Monday, April 14, 2014

Thomas Piketty. Would you tax wealth if that only benefited even more some few oligarchs?

We begin to hear proposals about taxing wealth, like that presented by Thomas Piketty in “Capital in the Twenty First Century

Taxing wealth might reduce the fever of inequality, but it does not attack its causes. In fact, forcing the sale of assets, which is where wealth is stored, in order to increase the consumption of the less well off, might direction the funds away from those who have earned their wealth naturally, to those who earn it thanks to market imperfections, or to outright crony capitalism. An in such a way it could undermine even more the meritocratic values on which democratic societies are based, something that Piketty himself would seem to abhor.

In other words, if in Russia, would you tax wealth if that benefited the oligarchs?

I believe it would be better to concentrate on what is causing unjust artificial inequality and in this respect I could mention the following possibilities.

Like to eliminate the concept of risk weighted capital requirements for banks which channels bank credit away from “the risky”, in much a proxy for the poor, to “the infallible”, in much a proxy for the wealthy.

Like to increase the tax on all those profits which have originated under the protection of intellectual property rights. There is no reason for these to be taxed at the same rate as profits obtained from competing naked in the markets.

Finally, let´s give it a thought to what would have happened to all that unequally accumulated wealth, had not TARP and Quantitative Easing come to its rescue.

Just the fact that, except for religious considerations, when in the grave, we’re all equal, and the Gini coefficient is zero, should not mean we should hurry to get there... I think.

Saturday, April 12, 2014

3 weaknesses of the Gini coefficient when measuring inequality

  1. It does value a dollar earned the same as a dollar received in transfers, and we know that is just not true.
  2. It cannot consider all the unregistered wealth or income that is siphoned away by corruption.
  3. It does not make it clear when an increased equality is primarily the result of many turning poorer.
Considering those 3 factors alone would shed the supposed reduction in inequality produced by the Chavez Revolution in Venezuela in a completely different light.

If we are to foster equality, let’s do it right, and concentrate foremost on the equality of opportunities, whatever that might entail.

Thursday, April 03, 2014

Creditors of Venezuela, read our Constitution!

In the same way there are international conventions that help foreign investors to collect what governments duly owe them, there should be agreements that help citizens not to be saddled with the payment of debts incurred by governments who violate their constitutions.

If the articles of incorporation of a company stated that it was not allowed to borrow more than 50 % of its assets, but its president is asking for loans that would take its debt to 100% ... it should be difficult to get a reputable law firm to issue a legal opinion stating that there will be no problem.

And, if constitutions are the statutes by which citizens defend themselves from the excesses of their governments; and if creditors expect citizens to sacrifice themselves honoring the debts of their country to which their governments have subscribed... I think citizens should be able to expect from potential creditors, to at least throw a glimpse at their constitutions, to see if these are met.

And it does not matter where the creditors come from, whether Wall Street, San Cristóbal or Cochinchina.

And it is not that I expect creditors to be aware of everything in our Constitution, such as if the expressed rights of indigenous people are complied with but, as a minimum minimorum, sophisticated financiers should be able to tell, detail, whether there is compliance of an Article 320 which states:

"The State shall promote and defend economic stability, prevent the vulnerability of the economy and ensure monetary and price stability, to ensure social welfare. The Ministry of Finance, and the Central Bank of Venezuela, will contribute to the harmonization of fiscal policy and monetary policy, facilitating the achievement of macroeconomic objectives. In exercising its functions, the Central Bank of Venezuela will not be subject to directives of the Executive and may not endorse or finance fiscal deficits."

and so! Can anyone who knows anything about finance, argue that our Constitution has been complied with? Of course not! And so, as a citizen, I here inform our creditors they better not come crying to me tomorrow looking for my support to get paid.

And all citizens of the world, messed up by their bad governments, should take the same attitude ... and we should show solidarity with them all.

And I'm not throwing out warnings after the fact... like would a bad payer. In "Odious Debt", March 2004, and "OdiousCredit", April 2004, I begged creditors to collaborate with citizens ...and nothing! And as salt in the wound Venezuela has paid them exorbitant interests. Well guess what? You can begin applying those high risk premiums to the principal owed... in order for us to at least confirm you your risk assessment.

And what fault of mine is it that the creditors did not read it? They should follow me on Twitter!

Having us Venezuela citizens recently been mocked by the OAS, that clubhouse of governments where constitutions are not even read, it is clear that we need the OCA, the Organization of American Citizens.

PS. There are many polls, but the one I would most like to see, is one that asks the participants of the 4F-1992 Hugo Chavez coup, whether what we now have in Venezuela is what they dreamed about.

PS. I am seeking a democratic dictator who would be willing to rip our oil revenues out of the hands of our Petro-state, and hand these over to the citizens. That would earn him a place in history, as the one who achieved the true independence of Venezuela.

PS.When reading in the Financial Times an article by Michael Holman titled “Investors incorrupt ‘new Africa’ repeat old errors”, April 9 2014, I immediately sent FT aletter which concluded: “More than sovereign credit ratings we might need sovereign ethic ratings … and to make these count”

Who needs a tax or an asset haven the most? The rich or the middle class?

Dear Jo Marie.

The other day, on the radio, I heard the following advice: “If you are going to rent your house, put it in the name of a company and leverage that company up to the tilt with debt. Otherwise the lessee, for whatever happens, might sue you and clean you out.”

Is this not one as good as it comes recommendations to you, the middle class, to find yourself a little safe haven?

The rich can afford things to happen… and so perhaps it is the paying for it all middle class who is in most need of safe havens, of any kind.

As to me, as you know, I wish I lived and paid taxes in a tax paradise

This might not be about the 99% against the 1% but about the 51% against the 49%



Dear Jo Marie

I have a serious problem with the 1%-99% debate!

It is sending message that it is ok to be in the 99%

Because I want my kids, and grandchildren to know, that if they do not make it into the 1% top, I want them to at least make it into the range of 09% 19% 29% 39% 49% top… and absolutely nothing less!

Wednesday, March 26, 2014

Me, in favor of and against... free market think tanks

I believe profoundly in that our world is driven forward by the risk-takers operating in a free market. And as typical risk-adverse citizen it behooves me to fight for that to be happening.

And that is why even though I admire profoundly many free-market think tanks, their silence on two issues extremely important for me, drives me nut.

1st. I hate it that when free-market supporters imply that if only there was a free market supporter in charge of the government, he would be able to overcome the problems that the concentration of power in governments cause… like that of 98% of all my nation’s, Venezuela, exports going into the government coffers. That is intellectually dishonest of them!

2nd. I hate it when free-market supporters ignore the distortions in the allocation of credit to the real economy that risk-based capital requirements for banks produce, and have it in their minds, that someone should stop their banks from taking risks, so that their money is safe. That is also intellectually dishonest of them!

Thursday, March 13, 2014

The Hugo Chavez Revolution cheated the poor

And before “Chavistas” stop reading this let me point out that the title does not imply that Hugo Chavez, as a person, deceived the poor, all the time, since for sure he himself was also much deceived by some of his most dedicated followers.

So let me explain the Great Deception.

