Tuesday, October 11, 2011

Occupy Wall Street: Capitalism Reforming Itself?

Now entering its third week of protests – and counting – will the Occupy Wall Street protests provide the first step in reforming 21st Century capitalism?

By: Ringo Bones

Now being supported by union groups and spreading to every major financial center across the United States, the Occupy Wall Street protest used to be facing an uphill battle when it started due to the alleged “media blackout” sponsored by major Wall Street financial firms. Not to mention the arrests of hundreds of peaceful protesters who just want an equitable portion of the “American Dream. But will these protests succeed in reforming 21st Century capitalism into something that’s more equitable to the working class?

The sentiments fueling the protests are not just those who’ve lost their jobs during the aftermath of the 2008 global credit crunch, but also those who’ve been recently laid off. Not only that, it seems that the “Calvinism” and the “Protestant Work Ethic” that used to serve as a “moral” cornerstone of the American Dream had been practicing a kind of double standard during the Bush administration of excluding everyone whose ethnicity is outside those of the white-Anglo-Saxon-Protestant sphere from the bountiful financial fruits of the American Dream.

Can 21st Century capitalism really reform itself this time around? Well, if the powers-that-be – i.e. the US Federal Reserve and those elected power-brokers on Capitol Hill – keep on using the working-class American taxpayer (the financially disadvantaged 99% of America) as the bailout of last resort, then there might be something to what Karl Marx said about capitalism’s systemic failure in the real world.

Monday, August 22, 2011

Global Economic Slump: Politician's Fault?

From Washington, D.C.'s faulty bipartisanship to the EU leaders' inability to tackle the region's looming debt crisis, are our elected officials ruining the global economy?

By: Ringo Bones

Ever since the faulty bipartisanship of Capitol Hill had inadvertently lowered the United States' credit rating for the first time in history since credit rating agencies began setting shop 70 or so years ago. The S&P downgrade of the United States' credit rating due to the "11th Hour" approval of the two parties in the Capitol Hill to raise the US government debt ceiling now made everyone harbor the perception that our elected officials lack the leadership skills to lead us out of the global economic slump. The fallout of the political infighting in Washington, D.C. had made every major stock exchange centers around the world in a free-fall hitherto unseen since the 2008 global subprime credit crunch. The EU leaders' inability to reach a consensus in tackling the looming Eurozone debt crisis also had shaken the confidence of investors around the world. So is the fear and panic stricken global securities markets rather caused by politics?

The US Credit Rating downgrade from Triple-A to Double-A status - from the securities traders' perspective here in South-East Asia - has been perceived as the most damaging of all. The looming EU debt crisis comes in at a distant second. Even the People's Republic of China - now the world's second largest economy - has now been calling for a replacement of the US dollar as the principal global currency in basket of currencies. Will all of this spark a change for the better?

Monday, May 30, 2011

Sony Playstation Network Hacking: Death Knell for E-Commerce?

After satisfying over 70 million loyal customers over the years, will the recent Sony Playstation Network hacking attacks spell the end for reliable retail-level e-commerce?

By: Ringo Bones

Near the end of April, 2011, Sony’s Global Playstation Entertainment System – that sells not only on-line computer game related upgrades and apps but also Sony-owned media like high-resolution movie and digital music downloads – has been subjected to a malicious hacking attack that had made virtually all of the company’s 77-million loyal customers’ credit card and personal details stolen. On-line security pundits say that this could be the most brazen act of cyber-terrorism of 2011. Sony’s top brass are virtually caught with their pants down during the most audacious cyber-attack that all they can do the weeks after the attacks was warn their clients of possible e-mail phishing scams given their e-mail and other personal details are already stolen by the hackers. Does this high-profile hacking attack the death knell for reliable retail-level e-commerce?

Sadly, the present state – as in year 2011 – internet is still akin to the 19th Century Wild West or large-scale pre Geneva and Hague Convention conflicts conducted during the Victorian Era where there are yet no legal precedents and internationally binding conventions governing cyber-warfare or defining acts of cyber-terrorism. Worse still, as recent as the 2011 Munich On-Line Security Conference, internet security pundits are still complaining on the ambiguity surrounding the internationally accepted legal definition of what constitutes a cyber-attack. It might be just an on-line commercial site that’s being attacked this time, but imagine America and Western Europe’s children’s hospital on-line databases being subjected to a cyber-attack similar to that on the Sony’s Global Playstation Entertainment System Network. Children in dire need of an organ transplant could die because the hospital’s database is compromised by a brazen cyber-attack. And the UN Security Council is already being criticized for not investigating states sponsoring global cyber-terrorism. Are we witnessing the start of a brave new world?

