Due to the rapid rise of commodity prices – especially metals - during the start of 2008, the cost of minting American pennies and nickels is now twice their actual face value. Weird economics at work?
By: Ringo Bones
When the global economic downturn instigated by the subprime mortgage crisis of the summer of 2007 started to be noticed on American soil during the first quarter of 2008. The US Mint or The Bureau of the Mint also started to notice that it’s now worth twice as much to “make” pennies and nickels than their face value – i.e. the coin’s buying power - due to the increasing prices of “coinage” metals like copper and zinc.
Noting that it now costs 2 US cents to make an American penny (a US 1 cent piece) and a nickel (a US 5 cent piece) now cost a dime or 10 US cents to make. It would only be a matter of time that the US Treasury Department will tell The Bureau of the Mint in Washington, D.C. to stop minting coins because they’ll be losing money - weird economics has finally arrived. Given that a typical American “Honest Abe” penny is 98% zinc while an American nickel is 25% nickel and 75% copper. The three metals – namely zinc, nickel and copper - whose trading values went through the roof during the first part of 2008 makes it easy to see why that minting coins using these traditional coinage metals is now more expensive compared to a generation ago.
Most countries around the world has since abandoned using gold and silver as coinage metals since making them costs way more than the coin’s intended face value, looks like copper, zinc and nickel will now be deemed too expensive for coinage use. Some countries have even resorted to using steel and aluminum to keep the cost of minting coins down. Especially during the early 1990’s when Sumitomo attempted to unlawfully manipulate copper prices in the London Metals Exchange by hoarding large stocks of copper for six years.
In the US, grassroots movements like Americans for Common Cents has been busy campaigning for the US Government to keep minting coins because if Uncle Sam ever decides to stop minting pennies and nickels, the penniless could literally become penniless. Like when merchants start rounding-off prices of goods to the nearest dime – given that if the US 10 cent piece or dime becomes the smallest American currency denomination – could cost American consumers 600 million dollars a year in retail expenses.
As we celebrate the 200th anniversary of Abraham Lincoln’s birth and the 100th anniversary of the “Honest Abe” penny in 2009, has the American penny and nickel become an archaic time-wasting transaction of our modern credit-based economy? In my opinion, coins of small denominations – like the American penny and nickel – are still relevant in today’s economic transaction, especially at the retail level. Plus, given that coins are more difficult to counterfeit when compared to paper currency and are less tempting to steal in comparison to credit card data, American pennies and nickels still serve an indispensable part of the American – if not of the global – economy.
Showing posts with label Economics. Show all posts
Showing posts with label Economics. Show all posts
Monday, January 19, 2009
Saturday, January 3, 2009
The Lowdown on Commodities
The current low price of commodities – especially that of crude oil - had lessened the impact of the global financial crisis to most sectors of the economy even though it will be very bad in the long run. A good time to cry wolf?
By: Ringo Bones
The world’s leading economist had already reached a consensus and had been warning us for sometime that the low prices of economies resulting in the lack of demand due to the global economic downturn. Will be bad in the long run – even if the global economy recovers sometime in the future – because producers are not making the necessary investments to expand current production to meet possible future demands. The proverbial “ticking time bombs” in the commodities market are copper and crude oil whose prices could skyrocket way pass their 2008 peak once the global economy recovers causing an increase in demand.
Violent price rises will be the norm – rather than the exception – when it comes to commodities prices when the global economy recovers around 2010 or so. Due to lack of current investment to expand production, demand for copper and crude oil in 2010 might not be met fast enough - which could be a headache to commodities trading. Especially when it comes to the demands of emerging economies in Asia like India and China whose economies are not as badly affected as those in the United States and Europe despite of the tragic job loss figures. Plus the increased affluence of consumers in Asia could also send prices of wheat, corn, and soybean skyrocketing past their 2008 levels due to these food crops being diverted into meat production as animal feed.
The world’s policymakers better start consulting their economic advisory team on how to plan ahead to avert disastrous and violent commodity price volatility in the near future. Even if the global economy eventually recovers, it could derive our poorer brethren of their daily bread if the recovery plan is ill conceived. Making that “dramatic” percentage-point rises in the global stock market a rather Pyrrhic victory for stock market traders.
By: Ringo Bones
The world’s leading economist had already reached a consensus and had been warning us for sometime that the low prices of economies resulting in the lack of demand due to the global economic downturn. Will be bad in the long run – even if the global economy recovers sometime in the future – because producers are not making the necessary investments to expand current production to meet possible future demands. The proverbial “ticking time bombs” in the commodities market are copper and crude oil whose prices could skyrocket way pass their 2008 peak once the global economy recovers causing an increase in demand.
Violent price rises will be the norm – rather than the exception – when it comes to commodities prices when the global economy recovers around 2010 or so. Due to lack of current investment to expand production, demand for copper and crude oil in 2010 might not be met fast enough - which could be a headache to commodities trading. Especially when it comes to the demands of emerging economies in Asia like India and China whose economies are not as badly affected as those in the United States and Europe despite of the tragic job loss figures. Plus the increased affluence of consumers in Asia could also send prices of wheat, corn, and soybean skyrocketing past their 2008 levels due to these food crops being diverted into meat production as animal feed.
The world’s policymakers better start consulting their economic advisory team on how to plan ahead to avert disastrous and violent commodity price volatility in the near future. Even if the global economy eventually recovers, it could derive our poorer brethren of their daily bread if the recovery plan is ill conceived. Making that “dramatic” percentage-point rises in the global stock market a rather Pyrrhic victory for stock market traders.
Monday, November 10, 2008
Is Obamanomics Socialism?
President-elect Barack Obama’s plan to save the US economic system has always been referred to by his detractors as socialism. But is “Obamanomics” merely just a system for spreading the wealth like it’s detractors claim it to be?
By: Ringo Bones
Our current global economic crisis can trace its pedigree back to the days of Reaganomics – i.e. the former US president Ronald Reagan’s view on economics that the Federal Government hinders rather than helps the US economic system. “Big Government” is bad for business and should get out of the way. Although right in many respects, I do find Reaganomics - as it was then affectionally called - somewhat hypocritical given that then president Reagan is staunchly against Marxist-Leninist Socialism / Communism. Yet he gave Wall Street overlords tax breaks and too much power.
It is a well-known fact that in the financial world – especially in the US – the existing financial power structure preclude their client’s opinions and views from ever becoming a factor in directing a financial company’s fiscal decisions. Thus the clients (this means every investing US taxpayer, including those government powers-that-be) must trust the financial company’s “top brass” – the Wall Street “ruling elite” to make the correct decisions for them. Using former president Ronald Reagan’s dictum “Trust but verify”, this makes the belief in an all wise and ever caring Wall Street a veritable twofold lie. A twofold lie because this assumes that the "ruling elite” at Wall Street knows what they are doing coupled with the assumption that the Wall Street “ruling elite” cares about the clients they are supposed to serve. But since socialism rests on the idea that one person can make a decision for another person without a working system of checks and balances, does this make the laissez-faire nature of President Reagan style economics / Reaganomics really just socialism in disguise?
I’m also one of those people who was never been able to have warmed up to the concept of trickle down economics – giving the ultra rich tax breaks to foster economic growth and working class prosperity. I’ve always viewed it like the way primitive cultures conduct human sacrifices to appease the gods. I mean if giving incentives to the very rich in the form of tax breaks really did benefit them, two things could have happened. Either they – the Wall Street ruling elite - would have been building mansions on the Moon by now thus generating an employment bonanza by hiring maintenance crews or have manage the economy so efficiently since the Reagan Administration that our current global financial crisis would not have happened. Ronald Reagan’s greatest oversight is probably the US financial system deregulation given that the root cause of the subprime mortgage crisis – namely mortgaged backed securities – had been busy making inroads into Wall Street since 1977.
Ever since the days of the Great Depression, successful schemes designed to fix the US economy always involved spreading the wealth. Each time the US Government creates roads, dams, and other infrastructure, it tends to spread the wealth around in the form of jobs. This scheme differs itself from Marxist-Leninist Socialism because it is governed by checks and balances that keeps corruption and malfeasance to the absolute minimum. But President-elect Obama better act fast on his plans to fix the American economy via infrastructure rehabilitation before the obstructionist policies of the opposing party can take hold. President-elect Obama should take advantage of this once in a lifetime chance of a party majority in the legislature to test out his Obamanomics to prove that there is hope yet for the long ailing US economy.
By: Ringo Bones
Our current global economic crisis can trace its pedigree back to the days of Reaganomics – i.e. the former US president Ronald Reagan’s view on economics that the Federal Government hinders rather than helps the US economic system. “Big Government” is bad for business and should get out of the way. Although right in many respects, I do find Reaganomics - as it was then affectionally called - somewhat hypocritical given that then president Reagan is staunchly against Marxist-Leninist Socialism / Communism. Yet he gave Wall Street overlords tax breaks and too much power.