If there is one thing that the Chavez Revolution holds, is that it foremost works for the poor of Venezuela... and it congratulates itself with reports where the Gini coefficient evidences that inequality has declined in Venezuela. Well ... that is completely false unless you want to argue that this was achieved by impoverishing many of those who had something more.

But the Gini coefficient in itself contains falsehoods. As an example, its calculations, for “methodological" reasons, does not include the income of those who became rich via corruption and deviation of funds, like the “boli-bourgeois” (the new rich) and the “briefcase companies” (a name for those who have abused the foreign exchange controls)

And I can argue the Great Deception even stronger.

Imagine that the government had not directly given dollars to other countries or purchased services at inflated prices (Cuban doctors and nurses)

Imagine that the government had not given away the gasoline in Venezuela ($ 6 cents per gallon, € 1.5 cents per liter) and had sold it at its international price.

Imagine that it has not sold cheapo-dollars to those traveling abroad

Imagine that it has not sold cheapo-dollars for imports, those who benefit criminal importers, for instanbce those who over-invoice, or good faith importers, by providing very generous distribution margins ... and which all ultimately delivers only a tiny portion of benefits to the population which, precisely because it is poor, consumes less imports.

And imagine instead that all these resources just HAD BEEN distributed equally in cash among all Venezuelans.

In such a case, I assure you that the Gini coefficient would have shown a vastly larger, more real and more sustainable reduction of inequalities in Venezuela.

So you the poor of Venezuela and you the middle class in the process of being part of the poor in Venezuela, demand your share of the net oil revenues, in cash, in dollars.

And please, I beg you, stop being so naïve as to believe the story that some experts, no matter where they come from, no matter how beautiful they speak to you, know better than what you know what to do with an amount that can represent 150-250 dollars monthly for each one of you 

PS . Reading about some new government efforts to further indebt our country, I beg our students: “You, who would be the surest payers of this debt, declare that debts, incurred only to postpone much needed corrections are "odious", and that therefore you have not the slightest intention of sacrificing yourself by paying these.

PS . Some thoughts during Christiane Amanpour’s interview of Nicolas Maduro:

How can one ask other countries for respect when one disrespects one’s own countrymen?

How can one ask for a multi-polar world while requiring a single-polar country?

How can a government which manages 98% of all the exports of the country, declare itself so innocent of its problems?

How can you say to sleep like a baby and wake up with such large bags under the eyes?

Do you think that Hugo Chavez would sleep happy as Maduro says he does, when so much unhappiness abounds?

Some countries have governments that washes brains, Venezuela has one which is brainwashed

Saturday, August 31, 2013

USA, if you are not the policeman of the world, why should we hold so mindboggling many of your “In God We Trust” dollars?

My father, arriving as a polish prisoner on the first train to Auschwitz on June 14 1940, number 245, was liberated by the Americans from Buchenwald, April 14, 1945. So I might certainly be biased, in favor of the United States acting as the policeman for the world. At least biased in favor of the United States I believe existed, and still hope and pray for that exists. (So I guess I just confessed that I might not be the so "radical of the middle" on all issues.)

And that is why I keep on warning about that if the United States reneges on being the policeman for the world, or becomes ashamed of its strength, then the world might renege on trusting the US to such an extent as to hold a mind-boggling amount of its dollars, backed by a "In God We Trust". Approximately China holds $1.3 trillion, Japan $1.1 trillion and the rest of the world $3.1 trillion. And so you see, there might be quite a lot of subconscious quid pro quo involved here.

PS. Obama ended his September 10 speech saying “America is not the world’s policeman. Terrible things happen across the globe, and it is beyond our means to right every wrong. But when, with modest effort and risk, we can stop children from being gassed to death, and thereby make our own children safer over the long run, I believe we should act. That’s what makes America different. That’s what makes us exceptional. With humility, but with resolve, let us never lose sight of that essential truth.”

And frankly, to act only when only “modest effort and risk” is required, is not what has made America so great, at least not in the eyes of this small human being, who much owes his existence to the huge and brave sacrifices of America.

PS. It is also absolutely clear that Putin, when ending his Op-ed in the New York with “we must not forget that God created us all equal”, after referring to “big countries and small countries, rich and poor, those with long democratic traditions and those still finding their way to democracy”, has exclusively those who are governing the countries mind, those who so often shamelessly hide behind the skirts of sovereignty; and not for a second, not even remotely, is Putin thinking about the citizens who are governed, those who were the prime concern of America's founders.

And so, if "America is not the world’s policeman"...should Europe declare a state of emergency?

And please, if as a policeman, one one occasion, for your own reasons, want or need to restrict the punishment to something symbolic, is not that it is only symbolic, sort of the last thing you would want to say? 

And this is not the first time I have raised the issue of the dollar and America's military strength... and will to exercise it. Here in a letter in Washington Post

Oh, and just in case. I am not talking about a war against Syria, but a war against the use of chemical weapons.

And to fight and punish the use of banned chemical weapons, requires a willing, and, hopefully a strong, firm and good policeman, with a great sense of justice.

Or, are we telling our mostly dead grandfathers, their Geneva Protocol prohibiting chemical weapons was pure nonsense? Do we now want it repealed? I pray not.

And America, please do not confuse war with servicing as a police. A police detains when there are infractions… he does not build nations.

And if the United States is not willing to be the policeman of the world, to help enforce laws they have also agreed with, would the world have to pray for some vigilantes to do that?

Surely all human rights criminals who hide behind the skirts of sovereignty, must be celebrating the USA not wanting to be the policeman of the world! 

And in reference to the case of Syria, below I quote from “Questions about Syria you were too embarrassed to ask” by Max Fisher, The Washington Post, September 1, 2013 "What’s the big deal with chemical weapons?" 

"War is going to happen. It just is. But the reason that the world got together in 1925 for the Geneva Convention to ban chemical weapons is because this stuff is really, really good at killing civilians but not actually very good at the conventional aim of warfare, which is to defeat the other side. You might say that they’re maybe 30 percent a battlefield weapon and 70 percent a tool of terror. In a world without that norm against chemical weapons, a military might fire off some sarin gas because it wants that battlefield advantage, even if it ends up causing unintended and massive suffering among civilians, maybe including its own. And if a military believes its adversary is probably going to use chemical weapons, it has a strong incentive to use them itself. After all, they’re fighting to the death.

So both sides of any conflict, not to mention civilians everywhere, are better off if neither of them uses chemical weapons. But that requires believing that your opponent will never use them, no matter what. And the only way to do that, short of removing them from the planet entirely, is for everyone to just agree in advance to never use them and to really mean it. That becomes much harder if the norm is weakened because someone like Assad got away with it. It becomes a bit easier if everyone believes using chemical weapons will cost you a few inbound U.S. cruise missiles."

Sunday, July 07, 2013

What a sad bunch of “progressives”, and what a sad bunch of “free-market supporters”, you both groups are

Current capital requirements for banks favor the access to bank credit of “The Infallible”, like the sovereigns and the AAAristocracy, those already favored by markets, because they are perceived as “absolutely safe”; and thereby discriminate, odiously, against the access to bank credit of “The Risky”, like the small businesses and entrepreneurs, those already discriminate against by the markets, precisely because they are perceived as “risky”.

