenges, the marketing of medieval indulgences, for some fairly undefined carbon sins, in order to use the proceeds (after commissions) for some not that very clear good deeds, will just not cut it. The fact that the market seems mostly to be made up by a mix of innocent and well intentioned believers and state of the art speculators, and supervised all by an often much hypocritical environmental clergy does not make it easier. By the way it must be history's irony at work that has the current carbon indulgences system receiving its strongest support in protestant countries.

As for myself, having had some intentions to vacation in such a way that would leave a truly horrible carbon footprint, I am currently looking for someone to convince me that I am morally much better of if I allow them to finance me a more responsible alternative. Any offers? Seriously, if climate change is serious we should act seriously, and in order to do that what the world most needs is some good carbon-solution neutral advice.

Please, pick the cherries!

Sir, Andrew Jack reports that “World Bank agency seeks to create African health funds” April 30, and that one concern about one of its agencies, the International Finance Corporation, launching an equity fund is to “ensure that for-profit healthcare services supported by the debt and equity funds in Africa do not simply back businesses that “cherry pick” richer patients but instead reach the poorest in rural areas in the lower income countries that suffer the most.”

Clearly we should try to find the ways to bridge the horrible needs of the poor in Africa, but while doing so let us not ignore that “cherry picking” is exactly one or perhaps the most important tool for achieving sustainable economic development. If the world had used more its development funds to help Africa to persistently service the health needs of their sweetest cherries, instead of having these go to Paris or London for their health treatments, then perhaps we would have allowed many more sherry seeds germinate into cherry trees and there would be more cherries in Africa.

It is amazing how sometimes development agencies are hindered from using what has proven to be good development tools in developed countries.

How much does blissful ignorance has to do with our current financial bliss?

Sir in your editorial comment “Securitised stability”, April 27 you mention that “there are benefits from dispersing credit risks across the economy: it makes banks less vulnerable for a start, and makes borrowing cheaper for millions of companies and households.” You are in general terms right but let us not forget that, on a world aggregate, diluting the risks does not really mean eliminating them and perhaps even the contrary if the dilution allows for the acceptance of more risks, as seems to have happened with the subprime mortgages in the US… and soon with the highly leveraged buyouts.

Let me advance the idea that what we have lately perceived as benefits from the shifting of credit risks could in fact also have much to do with the creation of a larger world reserve of “blissful ignorance” resulting from having designed so much sophisticated risk camouflage. A millionaire is a millionaire not only as long as he factually is one but also as long as he believes himself to be one, and it is only when the final cash-flow realities hits him that he might wake up to the fact that his portfolio has harboured some very new and peculiar risks.

Thanks, that was much needed!

Sir, our problems on planet earth are just too serious to allow us from not spelling out some uncomfortable truths. In this respect, with your ‘Carbon markets create a muddle”, April 26, and the investigations that preceded it, and hopefully those that will follow, you are performing a tremendous service to all of us who believe that the climate change threat is for real and therefore require that the actions to combat it should also be for real.

The current carbon market where we sell indulgences for some fairly undefined sins, and use the proceeds for even less defined good deeds, after paying some intermediaries a commission, will just not cut it; much less so if we leave it in the hands of blind believers or of a hypocritical environmental clergy.

PS. Fast forward a decade: What if the indulgences revenues are democraticaly shared by all? Carbon dividends?

One little raffle would do it

Sir, Barney Jopson in “Unknown auditor? Not in my back yard, thank you” describes how though everyone knows it is not good for the markets to be so much in the hand of just four big auditing firms no one really gets around to do something about it, and so it seems that your regulator could be lacking some testosterones. Honestly, how difficult can it be to pick, through a raffle, 150 of the 300 largest companies that should be able to use a mid-tier auditor, and just ordering them to do so within a year if the want to avoid a huge fine. It is high time for the world to start thinking about taxing the largest before they become the-only-one and so from auditor firms we might then have to move to the banks.

We need some new derivatives!

Sir, Paul J Davies reports that Moody’s warns on change of control clause”, April 26, with respect to a clause that is supposed to protect the investor from the risk that a company suddenly gets swallowed up in a highly leveraged takeover and leaves him with a much riskier investment that he had originally intended. As it seems some of these clauses when the credit rating agencies downgrade the company but, if the credit rating agency did, as it should, downgrade the company before the formalization of the takeover event then, as no further downgrading should be necessary, the investors could be left out in the cold. As I read it, this seems to be just another example of a derivative market that needs to be developed in order to cover the changes in credit rating methodology and timing of announcements applied by the credit rating agencies. And, after that, perhaps the only remaining risk we need to cover before we can sleep calm under our blissful protective cover, is the regulator risk but, come to think of it, there might not be pockets deep enough to guarantee the counterpart risk on that.

Do not tax the migrants, make them save instead.

Sir, I could not agree more with Philippe Legrain on that Europe (and the US) need urgently to develop some large scale temporary immigration programs if they want to have a fighting chance of keeping what is happening under reasonable control. If the political price to pay for such programs is along the lines that he suggests in “A migrant tax would slash illegal entry into Europe”, April 25, namely an “extra payroll tax on foreign workers” so be it, and only because something is better than nothing. Nevertheless, let us be clear that what he is suggesting is a form of bribery offering all the “true” citizens to share into the earnings produced by the migrants, the secondary citizens. It is also equivalent to a handicap system where you place a special tax on the shoulders of foreigners, so that your homeboys can easier compete, which could have of course some long term debilitating effects for your own.

Much better is a system that looks to really guarantee the temporary aspects of it all. Not only do you have to make certain that the migrants keep up their contacts with their homelands, so as to avoid the risk of any heart-drain but also, that those same homelands manage to get better homes to return to. That you take a percentage of the migrants earnings and place it into a savings account that he will get back when he returns home, sounds much more reasonable than taxing him so that he might remain poor and impeded from returning home.

Brands are brands and that’s the way it is!

Sir, of course brands are useful when they motivate you to keep the name of the Financial Times in good standing, and me to do the same with my name. Having said that I feel you might have gone a bit overboard when in “Red Hot Brands” you defend so strongly the utilitarian value of brands, and I suspect it has to do with you feeling a bit uncomfortable with some of the questions those anti-capitalists that you refer to make, some of which are indeed quite difficult to answer. Forget it, there is no reason to be ashamed, brands are brands and just another fact-of-life that results from our human desire to identify and be identified. The next time some anti-capitalist nags you about brands just ask him about his Che.

