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.

An open letter to His Majesty King Norodom Sihamoni of Cambodia, from an oil cursed citizen

Your Majesty: 

I recently had the opportunity to attend a conference in Washington, D.C., arranged by Oxfam an international Civil Society Organization, an NGO. The conference was titled “Managing Cambodia’s Oil and Mineral Resources: Opportunities and Challenges for Development.” 

While listening to the excellent presentations made by Your Ambassador and by one of the spokesmen of the host organization, I felt tears coming to my eyes, hearing of exactly the same dreams and illusions that I had heard in my own country, Venezuela, thirty-five years ago, when oil prices increased dramatically. Those dreams have now been horrendously shattered by the awful realities of what is known as the oil-curse. 

Of course both speakers duly addressed the challenges and explained what “had to be done” in order to avoid this oil-curse, but the arguments; such as the need for transparency, good long term investments and setting aside funds for the future; and the determination with which they were made were also identical to those we made thirty-five years ago. All of it proved far from sufficient, did not serve us well and in fact only provided for the excuse of going down the wrong path.

 

The real problem is that not one single of the precautions suggested has a real chance to stand up against the darkest forces of the oil-curse. No matter what you do, the fact is that oil revenues, when they are both generous and centralized in the hands of the State, provide for an independently wealthy government which does not need the citizens, and therefore becomes arrogant, and cruelly turns the citizens with very high expectations into beggars for favours. 

May I therefore respectfully beg of your Majesty to support the possibility that Cambodia’s net oil revenues be paid directly to the Cambodian citizens, in full and from the very first day. 

That article 58 of your Constitution states that mineral resources are the property of the State is no impediment for the results of the exploitation of those resources being paid out directly to the citizens. On the contrary, if the oil revenues were to remain in the hand of the State, that would effectively impede complying with article 56 that states “The Kingdom of Cambodia shall adopt a market-economy system” and, much more important, with article 51 that states “The Cambodian people are the masters of their country.” 

I am no one to remind a King of his duties, nor do I wish to presume to have royal wisdom, but having read in your Constitution that the King shall be the protector of rights and freedom for all citizens and shall assume the august role of arbitrator to ensure the faithful execution of public powers, let me in all humility say that, if I were the King of Cambodia, there would be no better legacy I could dream of leaving to my people and country than freeing it forever from the darkest side of an oil-curse. 

If there is an absolutely urgent need to initiate government projects, then allow the citizens to have the right to pay for these projects by giving back as income taxes a certain percentage of any oil revenues received, but please help your subjects to be and feel relevant to the future of their nation.

 

Your Majesty, I would deeply appreciate any attention you give this letter and, if it is considered an undue intrusion into the affairs of Cambodia, please know that it has been written with utmost sincerity, thinking of a country that has gone through much suffering and destruction, and therefore truly deserves that oil helps, in the words of its Constitution, to turn “Cambodia into an “Island of Peace” . . . moving toward perpetual progress, development, prosperity, and glory” instead of forcing it to face new nation-destroying hardships.

 

Sincerely, I remain, your Majesty’s humble friend, 

Per Kurowski 

Just another oil-cursed citizen. 

There is no such thing as an oil-cursed politician, oil-cursed government or oil cursed policymakers, on the contrary they are all most often shining examples of the blessings of oil... there are only oil-cursed citizens.

And here: "My minimum minimorum on exiting Iraq"

Read it here at The Phnom Penh Post

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?

Implementation, implementation and implementation

Many are pushing for satisfying the pro-markets with lower taxes, or the pro-government with deficit spending and both directions could create an abysmal fiscal hole. Very few are concerned or much less busy with the more mundane but more vital issues of implementation, implementation and implementation. If lower taxes or government spending do not generate the right kind of sustainable demand or the right kinds of projects in sustainable sectors, in a fiscally cost effective way, inaction will always be the better option.

The AAA-bomb

There are those who feel that the current crisis is a direct result of economic imbalances and they most certainly have very good arguments.

But then there are also some, like me, who believe that the financial sector and its regulatory system stopped the normal market mechanisms from working, among other by luring funds into the mortgage sector which financed the growth of further imbalances, so as to cause a crisis, of this magnitude.

Certainly nothing of this sort would have happened without the economic imbalances that provided the enriched uranium, but it was the financial sector that turned it al into an AAA-bomb.

Please, do not stimulate until you USA drop.