What a sad bunch of “progressives” you are, not caring about widening the gap between “The Infallible” and “The Risky”

What a sad bunch of “free-market supporters” you are, not caring about how the current bank regulations distort.

“Oh but it is all to make our banks safer” Bullshit! Our banks are never ever threatened by what is perceived as “risky”, only what is considered “absolutely safe” cause major crises.

To download the whole Journal of Regulation and Risk - North Asia, Volume V Issue II Summer 2013: here

Wednesday, July 03, 2013

Is not the interest that is not earned on public debt because of public policies a tax?

In terms of taxation, who is affected by a higher real tax rate?

Someone earning 5 percent in interest on public debt and, supposing a tax rate of 20 percent, then has to pay 1 percent in taxes, resulting in net earnings of 4 percent, or, 

Someone only earning only 3 percent on public debt, because of QEs, lower capital requirements for banks when lending to sovereign, and other fancy stuff causes lower interest rates on public debt.

You tell me, or better yet, tell them! on public

Monday, June 10, 2013

Should not capital, under some circumstances, also have the right to political asylum?

Sir, Philip Hildebrand, in “The Sheriff has spoken - and the Swiss must submit” June 10, discusses the recent US “ultimatum giving Swiss banks 120 days to hand over the identities of presumed US tax evaders”. And reaching his conclusion he bring up the image of John Wayne.

But, what if the Sheriff is not a good straight shooter like John Wayne, and the Sheriff works for a bandit? Just as individuals have a right to political asylum, should not capital have it?

Whatever the Swizz legislator comes up when creating the bridges necessary to solve the current impasse I sure hope somewhere somehow sets a very high bar for what a government has to do in terms of governability and fair treatment of its citizens, before it can apply for some information to be conveyed. And of course, what governments need to do in order to keep those rights. For instance some countries to not allow the expulsion of even convicted criminals if that could mean that a death sentence could be imposed on him.

I hope the US, and John Wayne, do not rush into a duel without giving full consideration to all its ramifications. In fact I wonder whether this is really an issue between governments, with their many conflicts of interests. Should it not be much more an issue between the citizens?

Thursday, May 30, 2013

On the voice of the indigenous

Just to be perfectly clear about it, I do not feel less indigenous to this planet than anybody else.

Wednesday, May 22, 2013

On a global scale, on an accumulated basis, there is certainly a need for tax-havens, for Sherwood Forests

Not everywhere, but truth is that in the majority of countries, the need of many citizens for a safe-haven, a Sherwood Forest, so as to escape from bad Prince Johns’ Sheriffs of Nottingham who skimming them just waste away fiscal income, surpasses by far the needs of all citizens for Robin Hoods able to skim some of the “filthy” rich. 

You have to make up your mind whether you are a Sheriff of Nottingham, or a Robin Hood, you can´t be both. 

Nothing as effective against tax-havens than tax-heavens

There is an underlying and never questioned premise that guides most discussions today, and that is… If all profits are taxed and all taxes are paid then the world is saved. 

I do not want to be a party pooper, and I definitely do not suggest, much less instigate, we should evade paying our taxes, but... are we really sure that a tax paid will be more productive than a tax withheld? 

What if we all have to go the route of an economia sommersa, and not pay taxes, in order for the world not to collapse? Do we not at least owe our children and grandchildren asking that question? So as to at least put some pressure on our governments?

There was a time when indeed a Robin Hood tax was contemplated but that has now only evolved into a vulgar Sheriff of Nottingham-Prince John tax. 

Thursday, May 09, 2013

The famous infamous progressive gap wideners.

Banks currently need to hold much more capital against exposures to “The Risky” than for exposures to “The Infallible”, and this even though “The Risky” already needs to pay higher interest rates, get smaller loans and accept harsher terms. That only hinders growth and widens the gap between the haves, the old, the history, the developed, “The Infallible” and the have-nots, the young, the future, the not developed, “The Risky”. 

Those who do not care about it, or even feel it is correct, are de-facto complicit of crimes against humanity

Among these we find some Nobel prize winners’ like Professors Joseph Stiglitz and Paul Krugman. 

In UK some banker's knighthoods are being recalled, perhaps some Nobel prizes should be recalled too.

You, the young, you need to denounce these stodgy aprės nous le déluge baby-boomers.

I tweeted as I have never done before

I have heard and read a bit here and there about “What happened in Benghazi?”, but I do not know sufficiently in order to have a firm opinion on it. Of course, for someone who comes from Venezuela, just the fact that there was a public congressional questioning on that issue, transmitted on TV, was something to marvel at. 

And I might have just been expecting too much, but when I saw one of the questioner, and I will not say who, seemingly doing the utmost to stir the questioning in such a way that nothing could come out of it, then I just felt such a deep disappointment that, like I never do, I shot out a barrage of #Benghazi tweets. 

Now the day after, from some distance, I am not sure I should have done that, though I suspect that, facing the same all over again, I would.

Saturday, March 23, 2013

Never make a rhetorical question on the web

You will get hundred of volunteers willing to answer it :-)

Tuesday, March 05, 2013

Hugo Chavez and the poor of Venezuela

Now upon his death, we often hear news-media reporting in reference to Hugo Chavez, that he helped to pull a lot of Venezuelans out of poverty. That is simply not true. 

Hugo Chavez did indeed help many poor to live better in poverty, good for him, but that is far different than pulling poor out of poverty. To do so exceeded by far Hugo Chavez’s capabilities, and that of his collaborators. 

Those Venezuelans who did manage to pull themselves out of poverty, did that entirely on their own, or with the help of oil revenues and corruption and very little else.

Monday, February 25, 2013

Who picks what is cut by "Sequestration 2013"?

Huffington Post sent me an amazing list of cuts in Maryland that “Sequestration 2013” would bring. Who picks some of these utterly dumb cuts? Is there not something more worthy of the ax?

Can the mighty US really crumble into pieces because of an $85bn lowering of its budgeted growing fiscal expenses? It could be, because from what I read everywhere, they seem to be intent to cut many of the last things that should be cut.

Sunday, February 03, 2013

The Nobel Prize Committee should do an ego check on the candidates.

Perhaps the Nobel Prize Committee should previously to awarding the Nobel Prize do an ego check. If the candidate is going to be humbled by the prize that is Ok but, if this is going to inflate his ego too much, it might better refrain from awarding him the prize. 

When I look around I find it amazing how often Nobel Prize winners, with egos inflated by the Nobel Prize so often opine straight bullshit, on issues completely outside of what made them be Nobel Prize winners, and even so are listened to, only because they are Nobel Prize winners. 

And this clearly creates more dangers than the benefits implicit in recognizing big minds.

Alternatively the Nobel Prize Committee should reserve itself the right to ask for the return of the Nobel Prize, though not the prize money.

Wednesday, January 16, 2013

The homeland defense

Recently, the commander in chief of the armed forces of Sweden opined his country could probably defend against a foreign invasion for about seven days. Seven days! No more? As you can imagine heated discussions began. 

As my mother is Swedish and therefore speculating I know something of the realities of this country, my first reaction was: It all depends on who the invader is. If for example Norway brought along the oil Sweden does not have, perhaps not even a single bullet would suffice, as no one would like to register the death of a single Norwegian soldier died. If instead the invader was the "archenemy" Russia, they may wish to have ammunition for 7 months, if for 7 or 70 years is not possible. 