And so, having hopefully cleared the ideological hurdle, let us now discuss objectively one of the main consequences of brands, which is that they frequently create quasi-monopolies that among other allows for wider profit margins. For instance one of the (mostly ignored) reasons for the declining shares of labour income in gross domestic products is most probably the growing importance of brands, plus of course all other type of intellectual property rights. And, so what can we do about it? I haven’t the faintest. I guess you could speculate on some progressive tax on brands depending on their market penetration but most probably, when in so much doubt, the best we could do, is to do nothing at all, letting the market to take care of that, as it sometimes seems to be doing through the pirating of brands... offering generic Louis Vuittons.

The World Bank, though in a hole, needs to dig deeper

Sir, as a former Executive Director of the World Bank (2002-2004) it is with much sadness that I have followed the Wolfowitz affair. It is clear that he should not have played a role in deciding the terms on which his girlfriend was seconded to the US state department” and that he should leave the Bank but, having said that, we need also to question the general idea of the World Bank seconding anyone, even on reasonable and non interfered terms, just to solve a conflict of interest… permitting someone to have the cake and eat it too.

In contrast I remember while an Executive Director how we spent millions of dollars of the Board’s time just in order to debate a “measly” forty thousand dollar a year increase for the then World Bank president James Wolfensohn, so that he would be able to earn as much as his counterpart in the IMF.

Now, after so much procrastination, by all parties, the only real solution for the World Bank, with or without Wolfowitz, lies in appointing a committee of true outsiders to dig deep and review all the World Bank’s current work related policies. The World Bank, when compared to other similar institutions, is very clean but of course, after 64 years of accumulating problem solving compromises, it should be time for a good scrubbing.

The world needs the World Bank to come out of all this smelling like roses and frankly its good staff deserves it.

The pastor risk is the risk that investors just share into blissful ignorance.

Sir, Wolfgang Münchau is correct when saying “A risk shared may be more risky, not less”, April 23. As arguments he presents, first the deceased US economist Hyman Minsky’s general pessimism (or may we dare say realism) that instability is an inherent part of the system, and then Raghuram Rajan’s, former director of research at IMF, who argues along the line that the investor’s increased willingness to invest in “tail risk” and their “herd” mentality could lead to a catastrophic meltdown.

I myself have been writing and warning on these specific issues for a long time, though mostly on the risk present in assigning too much market decision power to very few credit rating agencies and which introduces not a herd but a “systemic pastor” risk.

For instance in the ongoing subprime mortgages debacle, the distance between the borrower and the final lender increased too much, just because everyone counted on others to be able to provide sufficient oversight. When we now start seeing how credit rating agencies rated without even sending a team to walk the streets in order to sample how those subprime mortgages originated, we should be able to conclude that the investors besides sharing risks, were also sharing blissful ignorance.

How to get someone else’s grandson to take care of you when you are old?

Sir, Michiyo Nakamoto reports “Japan requires age-old wisdom on problems of productivity” April 23, on how a country of saver “who have long been happy to keep the bulk of their wealth in bank deposits” now have to start looking for improved returns on their money in order to make ends meet in an ageing society with declining workforce.

This is just the beginning of some truly important intra-generational transfer challenges that have been surprisingly little studied, and planned for, and simply accepting more risks in order to get better returns does not really cut it as a sustainable solution to this problem. For instance the Japanese society might need to take an urgent look at issues such as the saving propensity of the coming generations in Japan and the rest of the world, since if those generations do not want to save as much as theirs, then with whom are they in the future to barter with their investments and savings against the cash they need. Could it even be that they could be better off by simply cashing in their investments today and holding the cash?

Needless to say this is a question that affects many countries and I can already see a young generation of nurses in developed countries asking and getting six figure incomes… or even much more if they restrict the competition with foreign nurses.

The public private matrix

Sir, strange how terms could seem to evolve! I say this because when reading the title of Gillian Tett’s article “Multi-layered finance a defence against private equity”, April 20, the first thing that comes to mind is who would have thought it possible that FT would imply that some defence against private equity could be needed? Of course, Gillian Tett’s excellent article is perfectly clear what is meant, but then again perhaps using the term “private-private equity” would lessen the chances for confusion, and perhaps even of having it quoted by those who like Hugo Chavez in Venezuela favour the public sector to take control of some private companies. That said, in the matrix of private-private; public-private; public-public; I believe we all agree that the worst, by far, is the fourth quadrangle, that of private-public.

On the article itself, and after we have seen how fairly simple facts such that mortgages should be issued on reasonably sustainable terms were mostly not caught by the rating agencies, perhaps covering it all in some sophisticated multi-layering-finance, contrary to what is said, could in fact make it easier to obtain a credit rating agency’s letters of approval. You see, the worse the tangle, the easier to talk yourself out of it when caught wrong; it is when things are really simple, that the going gets really rough.

A rescue plan for the subprime mortgage blow-up

Sir, Desmond Lachman in “Housing bubble burst into American elections”, April 18, paints a very sombre picture that is just made much worse by the possibility that the first order of action, in this fire, will be to apportion the blame. We all must know that any plan that wants to have a chance to contain this disaster, needs to accept that its goals have just as much to do with improving borrowing, lending, packaging, rating, investing and regulating histories. No party is without blame.

1. If companies can have a Chapter 11 time-out, there should be no reason why the subprime mortgage sector should be forced to panic.

2. There is but one way to minimize the overall costs to borrowers, lenders, investors and society, which is to find the mechanisms to turn these uncollectible subprime loans into collectible prime loans and then have the costs of doing so shared by the parties, with a final settlement postponed in time, way down the road. For instance, if the borrower can only service a normal low fixed rate loan at a level equivalent to seventy cents per dollar on the actual dollar owed, then the loan has to be written write down to 70% plus a reasonable loss recovery clause applicable much later, when the real value of the houses support it.

3. In order to implement the program there will be a need for a fund that would repurchase mortgages through an auction system at the lowest cents per present value of dollar tended.

4. Those lenders, or packagers, or investors who would wish to implement a similar program on their own, or proceed directly with their foreclosures after the time-out, are free to do so, but need then to accept direct responsibility for any wrongful behaviour that could have been present during the original signing of the mortgages.

Easy stuff!

