Category: Finance

Greece, or grease?

The agony of watching a country (and a planet) slip.

Readers will be aware that I very rarely stroll through the tangled pastures of international politics and finance.  The only reason that I do so today is on the back of a very impressive letter published in the German newspaper  Handelsblatt.  That was brought to my attention by my subscription to Mike Shedlock’s (Mish) Blog Mish’s Global Economic Trend Analysis.  You will see that I muse at two levels about where we are today.

Earlier, I had read in last Saturday’s, The Economist a leader on Greece’s debt crisis, entitled Trichet the intransigent.   That started thus,

The European Central Bank’s refusal to consider a restructuring of Greek debt could wreck the euro zone
May 12th 2011 | from the print edition

IF THE stakes were not so high, Europeans’ incompetence in the euro-zone debt crisis would be comic.

and concluded thus,

It is time for the Germans and the IMF to call the ECB’s bluff. Together they should demand, and instigate, a restructuring of Greek debt. Germany should push other European governments to cough up money to support Greek banks and, if necessary, to make whole the ECB. The fund, which knows how to restructure debt, must ensure the process is run in a competent manner. The ECB will then be faced with a choice: go along with an orderly restructuring, or trigger a much greater mess by in effect forcing Greece out of the euro zone. Surely Mr Trichet does not want that to be his legacy.

So with that as background, the letter to Georgios Papandreou, Prime Minister of Greece written by Gabor Steingart is powerful and hard hitting.  Here it is in full.

Mr. Prime Minister,

Dear Mr. Papandreou,

With the greatest respect, the Western world is monitoring your efforts to master your country’s debt crisis. No other democratic country has ever managed anything like that in peacetime. You are shrinking the state apparatus; you are fighting corruption; you are teaching your fellow countrymen how to become honest tax-payers.

You are a modern hero. You are attempting the impossible. As the son of a persecuted and ostracized politician who was chased by the military junta you grew up close to danger. When the officers were looking for your father who was hiding in the attic, they threatened you by putting an unlocked pistol to your forehead and challenged you to betray your father. You denied your father’s presence until he, worried about his son’s life, left his hiding place.Later you fled with him to America where you spent your adolescence. You are alarger-than-life-character.

Preceding governments almost ruined your country. Debts amounting to 340 billion Euros are burdening the Greek state,equaling 155 times the profit of the 60 largest companies of your country and 1.5 times the amount of debts the Maastricht Treaty allows. A year ago, this newspaper, Germany’s biggest Business Daily, appealed to the public to buy Greek government bonds in order to give to the country what Greece needs just as urgently as money: confidence. We also wanted to assist in breaking through the negative spiral of growing doubt and increasing interest rates. Everyone who granted you guarantees and loans wanted it, the European Union, the International Monetary Fund, the heads of state and government.

But since then, the spiral has picked up in speed instead of slowing down. In May 2010 the interest rate at which your country was given money on a ten year basis was at eight per cent. Today, it is at 16 per cent. And in all probability, it will be going up further. The bitter truth to which you and all parties who wanted to help Greece have to admit is that the help doesn’t help. Your country is getting deeper and deeper into the mess. Debts are growing, the gross national product will decrease by at least three per cent in 2011. But it would have to grow by three per cent instead if you were to lower your debt to the allowedlimit until 2040. This is becoming more and more unrealistic. You can’t starve and build up your muscles at the same time.

The truth that Greece has to cut back and save has turned into an untruth. The right thing has turned into the wrong thing. You already cut pensions, lowered the salaries of civil servants by 30 per cent and raised the prices of gas by almost 50 per cent. You can’t restore the health of your country by saving. And the European Union can’t restore your country’s health by again and again injecting new loans.

Soon, the day will come when the tortured body will surrender. The Greek construction industry already shrank by 70 per cent. Sales of car dealers sank by half. A daily export volume of 50 million Euros Greece is achieving  far too little.  Soon the day will come which investors fear in their nightmares. Then the word “insolvency” will be on everyone’s lips.

But it is also the day when a new truth will be born: Don’t save but invest, they will tell you – so that the Greek economy will grow again. Do not service debt with debt, you then will be recommended, but spread out the debt service, cut it and maybe even completely suspend it for a while. It will be a day of impositions, especially for those who lendmoney to you and your people. Financial markets will grind to a halt in horror – and then they will turn to embrace the future. Because Argentina in 2001, Mexico at the beginning of the eighties and Germany after World War II taught us that there is a life after death – at least, in the case of highly indebted states.

Mr. Papandreou, so far, you attempted the impossible. Now you should do the possible. Just as you deceived the officers as a boy and denied to know where your father was hiding you now must repudiate the pride of the Greeks – in order to save your country. Come to meet the new uncomfortable truth before it knocks at your door. It’s already on its way.

Respectfully yours,

Gabor Steingart

The author is an award winning Journalist, the former White House Correspondent of “Der Spiegel” and now Handelsblatt’s  Editor-in-Chief.  His book “The war for wealth. The true story of globalization or while the flat world is broken” was  published in the US, GB, China and several other countries by McGraw Hill, New York, in 2008.

You may contact him at

steingart@handelsblatt.com


Powerful, as I said.

In a sense, in a very real sense, this illustration of the end game of our love affair with debt is symptomatic of the end game in terms of mankind’s love affair with, well with mankind.  The following was written by an inmate of Oklahoma Prison in 1998.