And I wondered: For how many days are the military in Venezuela prepared to defend their homeland? I imagine that there the answer would depend on who answers ... and we might be better off not hearing it. 

Back to Sweden: If the preparation of the military is just for seven days, for how many days is the Swedish citizen willing to defend his country? I say this because this is as or even more important than the capacity of the military for the final result, and countries such as Sweden who have abolished compulsory military service, might be signaling some lack of wanting. 

And I ask: How many days would the Venezuelan be willing to defend? Would it be the same regardless of whether the invader is Brazil, Colombia, Cuba, the United States, Russia or China? 

Getting back to Sweden: Today, what means preparing for war? I ask this because if I were Defense Minister of a country, before asking more from the military, I would perhaps wish to prohibit all youngsters between 11 and 18, during one full year, to use all modern digital communication tools. And this in order to make them learn about the real world, in a real way and not only by virtual means. For example so they learn to orient themselves with a compass and must not always depend on a GPS to tell them where they find themselves.

And I wondered: what does it mean in Venezuela to defend the country from a foreign invasion, when we can’t even defend the access of our youth to their own streets, leaving these in the hands of the underworld? 

Back to Sweden: And are the territorial boundaries the most important frontiers to defend? What about communication boundaries, or regulatory boundaries? A country such as Sweden which became what it is because of the ability and willingness of its citizens to take risks, and in whose churches they prayed "God make us daring", now, and without realizing it, has allowed all its banking system to be invaded by a Basel Committee which with its regulations imposes a stupid aversion to what they perceive as risky. What can be more risky for a country than an exaggerated risk aversion? 

And I wondered: And are the borders of our land really so important when some military and some civilian, without one single bullet, seem willing to give up so much of our national sovereignty to another country? 

And I calmed myself somewhat by thinking that in truth seven days are few and insufficient days, only if the invader’s invading capacity is of eight days or more. 

PS. By the way my mother does not harbor any fear that hordes from the Venezuelan plains, commanded by a Genghis-Zamora-Khan, would invade Sweden. Phew what a relief!

Translation from El Universal, Caracas

Saturday, January 05, 2013

Negotiations at the Fed’s pawn shop

From what we hear some want the US government to go to the Fed’s-pawn-branch and pawn, for 1 trillion US$, a freshly minted commemorative platinum coin that has a face value of 1 trillion US$, and use the money to pay part of what it owes to the Fed. 

Some say that would not be inflationary since “none of the money represented by that coin could be spent until appropriations were passed by Congress and signed by the President.” 

Why did I not think of it before? I have an old beautiful and magnificent painting painted by an aunt of mine who passed away a long time ago, and which must be worth a real fortune. Why do I not take it to the bank and have them take it in partial payment of my credit card debt, so as to allow me some availability of funds under the debt ceiling they have imposed on me? In return, me and my wife would promise not to use that window of opportunity... except for things really important. 

Of course, if the transaction is carried out, both me and the bank must keep this very quiet since if my neighbors would find out, there could be a run on the bank, as they for sure would not want to run the risk of having their savings for their children being paid back tomorrow with that old lousy ugly painting that I have had to keep hanging in my house only because my family wants me to respectfully commemorate my aunt’s works.

Really, how would markets react to the US substituting “In a trillion dollar platinum coin (or two) we trust” for “In God we trust”?

When you have a painting hanging on the wall that the markets, for their own reasons, have decided is worth a lot, and based on that they lend you money, you do not even talk about hanging a new painting on your wall without running severe risks.

Monday, November 26, 2012

In order to maximize the power of redistribution in the society, what is the optimum dependents to maintainers ratio?

Is it where the curve of the marginal benefit of the dependents touches the marginal cost curve of the maintainers?

For instance, as an economist, if I wanted to be a dependent, which by itself is not something to sneer at, I would like the number of dependents set at that maximum number which maximizes my benefits as a dependent, or at least where it does not fall under what would be my expected benefit, as the least successful of the maintainers.

Hearing so much about the power of redistribution, it would be interesting to see for instance a study that tries to determines the optimum ratio of dependents to maintainers in a society, and how that ratio might change over time, and under which circumstances. For instance, are there some societal benefits to be expected from educating the dependents to be really good dependents? Like Dependency 101?

PS. As percentages might be discussed, just so there is no confusion, If I could chose, I would of course prefer to be part of the one-percenters, on the top, and this even though I might have to maintain some few more dependents.

Thursday, November 01, 2012

Crony academic research

Crony research is when academic researchers cross reference papers that really add nothing to nothing… in “I reference You - You reference me”, “I invite you as a prominent expert – You invite me as a Prominent Expert” and “We publish you – You publish us” rituals. 

Crony research shamefully clogs up the system impeding the view of truly important research, and often leads sometimes for the debate on important issues to be dangerously monopolized by charlatans with a PhD or past luminaries who once in their life had an interesting and fresh thought and have been living on it ever since… thanks to crony research 

I am not an academician and so there might actually be some rules that apply and could stop a runaway crony research, but, if so, I am certain these are not sufficiently enforced.

Friday, August 31, 2012

It looks like we’re toast!

As a former Executive Director of the World Bank, 2002-2004, living close to Washington, writing articles and being an assiduous blogger, I’ve been in the middle of many discussions about those many challenges our world faces. And, my friends, I am sorry to say, our prospects to solve these problems, do not seem good.

One of the main reasons for that negative outlook, is that I have been able to witness how the discussion of many of these problems, no matter how urgent they are, so often get hijacked by a political agenda, or by a group that decides making a business, or a living, out of it. 

If we cannot break out of this mold, unfortunately, the world is toast, and this is of course not only meant from a global warming perspective.

Saturday, July 14, 2012

Cantinflas, he really deserved a Nobel Price!

A true radical of the middle… a true extremist of the center

Friday, July 06, 2012

Why should government give a 40 hour job to anyone while there are citizens with not even a one hour job?

If government takes on some responsibility for creating jobs, it should do so by gradually increasing the minimum amount of hours of work for all workers. Start with one hour and move up from there! 

If government takes on some responsibility for creating jobs, it has no role in creating more hours of work to one who already has more than the average hours of work.

Thursday, June 21, 2012

Standards and quality rating agencies for Knowledge Networks

How to guarantee the good quality of knowledge networks? was a question posed in the recent Mobilizing Knowledge Networks for Development at the World Bank.

At our table we conversed about the need for a Quality Standard, a sort of an ISO 9000, so that each participant was able to better identify what knowledge network he was getting involved with, so as not to lose his valuable time and efforts, or end up unwillingly exploited.

We also conversed about the possibility of having knowledge-network-quality rating agencies, rate the networks, initially based on some few but important variables, like the following:

Clarity of purpose

Clarity of rules of engagement

How it complies with the above (A network Ombudsman?)

True diversity (and respect for differing opinions)

If there is an interest out there in this community to further the discussions on this issue, at least I would be glad to participate, but someone else would have to manage that process, since because of other engagements I would not be able to get a good quality rating doing so.     