The US consumers shopped until they dropped and now it seems that their government is taking over with “we will stimulate until we drop”. We understand the reasoning but we can’t help feeling nervous about it.

There are seminars on “How to restore Global Financial Stability” but, in the name of the do-no-harm principle, let us not forget that the most important role for the US is to preserve the global financial stability we still have, namely the current role of their dollar in the international financial system.

Many American economists egged on by some foreign economists indicate, even in the face of the many surplus countries wanting to reactivate their own domestic demand, which leaves less resources to buy US debt, that there is absolutely no problem in sight…Let us pray they are right!

But, just in case, and especially after the unsettling recent experience with the adjustable mortgages, could we not ask the US to build up its debt with long term paper at fixed rates? I mean allowing so many to anchor their boats so close to the exit of that safe-haven the dollar currently represents seems not the wisest thing to do.

PS. Do all those who propose stimulation know for sure the whereabouts of the economy’s Gräfenberg spot or are they just boasting?

I do not like this race!

The world is witnessing an extremely dangerous race between the build up of US public debt in order to create all kind of bailouts and stimulus packages to save the world from a monstrous depression; and said debt becoming so unsustainably large that it will by itself cause the mother of all meltdowns. Many hold that the only thing that could help avoid a tragedy is the serious collaboration from all current surplus countries to reactivate their economies, expecting this would generate the counter-flows that will help to stabilize the US debt at a serviceable level.

Is running this suicidal race the world’s only option? Some very reputable persons seem to think so as they egg on ever larger stimulus packages with ever more resulting debt. To back up their arguments, they have shamelessly recruited Keynes into their camp… though I am not at all sure that a resuscitated Keynes would be on their side was he aware of the stakes.

I myself would perhaps be more agreeable to risk it if convinced that, if victorious, the revived economy expecting us was worth it, but, thinking of a revived economy that could just have more Chinese consumers buying more cars somehow does not make me overly enthusiastic.

No let us not look for our economic health where we lost it let us look for it where we want to find it… and that place is not in the land of ever growing public debt.

What impact on development could the asymmetry between NGOs have?

Is the asymmetry between the developing and the developed countries made worse because of the asymmetry between the weak and often subordinated NGO’s from developing countries and the strong and often in command NGO’s from the developed countries?

I say this because I have often found it so hard for activists from developing countries to understand that the stability they look for in their natural desire to keep all that they have gained under their belt, has nothing to do with the risk-taking a developing country needs in order to place at least something under its belt.

I have also often found that some agendas of the NGOs of developed countries, though most often certainly representing worthy causes, not only differ but can also turn into outright distractions from the more practical development agendas that NGOs from developing countries would wish to pursue, if on their own.

There are a lot of discussions about much needed governance reforms at the International Finance Institutions, the IFIs. Please remember that those reforms might have to include their relations with the NGOs too.

Is it real or bluff stuff?

The G-20 Statement of November 15, 2008 says “Regulators must ensure that their actions support market discipline, avoid potentially adverse impacts on other countries, including regulatory arbitrage…”

What more discipline could they want than having imposed on the markets as a Governess Fraulein Credit Rating Agencies and that later turned out to be so crazy as to send them of to the subprime swamplands? Do they really believe that finding a better qualified Mary Poppins, or a Maria will do it? Scary! Why don’t they leave the banks alone so that they learn to depend on themselves instead of following as a herd any agency that no matter how good it gets, is bound to take them, and us, sooner or later, over a cliff?

“Adverse impacts on other countries”? Like when the supposed global good of a credit rating agency turned into a global bad and caused a German bank that had never awarded a mortgage in Germany to be the first casualty of this subprime mortgage having followed the AAA signs looking for high risk-weighted returns in California?

“including regulatory arbitrage? Are we now finally get rid of the current “minimum capital requirements for banks” that has created such a damaging and useless regulatory arbitrage on risk…whatever that is?

The G-20, do they mean what they say, do they know what they say, or are they just bluffing?

Micro-financing… for what?

We need to define better what the purpose of the micro-finance institutions should be. If it is to help small entrepreneurs to get financing at as good rate possible, them I am all for it. If it is to accelerate the consumption of the poor, but by applying higher interest rates than the risk free rate, which effectively means them having to pay a present value premium for their consumption, which will just make them poorer, then I am all against it, since that is not what development is all about!

Many of the problems of this sector are derived from that instead of working on how to make microfinance help development, it has been taken over by those more interested in developing the microfinance institutions per se, which though quite legal and normal is something absolutely different.