At the root of my humanity lies a potentially insatiable self-centredness.  Given its way, it can become unquenchable. Nothing, not even the richest of imagination, will put out its fire.

This ‘what’s in it for me’ mindset is at the root of all my problems and is where my fears live.  From those fears come anger, greed, intolerance, and a host of other shortcomings.

It is no accident that all religions point to the forgetting of self, because all religions know salvation lies in self-forgetting.

As we head relentlessly towards a level of 400 parts per million (PPM) of carbon dioxide in the atmosphere, 50 PPM above the highest safe limit determined by climate scientists, the time for mankind to move on from the debt-laden, over-leveraged, disconnected life from Planet Earth, is now.

That’s now!

Nature, big business and the future

Just maybe, economic activity and financial capital could align itself with the planetary demands!

A collection of items crossed my screen in the last few days that reinforced the interconnectedness of all life on Planet Earth.

First I saw an item on the BBC News website that demonstrated that climate change, global warming, or however one wants to describe man’s relationship with the planet, is not some crazy, fuzzy idea of a few liberal environmentalists.  This was a report of the significant drop in global wheat yields.

The report was entitled, Climate shifts ‘hit global wheat yields’ and was written by Mark Kinver, Science and environment reporter, BBC News.  Here’s a taste of what was written.

Shifts in the climate over the past three decades have been linked to a 5.5% decline in global wheat production, a study has suggested.

A team of US scientists assessed the impact of changes to rainfall and temperature on four major food crops: wheat, rice, corn and soybeans.

Climate trends in some countries were big enough to wipe out gains from other factors, such as technology, they said.

Professor David Lobell from Stanford University went on to say,

“In particular, you have to assume how non-linear the response will be and how different the crops of tomorrow will be from the crops of today,” he said.

He added that the study focused on historical data in order to strengthen confidence in the existing projections.

“I think it is very clear that climate is not the predominant driver of change over long periods of time in crop production.

“Across the board, you see crop yields going up over the past 30 years, but the question is how much is climate modified (and) what would have happened if the climate was not changing.

“In some countries, we see that climate has only affected things by a few percent. In other countries, we see that yields would have been rising twice as fast.

“On a global average, we see that wheat production would be about 5% higher if we had not seen the warming since 1980. We see about the same for maize or corn.

“Yet for rice and soybean, we actually find that production is about the same as if climate had not been trending.”

The report may be accessed here.

Sort of moving on, most people, when they stop and think about it, must realise that 6.9 billion people living (i.e. depending) on Planet Earth have to be causing changes.  The Inside Science News Service published a reminder from last December of a calculation that,

By Mary Caperton Morton, ISNS Contributor
Inside Science News Service

STRASBURG, Pa. — Next month, representatives from more than 190 nations will gather in Japan at the Nagoya Biodiversity Summit to develop a global strategy for staunching habitat and biodiversity loss around the world.

The statistics are sobering: Every 20 minutes a species goes extinct. At that rate — estimated to be a thousand times faster than pre-human impact background levels – in 300 years, half of all living species of mammals, birds, fish, reptiles and plants will be gone. [My italics]

This alarming decline has not gone unnoticed. In 1992, the United Nations Convention on Biological Diversity — or CBD — one of the most widely ratified treaties in the world, established lofty conservation goals to be met by 2010. But since then the decline in biodiversity has not slowed. Nearly 16,000 species are still listed as threatened, with more than 200 of them described as “possibly extinct.”

What we need, some might ask, is for big business to get behind and push!  Perhaps not so far fetched.

Last October, the British Guardian newspaper, published a very telling reminder that nothing ever in life stays the same.

The article was presented thus,

Biodiversity loss seen as greater financial risk than terrorism, says UN

Loss of ecosystems perceived by banks and insurance companies to be a greater economic risk than terrorism, finds UN report.

Written by Jonathan Watts in Nagoya.

A controlled burn of oil from the Deepwater Horizon well in the Gulf of Mexico. The report cites the Gulf of Mexico oil spill as an extreme example of the potential impact of inadequate environmental controls. Photograph: Ann Heisenfelt/EPA

The financial risks posed by the loss of species and ecosystems have risen sharply and are becoming a greater concern for businesses than international terrorism, according to a United Nations report released today.

From over-depletion of fish stocks and soil degradation caused by agricultural chemicals to water shortages and mining pollution, the paper – commissioned by the UN Environment Programme and partners – said the likelihood has climbed sharply that declines in biodiversity would have a “severe” $10bn (£6bn) to $50bn impact on business.

With the European Union and other regions increasingly holding companies liable for impacts on ecosystem services, it suggests banks, investors and insurance companies are starting to calculate the losses that could arise from diminishing supplies, tightened conservationcontrols and the reputational damage caused by involvement in an unsound project.

Achim Steiner, UN under-secretary general and Unep executive director, said: “The kinds of emerging concerns and rising perception of risks underlines a fundamental sea change in the way some financial institutions, alongside natural resource-dependent companies, are now starting to glimpse and to factor in the economic importance of biodiversity and ecosystems”.

The briefing paper cites the 55% crash of BP’s share price and the decline of its credit rating in the wake of the Gulf of Mexico oil spill as an extreme example of the potential impact of inadequate environmental controls.

Read the full article in the Guardian here.

The United Nations Environment Programme report may be found here.  The cover page says this,

“ As the global financial sector recovers and moves into the post financial crisis era,
there is one notion that crystallises before our eyes more acutely than ever: we need
to understand systemic risk in a much more holistic way. This CEO Briefing underscores
the critical natural capital that underpins our economic activity and financial capital.”
Richard Burrett, Partner in Earth Capital Partners
Co-Chair, UNEP Finance Initiative

Well put!