It is a well-known fact that in the financial world – especially in the US – the existing financial power structure preclude their client’s opinions and views from ever becoming a factor in directing a financial company’s fiscal decisions. Thus the clients (this means every investing US taxpayer, including those government powers-that-be) must trust the financial company’s “top brass” – the Wall Street “ruling elite” to make the correct decisions for them. Using former president Ronald Reagan’s dictum “Trust but verify”, this makes the belief in an all wise and ever caring Wall Street a veritable twofold lie. A twofold lie because this assumes that the "ruling elite” at Wall Street knows what they are doing coupled with the assumption that the Wall Street “ruling elite” cares about the clients they are supposed to serve. But since socialism rests on the idea that one person can make a decision for another person without a working system of checks and balances, does this make the laissez-faire nature of President Reagan style economics / Reaganomics really just socialism in disguise?
I’m also one of those people who was never been able to have warmed up to the concept of trickle down economics – giving the ultra rich tax breaks to foster economic growth and working class prosperity. I’ve always viewed it like the way primitive cultures conduct human sacrifices to appease the gods. I mean if giving incentives to the very rich in the form of tax breaks really did benefit them, two things could have happened. Either they – the Wall Street ruling elite - would have been building mansions on the Moon by now thus generating an employment bonanza by hiring maintenance crews or have manage the economy so efficiently since the Reagan Administration that our current global financial crisis would not have happened. Ronald Reagan’s greatest oversight is probably the US financial system deregulation given that the root cause of the subprime mortgage crisis – namely mortgaged backed securities – had been busy making inroads into Wall Street since 1977.
Ever since the days of the Great Depression, successful schemes designed to fix the US economy always involved spreading the wealth. Each time the US Government creates roads, dams, and other infrastructure, it tends to spread the wealth around in the form of jobs. This scheme differs itself from Marxist-Leninist Socialism because it is governed by checks and balances that keeps corruption and malfeasance to the absolute minimum. But President-elect Obama better act fast on his plans to fix the American economy via infrastructure rehabilitation before the obstructionist policies of the opposing party can take hold. President-elect Obama should take advantage of this once in a lifetime chance of a party majority in the legislature to test out his Obamanomics to prove that there is hope yet for the long ailing US economy.
Thursday, October 23, 2008
Credit Rating Agencies Overhaul: A Way Forward for the US Economy?
Blamed by everyone in the financial world as the instigators of the global credit crunch. Will a credit rating agency reform revive the ailing US economy and possibly the rest of the world?
By: Ringo Bones
As of October 22, 2008, America’s three leading credit rating agencies – namely Moody’s, S&P, Fitch – had their respective CEO s testifying on Capitol Hill on the future stake of the credit rating industry. Credit rating agencies came under fire recently due to their dubiously unsound – and sometimes – illegal practices in order to gain competitive edge on their dealings. While forgetting what their respective companies are there for in the first place – managing financial risks.
As the US Congress’ House Oversight Committee grill the respective CEO s of the three leading credit rating agencies after the state of Connecticut sued them for illegal practices and credit rating abuse. The lawsuit was put forth by Connecticut Attorney General Richard Blumenthal after the US Securities and Exchange Commission (SEC) failed to pursue legal action against the three leading credit rating agencies during the last few years citing lack of resources for the failure to better regulate the credit rating industry.
Various credit rating “sins” scrutinized by the Congressional House Oversight Committee include the practice of notching on rating subprime mortgage backed securities citing the non-competitive nature of such a practice. The quality versus quantity nature of credit ratings – which companies pay on a per-deal approval basis – has come under fire. Especially on how the SEC, investors, the US banking industry and the major players of the global financial system’s perception of such practices as of late. Credit rating agencies are about managing financial risks, not overpaying executives for approving deals. Plus the long-term effects of such dubious practices by the three leading US-based credit rating agencies on accurate financial risk assessment. Will better government regulation of the credit rating industry be the best solution?
Wall Street insiders had been wary about the unsound credit rating practices of Moody’s, S&P, and Fitch in the few years leading up to the global credit crunch. The three leading credit rating agencies dubious practices had colored their credit rating judgement. Some financial insiders even accuse Moody’s of “drinking the Kool Aid” thus endangering millions of dollars circulating in the credit market system.
It’s about time that the US Government reign-in on the excesses and the unsound noncompetitive rating practices of credit rating agencies – especially on notching - because the current financial crisis has banks increasingly de-leveraging – i.e. lending less money to other banks. A practice that could spell financial disaster to our modern credit based economy if allowed to go on for too long. Maybe this overhaul of the credit rating industry will create a thaw on the global credit market to speed up the global economy which as of late is dangerously slowing down into a deep economic recession. For the sake not only of Wall Street but also of Main street as well.
By: Ringo Bones
As of October 22, 2008, America’s three leading credit rating agencies – namely Moody’s, S&P, Fitch – had their respective CEO s testifying on Capitol Hill on the future stake of the credit rating industry. Credit rating agencies came under fire recently due to their dubiously unsound – and sometimes – illegal practices in order to gain competitive edge on their dealings. While forgetting what their respective companies are there for in the first place – managing financial risks.
As the US Congress’ House Oversight Committee grill the respective CEO s of the three leading credit rating agencies after the state of Connecticut sued them for illegal practices and credit rating abuse. The lawsuit was put forth by Connecticut Attorney General Richard Blumenthal after the US Securities and Exchange Commission (SEC) failed to pursue legal action against the three leading credit rating agencies during the last few years citing lack of resources for the failure to better regulate the credit rating industry.
Various credit rating “sins” scrutinized by the Congressional House Oversight Committee include the practice of notching on rating subprime mortgage backed securities citing the non-competitive nature of such a practice. The quality versus quantity nature of credit ratings – which companies pay on a per-deal approval basis – has come under fire. Especially on how the SEC, investors, the US banking industry and the major players of the global financial system’s perception of such practices as of late. Credit rating agencies are about managing financial risks, not overpaying executives for approving deals. Plus the long-term effects of such dubious practices by the three leading US-based credit rating agencies on accurate financial risk assessment. Will better government regulation of the credit rating industry be the best solution?
Wall Street insiders had been wary about the unsound credit rating practices of Moody’s, S&P, and Fitch in the few years leading up to the global credit crunch. The three leading credit rating agencies dubious practices had colored their credit rating judgement. Some financial insiders even accuse Moody’s of “drinking the Kool Aid” thus endangering millions of dollars circulating in the credit market system.
It’s about time that the US Government reign-in on the excesses and the unsound noncompetitive rating practices of credit rating agencies – especially on notching - because the current financial crisis has banks increasingly de-leveraging – i.e. lending less money to other banks. A practice that could spell financial disaster to our modern credit based economy if allowed to go on for too long. Maybe this overhaul of the credit rating industry will create a thaw on the global credit market to speed up the global economy which as of late is dangerously slowing down into a deep economic recession. For the sake not only of Wall Street but also of Main street as well.
Saturday, September 20, 2008
Exchange Traded Funds: The Ideal Investment Vehicle?
Ever since it’s ad hoc genesis in 1989, exchange-traded funds or ETF s has been seen by many as the most innovative investment vehicle of the last two decades. But are ETF s too good to be true in the face of our current global economic slowdown?
By: Ringo Bones
Recently hailed by a number of investment savvy as one of the methods that made them profit from the sky-is-the-limit crude oil prices of July 2008, crude oil ETF s really paid their investors rich dividends. But is this just a case of Emperor Nero fiddling away while Rome burned to the ground thus forever reinforcing the notion that our current global financial system can only thrive in an environment of extreme financial disparity? To find out if ETF s truly deserving of this reputation, let us first examine what makes them tick.
An exchange-traded fund or ETF is an investment vehicle traded on the world’s stock exchanges, much like stocks or bonds. A typical ETF holds assets such as stocks or bonds by trading them at approximately the same price as the net asset value of its underlying assets over the course of the trading day. Majority of ETF s are valued by pegging or tracking at an index, such as the DOW Jones Industrial Average or the S&P 500. An ETF is seen by many as attractive investments because of its low costs, tax efficiency, and stock-like features.
An ETF combines the valuation feature of existing mutual funds or unit investment trusts, which can be purchased or redeemed at the end of each trading day for its net asset value. Close-end funds are not considered to be exchange-traded funds, even though they are funds and are traded on an exchange. In general, ETF s will not require a lot of micro-management. You can simply set them up and forget them and then rake in the dividends. In fact, some investors take this to the extreme by building so-called “lazy portfolios”.
A poll was conducted on a group of investment professionals in March 2008. 67% of those polled say that ETF s are the most innovative investment vehicle developed during the last two decades, while 60% reported that ETF s have fundamentally changed the way investment professionals constructed investment portfolios.
ETF s had their ad hoc origins in 1989 with Index Participation Shares, which - for all intents and purposes - was an S&P 500 proxy that traded on the American Stock Exchange and the Philadelphia Stock Exchange. This product, however, was short-lived after a lawsuit by the Chicago Mercantile Exchange was successful in halting the sales of ETF s in the United States. A similar product, Toronto Index Participation Shares started trading on the Toronto Stock Exchange in 1990. The shares, which pegged the TSE 35 and later the TSE 100 stocks, proved to be so popular. The popularity of these products led the American Stock Exchange to try to develop something that would comply with Securities and Exchange Commission or SEC regulation to be sold on US soil.