Sunday, June 10, 2012

We might need a Global Web Constitution, and Inspection Panels, to get along well with the Googles and Facebooks of this world

The role of a Constitution is foremost to defend the citizens from government abuses. In this respect, and since one of the most important issues of our time is how to guarantee acceptable relations between us, the small users, and they, the gigantic information and or knowledge dissemination machines that govern so much of how we communicate, and handle so much of private information on us, like Google and Facebook, one could say that we are in a dire need of a Web Constitution. 

Also, “Don’t be evil”, is for instance, a company motto of Google and which supposedly precludes them from manipulating rankings to put their advertising or content partners higher in their search results. That sounds great… exactly how it should be… but, how can we make certain that the supposedly is for real and that a company follows its mottos and declared principles, and that we can trust it as much as we should, for ours and theirs benefit? Perhaps Google and Facebook should establish something like the Inspection Panel of the World Bank, which is there to guarantee, to the rest of the world, that the World Bank follows the rules and principles it has itself declared to follow. 

Joint speculations by Alexandra Kurowski (daughter) and Per Kurowski (father)

PS. And, for me, when managing knowledge, it is also extremely important to make sure that does not pose any treat to the biodiversity of knowledge development… as we can never know where the next world saving idea can come from.

Saturday, May 05, 2012

Dear Michele and Barack, your accounts must have been hacked!

Little me, not even a US citizen, keep receiving kind emails signed very personally by one of you. Though I would love to think these emails were for real, which might mean I’d be someone important, since they keep asking me for money, not a lot mind you, just a couple of dollars, I still guess I should better inform you that seemingly your emails accounts must been hacked! 

By the way if its serves as any consolation Newt seems to have suffered the same fate. 

Best regards 


Friday, May 04, 2012

What a great business model!

You put up two blogs, one conservative and the other liberal, and you yourself, using two different aliases, make sure your aliases are the ones hitting the hardest and most outrageously against each other, and each of your aliases asks for contributions from their respective supporters… it is all a non-transparent reality show which can’t go wrong in a love-the-divisiveness country!

And though one has quite a good inkling of when one is facing those who are in this business, and those sincere believers and fighters who are not… sometimes it is really hard to keep them apart… and so, if I ever get to be suspicious of an innocent one, please forgive me.

Saturday, April 28, 2012

The World needs a World Bank

As a former Executive Director of the World Bank, 2002-2004, I assure you that more important than who is the president of the World Bank, is getting the world some representation there. The real problem of the World Bank is that, at its Board of Executive Directors, the world at large, and the human race, are not truly represented there, only geography bound parochial governmental interests are. 

If we are going to have a chance to rally support for such global critical issues as world-wide sustainability and job creation for our youth, I do believe we need some sort of World’s World Bank, and, a good start, just for starters, could be adding to the Board some independent voices who do not report to a government, or, much worse, to a single ideology. 

Would such a proposal be feasible? I haven’t the faintest! But, if we cannot get the human beings to cooperate and work as one, on some vital issues, across the borders, our chances of all humans making it are much reduced… and so let’s not kid ourselves.

Thursday, April 05, 2012

We need worthy and decent unemployments

What politician does not speak about creating decent jobs and well paid jobs for young people? But, if that's not possible, and the economy is not able to deliver that on its own ... What on earth do we do?

Society must of course do its utmost seeking to solve the problem of youth unemployment ... including taking leisure to levels never thought of… six months vacations! But it also needs to prepare itself to handle a growing number of unemployed, not cyclical but structural, that is, those who never ever in their life will have a chance to get an economically productive job.

Two decades ago, half in jest, in an article in the Daily Journal of Caracas, I asked something like whether it was better to have one hundred thousand unemployed running each on his side as broody hens, or to seat them all in a huge human circle where everyone would scratch the backs of one of his neighbors, charging a lot for his services, while his own back was scratched by his other neighbor, at an equally high price. The tragedy is that this question seems to me now less and less hypothetical.

And is not necessarily an act of desperation to think about what to do with the unemployed ...because sometimes, in seeking to unravel a tangled twine, starting with the other end, may be the best way to release the first. Which is better: educating for a source of employment likely to be absent and therefore only create frustration, or educate for unemployment, and suddenly perhaps reaching, when on that route, the pleasant surprise of some jobs?

The power of a nation, and the productivity of its economy, which so far has depended primarily on the quality of its employees may, in the future, also depend on the quality of its unemployed, at least in the sense of these not interrupting those working.

That the gentleman of the leisure class to which Thorstein Veblen referred did not work, was essentially a result of them being free of economic needs. But that does not also mean that the economy and the social peace of the moment, were not also in need of these men competing for the fewer jobs to be had resulting from an industrial revolution.

The gentleman was encouraged to study philosophy and art by means of the social status he gained when knowing about such matters. In this respect, one of the most important challenges we currently have as a society is how to create social status and other incentives, for the unemployed to become solid and worthy unemployed citizens?

And we need to imbue the unemployed with special pride, because only this way will we keep them from making impossible economic demands... so far I have found no clues about how to handle a bargaining with their union representatives.

Given that we do all have to guard against the dangers of idleness, since the last thing we need is for the structurally idle to be idle, even circumstantially. Many of the current unemployed youth keeps busy with their smart-phones, and we do not want them not to be busy… and so using what is really their net oil revenues, to help them to immediately upgrade to an iPad, sounds like a good start. 

Friends, Venezuela should aspire to good jobs, but also to have the world's best unemployed.

Sunday, March 25, 2012

Why I support Ngozi Okonjo-Iweala for President of the World Bank

One criteria that I would beg to for to be applied when choosing the next World Bank president is the one of not being prone to be entrapped by groupthink or, much worse, being a promoter of a groupthink. 

While being an Executive Director of the World Bank, 2002-2004, the search for a new Chief Economist was announced, and we directors were told that although it was obviously quite a delicate task, it should not take too long, as the search had to be carried out within “quite a small and exclusive community of development economists”… and I immediately reacted with a “hold it there!... being in the hands of a small and exclusive community of development economists sounds like something really frightening and unhealthy to me. 

One of the reasons why I support Ngozi Okonjo-Iweala is precisely because I remember her, in the context of a very risk-adverse World Bank, to be more willing to discuss new ideas in delicate issues than most of her peers. This does of course not mean that any of the other two candidates, whom I do not really know, would not be capable of doing that as well.

Thursday, March 15, 2012

My tax paradise (Nothing as powerful against tax havens as tax heavens)

My tax paradise is not, as some could think, a country where there are no taxes paid, but a country with a just, transparent and efficient tax system which, without weakening the citizen, allows for the fiscal revenue necessary for the government to undertake what the citizen considers it should undertake on their behalf… and nothing more. 

Currently such a fiscal paradise does not exist anywhere. In fact what dominates in the world is the existence of real Kafkaesque tax infernos. Countries capable of transforming themselves into tax paradises have all to gain. 

My tax paradise would be governed by the following two principles: 

1. Every person has the inalienable right to contribute to his country by the payment of taxes, no matter how poor he is. It is also unacceptable that citizens can be odiously divided by interested politicians and bureaucrats, in those paying and those not paying taxes.

2. The state must not receive any income other than those taxes paid directly by the citizens in their own name. Is an inalienable right of citizens to have their governments work exclusively for them, without patrons or other interested parties, introducing confusion into such relation.