As I wrote at the very start, just maybe, economic activity and financial capital could align itself with the planetary demands!

The day after April 1st!

When it all gets real close and personal.

I have been a great fan of the BBC’s business editor, Robert Peston, and read his Blog as often as I can.  Recently, the focus has been on Ireland.

A few days ago, before the announcement by the Irish premier and finance minister as to their vision for the future of Ireland’s banks, Robert penned a post that started as follows:

The unbelievable truth about Ireland and its banks
Ireland’s central bank and new government will confirm on Thursday that the hole in the country’s banks is even wider, deeper and darker than seemed to be the case last November, when those bust banks forced the country to go with a begging bowl to the eurozone’s rescue funds and the International Monetary Fund (IMF) for 67.5bn euros (£59bn) of rescue loans.

That article then led me to Paul Mason, BBC Newsnight’s economics editor, who also writes a Blog.  He wrote on the 30th March,

A short summary of the Euro snafu that’s about to happen:

1) Tomorrow Ireland publishes the results of bank stress tests. It has to find – or the EU has to find – another E18-25bn to shore up its failing banks.

etc., etc.

Again, while the article is interesting, the whole point of this Post was one comment made to that Paul Mason piece.  Here it is,

At 00:47am on 31st Mar 2011, tawse57 wrote:

I am bored with all these posts about the economy now. Can we go back to cheese and crackers and the mysterious case of Paul Mason’s mobo contacts?

I was just talking with a 35 year old young man who is married and has a young child.

His wife, quite rightly, does not wish to move away from the place where she was born and brought up – Cornwall.

But he tells me that, despite almost saving £100,000 by putting in every hour they could in working and saving, that they stand no chance of ever owning their own home.

He says the house that he rents have asking prices of about £450,000 despite most of them just sitting on the market for years because no one, no one local anyhow, can afford them. What does sell goes to rich Londoners.

He is destined to pay out most of his wages in private landlord rents. He can’t get into a Council house or a Housing Association property because they either no longer exist or the waiting lists are measured in decades.

He is not prepared to have such a millstone of stress, worry and financial drain around his neck. It would kill him. I don’t blame him.

His story is one of hundreds of thousands, perhaps millions, of people in the UK today.

I mention this as the bank stress tests are directly connected with the massive credit bubble, much of it a housing bubble of liar loans, that brought the global economy to its knees, bankrupted banks and still threatens to bankrupt nations.

All of us on here know this. We are an enlightened bunch.

But I think it is worth remembering that the affects of the global credit binge are still directly affecting so many in this country.

The UK is almost alone in the World in not yet seeing a massive housing crash. The Government and the Bank of England have gone out of their way stop it happening in order to protect the banks who so stupidly, but also so greedily, loaned so many liar loans on bricks and mortar not in other countries but here in the UK.

Those UK banks that keep threatening to leave our shores are up to their eyeballs in global liar loans. You name a country in trouble and you can bet your bottom dollar, which might be the only thing most of us have left soon, that British banks are at the heart of it all.

It is long overdue that this giant house of cards came crashing down. It is long over-due that, as a Society, we cut out the cancer of dirty banks and dirty bankers from our lives and from these shores.

They are leeches on the souls of Men. Gosh, I am getting poetic in my anger. It must be that teaspoon of Jack Daniels I put in my midnight cocoa.

So what if the banks fail their stress tests today, next week or next year. It won’t make a squat of difference to that couple in Cornwall. It won’t make a squat of difference to most of us.

The worst thing that can happen is, as Alistair Darling so panicked, that the ATM machines run empty. Well, what would happen then? Would the sky fall in? Would us polite British all sit at home and do nothing.

Or would we take our cue from the Egyptians, the Tunisians and all the rest?

Perhaps what this country needs most of all is for another even bigger banking crisis? If it happens I think I would feel safer being one of the masses instead of one of the banking elite.

I do hope the banks fail the stress tests. I do hope it brings about another crisis. I do hope that, this time, the People say enough is enough and that this rotting cancer within Humanity is lanced with a fiery lancie thingy.

I could murder a bit of cheese on a nice cracker now.

Whoever you are tawse57, I like your style.  Very powerful words.

“It is error alone which needs the support of government.  Truth can stand by itself.”

~Thomas Jefferson (third President of the United States from 1801 to 1809)

Inside job

The shocking documentary film about the global financial crisis.

I’m sure many have already see the film Inside Job but we only watched it a few nights ago.  Here’s the trailer.

The film is also available to watch on Top Documentary Films and is summarised on that website thus:

As he did with the occupation of Iraq in No End in Sight, Charles Ferguson shines a light on the global financial crisis in Inside Job.

Accompanied by narration from Matt Damon, Ferguson begins and ends in Iceland, a flourishing country that gave American-style banking a try – and paid the price.

Then he looks at the spectacular rise and cataclysmic fall of deregulation in the United States. Unlike Alex Gibney’s fiscal films,Enron: The Smartest Guys in the Room and Casino Jack, Ferguson builds his narrative around dozens of players, interviewing authors, bank managers, government ministers, and even a psychotherapist, who speaks to a culture that encourages Gordon Gekko-like behavior, but the number of those who declined to comment, like Alan Greenspan, is even larger.

