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July 5, 2008
History & Society, In Other Words
(See below for yet another in a series of elaborate digital frauds. Somewhat surprising is the considerable improvement in grammar and argument – it may even have been written by a native English speaker. Not surprising is the use of a decade old framework – the Nigerian 419 scheme – to lure unsuspecting Westerners into providing key banking information in exchange for a share in a large and unattributed overseas estate. The “four one nine” comes from the section in the Nigerian penal code which deals with such frauds. To hear Der Spiegel tell it: “A 419 is a mass crime, a money generator, and could aptly be described as the use of globalized methods as revenge by the losers of globalization.” Most worrisome is that the crime’s virtual beginnings take on a pseudo-realistic “Truman Show” flair, as victims are eventually flown to Lagos in person and introduced to limo drivers, hotel staff, and bank workers who carry the scam to its logical conclusion. This isn’t a miracle cure for erectile deficiency or a $100,000 qualified student loan, but a fully-integrated bricks and clicks criminal network operating within the borders of a Western resource ally, suggesting that the real “losers of globalization” might not be confined to developing states alone…)
———- Forwarded message ———-
From: Benjamin Ghanemy
Date: Sat, Jul 5, 2008 at 8:11 AM
Subject: A TRUE STORY/READ UNDERSTAND AND GET BACK TO ME
Hello,
I am Benjamin Ghanemy, British citizen and Principal assurance manager for the HSBC in London. A staff of Yokozona consultancy firm got in touch with me regarding the estate of Simeon Arag. And an investment placed under our banks management 3 years ago. I would respectfully request that you keep the contents of this mail confidential and respect the integrity of the information you come by as a result of this mail. I contact you independently of our investigation and no one is informed of this communication. I would like to intimate you with certain facts that I believe would be of interest to you.
In 1997, the subject matter; Simeon Arag came to our bank to engage in business discussions with our private banking division. He informed us that he had a financial portfolio of 8.35 million United States dollars, which he wished to have us turn over (invest) on his behalf. I was the officer assigned to his case; I made numerous suggestions in line with my duties as the de-facto chief operations officer, especially given the volume of funds he wished to put into our bank. We met on numerous occasions prior to any investments being placed. I encouraged him to consider various growth funds with prime ratings.
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Published by The Editor on July 5th, 2008
June 20, 2008
Finance & Economics, In Other Words
(It’s no surprise that financial crises – like intercourse, pro sports, and agriculture – run in alternating cycles of boom and bust. Classical economic theory suggests that such cyclicality can be overcome through innovations in resource use, factor productivity, and leverage. Classical history suggests otherwise. In the following rant, celebrity economist Jeff Sachs tackles the two-headed plague of stagflation — part stagnant economic growth, part inflation — and offers the 1970s as an illustrative case study in how to keep a resource-hungry, debt-ridden, war-wearied hegemon from spinning its economic wheels…)
Stagflation is back. Here’s how to beat it.
By Jeffrey Sachs in Fortune
Three decades ago, in a bleak stretch of the 1970s, an economic phenomenon emerged that was as ugly as its name: stagflation. It was the sound of the world hitting a wall, a combination of no growth and inflation. It created an existential crisis for the global economy, leading many to argue that the world had reached its limits of growth and prosperity. That day of reckoning was postponed, but now, after a 30-year hiatus, at least a mild bout of stagflation has returned, and matters could get much worse. We are back to the future, with the question we asked 30 years ago: How can we combine robust economic growth with tight global supplies of such critical commodities as energy, food, and water? It’s worth comparing the earlier episode of stagflation with our current travails to help us find our way. In fact, this time the resource constraints will prove even harder to overcome than in the last round, since the world economy is much larger and the constraints are much tighter than before.
The similarities with the first half of the 1970s are eerie. Then as now, the world economy was growing rapidly, around 5% per year, in the lead-up to surging commodities prices. Then as now, the United States was engaged in a costly, unpopular, and unsuccessful war (Vietnam), financed by large budget deficits and foreign borrowing. The Middle East, as now, was racked by turmoil and war, notably the 1973 Arab-Israeli war. The dollar was in free fall, pushed off its strong-currency pedestal by overly expansionary U.S. monetary policy. And then as now, the surge in commodity prices was dramatic. Oil markets turned extremely tight in the early 1970s, not mainly because of the Arab oil boycott following the 1973 war, but because mounting global demand hit a limited supply. Oil prices quadrupled. Food prices also soared, fueled by strong world demand, surging fertilizer prices, and massive climate shocks, especially a powerful El Niño in 1972.