In this respect, in my tax paradise, any person who receives a single dollar in income, for any reason or from any source, pays taxes. The tax rate, progressive of course, could for example be between 10 and 49 percent. Never should the government be able to get hold of the largest portion of the income of any citizen, no matter how wealthy that citizen might be.

Companies would not be taxed at all, because their function is to create jobs and increase the taxable income of the citizens, something they can do much better without any distortions. Of course, companies would have to withhold and pay taxes on dividends paid to those who are not fiscally domiciled in the country.

All other revenue that may enter the state, such as the net oil revenues (Venezuela) and net import duties, should be distributed directly to citizens, in the extent that macroeconomic realities so permit, and will become part of their taxable income.

The tax revenues collected by the central state should be automatically distributed on a highly decentralized basis, which in our case I visualize to be about 10 percent for the governorates and 40 percent to municipalities, 90 percent of these to be distributed based on population and 10 percent based on the territory. Municipalities may also collect their residential property taxes.

In cases of national emergency, and with the favorable vote of 80 percent of the Assembly, the National Assembly may also enact a tax on the value of financial assets up to a maximum of 1 percent per year, up to a maximum period of 3 years.

¿Could public services be privatized? Absolutely, but always allocated on the basis of minimizing user fees and not, as is usual, maximizing state revenues.

¿What about public debt? Not a penny more that 30 percent of GDP, and only long term debt.

I appreciate any suggestions you may have to help make even more paradisaical my tax paradise. 

Translated from El Universal

PS. Many modern days' King John's Sheriffs of Nottingham, like Jeffrey Sachs, refuse to acknowledge the need for Sherwood Forest type safe havens, where citizens can safeguard resources which can be used to rebuild their nation, for their descendants, once it has freed itself from a plundering king. (And our great Robin Hood a fighter against Prince John,  is now cast in the role of a tax-collector for kings...please!!!)

Q. Would the future prospects of Greece seem better if all Greeks had kept their money in Greece?

Tuesday, March 06, 2012

The World Bank and the Outliers of Civil Society

It is hard to explain Civil Society, since much more than something physical it represents something spiritual; the will of an individual to participate in making our governments govern better and to make the world of his grandchildren a better place.

But, that said, it is also very easy to ascertain that some of the multinational corporate NGOs currently active in the name of the civil society, are absolutely not the same as that individual who, acting on his own or in a group, with little or no recourses, feels an urge to have his voice heard, convinced that he has something important to say.

For the sake of simplicity let us divide civil society in an organized strong civil society with voice, most of them originating in the developed countries, and the rest, quite unorganized, weak, with little international voice, most of them belonging to the developing countries. In this respect, the first question the World Bank must answer is whether it wants to be able to listen to the latter or not.

This is an issue because the truth is that the more attention is given to the voice of the strong developed-world-civil-society establishment, the harder it will be for the weak and outliers to have their voice heard, as the former could, would and will, tend to monopolize, hijack and direct the debate on development issues.

As an example of how civil-society might be captured answer the following: When the natural-resource-curse issue is discussed, how many resource-cursed-civil-society voices are effectively present, compared to the number of experts from natural-resource-consuming countries?

And, might the unrepresented-civil-society not have more voice at the Board of the World Bank, than what it has when it is represented by civil-society-with-voice?

And, who responds the best to the issue of genuine representation in a transparent an effective way, the World Bank or civil society?

And, the current financial crisis, specifically the fact that the IMF did not alert to it, is most often and best explained as a result of groupthink within the IMF. This is also evidenced by the fact that the simple truth of the crisis, is not allowed to surface, because it would so embarrass the Group. But, in this respect, does not the strong and represented developed-world-civil-society establishment act just like another mean and lean group-thinking machine?

I do not advance any answers, but those questions need to be raised, over and over again

In a closely related context, I am currently arguing for the need of a totally randomized web search engine, which could permit that the odd and unsupported opinions can now and again float to the surface of the web. As is, in the world of the Google and the Yahoos, the outliers are effectively drowned in the millions of sponsored-hits, or in the so many well intentioned most-probably-looked-for-by-the-searcher hits. I sincerely hope the World Bank does its best to keep a line open so as to at least give the outliers of civil society a chance to be heard.

Besides the alternative of the weak-unrepresented-civil-society organizing itself in the Group of The Outliers, how could World Bank help to establish any meaningful communications with it?

Again this is not an easy issue but, given the constraints, it probably must start by somehow limiting the current preferential access given to the communications with the organized civil-society establishment.

Any claim to transparency would for instance require that the World Bank posts a list of all the NGOs and persons who have been present during spring-and-fall-meetings over the last decade, indicating how many times and how many presentations they have hosted or co-hosted.

Modern communications could also be more intensively exploited. For instance there could be a website where all civil society participants around the world would know that they can post a question or give an opinion, and someone from the WBG will at least look at it. Those questions should be answered; or, if already answered, it should indicate where; or, if it cannot be currently answered, it should say so and preferably explain the reason why.

A group of WB professionals should then periodically prepare a summary of the opinions posted on the site above and present these to the Executive Directors. That summary should give special emphasis to the opinions considered as outliers, especially if substantially argued.

In conclusion what we least need if for the Global Partnership for Enhanced Social Accountability to end up like just another small and exclusive mutual admiration group, like the Basel Committee for Banking Supervision and the Financial Stability Board.

I do not wish to extend more this comment but I should perhaps explain that it is based on my experience as an Executive Director at the World Bank 2002-2004, and on my intensive participation as part of civil society thereafter… thanks to the support of a quite eclectic and thankfully not too bureaucratic organized civil-society NGO.

Friday, April 22, 2011

Young unemployed … forever?

Again, as part of the “Civil Society”, whatever that means, I am not too sure about that, I was present during the meetings last week in Washington of the World Bank and the International Monetary Fund. One of the most important issues discussed there, were the frightening figures of the huge youth unemployment in the world and that, from what I gathered, no one is really sure on how to solve. My comments on the issue, made in representation of my yet unborn grandchildren, were:

If youth wants to get employment they need to start demanding it more strongly. I am sure that if there was a Law that established that once the unemployment rate of youth exceeded a certain level there would be a lottery among all government bureaucrats aged fifty or more for instance, so that a large percentage of these would have to resign and give the youth an opportunity older than for instance fifty would have to resign so as to give the young some opportunities, would certainly energize the governments attention to this problem. Inside me I was hearing a little voice reminding me of that not fully confirmed Viking tradition of their elderly jumping voluntarily from a cliff, ättestupa, when not being any longer useful to society.

In the world the regulators have imposed on banks some capital requirements based on the risks of default of their clients, as perceived by the credit rating agencies. Since banks and markets have already incorporated that information when setting their interest rates, that means the same information gets considered twice, resulting in that the banks are excessively pushed towards what is officially perceived as being less riskier, the triple-A and some sovereigns, and away from what is considered as more “risky” like the small businesses and entrepreneurs, precisely those who have more chance of creating the future generation of jobs. The young should oppose this and require that the capital requirements of banks are better aligned with the potential of creating the jobs they need.