Though the director isn’t as combative as Michael Moore, he asks tough questions and elicits squirms from several participants, notably former Treasury secretary David McCormick and Columbia dean Glenn Hubbard, George W. Bush’s economic adviser.

Their reactions are understandable, since the borders between Wall Street, Washington, and the Ivy League dissolved years ago; it’s hard to know who to trust when conflicts of interest run rampant.

If Ferguson takes Reagan and Bush to task for tax cuts that benefit the wealthy, he criticizes Clinton for encouraging derivatives and Obama for failing to deliver on the promise of reform. And in the category of unlikely heroes: former governor Eliot Spitzer, who fought against fraud as New York’s attorney general (he’s the subject of Gibney’s documentary Client 9).

Sony have available on their website a useful study guide.  It appears to be written with students in mind but there is much valuable background information there for all.  The guide, in pdf, may be seen here.

It would all have been worthwhile, if that’s the correct term, if we had seen effective regulatory responses from strong governments but, as the film points out, the millions of people on the receiving end of harsh, downward adjustment of personal wealth are still waiting.

Meanwhile, Europe continues to bleed, American housing is still trending downwards and the real effect of the Japanese earthquake is far from clear.

We are living in interesting times!

Approaches to ‘growth’.

Some thought-provoking articles on the need, or otherwise, of continued growth.

Intellectually, most people, if they stopped and thought about it, would not challenge the absurdity of the notion that a finite rock in space, Planet Earth, can handle an infinite increase in the demands and resources of that finite planetary body, our home in space!

Yet the reality is very different.  For many complex reasons, way beyond the competencies of this writer to fully explain, we, as in the peoples of Planet Earth, continue to behave as though there are no limits to the resources of this beautiful planet that is home for all of us.

Here are some extracts from some recent items that have passed across my ‘in-box’.

A piece from the CASSE website:

What If We Stopped Fighting for Preservation and Fought Economic Growth Instead?

by Tim Murray

Seriously.

Each time environmentalists rally to defend an endangered habitat, and finally win the battle to designate it as a park “forever,” as Nature Conservancy puts it, the economic growth machine turns to surrounding lands and exploits them ever more intensively, causing more species loss than ever before, putting even more lands under threat. For each acre of land that comes under protection, two acres are developed, and 40% of all species lie outside of parks. Nature Conservancy Canada may indeed have “saved” – at least for now – two million acres, but many more millions have been ruined. And the ruin continues, until, once more, on a dozen other fronts, development comes knocking at the door of a forest, or a marsh or a valley that many hold sacred. Once again, environmentalists, fresh from an earlier conflict, drop everything to rally its defense, and once again, if they are lucky, yet another section of land is declared off-limits to logging, mining and exploration. They are like a fire brigade that never rests, running about, exhausted, trying to extinguish one brush fire after another, year after year, decade after decade, winning battles but losing the war.

Just read again the sentence, “For each acre of land that comes under protection, two acres are developed, and 40% of all species lie outside of parks.” Powerful ideas.

Anyway, do read the article in full and see if it changes your attitude.  Here’s how it ends.

Sir Peter Scott once commented that the World Wildlife Fund would have saved more wildlife it they had dispensed free condoms rather invested in nature reserves. Biodiversity is primarily threatened by human expansion, which may be defined as the potent combination of a growing human population and its growing appetite for resources. Economic growth is the root cause of environmental degradation, and fighting its symptoms is the Labor of Sisyphus.

The next article is from The Christian Science Monitor writing about how scientists are getting a new idea about the rate of loss of polar ice.

The seasonal cooling effect of light-reflecting snow and ice in the Northern Hemisphere may be weakening at twice the rate predicted by climate models, a new study shows, accelerating the impact of global warming.

By Pete Spotts, Staff writer / January 18, 2011

A long-term retreat in snow and ice cover in the Northern Hemisphere is weakening the ability of these seasonal cloaks of white to reflect sunlight back into space and cool global climate, according to a study published this week.

Indeed, over the past 30 years, the cooling effect from this so-called cryosphere – essentially areas covered by snow and ice at least part of the year – appears to have weakened at more than twice the pace projected by global climate models, the research team conducting the work estimates.

This is a well-constructed article, easy to read with obvious conclusions.  Towards the end, the author writes:

Snow appears to have its maximum cooling effect – reflecting the most sunlight back into space – in late spring, as the light strengthens but snow cover is still near its maximum extent for the year. Sea ice in the Arctic Ocean has its biggest effect in June, before its annual summer melt-back accelerates, explains Don Perovich, a researcher at the US Army Corps of Engineers Cold Regions Research and Engineering Laboratory in Hanover, N.H., and a member of the team reporting the results.

The final article that I want to include is one from the website Foreign Policy. I’m going to take the liberty of reproducing it in full because it strikes me as an extremely intelligent commentary on where mankind is in terms of our attitudes to growth.

Thomas Homer-Dixon
ECONOMIES CAN’T JUST KEEP ON GROWING

Humanity has made great strides over the past 2,000 years, and we often assume that our path, notwithstanding a few bumps along the way, goes ever upward. But we are wrong: Within this century, environmental and resource constraints will likely bring global economic growth to a halt.