Sir, the sequencing of economics often creates confusion. For a normal person, if the US core inflations slows down, April 18, that sounds good, so the dollar should be worth more, while if the UK core inflation goes up, April 18, that sounds bad, so the pound should weaken, but then in reality, like seems to be the case, April 18, the opposite happens. Why? Because as inflation goes down you can afford making money more available while when it is shooting up you have to make it more scarce, and investors do naturally prefer to be where their money is scarce and therefore, hopefully, counts for more in relative terms.

Now, this is only the first round since if the pounds are then not as scarce or the dollars made as available as the investors expect, then the foreign exchange movements could reverse themselves. All this ceteris-paribus which in Latin means all-things-kept-equal but that in normal slang means ignore-the-complications, and , of course, within comparable realities, as we all know there are places where money will always be utterly scarce without the investors being tempted to go there.

Now, in these circumstances, the only thing that is expected from an intelligent investor is to know where he finds himself; where the rest of the market is; what the gatekeepers the Fed and the Bank will be up to; and what other surprises, normally busts and other ugly affairs, could interfere with the way you infer things should be heading. Easy stuff!

Should we then go after the intellectual perpetrators?

Sir, John Dizard in “A reform unlikely to dent rating agencies’ armour”, April 17, mentions that the credit rating agencies believe they are immune from legal liability from their work because now matter how careless they are, for instance when rating mortgage backed securities without even doing a representative survey on how those mortgage loans were awarded, their “opinions are protected speech under the Constitution.” I am no expert on constitutional issues to opine on this but, whether that is true or false, I do not believe any constitution would allow for forcing people to obey the ramblings of the opinionated, and so perhaps then we would need to go after the intellectual perpetrators, namely those financial sector regulators who have found it convenient to delegate so much power into so very few hands.

The world needs the cleansing and energizing forces of volatility

Sir, Tim Young in his letter on “How Japan’s investment was paralyzed”, April 16, asks the very relevant question “whether the cumulative loss of output [of following a conventional low interest rate policy] is less than might have been suffered if macroeconomic policy had allowed the asset price bubble to pop rather than deflate slowly.”

I certainly believe the losses of letting a problem fizzle out are in the long run, in average, always larger than having the bang and getting on with it, and so do you, for instance when in employment policies you commend the American styled labour flexibility that allows for easier firing so that resources can be better and faster reallocated. Sir, if you can lose your job, on the dot, because it is good for the economy, what would make losing 30% of the value of your house any different? What is better, keeping the high value of your houses or allowing your kids to afford a house?

It is time the world starts to think again about the cleansing and energizing forces of volatility and remembers that the absence of tremors could just mean a bigger earthquake in the making.

It is more of a wondrous world!

Sir, “when on April 12 you wrote that “The IMF reports on a wonderful world” the adjective wondrous could have been more appropriate. IMF, in their Global Financial Stability Report, April 2007, has the following to say on page 15. “The persistence of global imbalances brings with it an important financial stability issue—the problem of sustaining the financial flows needed to support the imbalances.” I rest my case!

Distraction from destruction?

Sir, in the Global Financial Stability Report prepared by the International Monetary Fund (IMF) for their meetings in April in Washington we can read (Box1.1, page 8) that “$220 billion of the outstanding stock of subprime mortgages and second-lien loans packaged into asset-backed securities (ABS) in 2006 was comprised of noninvestment-grade tranches, most of which were repackaged into collateralized debt obligations, CDOs . . . [with] about $175 billion of senior tranches, $40 billion of mezzanine tranches, and only $5 billion of equity tranches”. Since the previous quote reads so eerily close to a technical description of what could be a financial weapon of mass destruction, it is really hard to fathom how little attention it received, even recognizing the distractions.

From my perspective, although some will look to camouflage these problems and their roles in creating them with arguments such as a weakening conditions in the housing market, there can be no doubt that the market for these investments were in fact exposed to too generous credit ratings. I have no clue about the quality of the $ 40 billion in mezzanines, but to think that only $5 billion in equity tranches could serve as a reasonable shock absorber for the risks in the remaining $215 billion of paper is almost laughable, since we all know that the protective worth of those $5 billion has probably all been readily consumed by all the expenses and success fees generated in order to put in place the deals and market the paper. In an almost humorous note, the IMF worries about the worth of these $5 billion of equity tranches, while of course what they need to worry about is the remaining $215 billion, wherever they can be.

Therefore, one of the main problems that should have been analyzed more in depth during the spring meetings was the possibility that having awarded so much power to some few credit rating agencies in determining the capital flows in the world, might have set it up to some very dangerous financial systemic risks, and then of course on what to do about it.

The problem with the sub-prime mortgages is just the tip of an iceberg.

Sir, Gillian Tett when saying that “Subprime proposals could broaden litigation risk all around”, April 13, she mentions at risk those who originate the lousy mortgages that have not considered sufficiently the debtors financial realities, the Wall Street banks that later repackage these in order to resell them to the public, even New York that might lose out in its standing as a financial center, but she does not yet mention the credit rating agencies who have been assigned most of the responsibility for certifying the quality of the final products. The fact that we live in a world were some credit analyst can rate a portfolio of mortgages without even thinking about leaving their desk and go for a field trip to check up on some of the actual individual real loans, points at one of the principal problems of the current bank regulation framework that has been coming out from Basel over the last decade, namely that of wanting to install a system that allows for monitoring from a distance, based on historical risks assessments, without having to get your feet dirty.

Sir, here and there, the financial world is being exposed to some extreme systemic risks, and it behooves us to be aware that this problem with the mortgages is just the tip of one of many icebergs.

Are there triple standards too?

Sir, I have just sat through a two day seminar in Washington organized by the World Bank Institute on the “Effects of mass media on public policy”, listening to conclusions of research papers that, among other, track media bias using tools such as counting how many times some word appears or do not appear in the context of the discussion of some specific theme.

Richard Beales, in “A whiff of double standards”, April 13, assigns the responsibility for the sub-prime mortgage mess in the following way “Some borrowers have no doubt misled by brokers. Some brokers have surely misled borrowers. Some lenders have been lax and some investment banks may have been blasé and glossed over a few risks in selling securities.” That “borrowers and brokers mislead” while investment bankers are merely blasé might raise some eyebrows, but, what the word counters of tomorrows would most notice, is that the credit rating agencies and those that gave the agencies so much power, are not even mentioned. Are there triple standards too?