ETF s had been available in the US since 1993 and in Europe in 1999. Exchange traded funds have traditionally been classified as index funds. But in 2008, the US Securities and Exchange Commission started to authorize the creation of actively-managed ETF s. Usually investors only buy and sell ETF s in market transactions. But institutional investors can redeem large blocks of shares of the ETF – known as creation units – for a “basket” of the underlying assets or alternatively, exchange the underlying assets for creation units. This creation and redemption of shares enables institutions to engage in arbitrage that causes the value of the ETF to approximate the net asset value of the underlying assets.
Exchange-traded funds offer public investors’ undivided interests in a pool of securities and other assets and thus are similar in many ways to traditional mutual funds. Except shares in an ETF can be bought and sold throughout the trading day like stocks on a securities exchange through a broker-dealer. Unlike traditional mutual funds, ETF s does not sell or redeem their individual shares at net asset value (NAV). Instead, financial institutions purchase and redeem ETF shares directly from the ETF. But only in large blocks that vary in size from 25,000 to 200,000 shares called “creation units”. Purchase and redemption of creation units are generally in kind. With the institutional investor contributing or receiving a basket of securities of the same type and proportion held by the ETF. Although some ETF s may require or allow purchasing or redeeming shareholders to substitute cash for some - or all - of the securities in the basket of assets.
The ability to purchase and redeem creation units gave ETF s an arbitrage mechanism intended to minimize the potential deviation between the market price and the net asset value of ETF shares. Existing ETF s have transparent portfolios, so institutional investors will know exactly what portfolio assets they must assemble if they wish to purchase a creation unit. And the exchange disseminates the updated net asset value of the shares throughout the trading day, typically at 15-second intervals.
In practice, many experts have viewed exchange-traded funds with mixed feelings. John C. Bogle, founder of The Vanguard Group, which is a leading issuer of index funds and – since Bogle’s retirement – of ETF s. Bogle has argued that ETF s are nothing more than a representation of short-term speculation because their trading expenses decrease returns to investors. And also, ETF s provides insufficient diversification. But Bogle later concedes that a broadly diversified ETF that is held over time can be a good investment.
But major investing institutions, like The Vanguard Group or Fidelity Investments for example, already control billions of shares. It is easy for them to create an ETF by simply peeling a few million shares off the top of the pile. Then putting together a basket of stocks to represent the appropriate index, say the NASDAQ composite or the TBOPP index made up for the start-up article. Does this serve as proof that patience and prudence together with a good perspective on the marketplace is still the cornerstone of a good and profitable business model then?
By: Ringo Bones
Recently hailed by a number of investment savvy as one of the methods that made them profit from the sky-is-the-limit crude oil prices of July 2008, crude oil ETF s really paid their investors rich dividends. But is this just a case of Emperor Nero fiddling away while Rome burned to the ground thus forever reinforcing the notion that our current global financial system can only thrive in an environment of extreme financial disparity? To find out if ETF s truly deserving of this reputation, let us first examine what makes them tick.
An exchange-traded fund or ETF is an investment vehicle traded on the world’s stock exchanges, much like stocks or bonds. A typical ETF holds assets such as stocks or bonds by trading them at approximately the same price as the net asset value of its underlying assets over the course of the trading day. Majority of ETF s are valued by pegging or tracking at an index, such as the DOW Jones Industrial Average or the S&P 500. An ETF is seen by many as attractive investments because of its low costs, tax efficiency, and stock-like features.
An ETF combines the valuation feature of existing mutual funds or unit investment trusts, which can be purchased or redeemed at the end of each trading day for its net asset value. Close-end funds are not considered to be exchange-traded funds, even though they are funds and are traded on an exchange. In general, ETF s will not require a lot of micro-management. You can simply set them up and forget them and then rake in the dividends. In fact, some investors take this to the extreme by building so-called “lazy portfolios”.
A poll was conducted on a group of investment professionals in March 2008. 67% of those polled say that ETF s are the most innovative investment vehicle developed during the last two decades, while 60% reported that ETF s have fundamentally changed the way investment professionals constructed investment portfolios.
ETF s had their ad hoc origins in 1989 with Index Participation Shares, which - for all intents and purposes - was an S&P 500 proxy that traded on the American Stock Exchange and the Philadelphia Stock Exchange. This product, however, was short-lived after a lawsuit by the Chicago Mercantile Exchange was successful in halting the sales of ETF s in the United States. A similar product, Toronto Index Participation Shares started trading on the Toronto Stock Exchange in 1990. The shares, which pegged the TSE 35 and later the TSE 100 stocks, proved to be so popular. The popularity of these products led the American Stock Exchange to try to develop something that would comply with Securities and Exchange Commission or SEC regulation to be sold on US soil.
ETF s had been available in the US since 1993 and in Europe in 1999. Exchange traded funds have traditionally been classified as index funds. But in 2008, the US Securities and Exchange Commission started to authorize the creation of actively-managed ETF s. Usually investors only buy and sell ETF s in market transactions. But institutional investors can redeem large blocks of shares of the ETF – known as creation units – for a “basket” of the underlying assets or alternatively, exchange the underlying assets for creation units. This creation and redemption of shares enables institutions to engage in arbitrage that causes the value of the ETF to approximate the net asset value of the underlying assets.
Exchange-traded funds offer public investors’ undivided interests in a pool of securities and other assets and thus are similar in many ways to traditional mutual funds. Except shares in an ETF can be bought and sold throughout the trading day like stocks on a securities exchange through a broker-dealer. Unlike traditional mutual funds, ETF s does not sell or redeem their individual shares at net asset value (NAV). Instead, financial institutions purchase and redeem ETF shares directly from the ETF. But only in large blocks that vary in size from 25,000 to 200,000 shares called “creation units”. Purchase and redemption of creation units are generally in kind. With the institutional investor contributing or receiving a basket of securities of the same type and proportion held by the ETF. Although some ETF s may require or allow purchasing or redeeming shareholders to substitute cash for some - or all - of the securities in the basket of assets.
The ability to purchase and redeem creation units gave ETF s an arbitrage mechanism intended to minimize the potential deviation between the market price and the net asset value of ETF shares. Existing ETF s have transparent portfolios, so institutional investors will know exactly what portfolio assets they must assemble if they wish to purchase a creation unit. And the exchange disseminates the updated net asset value of the shares throughout the trading day, typically at 15-second intervals.
In practice, many experts have viewed exchange-traded funds with mixed feelings. John C. Bogle, founder of The Vanguard Group, which is a leading issuer of index funds and – since Bogle’s retirement – of ETF s. Bogle has argued that ETF s are nothing more than a representation of short-term speculation because their trading expenses decrease returns to investors. And also, ETF s provides insufficient diversification. But Bogle later concedes that a broadly diversified ETF that is held over time can be a good investment.
But major investing institutions, like The Vanguard Group or Fidelity Investments for example, already control billions of shares. It is easy for them to create an ETF by simply peeling a few million shares off the top of the pile. Then putting together a basket of stocks to represent the appropriate index, say the NASDAQ composite or the TBOPP index made up for the start-up article. Does this serve as proof that patience and prudence together with a good perspective on the marketplace is still the cornerstone of a good and profitable business model then?
Wednesday, August 20, 2008
Crude Oil-Based Economics: Still Economically Viable?
After the high energy prices of July 2008 has done it’s worst to our fragile global economy still reeling from the credit crunch, will the present under 115 dollar-per-barrel crude oil prices be a viable long-term solution?
By: Vanessa Uy
Now that the furor over high-energy prices has (hopefully?) died down, does this mean the worse of the energy crisis is now far behind us? Well, not exactly. The crude oil prices which are steadily declining (hopefully)on a weekly basis is by no means immune from the Machiavellian-like machinations of commodities speculators, less than democratic nation-states, and most of all OPEC.
Throughout of its 47-year history, the Organization of the Petroleum Exporting Countries or OPEC has been a cartel in name only. Given that the people who still care about OPEC’s historical track-record probably experienced first hand back in the time when gasoline was still sold at 10 US cents or 25 US cents per gallon, probably compares it to some post-Pablo Escobar narcotics cartel. Forever endangering the democratically elected governments of Latin American countries by financing local terror groups. The question now is, is OPEC really like a narcotics cartel devoid of any semblance of Corporate Social Responsibility?
Sadly, this was proven back in the March 2008 OPEC meeting in Vienna. OPEC member oil companies declined to increase their production quotas despite fairly legitimate reasons to do so. At this time, crude oil prices were teetering just above 100 US dollars a barrel. Plus, the United States is either near or already in an economic recession with much of the rest of the world feeling the knock-on effects. OPEC ministers were nonchalant despite of the dire situation of our global economy back then. The OPEC ministers even choose to a consensus of reducing overall production because the inevitable global economic slowdown will probably reduce crude oil demand anyway. Is there something wrong with this picture?