Limits on available resources already restrict economic activity in many sectors, though their impact usually goes unacknowledged. Take rare-earth elements — minerals and oxides essential to the manufacture of many technologies. When China recently stopped exporting them, sudden shortages threatened to crimp a wide range of industries. Most commentators believed that the supply crunch would ease once new (or mothballed) rare-earth mines are opened. But such optimism overlooks a fundamental physical reality. As the best bodies of ore are exhausted, miners move on to less concentrated deposits in more difficult natural circumstances. These mines cause more pollution and require more energy. In other words, opening new rare-earth mines outside China will result in staggering environmental impact.

Or consider petroleum, which provides about 40 percent of the world’s commercial energy and more than 95 percent of its transportation energy. Oil companies generally have to work harder to get each new barrel of oil. The amount of energy they receive for each unit of energy they invest in drilling has dropped from 100 to 1 in Texas in the 1930s to about 15 to 1 in the continental United States today. The oil sands in Alberta, Canada, yield a return of only 4 to 1.

Coal and natural gas still have high energy yields. So, as oil becomes harder to get in coming decades, these energy sources will become increasingly vital to the global economy. But they’re fossil fuels, and burning them generates climate-changing carbon dioxide. If the World Bank’s projected rates for global economic growth hold steady, global output will have risen almost tenfold by 2100, to more than $600 trillion in today’s dollars. So even if countries make dramatic reductions in carbon emissions per dollar of GDP, global carbon dioxide emissions will triple from today’s level to more than 90 billion metric tons a year. Scientists tell us that tripling carbon emissions would cause such extreme heat waves, droughts, and storms that farmers would likely find they couldn’t produce the food needed for the world’s projected population of 9 billion people. Indeed, the economic damage caused by such climate change would probably, by itself, halt growth.

Humankind is in a box. For the 2.7 billion people now living on less than $2 a day, economic growth is essential to satisfying the most basic requirements of human dignity. And in much wealthier societies, people need growth to pay off their debts, support liberty, and maintain civil peace. To produce and sustain this growth, they must expend vast amounts of energy. Yet our best energy source — fossil fuel — is the main thing contributing to climate change, and climate change, if unchecked, will halt growth.

We can’t live with growth, and we can’t live without it. This contradiction is humankind’s biggest challenge this century, but as long as conventional wisdom holds that growth can continue forever, it’s a challenge we can’t possibly address.

Thomas Homer-Dixon is the CIGI chair of global systems at the Balsillie School of International Affairs in Waterloo, Canada.

As Rob Dietz of CASSE wrote in a recent email to me, “I’m a big Thomas Homer-Dixon fan.  His book, The Upside of Down, is outstanding.”

“Economic growth may one day turn out to be a curse rather than a good, and under no conditions can it either lead into freedom or constitute a proof for its existence” Hannah Arendt (1906-1975).

 

Well said, Hannah!

Power of social networks in the area of finance

“The nature and reach of social conversations in the investment arena.”

The above sub-heading is from a recent Post on Naked Capitalism that rather spookily comes hot on the heels of one of my recent musings.  Here’s what I published on the 12th January although I wrote it on the 9th.

In the past opinion and commentary has been in the hands, more or less, of the giant media moguls.  But technology has changed that.  Now more than ever a huge people have access to the Internet.  Indeed, a quick Google search reveals that of a world population of 6.85 billion people, just under 2 billion (29%) have internet access.  In North America that percentage is 77.4% (226 million) and in Europe the percentage is 58.4% (475 million).  I.e. nearly a billion people in just North America and Europe!

My point is that, in a manner never before experienced in human history, the vast majority of us have the ability to read, learn and muse about the critically important issues facing us today, coming to conclusions that carry political weight.  We have almost infinite choice as to where and how we form opinions.

Thus having access, via the internet, to the scribblings of so many wise people may end up giving democracy the boost it really needs in the face of overwhelming powerful plutocratic forces.

Coincidentally, also on the 12th Yves Smith of Naked Capitalism published an article entitled, The 20 most influential blogs in financial media.  You can find that article here.  Here’s a flavour of what was written.

Thanks to Minyanville for publicizing this study by MindfulMoney on the nature and reach of social conversations in the investment arena. But even bigger thanks go to loyal readers and contributors for their frequent comments, leads, and critiques. The success of a blog depends on its community and I am very grateful for all the input so many of you have generously provided.

Perhaps the most interesting finding (boldface ours):

The research confirms the existence of a network of investment super-connectors with extraordinary media influence and reach. These super-connected new influentials are, for the most part, not well established voices in the media but individual bloggers who fiercely champion their independence….In the US, the network functions as the unofficial voice of Wall Street & the US federal bank with no mainstream media players at the centre of the network.

Given how many of these top blogs are critical of the status quo, this map may be hopeful sign that the blogosphere is beginning to become a important channel of discourse outside the reach of the PR machinery of major corporations and government entities.

And rather than publish all the top 20 names, you can see that list here, the top 10 are as follows:

1. Naked Capitalism
2. Infectious Greed
3. The Big Picture
4. Jesse’s Cross Roads Cafe
5. Zerohedge
6. Mish’s Global Economic Analysis
7. Calculated Risk
8. Paul Krugman’s Blog
9. FT Alphaville
10. Ludwig von Mises Institute

Anyone interested in downloading the original report as published on the MindfulMoney website can go to the article here; the link to the pdf, requiring prior registration, is towards the end of the article.  The article opens thus:

Most investors would acknowledge that social media is playing an increasing role in their investment decisions. Yet no-one has mapped the emerging network of influence likely to be playing a crucial part in those decisions.

Until now that is.  MindfulMoney’s ‘Social Finance: The New Influentials” report is aiming to better understand what this network looks like and to see if a number of super connections, so beloved of writers like Malcolm Gladwell, exist.