If a young person (or an old) have interests that keep them busy when they are without jobs it might suffice with giving them some food and clothing, but if they do not possess any “healthy” interest and could therefore be tempted by something bad, you would also need to place expensive policemen nest to them. In this respect I asked: “If we know that hundreds of thousands or millions of youth will find themselves without employment perhaps for life, what education can we give them?” A Master in Unemployment? In some respect this relates closely to the writings of Thorstein Veblen about the leisure class.

I also heard a very good debate about the recent incidents in some Arab countries. Most of the panelists held that what caused the explosions were not so much the existent inequalities, but the fact that these were perceived as being unjust. Absolutely, the young of nations where their governments have generation after generation wasted the revenues derived from valuable natural resources, like from oil, should demand these be paid out directly to them so as to have the opportunity of putting these to better use.

Something dramatic has to be done, NOW! As otherwise it would seem that the only opportunity many young unemployed will be able to get out of it, is when they move up, or down, to the group of unemployed old.

Translated from: El Universal

Saturday, April 16, 2011

The world is in dire need of randomness

We need a totally random search engine to be used to find the small irrelevant voices that could posses the most relevant ideas in our ever more crony interconnected world

Thursday, April 15, 2010

On broken donor promises

Promises by donor countries should be rated by credit rating agencies, to shame those who promise lightly; and the poor countries should be able to hedge these promises in the IMF.

This way, a broken promise will not fall on the shoulders of the poor countries least able to afford it, but on the shoulders of the IMF and this way, presumably, the possibilities of the promises being broken will also be reduced.

Friday, April 02, 2010

Sunshine should not blind us.

March 19 ending “Sunshine Week” I attended the forum “Building Transparency” organized by There I stated the following:

As it is not the natural thing for governments to give out the public information data we would really want to have access to when we need it, they could perhaps respond by, unwittingly, trying to drown us in data, or blind us with too much sunshine.

Therefore we should request that all public information data should carry appended to it a link that would lead us to all others who, voluntarily, want to disclose they are massaging precisely that same data, and so that all interested in precisely that same data, do not have to waste their time unnecessarily massaging all over again precisely the same data and, most importantly, so that we can all know all other citizens who belong to precisely the same network of interest.

Friday, December 11, 2009

Do developing countries have a real voice in the developed Civil Society Community?

As a former Executive Director of the World Bank (2002-2004) and who since my term ended have been in very close contact with many ONGs or Civil Society Organizations, and have even acted as part of the Civil Society, I must say I am not so sure of how to answer the question made in the title... of course making the caveat that neither am I so sure about what Civil Society really means.

As a citizen I have seen many extremely good NGOs that I have nothing to complain about and much to thank for, but, then again I have also seen some multinational ONG corporations that arrogantly want to impose their agendas and their world views on us… and that we should not let them! No ONG, much less an international, should ever be able to completely substitute for the voice of an individual citizen.

For instance on a somewhat personal note, I am an oil-cursed citizen, I have seen some ONGs taking the side of governments defending their right to manage the oil-revenues on behalf of the (incapable) citizens, and even recommending that this be done through a tripartite arrangement between governments, oil-companies and civil society, presumably their civil society. This is totally unacceptable for a citizen that has seen immense non renewable oil richness being wasted forever and good governance made impossible by the extreme powers vested into any government which receives the oil income.

In other cases I have seen small local NGOs while trying to find real life solutions to their urgent day to day problems, like for instance those derived from bad public services resulting from badly executed privatizations, seeing their agendas completely and unduly taken over for the internationally seemingly more “interesting” quest of “getting back at those bastard multinational corporations”.

I had the opportunity of participating in many debates on the voice and governance issues at the World Bank, and I do think the bank is well served of reaching out very often to the civil society in search of the-other-side-of-the-story but, in doing so, it should first always make clear that in the final count it works for governments, so as not to create false expectations, and secondly to always be really sure of what civil society is represented by which civil society and that each civil society is duly connected to a real life citizen.

Sunday, August 23, 2009

Should we pack like sardines to develop better?

Although undoubtedly it contains some very interesting arguments I feel quite uncomfortable with the message being sent out in the World Development Report 2009 of the World Bank titled "Reshaping Economic Geography".

Somehow the reports seems to argue that we need to pack like sardines in order to develop; and somehow I get the inkling that much of the growth we perceive taking place in the high density areas has to do with the scarcity of space in high density areas. If I am packed as a sardine and therefore have to pay a higher rent for my place am I therefore richer than the one who has to pay much less for his much more generous elbow room available? We do not include home values in growth figures based on square feet but in money terms.

For instance in the US they give more government sponsored financing to houses that lie in higher value areas; which by itself helps to make them higher value areas. Now, is this muscular growth or obesity?

And then it is also the timing of the report… just when communication technologies make it possible to be distantly close here comes a report telling us basically that physical closeness is what most matters.

Sincerely I am not sure this report is sending out the right development message and I sure hope I am wrong about my misgivings.

Here you can view one presentation of the report

Saturday, August 22, 2009

The GPS and the AAAs

Not so long ago I asked my daughter to key in an address in the GPS and then even while I continuously heard a little voice inside me telling me I was heading in the wrong direction I ended up where I did not want to go.

Something similar caused the current financial crisis. First the financial regulators in Basel decided that the only thing they would care about was the risk of individual financial defaults and not one iota about any other risks; then though they must have known these were humanly fallible they still empowered some few credit rating agencies to be their GPS on default risks; and finally, by means of the minimum capital requirements for banks, they set up all the incentives possible to force them to heed what the GPS said and to ignore any internal warning voices.

Of course, almost like if planned on purpose, it all ended up in a crisis. In just a couple of years, over two trillion dollars followed some AAA signs over the precipice of badly awarded mortgages to the subprime sector. Today, we are still using the same financial risk GPS with the same keyed in instructions... and not a word about it in the recent Financial Regulatory Reform proposal

I hate the GPS type guidance of any system since I am convinced that any kid brought up with it will have no clue of what north, south, east or west means; just as the bankers not knowing his client's business or how to look into his client's eyes or how to feel the firmness of his client's handshake, can only end up stupidly following someone else's opinion about his client on a stupid monitor.

I hate the GPS type guidance system because, on the margin, it is making our society more stupid as exemplified by how the society, day by day, seems to be giving more importance to some opaque credit scores than to the school grades of their children. I wait in horror for some DNA health rating scores to appear and cause a total breakdown of civilization as we know it.

Yes we are buried under massive loads of information and these systems are a tempting way of trying to make some sense out of it all, but, if we used them, at least we owe ourselves to concentrate all our efforts in developing our capacity to question and to respond adequately when our instincts tell us we're heading in the wrong way.

Not all is lost though. I often order the GPS in my car to instruct me in different tongues so as to learn new languages, it gives a totally new meaning to lost in translation, and I eagerly await a GPS system that can describe the surroundings in more extensive terms than right or left, AAA or BBB-, since that way not only would I get more out of it but, more importantly, I would also be more inclined to talk-back.

Saturday, July 04, 2009

The OAS botched it!

The OAS botched and is making much more serious the already Honduras case. Should they be sued for irresponsible behavior?

Amazingly, knowing that there was an open confrontation between the Executive Power, the Congress and the Supreme Justice in Honduras, the OAS sided with Zelaya without even giving the other powers a fair hearing.