What is wrong is that a fall in crude oil prices is one of – if not the main – mechanisms in which an economic recession or retail slowdown corrects itself. As crude oil prices now a mere shadow, relatively speaking, of its almost 150 US dollar a barrel peak back in July 2008, the US economy did got a little better. Despite the housing market still at a slowdown, everyone at the US Federal Reserve must had patted themselves in the back for formulating a monetary policy that saved the US economy – i.e. it strengthened back the US dollar. But the question now is, can we keep crude oil prices under 100 US dollars a barrel until the year 2050 were economically viable alternatives to crude oil fueled systems will be invented?
The problem with this scenario is that replacement technologies for our crude oil incumbent industry will never be invented if the economic incentives for doing so are not there. Despite the environmental harm, not to mention the political instability plus the cost in human lives of our young people in their prime dying in some senseless war just to keep crude oil prices artificially low. Our Quixotic search for cheap crude oil is one of the main stumbling blocks for the development and implementation of environmentally renewable energy technologies like solar photovoltaic cells and wind turbines. Imagine if Halliburton and their ilk were around back during the days of the Amistad Case. The whole world would probably still be engaged in the Transatlantic slave trade and using whale blubber to run our cars, heat our homes, and generate electricity.
For the sake of the global economy, America – the world’s last true superpower – must take the lead in developing new technologies to free the whole world being shackled to a crude oil incumbent economy. Or are the policymakers on Capitol Hill too blind to see that America's addiction to foreign (especially OPEC’s) crude oil has made the US economy a virtual mendicant to every other country’s Sovereign Wealth Funds. Plus, the present US Government can’t even provide justice to the genocide victims in Darfur, Sudan because the US Government borrows money from one of the perpetrators – i.e. Beijing Government – just to buy America’s present crude oil needs from OPEC.
By: Vanessa Uy
Now that the furor over high-energy prices has (hopefully?) died down, does this mean the worse of the energy crisis is now far behind us? Well, not exactly. The crude oil prices which are steadily declining (hopefully)on a weekly basis is by no means immune from the Machiavellian-like machinations of commodities speculators, less than democratic nation-states, and most of all OPEC.
Throughout of its 47-year history, the Organization of the Petroleum Exporting Countries or OPEC has been a cartel in name only. Given that the people who still care about OPEC’s historical track-record probably experienced first hand back in the time when gasoline was still sold at 10 US cents or 25 US cents per gallon, probably compares it to some post-Pablo Escobar narcotics cartel. Forever endangering the democratically elected governments of Latin American countries by financing local terror groups. The question now is, is OPEC really like a narcotics cartel devoid of any semblance of Corporate Social Responsibility?
Sadly, this was proven back in the March 2008 OPEC meeting in Vienna. OPEC member oil companies declined to increase their production quotas despite fairly legitimate reasons to do so. At this time, crude oil prices were teetering just above 100 US dollars a barrel. Plus, the United States is either near or already in an economic recession with much of the rest of the world feeling the knock-on effects. OPEC ministers were nonchalant despite of the dire situation of our global economy back then. The OPEC ministers even choose to a consensus of reducing overall production because the inevitable global economic slowdown will probably reduce crude oil demand anyway. Is there something wrong with this picture?
What is wrong is that a fall in crude oil prices is one of – if not the main – mechanisms in which an economic recession or retail slowdown corrects itself. As crude oil prices now a mere shadow, relatively speaking, of its almost 150 US dollar a barrel peak back in July 2008, the US economy did got a little better. Despite the housing market still at a slowdown, everyone at the US Federal Reserve must had patted themselves in the back for formulating a monetary policy that saved the US economy – i.e. it strengthened back the US dollar. But the question now is, can we keep crude oil prices under 100 US dollars a barrel until the year 2050 were economically viable alternatives to crude oil fueled systems will be invented?
The problem with this scenario is that replacement technologies for our crude oil incumbent industry will never be invented if the economic incentives for doing so are not there. Despite the environmental harm, not to mention the political instability plus the cost in human lives of our young people in their prime dying in some senseless war just to keep crude oil prices artificially low. Our Quixotic search for cheap crude oil is one of the main stumbling blocks for the development and implementation of environmentally renewable energy technologies like solar photovoltaic cells and wind turbines. Imagine if Halliburton and their ilk were around back during the days of the Amistad Case. The whole world would probably still be engaged in the Transatlantic slave trade and using whale blubber to run our cars, heat our homes, and generate electricity.
For the sake of the global economy, America – the world’s last true superpower – must take the lead in developing new technologies to free the whole world being shackled to a crude oil incumbent economy. Or are the policymakers on Capitol Hill too blind to see that America's addiction to foreign (especially OPEC’s) crude oil has made the US economy a virtual mendicant to every other country’s Sovereign Wealth Funds. Plus, the present US Government can’t even provide justice to the genocide victims in Darfur, Sudan because the US Government borrows money from one of the perpetrators – i.e. Beijing Government – just to buy America’s present crude oil needs from OPEC.
Monday, June 30, 2008
Socially Responsible Tourism Anyone?
If we follow the “money trail” of our current tourism industry, chances are the locals living in our lucrative travel destinations receive very little – if at all – of the dollars that we shell out. Is it high time for something better?
By: Vanessa Uy
“Take only photographs and leave only footprints.” This enlightened adage which became increasingly popular during the 1990’s was meant as a guide in preserving our ecotourism sites for the next generation. But as ecotourism grew into a full blown lucrative industry a few years on, it seems as if everyone forgot to inject the concept of fiscal sensibility in managing this upstart form of tourism. After all, the “dollar value” of our ecotourism destinations can only be maintained if it’s ecological balance is preserved, and this won’t come for free. Especially if what we are trying to preserve is for all intents and purposes a tradable commodity.
But still there is often overlooked problem – the locals. Over the years, steps are already taken to preserve a typical ecotourism site’s biodiversity. Yet the locals are denied the benefits of the revenue generated by their local community. Some are even forcibly evicted from their ancestral lands every time a rich land owner buys large tracks of pristine wilderness to be developed into an ecotourism site which – sad to say – winds up looking like the Checkpoint on the 38th Parallel of the North-South Korean border. Some parts of the world, the ecotourism industry is for all intents and purposes still unregulated. Like here in the Philippines with the example I cited before where the facilities ending up like a hardened military base made to withstand a multi-megaton nuclear explosion rather than an inviting ecotourism site.
Though there are some schemes already existing where governments oversee that the money generated by ecotourism are appropriately allotted so that the locals can benefit from it. Like scholarships and training for those who want to serve as tourist guides and park rangers. Providing environmentally friendly cottage industry concessions for the locals like developing their own herbal and folk medicine / apothecary. And also for adequately budgeted scientific studies to accurately measure the impact of ecotourism. So that adequate measures for protecting the sites can be legislated. Sadly though, enlightened measures like these are the exception -–rather than the rule when it comes to the ecotourism industry.
By: Vanessa Uy
“Take only photographs and leave only footprints.” This enlightened adage which became increasingly popular during the 1990’s was meant as a guide in preserving our ecotourism sites for the next generation. But as ecotourism grew into a full blown lucrative industry a few years on, it seems as if everyone forgot to inject the concept of fiscal sensibility in managing this upstart form of tourism. After all, the “dollar value” of our ecotourism destinations can only be maintained if it’s ecological balance is preserved, and this won’t come for free. Especially if what we are trying to preserve is for all intents and purposes a tradable commodity.
But still there is often overlooked problem – the locals. Over the years, steps are already taken to preserve a typical ecotourism site’s biodiversity. Yet the locals are denied the benefits of the revenue generated by their local community. Some are even forcibly evicted from their ancestral lands every time a rich land owner buys large tracks of pristine wilderness to be developed into an ecotourism site which – sad to say – winds up looking like the Checkpoint on the 38th Parallel of the North-South Korean border. Some parts of the world, the ecotourism industry is for all intents and purposes still unregulated. Like here in the Philippines with the example I cited before where the facilities ending up like a hardened military base made to withstand a multi-megaton nuclear explosion rather than an inviting ecotourism site.
Though there are some schemes already existing where governments oversee that the money generated by ecotourism are appropriately allotted so that the locals can benefit from it. Like scholarships and training for those who want to serve as tourist guides and park rangers. Providing environmentally friendly cottage industry concessions for the locals like developing their own herbal and folk medicine / apothecary. And also for adequately budgeted scientific studies to accurately measure the impact of ecotourism. So that adequate measures for protecting the sites can be legislated. Sadly though, enlightened measures like these are the exception -–rather than the rule when it comes to the ecotourism industry.
Monday, May 5, 2008
Subprime Mortgage Loans: No Money, No Credit Rating, No Problem Service?
Ever since the subprime mortgage debacle became headline news in the latter part of 2007 that resulted to a massive slowdown of our credit driven global economy, economists are now formulating cures and future preventives. Will it work?