We need to tax intellectual property income with a higher rate

The dollar bills of the United States, are marked with the abbreviated prayer of "In God We Trust"

A more complete version of it would be "We trust in God to keep politicians from printing more dollars than what the economy can back, or, if not, to give the U.S. taxpayer the willingness and the ability to pay the taxes that requires". A similar prayer applies with respect to the currencies of all other nations.

Now even though the private sector will bear most of the initial losses of the financial crisis, this one will end up being extremely costly for the governments and certainly, in many cases, exceed their current fiscal capacity. In this respect some of its costs should be covered by higher taxes, since if not these will be paid through inflation, the tax on the poor.

Society has for many decades not analyzed any new taxing schemes which could better fit the new global realities and therefore interfere as little as possible with the recovery of the economy. It may be appropriate to start thinking about that. Any new tax proposal though must be legitimized on the basis of justice and rationality. In this regard I am circulating some ideas for discussion and the following is one of these.

The tax on the profits obtained from the monopolies created by intellectual property rights.

Most or perhaps all intellectual property rights are awarded to whoever runs the last leg of a relay that has been run with ingenuity, creativity and strenuous efforts, by generations of humans. Previous runners allow the last one to cross the finish line victoriously, to raise a finished idea as his, although he did not necessarily initiate it.

The particularity of this relay is that anyone who expects to be running as the last leg cannot be completely sure of what it entails. Sometimes running it can be easy, and sometimes it may require millions in equipment and others to fund the efforts. Society, in order to encourage ingenuity, creativity and the effort required of all needed to make the world progress, just decided to award the runner crossing the finish line, the trophy of an intellectual property right.

The problematic part of this social arrangement is that all intellectual property rights create a right to a monopoly and as is exercised with little or no regulation, restriction or supervision, meaning it can be subject to exploitation.

Because all intellectual property rights granted by the society imposes an obligation on it to defend that right, in many ways, which costs a lot, the question remains whether it would not have been better to use those resources for other purposes, such as funding others to run the last leg on behalf of the society.

I cannot find any logic or justice charge to tax a company who has been granted a monopoly intellectual property right, for something to which previous generations have contributed and in which defense Society needs to invest resources, with the same tax rate that applies to a company that competes in the market naked without any kind of protection.

And so I proposed to study the gains generated by the exploitation of intellectual property rights to pay a tax on additional profits, say 20 %. These revenues can be used to reimburse the society for the costs of defending the intellectual property, and to help fund those other runners in relays of humanity aimed at developing essential goods that can be useful for everyone.

Translated from El Universal, Caracas

Leverage!

Civil Society can help turn millions into billions.

Financial regulators turn billions into trillions.

Let us keep our eyes on the gorilla!

In God We Trust to see that…

The dollars, for which value the US is responsible, are printed with the abbreviated prayer of “In God We Trust”.

A more complete version would be: “In God We Trust to see that the politicians and the bureaucrats do not print and circulate more dollars that what the economy could back or, otherwise, that the American taxpayer finds it in him the capacity and the willingness to pay taxes so as to make up any shortfalls.”

Let us rescue Caveat Emptor!

The implied warranty of fitness given to us by the credit rating agencies has not served us well, especially when the issuers of the warranties now inform us that they give us their opinions under the protection of the First Amendment, and that they cannot therefore be held responsible for their opinions.

It is obviously high time to rescue the Caveat Emptor principles in financial regulations, though in fact it seems that the market has been doing so on its own lately.

Let us never forget that the current crisis did not result from the market investing in badly awarded mortgage loans to what is known as the subprime sector but from investing securities collateralized with such mortgages and that received a prime rating.

To get to common ground we must fight common distance.

The other day when listening to a new appeal for finding “common ground” but that implicitly sounded subtitled “as long as it is on my ground” once again I had to reflect that the only way for us all to be able to reach the common ground we so urgently need is to start by getting rid of our “common distance”

The keeping the big lean tax

No matter how optimistic we can be about that all the assets the US government acquires during the current financial crisis will be fairly priced, there is no doubt that the whole crisis is going to be extremely expensive for the public sector. The costs will have to be paid by taxes or, in its absence, by inflation.

In this respect society has a vested interest in finding new equitable ways of how to pay for it, and that these are aligned with the new global realities and interfere as little as possible with the recovery of the economy. The following is a second proposal that follows up on “An income tax on profits from intellectual-property monopolies.”