What an opportunity we seem to have missed!

Sir, Daniel Smith writes that “Politicians cannot control Nigeria’s corruption crusade”, April 12, and of course he is right, since absolutely no one could do that, at least not while oil prices are high. He writes about Nigeria saying “its politics remains a stark scramble for power in which elites compete for domination of the state apparatus to reap the benefits of control over enormous oil revenues” and as happens, the population then elects a government to whom hand over the oil revenues that in reality belongs to themselves, only to thereafter have to spend the next couple of years licking boots in order to get some of that same oil money back, while the elected government officials, arrogantly, not in need of other tax income, couldn’t care less about them. It is only when you get to understand this that you really get a feeling for what a wonderful opportunity the world seems to have lost in Iraq. Can you imagine what having helped to channel the oil revenues directly to the Iraqi citizens in a transparent way could have done? That could really have been called democracy building, and setting a great example for the citizens of Nigeria, Venezuela and all the other oil cursed nations to follow.

What about all the rents that go to the intellectual property rights?

Sir, Martin Wolf in “Employment policies can ensure a fair share of the feast”, April 11, when commenting on the declining shares of labour income in gross domestic products, in reference also to the latest World Economic Outlook of the International Monetary Fund, describes it as either being a consequence of globalization, in terms of the production being allocated where salaries are lower, or of technology changes. Neither IMF, or Wolf, consider the possibility that there could be other reasons (or “culprits”) involved, like for instance the much intensified award and defence of intellectual property rights around the world, and that has created so many new monopolies that are not really that much regulated, and that frequently manage to extract incredible rents. I mention this since having quite recently heard about the outlandish proposition that “tax saving strategies” should be awarded a patent, it should be clear that any patents like this, when thereafter sold to an investor, will of course then provide immediate and guaranteed returns to capital, and not to labour.

Withdrawal to where?

Sir, you are right about there being “No easy route to an Iraq withdrawal” April 11, but one of the main reasons for that is perhaps that the where-to-withdraw has not been very clearly defined. Withdrawing to a place close by, perhaps even to the borders of Iraq, to see how it goes means a world of difference from a withdrawal to Kansas, USA, from where no politician is going to be able to suggest to take any American troops out, for decades.

Let us not waste this opportunity to make a very significant reform at the World Bank

Sir, on the web of World Bank (WB) we find an interview with Suzanne Rich Folsom the Director of the World Bank's Department of Institutional Integrity (INT), on the theme of fraud and corruption. When questioned "What sanctions are imposed on those misusing WB's funds?, she answers "when we find that a supplier has engaged in corruption in a project, we take actions to debar them – which means to make sure they can't get any more contracts for a while. We also publicly debar – we list their names on our website. 'Naming and shaming' is a huge deterrent." This sounds of course reasonable, especially considering that INT is not a court that could send anyone to jail.

Unfortunately, immediately thereafter, Folsom also has to say the following: “We’re often asked why we don’t publicly name WB staffs that are terminated for fraud and corruption as well. The WB’s rules don’t allow such disclosures…”, and this, no matter how you look at it, is of course something completely unacceptable and represents a truly ugly wart on the public face of what in so many respects is the best managed of all our international organizations.

Perhaps these days, when the World Bank’s President’s and a former staff names are publicly mentioned everywhere as having done something not correct, FT April 5, this could be the best opportunity ever for getting rid of whatever crazy disclosure rule stops the World Bank from living as it preaches.

Our valuable reservoirs of gullibility

Sir, can you imagine if we were not able or allowed to be gullible? What an awfully boring world it would be, drowned in rationality without being able to let our fantasies run wild, like Jacob Weisberg does when after drinking several cups of some green tea that on the label sells “a wisdom beyond wisdom” he comes to the joyful conclusion of a “I do believe it works”, “Green tea, the elixir of false virtue”, April 5.

And that is nothing when compared to analyzing gullibility from an economic perspective. Without it, can you imagine how much we would have to wipe out of the world’s GDP? In a world where so many jobs are currently being lost in the name of efficiency there can be no doubt that our last hopes of respectful employment lie in the hands of our reservoirs of gullible behaviours, and which thankfully seems to be quite renewable, at least as long we keep gullibility destroyers like Ralph Nader very far away from them.

As my own humble contribution to job creation I am currently giving a lot of credence to that innovative urban rumour that says that for an elevator to be able to offer a smooth and really “lucky” ride, it needs to be manned by a lift attendant who plays a solitary game on his or her computer while working.

Does Le Pen want a patent?

Sir, once when reading an analysis of the cash flows derived from the sale of a music CD went, I was surprised to see how much went to the record company, how much to the taxman and how relatively little to the musicians and composer, being these last ones those you really think of in terms of being defended by the intellectual property rights. I mention this because when reading Krishna Guha’s “IMF says workers’ share of income pie is shrinking” April 5, we are presented with only two possible culprits, globalization (in terms of placing productions where salaries are lower) or technological change, while perhaps the intensified award and enforcement of intellectual property rights that has lead to the creation of so many non-regulated monopolies might have a lot to do with the salaries being less and less of the cake. Hearing about the possibility that patents could be awarded on such exotics as tax saving strategies and also reading, in the same FT, a headline that states “Rivals are stealing my ideas, says Le Pen”, I guess that we who live on salaries better have a much closer look on this issue than what the IMF has done.

Sir, excuse me! I just read your editorial of today “Capital versus labour” where you as the cause for the growing share of profits also mention “globalization and technological innovation” and where you with globalization limit yourself to "competition in labour markets” and so I guess my previous comments of intellectual property rights that might have gone berserk, applies to your editorial too.

How are the fines split?

Sir, Patti Waldmeir starts of very well with “Bribery is not just a cost of doing business”, April 5, but then it sort of fizzles out in some “we need to be as competitive as our competitor” language, and giving examples of the recent upping of some fines which on the contrary only reaffirms the whole issue as just an increased cost of doing business.

There are some things we should be very clear about and that is that bribery is a criminal and vulgar behavior and that, if allowed to continue, it will in this shrinking world haunt everyone, whether a developed nation or not. Many of your current problems with excessive illegal migration or even the wars you are, or will be fighting, might indeed be rooted in some acts of bribery performed by your own ancestors. If I was invited to your home and bribed your butler to serve your finest French while you had in mind only to offer me a decent Australian, what would you say? Exactly! It behooves everyone to get a global grip on this problem if we are ever going to have a chance to get a grip on other problems, such as the environmental. In this respect I guess that before we see the first couple of executives from big corporations sent to long jail term in their own countries, because they have bribed some bureaucrats in the poorest nations we won’t get that far.