Here we go again.
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Published by The Editor on June 20th, 2008
May 28, 2008
Finance & Economics, In Other Words
(Further commentary on the interconnected themes of income disparity, agricultural inflation, and selective de-globalization, this time by Nobel Prize-winning economist Amartya Sen. Perhaps most compelling is the charge that a rising tide doesn’t lift all ships, and those who have benefited least from a “flattening” of our economic superstructure are often the most exposed to rising prices and shifting patterns of supply and demand. Also of note is the graphic artist chosen to visualize our scramble for scarce natural resources, yet another gifted Walrus alum…)
The Rich Get Hungrier
By AMARTYA SEN in the New York Times
WILL the food crisis that is menacing the lives of millions ease up — or grow worse over time? The answer may be both. The recent rise in food prices has largely been caused by temporary problems like drought in Australia, Ukraine and elsewhere. Though the need for huge rescue operations is urgent, the present acute crisis will eventually end. But underlying it is a basic problem that will only intensify unless we recognize it and try to remedy it.
It is a tale of two peoples. In one version of the story, a country with a lot of poor people suddenly experiences fast economic expansion, but only half of the people share in the new prosperity. The favored ones spend a lot of their new income on food, and unless supply expands very quickly, prices shoot up. The rest of the poor now face higher food prices but no greater income, and begin to starve. Tragedies like this happen repeatedly in the world.
A stark example is the Bengal famine of 1943, during the last days of the British rule in India. The poor who lived in cities experienced rapidly rising incomes, especially in Calcutta, where huge expenditures for the war against Japan caused a boom that quadrupled food prices. The rural poor faced these skyrocketing prices with little increase in income.
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Published by The Editor on May 28th, 2008
May 17, 2008
Finance & Economics, In Other Words
(As financial institutions continue to navel gaze in the aftermath of the credit crisis, confidence in their ability to self-regulate continues to decline. With little trust in their assets, their markets, or even their peers, these global banking titans have sworn off their independence and, like disenchanted teens, are returning home to be cared for by risk-averse, populist policy-makers and their never-ending pool of taxpayers’ dough. The danger here is that both sides are still reacting to deeds already done, and nobody has yet proposed a solution to avoid similar financial chaos going forward. With threats to global income in the order of nearly a trillion dollars, whoever ultimately grabs this hot potato better have pretty thick skin…)
Paradise lost
May 15th 2008 in The Economist
WILSON ERVIN, the chief risk officer at Credit Suisse, a large Swiss bank, cannot pinpoint the precise moment he knew something was up: “This was not like Paul on the road to Damascus.” But signs of the gathering subprime storm in America started to trigger alarms in late 2006. Data from the bank’s trading desks and from mortgage servicers showed that conditions in the subprime market were worsening, and the bank decided to cut back on its exposures. At the same time Credit Suisse’s proprietary risk model, designed to simulate the effect of crises, signalled a problem with the amount of risk-adjusted capital absorbed by its portfolio of leveraged loans. It duly started hedging its exposure to these assets as well.
Mr Ervin could not have guessed at the sheer scale of what was coming. For nine months now, banks have been in a panic: hoarding cash, nervous of weaknesses in their own balance-sheets and even more nervous of their counterparties. More damaging still, money-market funds have steered clear of banks as well. The drying-up of liquidity not only created havoc in the backrooms of the financial system. It also wrecked the front door, thanks to the dramatic collapse of Bear Stearns, an 85-year-old Wall Street investment bank that was bought for a song by JPMorgan Chase in March. The Federal Reserve offered emergency funding to the investment banks for the first time since the 1930s, and there were bank bail-outs in Britain and Germany too.