Monday, May 16, 2011

Ring-Fencing: Mitigating Banking Risks?

Proposed by the UK’s Independent Banking Commission, does the proposed splitting of bank’s investment arm from its retail arm really mitigate the financial risks of banks?

By: Ringo Bones

Ever since the collapse of Lehman Brothers back in September 2008 as the banking crisis went global, everyone of us has found out in a rather nasty way that there is an arm of banking that’s quite different from the one that we often avail the services of our local banks namely saving money and allowing us to write checks – it is called investment banking.

Investment banking is a specialized phase of banking concerned with gathering together the savings of the community for permanent or long-term use by private enterprises and the federal, state and local governments. In the early days, the policy of combining commercial banking with investment banking – although sound in theory – did not prove successful in practice.

Commercial banking affiliates, in their eagerness to participate in the long-term capital market, purchased numerous issues of new securities which later could not be sold to the investing public. To dispose of their frozen inventory of unmarketable securities, the affiliate banks frequently “dumped” them into portfolios of the commercial banks and received payment in cash. In this way, the affiliate banks kept themselves liquid, but the commercial banks frequently became owners of securities which were not of the highest quality – i.e. way below the Triple-A Rating of Standard & Poor’s and other top credit-rating agencies.

The folly of such practice became evident in the US Banking Crisis of 1932-1933 when commercial banks were forced to liquidate their investments in order to meet the demands of panic-stricken depositors. They discovered that many of the securities in their portfolios were completely unmarketable or could be disposed off only at prices below the original cost.

As a result of abuses stemming from the combination of investment and commercial banking under the same roof, reform legislation was quickly enacted to separate the two functions. The Banking Act of 1933 stripped commercial banks of the power to underwrite new security issues. They were permitted, however, to continue to act as wholesalers and retailers of federal, state and municipal bonds.

However, the proposed UK’s Independent Banking Commission definition of “Ring-Fencing” that is separating the retail banking arm from the investment banking arm of "universal banks" like HSBC for example is rather draconian in comparison to the Banking Act of 1933 - as in ring-fencing will end commercial bank’s permission to continue to act as wholesalers and retailers of federal, state, county and municipal bonds. Given that most banks are “Universal Banks” – that is they are virtually composed of a commercial arm and an investment arm – like HSBC for example, will these result in universal banks fleeing the UK’s rather draconian banking regulation? After all, many universal banks have already complained that the practice of ring-fencing could render their daily banking operations rather unprofitable. Will this eventually result in a rather "uncomfortable" revolutionary upheaval in the global banking industry?

Is Europe Running on a Two-Speed Economy?

Even though Germany recently made export profits it hasn’t seen since the 1950s while Greece and Portugal continues to wallow in debt, is Europe running on a two-speed economy?

By: Ringo Bones

Even when plagued by crushing debt, Greece managed a GDP growth of 0.8% during the first quarter of 2011, while Portugal slips back 0.7%, it was Germany who achieved a rather recent economic miracle by managing a GDP growth of 1.5% during the first quarter of 2011 – a feat only managed after the full benefits of the Marshall Plan took effect during the 1950s. But is this the surest proof that Europe is running on a two-speed economy?

Ever since the Greek debt crisis became headline news, EU markets had since been bracing for a Greek debt restructuring since near the end of 2009 and many a euro-skeptic had been bemoaning for years that the only beneficiary of the single European currency are German industrialists. Could it be that Europe’s two-speed economy is more of a political rather than an economic construct?

IMF Chief Rape Charge: Global Repercussions?

Even though it is yet too soon to tell whether he's guilty or not, does the rape charge aimed at IMF chief Dominique Strauss-Kahn can eventually result in global repercussions?

By: Ringo Bones

IMF chief Dominique Strauss-Kahn could be facing an uphill legal battle given that the chambermaid of a New York City hotel who accused the IMF chief of rape and unlawful imprisonment is described as a "model employee" of the hotel that the IMF chief stayed in. Dominique Strauss-Kahn was arrested after boarding a plane on his way to a very important meeting with the German chancellor back in Sunday, May 15, 2011.

As one of the worthy contenders for the next French presidency, the rape charges could not only jeopardize his political prospects but also came in a time when it had global repercussions - i.e. the IMF chief and his team are still formulating ways to help the economically ailing members of the Eurozone with their respective sovereign debt problems. Even though it is still too soon to tell how deep in trouble the IMF chief is since the NYPD forensics team are still gathering evidence of the alleged crime. Only time will tell if the incident will complicate the debt relief of ailing Eurozone countries.