Finally, on a more practical note, when Walmeir mentions that a UK company had to pay “$26m for the privilege of paying $2.1m in bribes to Nigerian officials” can you tell me how much of that fine has gone to Nigeria, the hurt party? Nothing? Golly does that not sound a bit like doing some innovative business! If I was a Nigerian citizen, could I sue the UK Company in the US?

A spaghetti bowl might give more jobs… to some

Sir, Martin Wolf makes a splendid case for how the free trade reforms could be handled better than when “A Korean-American strand enters trade’s spaghetti bowl”. April 3.

What he might turn his eyes blind to (quite appropriate for a columnist of his statute) is that many or perhaps even most of those working on free-trade-issues might be following their own expanded agenda of working-on-free-trade-issues and in that respect, to try to make sense out of a spaghetti bowl, seems to guarantee much more jobs than a straightforward single WTO.

I do concur with Wolf when he mentions that “a single trade agreement open up to any single country prepared to sign up” could be a much more useful template since indeed, if free trade is really as good as we say it is, then why should we negotiate about it. I mean, you do not go to a nudist camp to play strip-poker!

Bank needs products

eSir, your “Bank seeks customers”, April 4, in which you describe the headaches of someone who is losing a valuable market niche, in this case the Asian Development Bank (ADB) as its clients have grown richer and don’t need it anymore, reminds us about a not so well known flip side to that saying that a bank only lends you the umbrella when the sun shines and asks it back when it rains. Your title might not be entirely correct since the customers are still there and so what they really have to seek are new products. No interest income? Go for fees! In questions about the environment and energy there is much need for some really independent and neutral advice, as the world might be wasting its last chances of fixing its climate change problems by falling for some well marketed but inefficient hybrid solutions. And in terms of the increasing global migration, why does not ADB develop a temporary worker program that meets everyone’s expectations and needs, then patent it, and charge for its use.

Sorry I must have done something terribly wrong!

Sir, yesterday I suddenly received a pop-up in my computer informing me that since I had sent one same message on one same day to 500 recipients, Gmail had reasons to believe I was involved in some very dirty spam activity and so they had decided to sentence me to 24 hours suspension, which luckily did not include receiving emails. The sentence was carried out immediately, there was no court of appeal, and when I write this, I am already on my 36th hour and yet no release.

What did I do? I had just created a blogspot that contains some fresh questions that I think should be made to the candidates for the presidency of the US in 2008, so as to get to know them better, and I was communicating this to a list of professors and PhD students that I had found on the official web sites of the universities. To be able to send my other routine emails, as well as this one, I had to speedily open a competitor address ,yahoo, though I still shiver at the thought of what would have happened if they had suspended my incoming mail too leaving me totally incommunicado.

I am absolutely certain that in one of those small printed documents of understanding that I must have clicked I have accepted Gmail´s right to do as it pleases with me, but does this really mean they have the right to do so?, without any forewarning?, when they also make a living by transmitting their spam like ads with our private e-letters? I really do not know how to answer those questions but at least I immediately confessed to my wife and daughters what had happened, and they took it well, which lifted a very big load of bewildered shame from my shoulders.

Yours truly,
(Name withheld)
A presumably dirty spammer

The mother of all systemic risks

Sir, when Richard Beales reports (April 2) that “Uproar forces Moody’s into U-turn over bank ratings” he gives compelling evidence to what some of us have been voicing for almost a decade now, namely that to give some few credit rating agencies so much decision power about how the world’s financial flows should be allocated will, sooner or later, implode or explode into a crisis, as that carries within itself the genetically coding for the mother of all the systemic risks. By reading their “theological discussion” of “how to factor into ratings the possibility that some banks were unlikely ever to be allowed to fail even if they appeared financially weak” you surely must conclude that we might have all been placed on a vicious circle that could perhaps only end with the demise of the by then the world’s only remaining bank. On a side issue, can you sue your credit rating agency for the losses caused by the additional market volatility that his change of heart creates?

Don’t cry for the bank regulators

Sir, Wolfgang Munchau in “Cross-border banks require a single regulator” (April 2) explains that this is now becoming a European Unions issue as a consequence of the cross-border mergers of some European banks. Munchau should not forget though that for many of us living in developing countries, where sometimes the majority of our local deposits are held in banks controlled by foreign interests, the question of who really is the final responsible regulator has always been present, especially since we know how relatively easy it would be for banks in times of crisis to decide who are left holding the bag. Could a foreign regulator be sued for not doing his job properly? As to the consolidation among the regulators themselves and that could imply some of them losing their jobs, we shed no tears for them, since they must have known they had it coming when the bank regulations coming out from Basel so much favour the consolidation between the banks.

Bewildered

Sir I was a bit disoriented by the title of Christopher Caldwell’s “Harsh policing goes transatlantic”, March 31, since it caused me to start reading his article as if he was discussing something going from Europe to America and not the other way round. My fault, clearly I should have remembered that in a globalized world there is no clear definition of what is here and what is over there.

Having said that Mr Caldwell left me even more confused when after he had in “Financial crime and punishment”, March 24, preached the need to be more lenient with “white collar crime” as we should understand that “it is a less serious crime” then, only seven days later, he now ends with a “get the police out of the business of ‘understanding’ the societies they police”. Of course, again it could just be that globalization causes such a short duration of any ism; or perhaps that since Caldwell’s current article has to do with multicultural problems, we should have read him before as arguing about white white collar problems; or perhaps, just as likely, that it really has nothing to do with his confused writing but only with my confused reading; or perhaps, most likely, that the whole issue is so complex it can only have muddled answers… whatever.

Incest and irony

Sir, by reading your “CPDOs add more complexity”, March 30, that states “The rating agencies are key to creating the [financial] products” and that “The “agency is working with numerous banks on various deals”, one must realize how the rating agencies have in fact themselves become more and more a part of the same product they are rating. This does present the potential for some very incestuous relations and given that so much of the decision power about where the financial flows in the world should go has been (stupidly and arrogantly) deposited in the hands of very few credit rating agencies, this is without any doubt something extremely dangerous.

