We need worthy and decent unemployments

What politician does not speak up for the need to create decent 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, concerned about growing unemployment, half in jest, in an Op-Ed in El Universal 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, as a minimum 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 not 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.

Translated from El Universal, Caracas

PS. July 30, 2014 the new shareholders of El Universal, friends of Chavez and Maduro censored me, and all links to my 14 years of Op-Eds were erased.

PS. Minimum wages helps cause minimal wages.

PS. To get more jobs and higher salaries: Call on all capitalists to exploit any low salaries, for as much as they can. J

PS. Throw out the useless credit-risk-weighted capital (equity) requirements for banks and… if you absolutely must distort, then use potential-of-job-creation-weights instead (and throw in some sustainability-weights too for good measure). J

PS. A Universal Basic Income, since that is not a not-having-a-job-or-not related social contribution, could be a part of the efforts needed. That said these would be my minimum minimorum rules on a UBI

PS. Increased tariffs and minimum wages are superb news… for robot manufacturers :-)

PS. Perhaps we must put payroll taxes on robots to permit us humans to compete for jobs on more level grounds.

PS. Once social cohesion breaks down it is too late. As a Venezuelan I should know.

PS. If #AI dislikes being blamed for growing unemployment, is it possible that it starts to invent and market unnecessary jobs?

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.

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. It should be 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 (Venezuela) 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 Op-ed in El Universal

PS. Phrased in other words: Corporate taxes only dilute citizen's tax representation or... clearer yet... the corporations have hijacked the citizen's tax representation... to the delight of politicians.

PS. In order for the government to timely collect taxes on what derives from corporate profits, these profits, as shown on financial statements, should yearly be passed through to the shareholders, and the corporations, in order to assist the shareholders in the payment of those taxes, decree and pay some dividends.

PS. And of course, VAT and similar, beside being regressive do not give real representation, as there is not an identified citizen behind its payment.

PS. April 2016 "Panama Papers" Don't let redistribution agitation profiteers raise your expectations.

PS. Public borrowing capacity (or money printing seigniorage) is a valuable strategic asset that should not lightly be consumed or squandered.

Flashback: April 3, 1998 The taxes we have to pay! Daily Journal Please read it.

PS. Oh, how I dislike redistribution profiteers... let's diminish their franchise value with a Universal Basic Income

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.

http://blogs.worldbank.org/publicsphere/how-should-world-bank-support-social-accountability-share-your-views#comment-5175 

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 for instance fifty and more, to make a large percentage of these have to resign so as to give the young some opportunities, that would certainly energize the government's 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, giving them some food and clothing might suffice, 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 next 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

PS. We need worthy and decent unemployments
PS. An ättestupa for the baby boomers?
PS. The violated holy intergenerational bond

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

PS. A blast from the past: "A mixture of thousand solutions, many of them inadequate, may lead to a flexible world that can bend with the storms. A world obsessed with Best Practices may calcify its structure and break with any small wind.”

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.

Sunshine should not blind us.

March 19 ending “Sunshine Week” I attended the forum “Building Transparency” organized by Openthegovernment.org. 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.

Another 'worst': Faulty bank regulation

Another 'worst': Faulty bank regulation 

The Dec. 20 Outlook compilation of the decade’s worst ideas did not include the one most to blame for the loss of most of the past decade’s growth: regulations that allowed banks to hold absolute minimums of capital as long as they lent to clients or invested in instruments rated AAA, for having no risk. This launched a frantic race to find AAA-rated investments wherever and finally took the markets over the cliff of the subprime mortgages. 

The most horrific part is that it seems likely to endure because regulators can’t seem to let go of this utterly faulty regulatory paradigm. Let me remind you that banks are allowed to hold zero capital when lending to sovereign countries rated AAA and that there are already many reasons to think that the credit quality of many sovereign states has been more than a bit overrated.

https://subprimeregulations.blogspot.com/2010/05/letter-in-washington-post.html

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.

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 http://www.blip.tv/file/2498676

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.

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?

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.

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 from 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.”

Sincerely,

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.

The citizen’s minimum minimorum on opinions.

Anyone has the right to opine in anyone’s name... that is an integral part of the freedom of opinions.

Most of those opining in the name of the citizens independently of whether the citizens opine so, or even have an opinion, are usually known, collectively, as the civil society, and this even when they behave somewhat uncivil.

In this respect and though it should be the duty of most citizens to opine on matters of their concern, but which unfortunately they most often do not, the least we should ask from them, as a minimum minimorum, is that they should be informed about what the civil society is opining in their name.