Raj Rajaratnam: Guilty of Insider Trading?

Hailed as the landmark case in a generation that will clean-up Wall Street, was Galleon Group hedge fund chief Raj Rajaratnam really guilty of insider trading?

By: Ringo Bones

Basing on the court evidence that has been made public so far, the odds are really stacked against Galleon Group hedge fund chief Raj Rajaratnam. From an illustrious line up of witnesses like Lloyd Blankfein, CEO of Goldman Sachs, court-authorized wire-taps to the facts surrounding the controversial incident of calling another hedge fund manager just a few minutes after a supposedly confidential boardroom meeting that even a junior trainee knows better not to. Even though the New York court had sentenced Rajaratnam to a 15-year prison sentence, his legal team plans to appeal the guilty verdict. But could the case really prove to be a landmark as the biggest victory in a generation to clean up Wall Street?

Since the days of the Ronald Reagan, Americans always had a love / hate relationship with the rigmaroley high-brow get-rich-quick mystique surrounding Wall Street-based hedge fund trading; after all, getting obscenely rich after prognosticating which stocks will make it can be a very satisfying and rewarding experience, right? Anyway, the sad fact is that there are more people – i.e. novice traders - that had lost their life-savings in Wall Street based hedge fund trading because their hedge fund managers didn’t fully explain to them the risks involved. While those few who made millions more than once are eternally thankful that the US government haven’t managed to fully over-regulate Wall Street. Will the Raj Rajaratnam insider trading case prove the turning point in cleaning up Wall Street?

Sunday, March 6, 2011

Has Capitalism Always On The Wrong Side of History?

From the fall of the Roman Empire to the Revolution 2011 now spreading across the less-than-democratic Gulf and North African states, has capitalism always been on the wrong side of history?

By: Ringo Bones

Ever since mine and my friends’ “pet theory” has been further reassured by world-famous investor, hedge fund manager and philanthropist George Soros during a recent BBC interview on the apparent truism that capitalism in general has always been on the wrong side of history, I now start to wonder whether anti-capitalist anarchist – no matter how fiscally unsound their pet theories are – are right? But has this apparent truism proven time and time again?

As George Soros mused on how crude oil extraction companies that has been established in the Gulf Region and North Africa for over 40 years has been to an extent guilty of underwriting the operation of regional despots had never done anything to make the crude oil wealth trickle down to the common people of the less-than-democratic Arab and North African states. Thus, paving way for the inevitability of the Jasmine Revolution to spread from Tunisia, to Egypt and now to Libya and several other less-than-democratic Arab regions. Worse still, crude oil companies use the flimsiest of justifications to jack up crude oil prices, even the King of Saudi Arabia waking up on the wrong side of the bed is now a justified reason to jack up petrol prices.

The fact is, governments that were recently toppled were pro-Western despots and the exemplars of Western capitalism – i.e. multi-national oil companies - entrenched in these regions for over 40 years had been since recently been too busy propping them up for decades, thus the crude oil prices rising to the flimsiest sign of political instability. Worse still, in Libya in particular, the people primarily involved in the running of wheels of the Libyan national economy are now fleeing to neighbouring states as war refugees. Looks like the truism of capitalism always being on the wrong side of history might be proven yet again after all.

Wednesday, January 12, 2011

Will Mainland China Make Rare Earths Even Rarer?

As Beijing decides to secure their own strategic supply of rare earth metals would this result in making rare earths even rarer?

By: Ringo Bones

Even though the literal “rarity” of rare earth metals is a misnomer – the rarest one is only slightly rarer than iodine – recent geopolitical developments in Mainland China and the surrounding region might possibly make the oft-perceived rarity of rare earth metals a “literal” possibility in 2011. As of January 6, 2011, the Beijing government has decided to reduce their rare earth metal export quotas by 35% for the whole of 2011.

Beijing’s decision recently became another concern for Japan’s very rare earth metals dependent high technology manufacturing sector which provides virtually all of the world’s supply of electric motors for hybrid cars, video display panels and other newfangled systems to generate electricity in an environmentally-friendly manner. Beijing’s recent decision to curb rare earth metal export quotas has even spurred on Japan to further step-up their own on-going seabed exploration in the search for commercially viable rare earth metal ores.