By: Vanessa Uy
Ever since President John F. Kennedy’s speech about sending a man to the Moon, political rhetoric has become the latest selling point of the American industry. If sending man to the Moon made the US Military-Industrial Complex rich beyond their wildest dreams, shouldn’t other political rhetoric – if exploited right – could – in theory - benefit other industries as well? Like the proverbial “American Dream” of home ownership. One of the latest proponents of the home ownership rhetoric is the current American President George W. Bush whose speech about fulfilling every working-class American’s dream of homeownership was even caught on TV. Given the less than stellar records when it comes to corporate social responsibility and ethical business governance of American financial institutions (the Savings & Loan scandal of the 1980’s is an excellent example), are these financial institutions up to task in fulfilling every working-class American’s aspiration of home ownership? To fully understand our current subprime mortgage debacle, lets examine first the history of equity loan providers in America and their stance about Civil Rights.
Back in the 1960’s when an overwhelming majority of the American financial institutions thought that the concept of corporate social responsibility, ethical business governance and fiscal transparency – which are now the most overused selling points of financial institutions - were mere ideological musings of Marx and Lenin back then. These financial institutions were even engaged in a practice that would be deemed unacceptable by Civil Rights groups today, and they called it “Red Lining”. “Red Lining” is a very controversial practice adopted by equity home providers’ back in the 1960’s. Equity loan and other financial service providers literally draw a red line around neighborhoods whose populations are overwhelmingly African-American, Hispanics or other cultural minorities as no go zones when it comes to giving these people access to home ownership loans. Thus forever denying these people the proverbial “American Dream” of home ownership.
When the Republican / GOP neo-conservatives gained congressional power during the Clinton Administration of the 1990’s. The American financial institutions were literally given a carte blanche to make money by any means necessary. The concept of “Reverse Red Lining” first gained its first tentative steps. By providing risky or subprime mortgage loans to cultural minorities or to anyone with subprime or shaky credit ratings, equity loan providers could now actually pretend on how caring they are by providing these very high interest loans. The loan providers could easily feign corporate social responsibility sine they are providing loans to a group of people whose loan application were denied or rejected by other equity loan providers. These subprime mortgage loan providers even went public by raising money via IPO s or initial public offerings. Almost everyone, Wall Street even bought into it lock stock and barrel. Even including investors outside America joined the subprime bandwagon. A remote town in Iceland even bought into this “subprime loan gold rush” by investing a sizeable part of their town’s fiscal reserves. Lucrative loans with inherently high risks gained as much allure as casino gambling. Thus explaining why when the subprime bubble collapsed, its effects were felt throughout the entire world.
When the painful pinch of reality set in, it’s the ones with marginal financial resources i.e. the subprime mortgages target customers – namely African-Americans, Hispanics and other minorities – who suffered the most. Refinancing companies are doing a very poor job of consolidating the debts of homeowners affected by the subprime mortgage crisis. Some financial analysts even questioned the wisdom of debt consolidation in alleviating the affected homeowner’s problems.
Many are now starting to question whether the subprime mortgage’s original core mission is to recoup the profits lost by American financial institutions. Is it to recoup lost profits due to the Savings & Loan scandal of the 1980’s, the “dot com” bubble of the late 1990’s and the interest rates in which the former Federal Reserve chairman Alan Greenspan decided to set for far to low for far too long. With the questionable wisdom of predatory lending’s ability to kick-start the ailing American economy is a matter of lengthy conjecture. Shouldn’t all of us gain some form of wisdom by avoiding as much as possible very risky investment strategies or maybe we should stop treating our houses as mere financial instruments / tradable commodities and more as homes were our heart truly belongs.
By: Vanessa Uy
Ever since President John F. Kennedy’s speech about sending a man to the Moon, political rhetoric has become the latest selling point of the American industry. If sending man to the Moon made the US Military-Industrial Complex rich beyond their wildest dreams, shouldn’t other political rhetoric – if exploited right – could – in theory - benefit other industries as well? Like the proverbial “American Dream” of home ownership. One of the latest proponents of the home ownership rhetoric is the current American President George W. Bush whose speech about fulfilling every working-class American’s dream of homeownership was even caught on TV. Given the less than stellar records when it comes to corporate social responsibility and ethical business governance of American financial institutions (the Savings & Loan scandal of the 1980’s is an excellent example), are these financial institutions up to task in fulfilling every working-class American’s aspiration of home ownership? To fully understand our current subprime mortgage debacle, lets examine first the history of equity loan providers in America and their stance about Civil Rights.
Back in the 1960’s when an overwhelming majority of the American financial institutions thought that the concept of corporate social responsibility, ethical business governance and fiscal transparency – which are now the most overused selling points of financial institutions - were mere ideological musings of Marx and Lenin back then. These financial institutions were even engaged in a practice that would be deemed unacceptable by Civil Rights groups today, and they called it “Red Lining”. “Red Lining” is a very controversial practice adopted by equity home providers’ back in the 1960’s. Equity loan and other financial service providers literally draw a red line around neighborhoods whose populations are overwhelmingly African-American, Hispanics or other cultural minorities as no go zones when it comes to giving these people access to home ownership loans. Thus forever denying these people the proverbial “American Dream” of home ownership.
When the Republican / GOP neo-conservatives gained congressional power during the Clinton Administration of the 1990’s. The American financial institutions were literally given a carte blanche to make money by any means necessary. The concept of “Reverse Red Lining” first gained its first tentative steps. By providing risky or subprime mortgage loans to cultural minorities or to anyone with subprime or shaky credit ratings, equity loan providers could now actually pretend on how caring they are by providing these very high interest loans. The loan providers could easily feign corporate social responsibility sine they are providing loans to a group of people whose loan application were denied or rejected by other equity loan providers. These subprime mortgage loan providers even went public by raising money via IPO s or initial public offerings. Almost everyone, Wall Street even bought into it lock stock and barrel. Even including investors outside America joined the subprime bandwagon. A remote town in Iceland even bought into this “subprime loan gold rush” by investing a sizeable part of their town’s fiscal reserves. Lucrative loans with inherently high risks gained as much allure as casino gambling. Thus explaining why when the subprime bubble collapsed, its effects were felt throughout the entire world.
When the painful pinch of reality set in, it’s the ones with marginal financial resources i.e. the subprime mortgages target customers – namely African-Americans, Hispanics and other minorities – who suffered the most. Refinancing companies are doing a very poor job of consolidating the debts of homeowners affected by the subprime mortgage crisis. Some financial analysts even questioned the wisdom of debt consolidation in alleviating the affected homeowner’s problems.
Many are now starting to question whether the subprime mortgage’s original core mission is to recoup the profits lost by American financial institutions. Is it to recoup lost profits due to the Savings & Loan scandal of the 1980’s, the “dot com” bubble of the late 1990’s and the interest rates in which the former Federal Reserve chairman Alan Greenspan decided to set for far to low for far too long. With the questionable wisdom of predatory lending’s ability to kick-start the ailing American economy is a matter of lengthy conjecture. Shouldn’t all of us gain some form of wisdom by avoiding as much as possible very risky investment strategies or maybe we should stop treating our houses as mere financial instruments / tradable commodities and more as homes were our heart truly belongs.
Hedge Funds: Financial Cloak and Dagger?
First made famous as a financial instrument that made spectacular hostile takeovers possible during the 1980’s “Decade of Greed”. Now used by speculators to drive up oil and food prices, will stricter regulation tame hedge funds’ unbridled avarice?
By: Vanessa Uy
Okay I’ll admit it – and so do maybe a large number of people – that the financial world’s bereft of any semblance of corporate social responsibility is what probably makes it interesting to outsiders. If ever corporate social responsibility or ethical business governance existed during the “Decade of Greed”, the movie “Wall Street” surely would have never been made. Part of the financial world’s “cash cow” that tore the financial world into two camps when it comes to the widespread adoption of corporate social responsibility are hedge funds. But before we proceed further, let us discuss first the arcane and rigmarole – infested world of hedge funds.
A hedge fund is a private investment fund that charges a performance fee and usually offered only to a limited range of qualified accredited investors. Unlike true blue Initial Public Offerings or IPO s, in which anyone with money or other requisite funds can qualify to invest. Alfred Winslow Jones was credited for inventing hedge funds back in 1949. While there is no legal definition of hedge funds under the US securities laws and regulations, the term hedge fund usually pertain to funds invested in more complex and risky investments ignored by most – if not all - public funds. As a hedge fund’s investment activities are limited only by contracts governing the particular fund, it can make greater use of complex investment strategies such as short selling, entering into the futures markets, swaps and other derivative contracts and leverage.
As the nomenclature implies, hedge funds usually avoid potential losses in the principal markets they are invested to by hedging it by any number of available methods. But a number of long-term investments had been inappropriately named as hedge funds, especially absolute-return funds. Even though these so-called “pseudo hedge funds” do not actually hedge their investments.
Hedge funds had always acquired a reputation of secrecy, a financial cloak and dagger if you will. This could cause serious headaches in its attempt to comply the transparency proviso of corporate social responsibility and / or ethical business governance. Unlike open-to-the-public “retail” funds - like US mutual funds - which are marketed freely to the public, in most countries, hedge funds are specifically prohibited from being marketed to investors who have no professional accreditation or to individuals with sufficient private funds. Sadly, this limits the information a hedge fund is legally required to release because divulging a hedge fund’s methods could unreasonably compromise their business interests. Thus limiting the pertinent information that a hedge fund is allowed legally to release.