The keeping the big lean tax: Tax progressiveness based on market share.

There is nothing wrong with a corporation striving to obtain a large market share. Indeed since it is the result of having a better motivated and better organized commitment to exploit comparative advantages in order to satisfy the market with better products or services at better prices, the fight for more market share benefits us all.

That said, while the market share grows, for all the good reasons, growing market powers might tempt the corporation to use competitive tools of dubious nature which could diminish the marginal returns for the society, to such an extent that they could perhaps even turning into costs that erode all previously obtained benefits.

I therefore propose we introduce tax progressiveness based on market shares. For instance if a corporation has below 10 percent of market share a 30% income tax rate applies but, if it has a 100 percent market share then it should be taxed at for instance a 50% rate, with a linear function for the in-betweens. Alternatively, if we want to avoid making the “after-tax” subsidies of inefficiencies higher it could be a progressive sales tax.

Of course the market share tax is not be applied to those corporations who have the financial returns on their activities otherwise regulated, such as the electricity distribution companies.

Of course in banking where the bigger-you-are-the-more- it-hurts-when-you-fall-on-us, a tax on size should be immediately applied, before we run out of the small local banks that do not need the credit rating agencies to know us.

PS. In the case of some behemoths, like Facebook, I prefer they help fund an unconditional Universal Basic Income with 40-50% of the ad revenues they obtain exploiting our own personal data.

The human heritage dividend:

No matter how optimistic we can be about that all the assets the US government acquires during the current financial crisis will be fairly priced, there is no doubt that the whole crisis is going to be extremely expensive for the public sector. The costs will have to be paid by taxes or, in its absence, by inflation.

In this respect society has a vested interest in finding new equitable ways of how to pay for it, and that these are aligned with the new global realities and interfere as little as possible with the recovery of the economy. The following is one proposal.

The human heritage dividend: An income tax on profits from intellectual-property monopolies.

Most—perhaps all—intellectual-property rights are awarded to the runner of the last leg in a relay race run by generations of human beings and depending on their ingenuity, creativity, and sheer efforts. The earlier runners allow the new laureate to cross the finish line victoriously, and then hold up the trophy for a finished idea, but not for its start.

Most often, even though you might hope you are running the last leg, there can never be any real certainty about that. Sometimes running the last leg (or any leg) can be easy; sometimes it requires much effort by a large team, and it costs billions in money. Society, in order to stimulate the ingenuity, the creativity, and the sheer effort of all the runners in the relay, and thereby help to take the world forward, has decided it needs to certify the intellectual-property rights of the winner.

The downside of this arrangement is that all intellectual-property rights awarded create a monopoly right that—as it can be exercised with little or no regulations, restrictions, and oversight—can unfortunately and quite easily be overexploited.

Also, since all intellectual-property rights awarded impose on society an obligation to defend and enforce those rights in many ways which costs money, the question remains whether it would not have been better to use these resources for other purposes like financing some of the other runners in the relay?

I find no logic or justice in assessing the taxes of a business venture that has to compete naked without any protection in the market at the same rate as a project that has been awarded the monopoly of an intellectual-property right, one to which prior generations of humanity have contributed and in legal defense of which the society invests much money.

I therefore propose that all profits generated from intellectual-property rights should pay an excess-profit income tax, something like 20%, with half of these revenues used to reimburse society for the costs of defending the intellectual-property rights, and the other half employed to help finance the other runners in the human relay, especially those developing vital goods that can serve us all.

PS. Nowadays I would argue that 90% of those tax revenues should go to help fund a Universal Basic Income.

A second proposal: A market rate based progressive corporate income tax.

El Universal, Caracas "A tax on intellectual property profits" October 2008

My minimum minimorum on exiting Iraq!

I was never in favor of the invasion of Iraq but, once it occurred, I pleaded for a scheme that would put its oil revenues directly into the pockets of all the Iraqis, and thereby set an example that could help to empower the democracy in all the other countries that are cursed with the centralization of their oil revenues… the mother of all oil curses. Unfortunately, the supposed builders of democracy forgot to bring with them to Iraq such a fundamental building block.

Now, when exiting Iraq, as a minimum minimorum, we should at least aspire that the next Saddam Hussein, whenever he will appear, should not find it easier to be the next Saddam Hussein.

My plea.