Now also, while observing the ever growing financial complexities, one cannot but reflect on how ironic it is that the whole financial world is currently holding its breath, just because some extremely primary and basic mortgage lending seemingly went haywire. Could it be time to ask all those experts that work so diligently in their financial laboratories, to take a short respite, and walk around in the real world for a while?

Help the migrants to earn more and not to forget their mothers

Sir, the Inter-American Development Bank informed that the remittances sent home to the Latin American countries by their migrant workers in 2006 were $63bn and so, if we assume that this represents 15% of their gross earnings, we obtain that the gross migrant product (GMP) for Latin America should be around $420bn. The developing banks need to stop focusing so much on what in the corporate world would only be similar to the cash dividends paid out to the foreign investors. Since every dollar sent home by the son who works abroad has in fact the same economic (and spiritual) value than the dollar the mother receives from the son who stayed home, what they should be doing is helping both sons to earn more, instead of wasting so much time and resources on petty issues such as the transfer costs, and which are anyhow only reduced by real sustainable competition between those interested in that market. If there is one aspect though that is of utmost importance and that relates directly to the remittances, but that is basically ignored in all the projections of future remittances, that is the heart-drain that could cause someone working abroad to forget his home… and find a stepmother.

Why not just go to the sidelines first?

New York Times, I am a foreigner, but since what America does mean more for the world than the famous butterfly flapping its wings, I hope you allow me a question in reference to your editorial of March 29, “Legislating Leadership on Iraq”. Why is it that with respect to where the US troops in Iraq should go, we only hear about the options of keeping them on the frontline, in Baghdad, or sending them home to the backlines, to Kansas, when instead the normal thing to do would be to first have them go to the sidelines, the borders of Iraq, to see how it goes? Could it be that the US is currently so divided that this option is too middle of the road? If so, you have a much bigger problem than Iraq, since divisiveness is the real weapon for mass-destruction of a nation. Being from Venezuela, I should know.

Viva Wall Street!

In the Washington Post of March 25 Lyla Ward, in “Who needs a fence? Viva Mexico, USA!” suggests that the USA should simply go ahead and acquire Mexico and she is obviously unaware of how the financial markets work. The fact is that as Wall Street could just as easy execute a leveraged buy out of the USA by the Mexicans financed by the Chinese, they would be more favorably inclined to do so as they could make much more money than if it was the USA buying Mexico. Having said that I wonder if it really is so necessary to formalize an affair or a takeover between the two countries, in a church or in a notary, since for all practical purposes both countries have been for quite some time living de facto together, more steamily than those who are bound together in the more formalized relationship of the European Union.

Calling all the faults, and then some, should only improve his chances!

A referee, anxious about not destroying his chances with a gorgeous female basketball player by calling her fouls, but that admits to the moral hazard present if all referees did the same, asks Dear Economist for advice, Weekend, March 24. The answer he gets is that he should not collude with his fellow referee, which besides being immoral would, I guess unless they both consider her to be a public-good, not lead to a satisfactory result; or that he should just call the fouls since he doesn’t stand a chance to get her anyhow.

The last suggestion, of calling out all the faults, is precisely right, but not at all for the reason exposed by Dear Economist. Our referee should indeed call all the fouls, perhaps even those where he is only 49% sure, since by doing so he will only be creating what in the real world is known as bargaining power, and which by the way is something quite similar to what this female player derives from her looks.

Is Caldwell singing praise Graham Nash's Prison Song?

I always read Christopher Caldwell with much interest but, this time, his “Financial crime and punishment” March 24, leaves me quite at loss about where he wants to take us.

Yes, of course there is a qualitatively difference between those who use guns and crowbars to violate people physically and those that defraud, but let us acknowledge that part of it could be explained by guns and crowbars not being the most appropriate tools for crimes in the financial world, where dirty accounting will get you much further.

When Caldwell hints that the current drive to persecute white collar crime could be a way to average out a reality where so many black, poor, or both are in jail on drug related charges, he must be aware of that he is solely speculating. With 740 imprisoned for each 100.000 of their population, compared to UK’s 124, it is clear that the US cannot afford such solution. It is indeed shameful when white collar crime get prosecuted only for political reasons, but also when the same happens to blue collar crime.

Finally let me comment about the economic crimes that are committed by those who do not live up to their political responsibility. It is never quite clear what color of collar the politicians wear, since they change them a lot depending on the audience, but yet, when we look around in the world at the damages they cause, we must conclude that most bank robbers and Skillings and Ebbers, do frequently look like very small fish. I ask, where do they prosecute a Zimbabwe’s Mugabe?

Would Jack Bauer be a good president?

Sir, although Jacob Weisberg’s much fun “How to tell a killer from a future president”, March 22, might no be that saloon-clean article you want to associate yourself with, I cannot resist but to remark on the somewhat irrelevant title since in order to elect a future president, you might not necessarily have to tell him from a killer. I mean we should not completely discard the possibilities that someone of those serial killers listed by Weisberg could in fact have turned out to be a good president (I did not say better) if given a chance for a carrier change. At the end of the day whom we elect is probably the candidate that projects our own wishes the better, and luckily, the majority of us wish more to be president than serial killers. Let us pray it stays that way… I mean in these days of Jack Bauer’s as heroes you might never really know.

Different types of sacrifices can solve the entitlement crisis. How about an ättestupa?

Sir, Peter Peterson concludes his “Sacrifice can solve the entitlement crisis” March 20, by citing the German theologian Dietrich on the ultimate test in moral society being the world it leaves for the children, and saying that “It is time for us to become worthy and moral ancestors.”

 

To a baby boomer like me, that sounds indeed like a gloriously grand-eloquent reason for giving up some entitlements, but I have to confess though that, back in my mind, also lies the real possibility that if we don’t give something up, perhaps even quite a lot, the children will one day tell us, “it is time for you, worthy and moral ancestors, to start thinking about an ättestupa” by which they would mean those very high cliffs where supposedly the old Scandinavians, in time of the Vikings, threw themselves from, when they became a burden to society.

The Protestants and their carbon emission indulgencies

Sir, Gideon Rachman correctly points out that the issue of global warming could save the union of the European Union but of course it could also end up as just “Another European commitment that might vanish into thin (and perhaps hot) air", March 20.