Since a typical hedge fund’s assets can run into many billions of dollars and is always be multiplied by leverage, their sway over markets, whether they succeed or fail, is potentially substantial. There is even a continuing debate over whether hedge funds should be more thoroughly regulated. Given their current sway in the commodities markets, especially to crude oil and staple foods like rice, corn and soybeans, a more thorough regulation is indeed a long time coming. The bad news is that a more thorough regulation could be viewed by the majority in the financial world as a move from an already over regulated Keynesian style economics into a Soviet-era “Socialist Command Economy”. A move that would prove to be an anathema to an overwhelming majority in the financial world who had clung on to their Protestant / Calvinist Work Ethic like their lives depended on it.
By: Vanessa Uy
Okay I’ll admit it – and so do maybe a large number of people – that the financial world’s bereft of any semblance of corporate social responsibility is what probably makes it interesting to outsiders. If ever corporate social responsibility or ethical business governance existed during the “Decade of Greed”, the movie “Wall Street” surely would have never been made. Part of the financial world’s “cash cow” that tore the financial world into two camps when it comes to the widespread adoption of corporate social responsibility are hedge funds. But before we proceed further, let us discuss first the arcane and rigmarole – infested world of hedge funds.
A hedge fund is a private investment fund that charges a performance fee and usually offered only to a limited range of qualified accredited investors. Unlike true blue Initial Public Offerings or IPO s, in which anyone with money or other requisite funds can qualify to invest. Alfred Winslow Jones was credited for inventing hedge funds back in 1949. While there is no legal definition of hedge funds under the US securities laws and regulations, the term hedge fund usually pertain to funds invested in more complex and risky investments ignored by most – if not all - public funds. As a hedge fund’s investment activities are limited only by contracts governing the particular fund, it can make greater use of complex investment strategies such as short selling, entering into the futures markets, swaps and other derivative contracts and leverage.
As the nomenclature implies, hedge funds usually avoid potential losses in the principal markets they are invested to by hedging it by any number of available methods. But a number of long-term investments had been inappropriately named as hedge funds, especially absolute-return funds. Even though these so-called “pseudo hedge funds” do not actually hedge their investments.
Hedge funds had always acquired a reputation of secrecy, a financial cloak and dagger if you will. This could cause serious headaches in its attempt to comply the transparency proviso of corporate social responsibility and / or ethical business governance. Unlike open-to-the-public “retail” funds - like US mutual funds - which are marketed freely to the public, in most countries, hedge funds are specifically prohibited from being marketed to investors who have no professional accreditation or to individuals with sufficient private funds. Sadly, this limits the information a hedge fund is legally required to release because divulging a hedge fund’s methods could unreasonably compromise their business interests. Thus limiting the pertinent information that a hedge fund is allowed legally to release.
Since a typical hedge fund’s assets can run into many billions of dollars and is always be multiplied by leverage, their sway over markets, whether they succeed or fail, is potentially substantial. There is even a continuing debate over whether hedge funds should be more thoroughly regulated. Given their current sway in the commodities markets, especially to crude oil and staple foods like rice, corn and soybeans, a more thorough regulation is indeed a long time coming. The bad news is that a more thorough regulation could be viewed by the majority in the financial world as a move from an already over regulated Keynesian style economics into a Soviet-era “Socialist Command Economy”. A move that would prove to be an anathema to an overwhelming majority in the financial world who had clung on to their Protestant / Calvinist Work Ethic like their lives depended on it.
Thursday, April 17, 2008
Corporate Social Responsibility: The Latest Praxis of Greed?
As the latest buzzword in the world of business and finance that’s a few steps away from economic recession, is corporate social responsibility just a ploy used by companies to make them appear way less greedy?
By: Vanessa Uy
Sometimes I ask myself weather the current coverage by the mainstream media regarding corporate social responsibility is actually confusing the general public’s already distorted perception on why companies embraces corporate social responsibility in the first place. From the lighthearted “there just buying into the latest must have fashion accessory” perception of corporate social responsibility. To the press’s overly simplistic painting a picture that start-up companies that embraced corporate social responsibility for “idealistic” reasons are actually holding back a tidal wave of greed and corruption doesn’t help matters either. Even though I see the overall good in corporate social responsibility especially when it comes to the environmental side of things. The truth of the mater - like the one used to be tackled by agents Mulder and Scully in the TV series The X-Files – is not what it seams to be.
More than just a “look how caring we are” public relations ploy of big corporations, corporate social responsibility can serve also as a company’s unique selling point especially in today’s slowing down markets. Anything that helps your company will be tried in these somewhat desperate times I’m told, but what’s the point? Why adopt a policy that would wind up your company to lose money just to avoid the general public’s “resentment” of the financially successful i.e. rich from being directed at your company? Before we get overly philosophical, let’s first explore this concept of corporate social responsibility.
Corporate social responsibility is now currently made up of three broad layers. The most basic is the traditional corporate philanthropy which many view only big companies with relatively long history can afford. Like Google’s 25 million-dollar philanthropy, which the company announced in January 2008 to be awarded to social projects that tackle poverty and climate change. The second layer of corporate social responsibility can be thought of as a branch of risk management. This is when companies talk to Non Government Organizations and to governments regarding the current pressing problems like the cost of living, the environment, and also create codes of conduct that allow them to be more transparent in their day to day operations. Companies also talk with their competitors regarding these things as to form a collective risk management scheme and in keeping their workers “happy”. In other words “enlightened self-policing”. The third of which is how corporate social responsibility makes a company appear “caring” to the rest of the world which creates value to the company in which can also be used as a unique selling point.
For whatever its worth, companies that had adopted corporate social responsibility since the 1990’s have been aiming to improve our two most pressing problems namely environmental protection and poverty alleviation. It seems like programs that address pre-existing environmental problems can also serve to improve local economic conditions. Concepts like organic farming, which crops and animals are produced without the use of harmful chemicals and animals are kept in free range as opposed to being kept in inhumane conditions. Fair trade, which farmers / producers are paid a fair price for their products as opposed to the lowest price allowed by law. Also sustainable utilization of natural resources like the Marine Stewardship Council or MSC which help keep fish stocks at a sustainable level while providing job security for the fishing industry.
Critics of corporate social responsibility say that it is just a cover used by companies who are performing badly and want rich treehuggers to purchase their initial public offerings with a perception that their clients are making a difference. But the results speak for themselves. Even though the mainstream press seems to over hype the political correctness of corporate social responsibility, embracing the idea for environmental reasons have not only improved the immediate environment of the companies that chose to, but the social conditions also improved. Companies that refurbish pre-loved / pre-owned computers to be either donated or to be sold at a bargain to impoverished communities are not only helping the environment by reducing the amount of e-wastes going into our overloaded landfills. They’re also creating new jobs and even future employment due to the computer literacy that results from donated computers.
By: Vanessa Uy
Sometimes I ask myself weather the current coverage by the mainstream media regarding corporate social responsibility is actually confusing the general public’s already distorted perception on why companies embraces corporate social responsibility in the first place. From the lighthearted “there just buying into the latest must have fashion accessory” perception of corporate social responsibility. To the press’s overly simplistic painting a picture that start-up companies that embraced corporate social responsibility for “idealistic” reasons are actually holding back a tidal wave of greed and corruption doesn’t help matters either. Even though I see the overall good in corporate social responsibility especially when it comes to the environmental side of things. The truth of the mater - like the one used to be tackled by agents Mulder and Scully in the TV series The X-Files – is not what it seams to be.
More than just a “look how caring we are” public relations ploy of big corporations, corporate social responsibility can serve also as a company’s unique selling point especially in today’s slowing down markets. Anything that helps your company will be tried in these somewhat desperate times I’m told, but what’s the point? Why adopt a policy that would wind up your company to lose money just to avoid the general public’s “resentment” of the financially successful i.e. rich from being directed at your company? Before we get overly philosophical, let’s first explore this concept of corporate social responsibility.
Corporate social responsibility is now currently made up of three broad layers. The most basic is the traditional corporate philanthropy which many view only big companies with relatively long history can afford. Like Google’s 25 million-dollar philanthropy, which the company announced in January 2008 to be awarded to social projects that tackle poverty and climate change. The second layer of corporate social responsibility can be thought of as a branch of risk management. This is when companies talk to Non Government Organizations and to governments regarding the current pressing problems like the cost of living, the environment, and also create codes of conduct that allow them to be more transparent in their day to day operations. Companies also talk with their competitors regarding these things as to form a collective risk management scheme and in keeping their workers “happy”. In other words “enlightened self-policing”. The third of which is how corporate social responsibility makes a company appear “caring” to the rest of the world which creates value to the company in which can also be used as a unique selling point.
For whatever its worth, companies that had adopted corporate social responsibility since the 1990’s have been aiming to improve our two most pressing problems namely environmental protection and poverty alleviation. It seems like programs that address pre-existing environmental problems can also serve to improve local economic conditions. Concepts like organic farming, which crops and animals are produced without the use of harmful chemicals and animals are kept in free range as opposed to being kept in inhumane conditions. Fair trade, which farmers / producers are paid a fair price for their products as opposed to the lowest price allowed by law. Also sustainable utilization of natural resources like the Marine Stewardship Council or MSC which help keep fish stocks at a sustainable level while providing job security for the fishing industry.