As a Venezuelan who has lived through three oil booms since 1974, I have witnessed firsthand how democracy and institutions take a real beating whenever high oil revenues are channeled through a central government or into the pockets of the sole autocrat who has hit the jackpot, making it or him independently wealthy without citizen oversight.

In my efforts to raise awareness about this problem in Venezuela, I suggested an oil revenue sharing mechanism to give at least part of the oil revenues to the citizens. These efforts came to no avail, since the forces with access to the oil checkbook were always stronger and more cohesive than the voices of a few concerned citizens. 

In 1991, looking for ways to reduce some of the price volatility that hurts both oil extractors and oil consumers, I proposed that the United States sign a long-term take-up contract with Venezuela for many millions of barrels of oil. In order to give the contract sufficient credibility and sustainability, I also pushed for inclusion of a clause establishing that "30% of Venezuela's gross oil revenues should be directly distributed in equal amounts to each Venezuelan." Distribution could be in the form of cash or vouchers for health and education services. 

From 2002 to 2004, I was one of the 24 executive directors at the World Bank, and these ideas were received as mostly noise in that venue as well.

Imagine, then, my enthusiasm when, in 2006, in the report prepared by the bipartisan Iraq Study Group established by the U.S. Congress, I read the following: "There are proposals to redistribute a portion of oil revenues directly to the population on a per capita basis. These proposals have the potential to give all Iraqi citizens a stake in the nation's chief natural resource."

Though I had never favored the Iraq invasion, here was at last an opportunity to set up an example that all oil-cursed nations of the world could follow. Not only could it help unite Iraq, motivating peace among Sunnis, Shiites, and Kurds, but it would also fulfill an absolute precondition for any democracy to stand a chance anywhere, namely that of avoiding the excessive concentration of power that makes a mockery of checks and balances. If such an outcome could emerge from all the suffering in Iraq, it would at least serve as some consolation. 

Despite being a hardened veteran of this issue, my enthusiasm was soon dampened when I read some of the difficulties listed in the Iraq Study Group report: "Oil revenues have been incorporated into state budget projections for the next several years. There is no institution in Iraq at present that could properly implement such a distribution system. It would take substantial time to establish, and would have to be based on a well-developed state census and income tax system, which Iraq currently lacks." 

Compared to all the other challenges that Iraq faces today, developing a fair and transparent per capita oil revenue sharing system should be relatively easy, and I believe that the World Bank has the required capabilities to successfully complete such a project. For starters, they could look to the Alaska Permanent Fund Corporation, which draws on state mineral revenues to disburse an annual dividend to eligible residents. 

Five years into the war, oil revenue sharing and empowerment of democracies has taken a backseat to discussions of withdrawal, permanent bases, and legal immunity for the forces. It is sad that at the tail end of the conflict the ratio of pragmatism to ambition is worse than at the debut. 

When exiting Iraq, there is a rock bottom responsibility to minimize the likelihood of anyone aspiring to be the next Saddam Hussein. Guaranteeing that oil resources will never finance another deranged ego is the best way to ensure that outcome. 

Beyond the empowerment of a fledgling democracy, basic social justice is also at stake. For example, at $80 per barrel and 2.5 million barrels extracted per day, each one of Venezuela's 27 million citizens could be awarded $225 per month. Visit Venezuela and see for yourself whether, under a government that markets itself all over the world as socialism for the twenty-first century, the poor of Venezuela are getting anything remotely close to that.

Below, the link to a place where I pleaded.

https://www.carnegiecouncil.org/publications/archive/policy_innovations/commentary/000083

https://petropolitan.blogspot.com/

My minimum minimorum on exiting Iraq!

I was never in favor of the invasion of Iraq but, once it occurred, I pleaded for a scheme that would put its oil revenues directly into the pockets of all the Iraqis, and thereby set an example that could help to empower the democracy in all the other countries that are cursed with the centralization of their oil revenues… the mother of all oil curses. Unfortunately, the supposed builders of democracy forgot to bring with them to Iraq such a fundamental building block.

Now, when exiting Iraq, as a minimum minimorum, we should at least aspire that the next Saddam Hussein, whenever he will appear, should not find it easier to be the next Saddam Hussein… much the same like the next Bush, whenever he will appear, should not find it easier to be the next Bush.

http://www.policyinnovations.org/ideas/commentary/data/000083

Discrimination based on the financial profiling and risk-based pricing

Risk-based pricing actually requires creating the misinformation that allows for making borrowers who should get lower rates agree to pay the higher rates that cover the losses of those that should not have been given credit… at least not at these high impossible rates.