Even though Mainland China currently supplies 97% of the world’s rare earth metal needs, their need to secure their own strategic supply of rare earths has recently become an inevitable necessity after recently becoming the world’s number one manufacturer of wind turbines and plans to build scores of nuclear fission power plants in order to reduce their overall greenhouse gas emissions. Looks like other countries with commercially viable rare earth ores in their territories has now got a very good reason to step-up their own rare earth metal mining and processing industry given the People's Republic of China's decision to reduce their 2011 rare earth export quotas by 35%.

Can a Universal Global Currency Prevent a Global Currency War?

As the leading network news providers talk of the looming global currency war, will the implementation of a universal global currency prevent such inevitability?

By: Ringo Bones

As the world’s leading and emerging economies scramble to position themselves to gain an advantageous foothold in the global export market, many resort to the under-handed and somewhat illegal means of currency manipulation in order to make their export goods become competitively priced. Leading economists then started to ponder whether such moves will inevitably result in a global currency war that can certainly make us – the globalized capitalist consumers – the unfortunate casualty. But does a purpose-built universal global currency provide the best solution to prevent such a global currency war from ever happening that could certainly devastate the world’s already heavily globalized economy?

Back in 2009, the 1999 Nobel Economics prize Laureate and euro “inventor” Robert Mundell proposed a universal global currency that is a Special Drawing Rights-based currency immune from fluctuations unlike the speculator-plagued US dollar. This proposed universal global currency would be administered by a “global bank” modelled after the European Central Bank. Though Mundell’s proposal back in 2009 was aimed at preventing the global credit crunch from ever happening again, will such a universal global currency also work in preventing a global currency war?

Since the Bretton Woods Agreement, the US dollar was often perceived as a universal global currency based on gold, but ever since US President Richard M. Nixon took the US dollar off the Gold Standard back in August 15, 1971, many other countries followed suit. Despite being taken off the Gold Standard, the US dollar was still being perceived by almost everyone in the whole world as the world’s most dominant currency since the end of World War II. Unfortunately, the events of September 15, 2008 that led to the collapse of the Lehman Brothers that also almost brought our global economy to the brink had more-or-less tarnished the global perception of the US dollar as the world’s most dominant currency.

Despite of this, the US dollar and the euro are still widely accepted as the world’s two leading currencies based on their use by the world’s various central banks as a reserve currency to prevent external shocks against their own currencies. Believe it or not, exchange rate volatility was the main cause of the Asian Banking Crisis of 1997 primarily due to the lack of a global reserve – i.e. a universal reserve currency.

Many countries around the world still peg their various currencies with the US dollar. Unfortunately, geopolitical reality has woefully failed to keep up with global economic reality. The massive property booms and the cheap loans being offered by various banks like they are going out of fashion since 1998 was the primary instigator of the questionable economic risk taking that led up to the US economic meltdown of September 15, 2008.

From the economist’s perspective, the US dollar is merely seen as something that has filled a vacuum as the world’s de facto global reserve currency in the absence of a purpose-built, true-blue universal global currency. Many economists cite this as the reason for the encouragement of risky economic behaviour in the US that led up to the Lehman Brothers’ collapse of September 15, 2008. Worse still, an overwhelming majority of Americans hasn’t saved enough money in their own banks.

Despite of such an apparently dismal economic position of the US dollar, the People’s Republic of China still holds 2 Trillion US dollars in reserve. If and when the US dollar devalues even further, this would result in a bank run that would ruin the Mainland Chinese economy for a very long period of time. And despite of the world’s somewhat “shaky” confidence of the US dollar, America’s relatively stable government and a relatively resilient economy is all the world needs to pledge their economic allegiance to the US dollar. But will a purpose-built universal global currency be a better choice?

Believe it or not, the Beijing government is in favour of a Special Drawing Rights-based universal currency whose value is based on a basket of currencies instead of just the US dollar and the euro – at least back in 2009 before Beijing’s and every central bank governor around the world started waging currency wars in order to make their export products globally competitive. At present, Special Drawing Rights only involves the world’s top 4 currencies – i.e. the US dollar, the euro, the UK pound and the Japanese yen.

At present, the Mainland Chinese RMB or the yuan is not included in the Special Drawing Rights or SDR even though Mainland China is already the second largest economy in the world. But the number one challenge facing the implementation of a purpose-built universal global currency is the inevitable “global scale” of the monetary policy involved which inevitably results in a global-scale red tape. And despite of the difficulty of implementation, it is probably the best alternative yet devised in halting a global currency war.