Beside Rachman’s arguments this week, here in Washington, as part of the celebrations of the 50 years of EU Joachim Radkau is going to give at the World Bank an address titled "Protestantism and Environmentalism: In Quest of a Weberian Approach to Eco-History", and frankly, even though I am a protestant, I do not believe the world, or Europe, can really afford to make anything that could smell even so slightly religious-divisive out of the environment, but needs instead to keep is as a big uniting almost ecumenical movement.

Having said that I must mention that I am still quite curious about how Mr. Radkau intends to explain how so many European protestant countries now favour, in the name of the environment, the trading of carbon emission rights. Those sound to me so much like those old catholic permissions-to-sin indulgences that Martin Luther fought so hard against.

Let us pray the estimates are wrong

Sir, let us pray for that the estimate that 2.2m of American families could lose their homes and that John Gapper mentions in “The wrong way to lend to the poor”, March 19, is totally wrong. If not, then let us prepare for the worst, as the political consequences of such fallout in the sub-prime mortgage market would by far surpass whatever all other thorny issues such as Iraq and the illegal immigration could all produce, together.

What I miss in this scarily good saddening and scaring article, is some words of how it came about that some 2.2m obviously individual shaky loans could have, when all was said and done, produced the sufficiently good ratings needed to attract so much money. The credit rating agencies sure must have some explaining to do, as has those Bank regulators responsible for giving the credit rating agencies so much power to begin with.

We need more humility from the bank regulators

One of the greatest contradictions of our time is how those that say they value the free markets capacity to allocate resources can then so shamelessly proceed to infringe on that very same freedom. The bank regulators, working mainly out of Basel, in a world that has not even come to an agreement on an adequate homogenous system of accounting, just because such a thing does probably not even exist, have over the last decade imposed on the market the restrictive views of some few credit rating agencies who, to make it worse, also view each other’s rating results so as to find safety in homogenous outlooks.

The regulators, one of the real dominating financial forces of our time, seem almost like some re-born central-planners of those that many of us thought were dealt a final blow with the collapse of the Soviet system. When we read in the Financial Times Comment and Analysis, March 16, how falling credit ratings might turn into an avalanche of sell-outs, only because some investors like the pension funds are not allowed to invest below some ratings and are then forced to divest, in a perhaps very untimely fashion, the whole arrogant regulatory scheme seems that it could come home to roost. Next time around, in the world of risk avoidance, let us pray for the humility that is needed to accept that a risk avoided could just as well be a great opportunity lost, or even a worse risk created.

But be careful of swinging into just another “patriotically correct version”

Sir, of course “nations and individuals do not grow weaker by confronting the truth” as Jacob Weisberg argues in his “Iraq: the patriotically correct version”, March 8, but sometimes it is wiser to lay low with the truth, before you have figured out what to do, after the truth is out. Otherwise truth could be like only rubbing the salt in, for no particular good political reason at all, and could even make things much worse when everyone starts panicking for the door.

Dov Sakheim with “Why America should operate from Iraq’s borders” FT January 5 and James Fearon with “U.S. Can’t win Iraq’s civil war”, Foreign Affairs, March/April 2007, are both making the point that there could be benefits in retiring the troops a bit and allow (force) the Iraqis to work out their own solutions, and as they must do if they want to have ownership of their own destiny. This alternative seems a possible way out, but its chances to succeed would obviously be so much better if the US hang around for a while, for instance at the borders, for if it went a hundred times more haywire than it will as a minimum go, and not having because of an untimely truth retired the young soldiers back to Kansas, from where no one will get them out for ages, because of just another new patriotically correct answer.

The addict and his new sourcerer!

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

Should there be resurrection fees?

Sir, Thomas Rubin is very right in that “Copyright must be respected as culture goes online” March 6, but he sure does sound excruciatingly rightful, when instead humility is much called for in this difficult issue. Perhaps he needs to be reminded that all the new protected culture is genetically a descendant of previous culture, in the same vein that Microsoft would not be able to pay for Rubin’s services had not the computers existed. Society should respect copyrights and similar but the copyrighters should also respect the society, not only because it invests copious resources defending their intellectual properties, but because it has every right to expect it.

There are currently hundred of thousand books, movies, photos and other copyrightable matter out there, that were it not for the power of the web they would be condemned to eternal darkness. Shall now the saviors that bring them to life and light again have to pay for the resurrections? I am not sure, but then again I am no expert as Mr Rubin.

Are there other alternatives than snus?

Sir, in How Europe can help snuff out smoking John Gapper points in the direction of the Swedish “snus”, a grinded tobacco you place under your stiffly curved upper lip. I have used it, 40 years ago, I liked it, but I can also testify against its total absence of esthetics, when brown liquid tobacco drips down between your front teeth. In fact giving up smoking this way might also require giving up other things as well, like dating.

An interesting alternative was also presented in 2005 by two professors of the University of Wisconsin-Madison, Robert Haveman and Jon Mullahy who then proposed a scheme for their local community where bars could trade smoking permits as a mean let the market arbitrage the difficulties of imposing non-smoking bans. Though cute, the idea seems not to have taken off, and I suspect is primarily because if a bar wanted to be a non-smoking bar it would always come out as a seller of smoking rights, while a bar that wanted to allow smoking would always be a buyer, something that does not rhyme well with market efficiency. The possibility of assigning a fix number of smoking permits per square foot/hour and auctioning them off to the patrons on a continuous basis, with any rights so acquired expiring within a short time period, could be an option favored by the derivatives community, as it would allow for the trading in second hand smoke risk and perhaps even a market in not-smoking-guarantees.

Whatever, the difficulties enocuntered in the area of quitting smoking should be used when analyzing the practical and ethical aspects of quitting carbon emissions, like for instancce when we think of leaving the solutions for the climate change in the hands of the trading of carbon-emission rights, and which though reminiscent of the indulgencies (shamefully) traded by the Catholic church centuries ago, lately seem to have captured the interest of some mainly protestant countries.

Divide and conquer?