Risk based pricing, which is similar to placing persons that after some doubtful genetic test are presumed to be especially exposed to an illness in a separate insurance pool, could be causing much of the growing social inequality that is currently attributed by some to globalization. Risk profiling, for a discriminatory purpose, is prohibited in most spheres of our social relations, except in lending where it is very much cheered, by most.

John, Paul and Peter, because of FICO have to pay high interest. John, though he might have been able to do so at lower rates, is not able to service the debt and loses. Paul, utterly responsible, services it, barely, and Peter who is in this group because no ones no why meets the payments with ease. Question: Any winners?

John should for a starter not have been given the credit, at least not at the high rate, and both Paul and Peter, having been able to service the debt at high rates evidenced de facto they merited lower rates. Answer: No winners! Except of course those who are not to be named!

How libertarians can shut up about the financial information cartels that chain the markets to neo-non-transparent-regulations, I have never understood.

How developed countries’ progressives can shut up about the discrimination implicit in risk based pricing and that could be introducing more inequality in the societies than what they sometimes attribute to globalization, I have never understood.

Vulture funds

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

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

Most, or perhaps all of the scholar papers on restructuring or condoning of sovereign debt, state as the explicit purpose of the whole exercise, that of enabling the countries to regain access to the international capital markets again, something which reads like the torturer waking up his fainted victim in order to start all over again.

In this respect, if you need to pick on one, you might also choose to do so at that moment of the circle of life when the new born debt-overhang-ridden country gets thrown out to start defending itself again from the many dogs-of-finance roaming out there, and often guided by the same old lousy government that previously messed it up.

There is so much written about freeing up the countries in order for them to access the markets while comparatively so little about how they should go about to avoid repeating the same mistakes, and so perhaps I should also frown when it is a regular investment banker, or a good hearted MFI banker, or even just an over-illusioned activist who knocks on my door and asks for my daughter.

A tax on intellectual property.

The dollar bills and whose value the United States is responsible for, bear the abbreviated motto "In God We Trust", "In God we trust". A more complete version would be "In God we trust that politicians do not circulate more dollars than the economy can support or, if they do, the United State's taxpayers have the willingness and ability to pay with taxes what it takes ". The above is the same for all other countries.

Now, and even if the private sector bears most of the initial losses of the financial crisis, it will end up being extraordinarily costly for the treasuries as well and, without a doubt, in many cases will exceed their current capacity. In this sense, some of the costs will have to be paid with more taxes or, in their absence, they will be paid with inflation, the tax on the poor.

Society has spent decades without analyzing taxation that adjusts to the new global realities and that interferes as little as possible with the recovery of the economy, so it may be timely to start reflecting on the subject. Any new tax proposal must also be legitimated on the basis of justice and rationality. In this sense I am circulating some ideas for your discussion and the following is one of them.

The tax on profits derived from monopolies created by intellectual properties.

Most or perhaps all intellectual property rights are granted to whoever runs the last part of a relay run with ingenuity, creativity and tenacious efforts by generations of human beings. The former runners allow the latter to cross the finish line victoriously and lift a finished idea, even if not necessarily started.

The particularity of this relay is that whoever expects to be running as the last reliever cannot be completely sure of it. Sometimes running the last part or any part can be easy; other times it can take a lot of team effort and cost millions. Society, in order to stimulate ingenuity, creativity and the effort required of all, in order to help the world progress, has decided to award the trophy of an intellectual property right to only the runner who crosses the finish line.

The problematic part of this social agreement is that all intellectual property rights create a right to a monopoly and that since it is exercised with little or no regulation, restriction or supervision, it means that it can be subject to over-exploitation.

Since every intellectual property right granted imposes on society the obligation to defend such right, in many ways, which costs a lot, the question that also remains to be answered is whether it would not have been better to use those resources for other purposes, for example finance others to run the relay.

I do not find logic or justice in charging a company that has been granted a monopoly of an intellectual property right, for something to which previous generations have contributed and in whose defense society must invest resources, the same tax rate on earnings that applies to a company that competes in the market without any kind of protection.

Therefore, I have proposed to study that the profits generated by the exploitation of an intellectual property right pay an additional tax on profits, of for example 20%. Those proceeds can go to reimburse society for the costs of defending intellectual properties and to help fund other runners in those relays of humanity to develop essential goods that can serve us all.

Translated from an OpEd in El Universal, Caracas