In order to understand why this re-election issue is almost an existential issue in Honduras let me point to article 42 in their Constitution that though a bit crazy nonetheless clearly states that you will “lose your conditions as a citizen if inciting, promoting or supporting continuance or the re-election of the President.”

Honduras Constitution Art 42 you “lose your conditions as a citizen if inciting, promoting or supporting the re-election of the President.”

In a democracy is a congressman less elected than a president?

In a democracy is the Supreme Court less is than a president?

It is truly sad to see international organizations circling two school boys shouting for two of them to fight till death, and enjoying it

After Zelaya, how many consecutive elections must be held in Honduras before a new Government is legitimate?

Wednesday, June 24, 2009

How come?

How come a nation of free citizens have accepted to chain themselves to some opaque credit scores to such an extent that one sometimes can hear parents worrying more about their children’s credit scores than their school grades?

At the UN 192 countries got it wrong

192 countries got together for the United Nations Conference on the World Financial and Economic Crisis and its Impact on Development and, in their final communiqué, among the causes of the crisis they say “major failures in financial regulation, supervision, and monitoring of the financial sector, and inadequate surveillance and early warning… compounded by over-reliance on market self-regulation, overall lack of transparency, financial integrity and irresponsible behavior, have led to excessive risk-taking, unsustainably high asset prices, irresponsible leveraging, and high levels of consumption fuelled by easy credit and inflated asset prices.”

How can 192 countries get it so wrong? Yes it is true that assets reached unsustainably high prices and yes it is true there were high levels of consumption fuelled by easy credit and inflated asset prices but it is absolutely false that there was excessive risk-taking or autonomously created irresponsible leverage.

The markets, over just a couple of years channeled two trillions of dollars (perhaps more than what has been lent by the Word Bank and the IMF ever since their creation) to finance houses in the US through securities rated AAA and this would much better classify more as misguided excessive risk-aversion.

And the high real leverage of the banks was foremost a direct the consequences of the regulatory innovation of the minimum capital requirements for the banks based on risks that emanated from the Basel Committee. For instance the regulations authorized an outrageous 62.5 to 1 leverage for when banks lent to corporations rated AAA to AA-.

Nor did the conference say a word about how these minimum capital requirements by which the regulators arbitrarily intervened in the market mechanism of allocating risks, created a de-facto subsidy for what can dress itself up as low risk and a de-facto tax on whatever contains more risk, such as the risks normally present in development.

Give the global migrant workers community an undiluted voice

Those migrants that when they leave there homeland are so easily forgotten, except when they forget to send a check home; and that upon their arrival are not sufficiently recognized by their new host conform a particular group of human beings with a particular set of interest and needs. Nowadays the economic significance of this migrant working community can be estimated to be somewhere between that of China and India but yet, just because they have no land, they have not been given a formal voice in the global and multilateral institutions.

This needs to be corrected and as a minimum the global working migrant community should have a chair at the World Bank and the United Nations.

Monday, May 04, 2009

It was our experts that failed us… and they still do.

That the markets did not work because there were intromissions in its workings, is not the same as a market failure, and that is a distinction that we must make so when we now find ourselves lost so that we do not lose us even more. We owe that foremost to the developing countries.

The Basel Committee the most important regulatory authorities of the by means of allowing for immensely smaller bank capital requirements, favored immensely anything that could display a triple-A sign issued by the credit rating agencies. And sure enough… the market responded as human markets normally respond by creating a huge number of AAA signs, many of them related to securities backed by lousily awarded subprime mortgages and which the investors, like a herd, followed over a precipice.

Unfortunately because most of the experts failed to realize it, or if they did they did not speak out against it, almost all notorious economic and financial experts are mostly ignoring the above in a global cover-up. More than a market failure what we had were the experts failing us.

Let me just give one example of what I mean. “The Commission of Experts on Reforms of the International Monetary System” of the President of the General Assembly of the United Nations, chaired by Professor Joseph Stiglitz and comprised of outstanding economist, policy makers, and practitioners from all over the world chosen, and I quote the Note by the President of the General Assembly, “based on their comprehensive understanding of the complex and interrelated issues raised by the workings of the financial system”, they write the following in paragraph 41 of their report dated March 19 2009.

1. “The collapse in confidence in the financial sector is widely recognized as central in the economic crisis; restoration of confidence will be central in the recovery. But it will be hard to restore confidence without changing the incentives and constraints facing the financial crisis”

Of course restoration of confidence is central for economic recovery but for the recovery of confidence a full understanding of what happened is a must. That a Bernard Madoff can cheat does not affect confidence in the markets because the markets are much aware that cheaters have always been around and are in fact themselves a part of the market.

But, if the credit rating agencies who were so recently officially bestowed with so much power in the surveillance of risks, and therefore must be the best, sort of the “Appointed Surveyors to the Majesty” managed to fail so miserably, then that is of course a tremendous blow to confidence. That loss of confidence can only be cured by fully acknowledging that the mistake was in the creation of an oligopoly in risk surveyance .and that this oligopoly will now be eliminated… not strengthened.

2. “It is imperative that the regulatory reforms be real and substantive, and go beyond the financial sector to address underlying problems in corporate governance and competition policy, and in tax structures, giving preferential treatment to capital gains, that may provide incentives for excessive leverage.

The above says that not taxing the profits is at fault and so that presumably we now must tax profits? Silly, the problem is not that the profits had tax incentives but that the profits proved to not be profits at all. The “incentives for excessive leverage” those were provided by the regulators and thank God… the authorized financial leverage was never even reached by any bank before the crisis. This of course does not preclude that there might be other valid reasons to tax profits but that is a quite different matter.

3. “Even if there had been full disclosure of derivative positions, their complexity was so great as to make an evaluation of the balance sheet position of the financial institutions extraordinarily difficult”.

First the crisis was not caused by “derivative positions” and second, the “complexity” argument is irrelevant because the instruments that were so complex that they were not even understood by those who generated them, would never even have reached the balance sheet of a bank, or an investor, had they not been granted the triple-A rating which substituted for the understanding, unfortunately in a much imperfect way. There is of course a need for a better management of the exposures though central clearing houses but that is a quite different matter.

Does this all mean that I do not believe that Stiglitz and his fellow experts cannot help us? Of course not and I do agree with many of the recommendations in the report. But, in order for these and other experts to really be of help they better step down from where they think they belong and start to discuss as the faulty humans we all are.

The commission says “As the world focuses on the exigencies of the moment the long standing commitments to the achievements of the Millennium Development Goals and protecting the world against the threat of climate change must remain the overarching priorities; indeed, appropriately designed global reform should provide an opportunity to accelerate progress toward meeting these goals.”

I could not agree more… but that has to start with a debate that is much more profound than a Lilliput-Blefuscu or a short-long skirt-length type of debate and to which the commission seems to be headed, when it allows itself to (somewhat gloatingly) say that “the current crisis has exposed deficiencies in the policies of some national authorities and international institutions based on previously fashionable doctrines.”


A member from the civil society who having seen trillions going down the drain of badly awarded mortgages instead of perhaps helping to avert or to adapt to climate change, does not really feel like being too civil for the time being.