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Published by The Editor on May 17th, 2008
May 11, 2008
Finance & Economics, In Other Words
(As markets continue to reel from the too-little-too-late conservative ethos that is snaking its way through the world’s major financial institutions, the wisdom of blind faith in some “invisible hand” is finally being put to the test. At stake are trillions of dollars of borrowed money floating anonymously within complex and unregulated markets, coupled with with an imploding US dollar, soaring energy demand in high-growth emerging economies, troublesome “business as usual” predictions for worldwide carbon emissions, and gross negligence in coordinating the world’s basic agricultural equilibrium. If free markets and “the wisdom of crowds” are truly the answer to the complex challenges of global resource coordination, recent evidence isn’t the least bit convincing…)
Why We Must Fix It
By Michael Lewitt
“Society is indeed a contract. Subordinate contracts for objects of mere occasional interest may be dissolved at pleasure — but the state ought not to be considered as nothing better than a partnership agreement in a trade of pepper and coffee, callico or tobacco, or some other such low concern, to be taken up for a little temporary interest, and to be dissolved by the fancy of the parties. It is to be looked on with other reverence…”
Edmund Burke, Reflections on the Revolution in France (1790)
In the face of the wholly inadequate plan that Treasury Secretary Hank Paulson offered up in response to the current crisis, it is painfully apparent that Mr. Paulson’s recommendations do little to address the regulatory black holes that permitted some of the most powerful institutions in the world to make hundreds of billions of dollars of worthless loans. Moreover, his plan fails to address the asymmetric compensation structures that allow financial industry executives to leverage their firms to the hilt and then walk away with pots of gold before their institutions all too predictably tumble into the abyss, inflicting damage on all parts of the financial system except the executives’ own wallets.
Despite the fact that the financial markets have temporarily recovered their equilibrium, virtually none of the profound imbalances that led to the current crisis are being addressed. The markets, and those with the power to regulate them, continue to cling to the false ideologies that maintain that markets can correct themselves and that government regulation should be kept to a minimum. In fact, it has been the government that has had to bail out the markets each time they have nearly collapsed in recent years.
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Published by The Editor on May 11th, 2008
April 13, 2008
In Other Words
(It isn’t everyday that mega-corporations act outside of their own financial interest. It simply isn’t in their design. But suppose that it was possible to expand profitability by reducing environmental impact, sourcing sustainable products, and pushing “green” across an entire supply chain. Such is the latest logic out of Bentonville, Arkansas, where the world’s largest retailer and private sector employer is taking a decidedly new approach to the age-old challenge of perpetual corporate growth, and blazing a profit- and eco-friendly trail for other industrial titans to follow…)
The Greening of Wal-Mart
By Erica L. Plambeck and Lyn Denend
Stanford Social Innovation Review, Spring 2008
In 1989, Wal-Mart Stores Inc. launched one of the first major retail campaigns to sell environmentally safe products in recyclable or biodegradable packaging. The corporation promoted these eco-friendly products by labeling them with green-colored shelf tags. Although the company boasted more than 300 green products at its peak, it did not directly set or monitor the environmental standards of its suppliers. This resulted in negative publicity for Wal-Mart when the public learned that a green-labeled brand of paper towels had only a recycled tube – the towels themselves were unrecycled paper treated with chlorine bleach. The green tag program began to wane, and by the mid-1990s environmental issues seemed to have slipped off the company’s list of priorities.
Meanwhile, Wal-Mart’s reputation among consumers was also slipping. Issues surrounding its competitive practices and labor policies loomed large in the public eye. “The company’s environmental record was nothing to boast about, either,” according to one Fortune article.1 Indeed, a 2005 McKinsey & Company study found that between 2 percent and 8 percent of consumers had stopped shopping at Wal-Mart because of the company’s practices.2
Against this backdrop, Wal-Mart CEO H. Lee Scott Jr. unveiled a new plan to reduce the company’s environmental footprint. In an October 2005 speech broadcast to all 1.6 million employees in all 6,000-plus stores and shared with some 60,000 suppliers worldwide, he announced that Wal-Mart was initiating a sweeping “business sustainability strategy.” The idea was to reduce the company’s impact on the environment through a commitment to three ambitious goals: “To be supplied 100 percent by renewable energy; to create zero waste; and to sell products that sustain our resources and the environment.” 3
But these weren’t the plan’s only goals.
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Published by The Editor on April 13th, 2008