The research indicates that they do.

As I said, to download the article you need to register first – that link is here.

It’s a very interesting new world that we are living in and one, I pray, that is returning real power to the electorates.

 

 

 

 

The Future of Content

A fascinating piece by John Maudlin.

I came across John Maudlin’s web site some time ago and ended up subscribing to one of his Blogs, Outside the Box.  To be frank, much of what John writes is a little bit too technical for me but this item did catch my eye to the extent that I read the item in full and was intrigued by it.

The article was called, “Apple, Google, NewsCorp and the Future of Content”  You can read it directly here.  But just to whet your appetite, here’s a small extract of what is primarily an interview with Michael Whalen:

In this issue of The Institutional Risk Analyst, we speak to Michael Whalen, [Emmy] award winning composer and new media observer about the outlook for the business of creating and delivering content.  Since graduating from Berklee College of Music, Michael has taught a business for music class that has saved thousands of young artists from making terrible mistakes with content and other contractual rights.  Think Frank Zappa and Warner Brothers.   And yes, Michael is IRA co-founder Chris Whalen’s younger brother.

and later …

Whalen: Frankly, I think we’re going back to the 19th century in terms of the “status” of artists. They’ll be figureheads. Imagine: like Paris or Vienna of the 1900s, we’ll have wealthy patrons and small clutches of people who support the art of “real” artists. In this environment, the work we will try to sell is simply a loss leader and an inducement for us to perform or create a “custom” song, TV show or film… Yup, it’s all here now… What will be really interesting is what happens next… I am not pretending to be the “Grim Reaper” but I think the record business, the film studio system and the television networks are over as we think we know them. I think there is a new business emerging in gathering creative investment, content and creative marketing…. It will be in a structure that’s more akin to a stock market than the traditional structure we’ve seen for artistic and creative content and the platform for it will be the digital ocean we have already discussed. Based on the “buzz”, there will be a “futures” market and the idea is commoditized and funded in days – not months or years. For decades, most record companies and networks have been little more than funding sources for artists – now the truly visionary artist won’t even need these ancient businesses – the market itself will generate everything it needs to create content efficiently. It’s a little overwhelming the change that is here now vs. five years ago and that will be coming in torrents in the next few years. Amazing.

Read the full interview here – I promise you won’t regret it.

By Paul Handover

Fairness in society

Very difficult times ahead but a fairer social order could be one outcome.

As is so often the case, a number of different lines of thought come together once again to highlight the pressures on society and my belief that we are in the ‘zone of change’ between the last 40 or 50 years and what is ahead for western societies.  There is no question that these are very difficult times as, I presume, all phases of change have been over many centuries.

On the 28th October there was a Post on Learning from Dogs about the recent book from Will Hutton, Them and Us.  That book masterfully articulates the core issues in British society arising out of some fundamental economic policy errors and the very difficult times that are being experienced right now.

The British are a lost tribe – disoriented, brooding and suspicious. They have lived through the biggest bank bail-out in history and the deepest recession since the 1930s, and they are now being warned that they face a decade of unparalleled public and private austerity.

As if to underline the fact that the economic situation is far from recovery, despite what is being promoted, here’s a recent article from Washington’s Blog. Almost impossible to take an extract that conveys the essence of this powerful (and scary) article – so just go here and read it.  Or if you haven’t the time here’s a taste:

SATURDAY, NOVEMBER 27, 2010

It’s Not Just the “Peripheral” European Countries … Financial Contagion Could Spread to “Core” Eurozone Countries and the U.S.

CNN notes:

Americans will not be spared if there’s a recession in Europe, even if U.S. bank exposure to European government debt is relatively limited.

SNIP

The European Union is the second largest market for U.S. exports, behind only Canada. The EU bought about $175 billion in U.S. goods in the first three quarters of this year. That’s up about 8% from a year ago.

So worsening problems in Europe will clearly be a drag on the U.S. as well.
Niall Ferguson, Marc Faber, and SocGen’s Edwards and Grice predicted 9 months ago that the European debt crisis would eventually spread to America.

But the question of what country the “contagion” might spread to next is really the wrong question altogether.

The real question is whether the wealth of the people around the world will continue to be shoveled into the bottomless pit of debts held by the big banks, or whether the people will prevail and the giant banks and bondholders will be forced to take a haircut. See this, this and this.

So back to the issue of fairness.  There is no escaping the consequences, still playing out, of the ‘spend now, pay tomorrow’ culture of the last 30 or 40 years so then the main issue is how do we mitigate the consequences for those who are most exposed to some of less prettier aspects of modern life.  Ponder on that question while you read this recent piece from Open Democracy.

Fairness and the cost of life for the poor in Britain

Brian Landers, 26 November 2010

Most Britons had “never had it so good” despite the “so-called recession” declared Lord Young of Graffham.  His words were immediately disowned by David Cameron, who fired him. But in reality Young was only articulating what he and his circle are experiencing and privately believe.

For example, on the BBC’s Sunday morning Broadcasting House on 21 November, Lord Charles Powell who was Margaret Thatcher’s advisor, complained, “unfortunately he said the wrong thing. In terms of fact what he said was probably right, with interests rates low people are not particularly badly off at the moment. But some people are very badly off and it is insensitive, I suppose, to suggest that everyone is not doing too badly at this time. It does show that you can’t speak the truth in politics anymore you have to defer to what is politically correct”.