For example here

Stress test the American taxpayer and you’ll see you need a brand new generation of taxes

What the US dollar bill really should state is “In the American Taxpayer We Trust” and so the more pragmatic Americans have printed the “In God We Trust” on it.

There is no way that the current American generation, having been brought up as the consumers of last resort in the world, would now turn around and accept to be the world’s taxpayers of last resort… at least not with the current taxes… any stress-test of them would show you that.

The US government should be much more conscious of this before launching itself on a fiscal spending stimulus binge which, if allowed by the markets, will build up its public debt to a totally unsustainable level.

That said I believe the international markets are going to say NO much earlier than that, since one thing is to be searching for a safe temporary haven and another quite different to be trapped in a permanent home.

And that is why, before the US Dollar loses its AAA rating, that the US, and the world, should work hard in developing a totally new generation of taxes that can be perceived as legitimate, that are aligned with the new global realities, and that interfere as little as possible with the functioning of a competitive economy. I have argued for the following two:

1. The Intellectual Property Right tax: Society, for many good reasons, has decided it needs to award and defend intellectual-property rights. The downside is the creation of temporary monopoly rights that can be overexploited. Also, awarding these rights impose on society the obligation to defend them, which costs money.

As it does not seem fair to assess taxes on a business venture that has to compete in the market without any kind of protection at the same rate than projects that have been awarded intellectual-property rights, there should be a special tax levied on all profits generated from intellectual-property rights.

2. The keeping the big lean tax: There is nothing wrong with a business striving to obtain a large market share but while its market share grows for all the good reasons and for the benefit of society, there is unfortunately also an accumulation of market power that can acquire monopolistic characteristics with negative results for the society. Therefore there is also a need of a tax that is of a progressive nature based entirely on market shares.

Protest Sign

Après nous le déluge!

The baby-boomers

Learning about main street USA

I have quite a good idea of how this crisis was caused by the top-down supervisory forces that originated in the Basel Committee and I have frequently written and discussed about that in articles papers and blogs.

But as a foreigner who’s wellbeing as a foreigner depends so much on the United States I wanted to understand better what bottom-up forces had been or are still in effect on the main streets of the USA and so I signed up to get myself a license in real estate sales and a license as a loan officer in mortgages. If all goes as planned I should be licensed for both in just a couple of weeks.

Below what has surprised me the most while studying for the above.

How a country that prohibits discrimination allows for discrimination based on some opaque credit scores, to such an extent that parents often seem to worry more about their children credit scores than their school grades.

How federal authorities can be allowed to finance different amounts depending on the region when that can only lead for those differences to grow even bigger. If I was a major of a small and remote and poor city I would sue the FHA for discrimination.

How an entity like the FHA can come up with such a haywire criteria that establishes that those who do not meet some minimum credit scores or are currently unemployed cannot refinance their current mortgages at lower rates on a streamline basis. These borrowers are really those who would benefit the most from a refinance so much that one could almost make a case for the opposite... those employed and with scores over a number should not be allowed to streamline refinance.

On a closely related issue how can the Government, the Congress and the Fed be spending so much time and resources trying to provide stimulants without worrying about getting rid of the depressants such as the ludicrous high interest rates on credit cards?

To me, a country where the government pays 10 basis points in order to finance its short term consumption while its own citizens have to pay at least 1690 basis point more to finance their consumption is sort of an unsustainable country. If it was me I would limit the interest rates that credit card companies could charge to for instance 7% and, out of the public budget, pay an additional 2% to the credit rating agencies on the balances as part of the stimulus package.

But then again I would always favor the workers getting those salaries that allow them to pay for their needs in cash… it is bad enough to having to buy everything in the store of the mining company… but it is much worse when having to buy it on credit... at 17% or more.

Why stimulate before making sure the economy as a whole will enjoy it?

I just received a letter from one of those big banks that has recently received billions of dollars in official assistance, informing me that if I finance my purchases with my credit card my annual interest rate will be 17% and, if I enter into any default, 26%.
This in a country where there are no inflation expectations, the government is paying less than 1% on its short term borrowings, contemplates a close to a trillion dollar stimulus package and wants the consumers to spend more to keep the economy from falling.
For a consumer to finance the anticipation of any purchases at 17% would be an act of extreme irresponsibility.
For someone in default having to pay 26% will only guarantee to dig him deeper in the hole he is in. The only way to justify these extraordinary high rates is that they need to compensate for all those who should not have been given a credit line to begin with.
What is going on? Have we not learned anything? And why should anyone stimulate the economy before making sure that all the new green sprouts are not going to be devoured by some players in the financial sector?