Critics of corporate social responsibility say that it is just a cover used by companies who are performing badly and want rich treehuggers to purchase their initial public offerings with a perception that their clients are making a difference. But the results speak for themselves. Even though the mainstream press seems to over hype the political correctness of corporate social responsibility, embracing the idea for environmental reasons have not only improved the immediate environment of the companies that chose to, but the social conditions also improved. Companies that refurbish pre-loved / pre-owned computers to be either donated or to be sold at a bargain to impoverished communities are not only helping the environment by reducing the amount of e-wastes going into our overloaded landfills. They’re also creating new jobs and even future employment due to the computer literacy that results from donated computers.
Friday, March 14, 2008
Did Keynesian Economics Kill the Business Cycle?
Not so long ago, economists resigned themselves to the fact that recession is just a part of the economic cycle. Then came John Maynard Keynes who shattered that dogma and revolutionized the science of economics. Will “Keynesian Economics” save us from the harmful effects of the business cycle?
By: Ringo Bones and Vanessa Uy
Despite the problems affecting our global economy like sub prime mortgage exposure and the worrying trend of economic recession, we often tend to forget the fact that business conditions have always been fluid and dynamic. One year, the markets are booming and bullish with jobs aplenty. Another year, the stock market goes into a free fall, and bankruptcy courts become more crowded than the Tokyo Subway at rush hour. As chronicled in our economic history books: recession, expansion, then recession follows a sequential saga. And in the memory of the bad old days of ruthless capitalism that brought us Black Tuesday – October 29, 1929 – the day the stock market crashed. Tales chronicling the “Great Depression” even mentioned about banks failing by the thousands and a very drastic slowdown of the US economy that weeds started to grow on the materialistic self-complacent provincialism of Main Street.
America’s post-World War II economy which is largely – if not totally – governed by the principles laid out by John Maynard Keynes in the hopes of making the 1929 “Black Tuesday” incident just an ugly footnote of the American economic history. Thus in the United States, pure capitalism has gradually given way to a mixed economy, in which the government shapes the tax and fiscal policies to stabilize the ups and downs of business. “Keynesian Economics” which is viewed by “conservative” Americans with disdain because it tends to undermine the Protestant / Calvinist work ethic that helped built the American nation, which in turn downgrades productivity. Government “over regulation” of industries like the savings and loans has resulted only in disaster. Despite of it’s detractors, the economic policies laid out by John Maynard Keynes gain widespread praise by economists for keeping a full-blown economic depression from ever happening again. But as the Federal Reserve Board acts to control the money supply and counteract the business cycle, can we really conclude that recessions are a thing of the past?
But economists tend to forget that economics – in general – is primarily greed driven. The promise of rich rewards / gains despite atrocious levels of risks is what makes traders take foolhardy decisions at the expense of their representative investors’ funds. And yet we can take real comfort in the fact that economic recessions are milder in the “Keynesian Mixed Economy” environment than they where under the pre - New Deal capitalism. And if they occur, post – World War II economic recessions are also shorter in duration and much rarer in occurrence. Let’s just hope that our current post – sub prime mortgage / credit crunch 2008 will follow this trend. Maybe the “worries” that made our grandparents and great grandparents gray and wrinkled is something that the under 25s will scarcely know.
By: Ringo Bones and Vanessa Uy
Despite the problems affecting our global economy like sub prime mortgage exposure and the worrying trend of economic recession, we often tend to forget the fact that business conditions have always been fluid and dynamic. One year, the markets are booming and bullish with jobs aplenty. Another year, the stock market goes into a free fall, and bankruptcy courts become more crowded than the Tokyo Subway at rush hour. As chronicled in our economic history books: recession, expansion, then recession follows a sequential saga. And in the memory of the bad old days of ruthless capitalism that brought us Black Tuesday – October 29, 1929 – the day the stock market crashed. Tales chronicling the “Great Depression” even mentioned about banks failing by the thousands and a very drastic slowdown of the US economy that weeds started to grow on the materialistic self-complacent provincialism of Main Street.
America’s post-World War II economy which is largely – if not totally – governed by the principles laid out by John Maynard Keynes in the hopes of making the 1929 “Black Tuesday” incident just an ugly footnote of the American economic history. Thus in the United States, pure capitalism has gradually given way to a mixed economy, in which the government shapes the tax and fiscal policies to stabilize the ups and downs of business. “Keynesian Economics” which is viewed by “conservative” Americans with disdain because it tends to undermine the Protestant / Calvinist work ethic that helped built the American nation, which in turn downgrades productivity. Government “over regulation” of industries like the savings and loans has resulted only in disaster. Despite of it’s detractors, the economic policies laid out by John Maynard Keynes gain widespread praise by economists for keeping a full-blown economic depression from ever happening again. But as the Federal Reserve Board acts to control the money supply and counteract the business cycle, can we really conclude that recessions are a thing of the past?
But economists tend to forget that economics – in general – is primarily greed driven. The promise of rich rewards / gains despite atrocious levels of risks is what makes traders take foolhardy decisions at the expense of their representative investors’ funds. And yet we can take real comfort in the fact that economic recessions are milder in the “Keynesian Mixed Economy” environment than they where under the pre - New Deal capitalism. And if they occur, post – World War II economic recessions are also shorter in duration and much rarer in occurrence. Let’s just hope that our current post – sub prime mortgage / credit crunch 2008 will follow this trend. Maybe the “worries” that made our grandparents and great grandparents gray and wrinkled is something that the under 25s will scarcely know.
Monday, March 10, 2008
The Flavors of Recession
As we ring in 2008 with apprehension over the sub prime mortgage crisis and credit crunch that plagued the US economy during the latter half of 2007, the question remains: Is the US economy already in recession?
By: Ringo Bones and Vanessa Uy
One time honored wisdom states that if America sneezes, the rest of the world catches a cold. A colorful phrase used to describe economic recession and the primary reason why the rest of the world lives in fear – especially countries who exports most of their products to the US - every time the US economy heads into a downturn. But come 2008, the question on everyone’s minds still remains: Is the US economy already in recession?
But what is an economic recession? Who decides? For years, the press and the Las Vegas odds-makers had adopted this simple pragmatic definition: When the real Gross National Product (total value of all goods and services, corrected for inflationary price rises) declines for two quarters (6 months) in a row – that is an economic recession. This rough definition is adequate for most purposes, and surely more “refined” than its "blue collar" counterpart which states: When your neighbor looses his job, its only economic slowdown, when you loose your job, it’s a full blown economic recession.
Another definition of economic recession that is formulated by The National Bureau of Economic Research, a prestigious nonprofit organization that has kept the official score on the US economy’s business cycles. The “bureau’s” definition is based on more refined tests and measurements. Yet, for the most part, The National Bureau of Economic Research arrives at the same conclusions as the press and Las Vegas odds-makers did when it applies it’s own definition. Which states: “An economic recession is a recurring period of decline in total output, income, employment, and trade usually lasting six months to a year and marked by widespread fluctuations in the economy.”
As time went on, economist these days had discovered and defined a new species of economic recession called a “mini” or “growth-recession” which the current Bush Administration says best describes on what is happening to the US economy right now. Even though most Americans – especially those under the age of 30 – think that the credit crunch is a new and recent phenomena that only came to life near the end of July 2007. But the credit crunch did happen way before, back in 1966 to 1967, when the American people had to live with a “growth-recession” when a credit crunch curtailed housing starts and shaved 20% off stock prices. A mini or growth-recession is defined as follows: When output and employment grow for half a year or more at significantly less than their average trend rate of growth, an economy is in a “growth-recession”, even if actual growth rates never turn negative.
Even though American billionaire and now the world’s richest man Warren Buffett and the financial firm Merrill Lynch both said that the US economy is already experiencing recession at the start of 2008. The Bush Administration still insists that the US economy is only undergoing a slow down and can be easily cured with an Economic Stimulus Package. Does the Bush Administration dread the use of the “R” word (recession) because they think it will cause widespread panic? But the US economy is indeed now experiencing full blown recession because 2008 jobless rates are at a five year high, home repossessions are on the rise, Wall Street shaky as world markets watch. Plus the price of crude oil and basic foods now at a record high is not helping matters either.
As the US Federal Reserve Chairman Ben Bernanke slash interest rates further and the Economic Stimulus Package planned to be increased to 200 billion US dollars - the latest ones in the form of "auctions" that could well undermine a financial firm's credit rating, will all of these measures be able to turn around the ailing US economy from sliding further into a deep recession? It’s a bit iffy, because as the US Federal Reserve makes cheaper still the cost of borrowing money, the “financially inept” – sorry to say – will be driven further into debt. This is so because its primarily due to greed driven foolhardy decisions that drove these people to concoct get rich quick schemes that started all this mess in the first place. Unless an epidemic of “financial enlightenment” sweeps across the United States, bankruptcy courts will be standing room only beginning 2008.