Sir, your article “Embattled Wolfowitz seeks more cash”, March 5, personalizes too much the issue, since in reality it is an embattled world that needs solutions. At this moment we can only hope that the donor countries will live up to their commitments and replenish the International Development Association (IDA) so as to allow the World Bank to do whatever it can to keep the heads of as many poor as possible out of the water. But, having said that, the fact is that there is also a world of needs for a World Bank (of knowledge and ideas) to act on behalf of the world at large, and this does usually create the conflicts that typically break the weakest links, namely the poor. For instance now when if we heed what the scientists tell us about the climate change we seem to need more than ever an institution that can, as neutral as possible, analyze and tell us in what green solutions the world should invest its scarce resources, this could indeed step on many donor toes. Imagine if for instance the World Bank came up with an analysis that said that hybrid cars, wind energy, and biofuels were either wasteful or harmful solutions, some would indeed be upset, but should the poor in Africa pay for that?

Could this signify that it is time to split up the World Bank into a global World Bank and an IDA World Bank? To do so would at least introduce some more clarity in the institution, which is sorely needed. When you mention that some board members challenged a “frustratingly vague” budget proposal introduced by Wolfowitz, I can only smile since this has obviously nothing to do with him. You put the ten best renowned corporate leaders of the world to budget among the thousands of operations, loans, grants, research projects, seminars and what-have you, and that evolve around the more than 200 development topics, where no one knows or even asks what are the ten things that work the best (to scale them up) or the ten worst (to shut them down), and I bet my last shirt they would also be equally vague. Vague is the nature of the beast, and tame it we must.

A single line law could be more than just a Band-Aid

Sir, Jacob Weisberg makes a good description of the “Symptoms of an unsustainable system” that the American healthcare is showing, March 1, but he seems to miss out on the worst which is that while being a non-insured might be bad enough, it is really than having to pay for the insured that makes it truly miserable. Currently the non-insured that has to negotiate on his own always ends up paying many times more for his medicine and healthcare services than those insured whose price negotiations were handled by powerful and knowledgeable insurance companies. A small single line law, “thou shall not charge the weak and lonely any higher prices than you charge the strong in company”, could eliminate most of the current injustices but, then again, that might also be against the nature of the so many Americans that seem to find a somewhat curious masochistic pleasure in fending for themselves.

Though be careful with any incest

Sir, in “Such devoted sisters”, March 1, where you discuss the relations between the World Bank and the IMF and sort of imply that it would be good if they spoke with “one voice”, I would like to remind you though about the possibilities of incest. Those two organizations are designed to pursuit very different agendas, which by nature are often in conflict, and so their role is to debate all the issues openly, laying out the pro and cons, instead of shutting them up in the name of any harmonization gospel.

For instance, each credit risk avoided by any commercial bank as a result of the regulations coming out of Basel, something that could be viewed favourably upon by the IMF since it has the avoidance of a bank crisis high up among its objectives, could and should perhaps be regarded with utter suspicion by the World Bank, since it could also have been a splendid development opportunity lost.

The World Bank needs urgently its ten best and ten worst list

Sir, if your child received a grade five in an evaluation but you have no idea whether he was being graded on a scale of 5, 7 or 100, and or of how he where in relation to his fellow students, you would not have the faintest idea about how he is really doing. I make this comment with reference to your “Such devoted sisters”, March 1, and where you say that the World Bank “should introduce more rigorous external evaluations of its programmes”.

As a former Executive Director, what I most missed while in the Board was being able to tell after reading through the evaluations of any of the World Bank programs, whether that particular program was among the ten best, the ten worst, or just average. Before the World Bank’s management produces a yearly the ten best and the then worst list there will be no real evaluation and, before that happens the Executive Directors will not really know where they should be scaling up and where they should be correcting or closing down programs, and will waste all their efforts muddling though in the swamp of thousands of average programs. Sir, think of it, it is frightening when an organization does not make explicit what is working and what is not. Try yourself to budget and allocate scarce resources in such circumstances!

But, whatever you do, let Italy remain being Italy

Sir, while reading Wolfgang Munchau’s “The last thing Italy needs is the more of the same” February 26, I remembered that some years ago I heard someone say that solving all the problems of Venezuela was easy, it just requires turning all the Venezuelans into Swiss, but the problem with that was that it could be an irreversible and so it might not be worth the risk. In the same way, the true challenge of transforming Italy lies in that so many would also like it to remain just the same. By the way I have lately met some globalized Swiss that seem to be a different breed that the one normally thinks of and so it would seem that the irreversibility of the Swiss is somewhat exaggerated.

The education of your neighbor’s kids is part of your own kid’s education

Sir, Mr Manuel Riesco when arguing “Chile’s experience belies claims of those who believe in superiority of private schools”, February 24 is rightly concerned with “the poorest remaining in the public schools which have deteriorated” but somehow he seems to imply this would be the fault of the private schools, which obviously it is not. As I have always believed that the education of your own children might turn out to be dangerously useless if your neighbor’s children are left behind, I have always been a supporter of public education. Nonetheless, public education can be given through private mechanisms such as the vouchers and so Mr Riesco’s concern should perhaps be why the poorest of Chile have not received a sufficient large voucher to be able to access a private school. And of course this does neither imply that the public schools cannot or should not be good too.

Longevity fright 2

Sir, I can almost hear you ordering to publish Gillian Tett’s and Joanna Chung’s “Death and the salesmen” in the FT-Weekend, February 24, not so much because it concerns the somewhat “gruesome topic of death” but so as not to be unnecessarily identified as the messenger of bad news when reminding the pension and insurance markets of some of the more scary implications of the increased longevity of people. It is a great article and we are already waiting eagerly for Death and the salesmen 2, since some of the scariest characters have yet to appear, like for instance those who actuarially are not supposed to live so long, like the smokers and the obese.

Just you wait until these risk groups start arguing that “if they can’t have the cake they don’t want to pay for it too” and require they be excluded from the longevity groups that need to pay for the costs of it, and as this could really increase the average longevity of those expected to live long. In the UK, in annuities, we already find that smokers receive higher annuities than a non-smoker, which in financial terms seems to be right. That said there is a huge social problem in waiting from the increased tendency to tend to the individual need, and that is of course that the number of people left to do the sharing with, gets fewer and fewer, until there is only you.

Red lights will not do

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

In a state of continued perplexity

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

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

Vulture funds

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

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

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

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

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

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

It is still the same old petrol though

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

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

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

A mutual admiration club of superheroes?

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

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

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

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

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

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

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

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

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

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

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

A “Capital Controls for Dummies” could have been handy

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

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

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

When in this hole… how should we stop digging?

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

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

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

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

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

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

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

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

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

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

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

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

Sometimes we should also beware of the experts

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

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