Well, there is another truth: that for thousands of pensioners and not just “some” of them, negative real interest rates on their savings are becoming a disaster. Even though for the heavily mortgaged wealthy, low interest rates do indeed make them much better off.

What Young’s comments illustrate, therefore, is that when we consider equality and inequality we need to look at expenditure patterns, which can be just as important as differences in income.

Historically debates on social equality focus overwhelmingly and inevitably on inequalities of income. We read, for example, that according to a study by Incomes Data Services chief executives of the UK’s 100 largest companies are now paid on average 88 times the pay of typical full-time workers and that this ratio is getting worse. Last year the multiple was 81 times and ten years ago top bosses took home 47 times the average wage.

But in addition to their income being a lot lower the poor also suffer more because life costs them more. There are two issues, one obvious, one less so.

The primary issue is one of fairness. Three for the price of two supermarket offers are great value only for those who can afford to buy two; those who can only afford one end up paying 50% more per unit. Is that fair?

Another supermarket example which received widespread but soon-forgotten newspaper coverage earlier this year is more subtle. Tesco owns three convenience store brands in this country: Tesco Express, Tesco Metro and One Stop. An enquiry in 2006 found that the corporation was charging more than 20% more for the same products in its One Stop stores than in its Tesco branded stores. Tesco responded that it was bringing prices down in One Stop but in 2010 further research showed that One Stop prices were still 14% higher than prices for the same product in the rest of Tesco. One Stop typically operated in less attractive (that is poorer) areas where there was no competition from other mega-corporations and where therefore significantly higher prices could be charged. Again that raises issues of fairness.

If such unfairness is somehow familiar there is a further layer that goes beyond fairness: we live in a society where in many tiny ways the poor actually subsidise the better off through the way patterns of expenditure are organised by the market place, (i.e., not just by providing cheap labour).

Consider for example the cost of owning a car.  Bernard Jullien of the University of Bordeaux analysed published data on household expenditure and trade data from car distributors (See Competition and Change 6, 2002). He showed that richer consumers were being cross-subsidised by poorer consumers. Distributors in France (and almost certainly elsewhere) were following a conscious policy of keeping new car prices lower to increase their market share. Then then marked up the prices of spare parts and maintenance to maintain their overall profit levels. Jullien found that the unintended consequence was that well off customers, who were more likely to buy new cars, ended up being subsidised by less well off customers who typically bought second hand cars that needed more frequent repair.

There are more examples if the term “well off” is extended to include corporations. The cost of producing and distributing the electricity needed to power a light bulb is the same whether the bulb is in a private house or in the office of a mega-corporation – and yet the corporation will undoubtedly pay far less. Quantity discounts typically reflect the purchasing power of the buyer rather than any scale economies for the seller.

What are apparently rational pricing strategies have the unintended consequence of ensuring that poor people pay more than the well off in ensuring the overall profits corporations need.

Then there is time. Time budget surveys have shown, for example, that the poor take much longer per mile to get to work than the rich because the forms of transport they use are typically much slower. Similarly the poor have to devote more time to food shopping and a host of other activities.

There is nothing conspiratorial about the way that the poor fare worse than the rich. Often it is just the accidental by-product of perfectly sensible business decisions. Indeed in some cases there may even be wider social benefits. Improved stock control with Just-In-Time inventory techniques and Call-Off procurement contracts has ensured that waste in many industries has been sharply reduced; it is unfortunate that in food retailing one consequence is that end-of-day price reductions on perishable products are now less common, again hurting the poor more than the rich.

What can be done to mitigate these expenditure inequalities? First, they deserve to be highlighted, if only because, like so much else, they are beyond the experience of the multimillionaires in and around the cabinet. Second, and especially if we are going to talk about Big Society and us being ‘all in it together’, we need to think about economic models that build into their measures of success their consequences for all of us.

[Published with the permission of Brian Landers and openDemocracy.net under a Creative Commons licence.]

By Paul Handover

More on Them and Us

Will Hutton’s book continues to impress me; greatly.

On 28tTh October, I wrote an article about Will Hutton‘s impressive book, Them and Us.  I had got to page 120 or thereabouts and could resist no longer the urge of reading the book to the end before commenting on Learning from Dogs.

Now I am reading through page 260 and, again, find myself incapable of waiting until the book is completed before offering further thoughts!

Despite being very optimistic about the long-term future, I sense that the period that we have been in since 2008 may turn out to be one of the darkest in recent history – I touched on this aspect in a recent post called Faith in a (new) future.

One of the things that strikes me is the complete lack of openness from the British Government about the likely growth scenarios over the next decade.  Here was how the latest ‘growth’ figures were presented a couple of weeks ago, “The economy grew by 0.8% in the three months to September – double the rate that had been predicted by analysts.”

UK output increases by 0.8 per cent 4Q 2010

But here’s Will Hutton,

Britain is going to be much poorer than it anticipated just a few years ago.

and a couple of sentences later talking about economists Carmen Reinhart and Ken Rogoff,

They paint a sober picture of prolonged loss of output, high unemployment and depressed asset prices, and warn that there is no precedent for what happens after the kind of global crisis through which we have just lived. (My italics)

Hutton says that growth would need to accelerate to 3.25 per cent in order for output to reach its predicted level if the recession had not taken place.

He then says that a more plausible scenario if growth remains at 2.75 per cent (average level in recent years leading up to the credit crunch) “then it might never recover sufficiently to converge with the old trajectory.”

Hutton continues,

However, even that may be optimistic.  The reality is that between the economic growth troughs of 1991 and 2009, growth in Britain actually averaged just over 2 per cent.

That would lead to a cumulative loss of output of more than £5 trillion!

It could be even worse.  The economics team at Barclays believe that is it perfectly plausible for growth to average just 1.75 per cent for the first half of the current decade.

And all of this before the huge budget cuts announced by the UK Coalition Government start to bite!

So the reality is that we are a long way away from any form of real recovery, despite what the politicians are saying!

What is so impressive about the book is that Will Hutton is meticulous in his research (there are 23 pages of referenced notes at the end of the book) and from Chapter 9 starts setting out how Britain “has the opportunity to put things right fast.”  So this is a book from a well-respected author that sets out carefully and logically the cause of the recession and then presents some powerful options for change.

The bottom line is that Britain has to be a much more fairer society. Not just Britain.  Here’s an extract from a recent posting on Tom Engelhardt’s Blog. Tom is the author of the book, The American Way of War.

I’m no expert on elections, but sometimes all you need is a little common sense.  So let’s start with a simple principle: what goes up must come down.

For at least 30 years now, what’s gone up is income disparity in this country.  Paul Krugman called this period “the Great Divergence.” After all, between 1980 and 2005, “more than 80% of total increase in Americans’ income went to the top 1%” of Americans in terms of wealth, and today that 1% controls 24% of the nation’s income.  Or put another way, after three decades of ”trickle-down” economics, what’s gone up are the bank accounts of the rich.

In 2009, for instance, as Americans generally scrambled and suffered, lost jobs, watched pensions, IRAs, or savings shrink and houses go into foreclosure, millionaires actually increased.  According to the latest figures, the combined wealth of the 400 richest Americans (all billionaires) has risen by 8% this year, even as, in the second quarter of 2010, the net worth of American households plunged 2.8%

Change is definitely overdue.

By Paul Handover

Will Hutton, Them and Us

Changing Britain – Why We Need A Fair Society

 

Will Hutton

 

I have been reading Will Hutton‘s latest book for the last couple of weeks and am now through the first 5 chapters, at the time of writing this Post!  To my mind, it’s a very powerful and extremely well-argued summary of the sickness that has engulfed Britain, and by implication, other countries who have had similar experiences over the last 20 years.

There was a long extract published by the Guardian on the 26th September 2010 which gives one a good feel for the book.  Here’s how that extract starts:

The British are a lost tribe – disoriented, brooding and suspicious. They have lived through the biggest bank bail-out in history and the deepest recession since the 1930s, and they are now being warned that they face a decade of unparalleled public and private austerity. Yet only a few years earlier their political and business leaders were congratulating themselves on creating a new economic alchemy of unbroken growth based on financial services, open markets and a seemingly unending credit and property boom. As we know now, that was a false prospectus. All that had been created was a bubble economy and society. Yet while the country is now exhorted to tighten its belt and pay off its debts, those who created the crisis — the country’s CEOs and bankers, still living on Planet Extravagance, not to mention mainstream politicians — all want to get back to “business as usual”: the world of 1997 to 2007.

There are many, many sentences in the book that have one gasping for breath.  One of them that particular struck me was one on Page 13, see below for the sentence in italics.  But let me include sufficient text to put the sentence into context:

Today, philanthropy or living according to a particular moral code does not confer status.  Only money is able to do that.  People start to question whether vocational career choices – in farming, teaching, medicine or science – make any sense when society rewards them so lowly while rewarding finance so high.  Material values start to crowd out altruism, philanthropy and restraint.

Then comes this staggering reflection:

Two incidents in September 2007 highlighted the new values.  Lance Bombardier Ben Parkinson, who lost both legs after a landmine exploded in Afghanistan, was offered £152,000 compensation by the Ministry of Defence.  The very same week, Eric Nicoli left his job as CEO of EMI – having failed to turn around the company – with a pay-off of £3 million. [My italics]

Earlier, on page 6, Hutton writes of Richard Lambert, head of the Confederation of British Industry, the CBI as having said in March 2010, “for the first time in history officers of a company can become seriously rich without risking any of their own money.”   Here’s another piece from that extract published in the Guardian:

We need a shared understanding of what constitutes fairness in order to restore our society. At present, there is none. The rich argue that it is fair for them to be so wealthy, in much the same way as Athenian noblemen believed that their riches were signifiers of their worth. They believe they owe little or nothing to society, government or public institutions. They accept no limit or proportionality to their wealth, benchmarking themselves only against their fellow rich. Philanthropic giving is declining; tax avoidance is rising; and executive pay is rising exponentially. All three are justified by the doctrine that the rich simply deserve to be rich. Meanwhile, the poor, in their view – and that of a virulent right-wing media – largely deserve their plight because they could have chosen otherwise. The mockery of chavs is premised on the assumption that they could be different if they wanted to be. The poor could work, save and show some initiative. So why should we indulge them by giving them state handouts?

This lies behind the arrogance with which bankers still defend their bonuses, in spite of everything that has happened over the past few years.

OK, you get my drift! I could go on and on but, hopefully, my point is made.  This book by Hutton is going to be another of his classics and may well be seen as the ‘tipping point’ when society looks back in a decade’s time with that wonderful 20:20 hindsight!

Finally, are there other conclusions to be made of Hutton’s approach?  Yes, of course.  Reading the comments posted on the Guardian web page will show you many.

By Paul Handover