By: Ringo Bones and Vanessa Uy
One time honored wisdom states that if America sneezes, the rest of the world catches a cold. A colorful phrase used to describe economic recession and the primary reason why the rest of the world lives in fear – especially countries who exports most of their products to the US - every time the US economy heads into a downturn. But come 2008, the question on everyone’s minds still remains: Is the US economy already in recession?
But what is an economic recession? Who decides? For years, the press and the Las Vegas odds-makers had adopted this simple pragmatic definition: When the real Gross National Product (total value of all goods and services, corrected for inflationary price rises) declines for two quarters (6 months) in a row – that is an economic recession. This rough definition is adequate for most purposes, and surely more “refined” than its "blue collar" counterpart which states: When your neighbor looses his job, its only economic slowdown, when you loose your job, it’s a full blown economic recession.
Another definition of economic recession that is formulated by The National Bureau of Economic Research, a prestigious nonprofit organization that has kept the official score on the US economy’s business cycles. The “bureau’s” definition is based on more refined tests and measurements. Yet, for the most part, The National Bureau of Economic Research arrives at the same conclusions as the press and Las Vegas odds-makers did when it applies it’s own definition. Which states: “An economic recession is a recurring period of decline in total output, income, employment, and trade usually lasting six months to a year and marked by widespread fluctuations in the economy.”
As time went on, economist these days had discovered and defined a new species of economic recession called a “mini” or “growth-recession” which the current Bush Administration says best describes on what is happening to the US economy right now. Even though most Americans – especially those under the age of 30 – think that the credit crunch is a new and recent phenomena that only came to life near the end of July 2007. But the credit crunch did happen way before, back in 1966 to 1967, when the American people had to live with a “growth-recession” when a credit crunch curtailed housing starts and shaved 20% off stock prices. A mini or growth-recession is defined as follows: When output and employment grow for half a year or more at significantly less than their average trend rate of growth, an economy is in a “growth-recession”, even if actual growth rates never turn negative.
Even though American billionaire and now the world’s richest man Warren Buffett and the financial firm Merrill Lynch both said that the US economy is already experiencing recession at the start of 2008. The Bush Administration still insists that the US economy is only undergoing a slow down and can be easily cured with an Economic Stimulus Package. Does the Bush Administration dread the use of the “R” word (recession) because they think it will cause widespread panic? But the US economy is indeed now experiencing full blown recession because 2008 jobless rates are at a five year high, home repossessions are on the rise, Wall Street shaky as world markets watch. Plus the price of crude oil and basic foods now at a record high is not helping matters either.
As the US Federal Reserve Chairman Ben Bernanke slash interest rates further and the Economic Stimulus Package planned to be increased to 200 billion US dollars - the latest ones in the form of "auctions" that could well undermine a financial firm's credit rating, will all of these measures be able to turn around the ailing US economy from sliding further into a deep recession? It’s a bit iffy, because as the US Federal Reserve makes cheaper still the cost of borrowing money, the “financially inept” – sorry to say – will be driven further into debt. This is so because its primarily due to greed driven foolhardy decisions that drove these people to concoct get rich quick schemes that started all this mess in the first place. Unless an epidemic of “financial enlightenment” sweeps across the United States, bankruptcy courts will be standing room only beginning 2008.
Friday, March 7, 2008
Who’s Afraid of Stagflation?
Fast becoming an economic doomsayer’s buzzword in our post sub prime mortgage financial environment, will stagflation rear’s it’s ugly head again this 2008?
By: Ringo Bones and Vanessa Uy
Despite American economist, especially those in the pay of the Bush Administration, saying that the US economy is not yet in recession when we ring in 2008. But in our post - New Deal economic system that’s supposedly designed to keep economic recession a thing of the past, a form of economic malaise is now poised to threaten the on-going recovery process to lessen the impact of the sub prime mortgage crisis – namely stagflation.
Most of us living today – especially those under the age of 25 – has probably many questions to ask about stagflation, like: What is stagflation? Did stagflation happen before? Before we proceed, lets briefly discuss on what is stagflation and it’s primary causes.
When the post – World War II Keynesian Mixed Economy has alleviated the curse of old-fashioned economic depression and recession, it created the economic conditions that engendered the newfangled specter of stagflation. Stagflation is caused by a combination of stagnation in the production and employment sector with the inflation in the cost of living.
In 2008, stagflation now threatens China, Australia, and especially New Zealand whose individual Central Banks choose to raise the cost of borrowing money – i.e. raised interest rates – at a time when crude oil prices and food prices are at an all time high. The Las Vegas odds-makers say it’s a definite certainty that stagflation will definitely return in 2008, but let’s examine the economic conditions that made stagflation happen.
Back in 1979 during the Carter Administration, the economic slowdown of that year was primarily blamed on the artificially induced scarcity of the crude oil supply due to OPEC unable to respond the on-going geopolitical instability of the Middle East. This caused soaring food prices that contributed to the two-digit inflation that plagued America’s economy at the end of the 1970’s.
Then US President Jimmy Carter with the help of then Treasury Secretary G. William Miller, and then Federal Reserve Board Chairman Paul Volcker choose to cure the “inflation” part of stagflation back in 1979 by increasing the cost of borrowing money – i.e. raising interest rates. High interest rates on loans – 15% for large companies, 20% for less credit - worthy borrowers – were intended to combat inflation. The bad news is high interest rates adds to the cost in running a company and thereby leads to inflated prices. Some companies kept costs down by downsizing – i.e. laying off more “expendable” employees to keep their bottom line healthy. The poor and the unskilled members of the American society bore the brunt of the corporate downsizing during the latter days of the Carter Administration.
The fiscal oversight in tackling the 1979 stagflation documented on how President Carter and his financial advisers choose to reign in on the inflation part of stagflation because of their trust on “off the shelf” methods (or was it their trust of prevailing “off the shelf wisdom”) of tackling inflation are already tried and true. But at the expense of economic stagnation that prevailed well into the 1980’s. Let’s just hope that the Bush Administration’s “Economic Stimulus Package” has provisos for preventing the repeat of the 1979 stagflation because of the damage it could inflict on the already ailing global economy. A lot is now riding on the current US Federal Reserve Chairman Ben Bernanke’s decisions because it’s not just the American Economy that is on the line. The export - oriented economies of the Asian Far East will surely be affected.
By: Ringo Bones and Vanessa Uy
Despite American economist, especially those in the pay of the Bush Administration, saying that the US economy is not yet in recession when we ring in 2008. But in our post - New Deal economic system that’s supposedly designed to keep economic recession a thing of the past, a form of economic malaise is now poised to threaten the on-going recovery process to lessen the impact of the sub prime mortgage crisis – namely stagflation.
Most of us living today – especially those under the age of 25 – has probably many questions to ask about stagflation, like: What is stagflation? Did stagflation happen before? Before we proceed, lets briefly discuss on what is stagflation and it’s primary causes.
When the post – World War II Keynesian Mixed Economy has alleviated the curse of old-fashioned economic depression and recession, it created the economic conditions that engendered the newfangled specter of stagflation. Stagflation is caused by a combination of stagnation in the production and employment sector with the inflation in the cost of living.
In 2008, stagflation now threatens China, Australia, and especially New Zealand whose individual Central Banks choose to raise the cost of borrowing money – i.e. raised interest rates – at a time when crude oil prices and food prices are at an all time high. The Las Vegas odds-makers say it’s a definite certainty that stagflation will definitely return in 2008, but let’s examine the economic conditions that made stagflation happen.
Back in 1979 during the Carter Administration, the economic slowdown of that year was primarily blamed on the artificially induced scarcity of the crude oil supply due to OPEC unable to respond the on-going geopolitical instability of the Middle East. This caused soaring food prices that contributed to the two-digit inflation that plagued America’s economy at the end of the 1970’s.
Then US President Jimmy Carter with the help of then Treasury Secretary G. William Miller, and then Federal Reserve Board Chairman Paul Volcker choose to cure the “inflation” part of stagflation back in 1979 by increasing the cost of borrowing money – i.e. raising interest rates. High interest rates on loans – 15% for large companies, 20% for less credit - worthy borrowers – were intended to combat inflation. The bad news is high interest rates adds to the cost in running a company and thereby leads to inflated prices. Some companies kept costs down by downsizing – i.e. laying off more “expendable” employees to keep their bottom line healthy. The poor and the unskilled members of the American society bore the brunt of the corporate downsizing during the latter days of the Carter Administration.
The fiscal oversight in tackling the 1979 stagflation documented on how President Carter and his financial advisers choose to reign in on the inflation part of stagflation because of their trust on “off the shelf” methods (or was it their trust of prevailing “off the shelf wisdom”) of tackling inflation are already tried and true. But at the expense of economic stagnation that prevailed well into the 1980’s. Let’s just hope that the Bush Administration’s “Economic Stimulus Package” has provisos for preventing the repeat of the 1979 stagflation because of the damage it could inflict on the already ailing global economy. A lot is now riding on the current US Federal Reserve Chairman Ben Bernanke’s decisions because it’s not just the American Economy that is on the line. The export - oriented economies of the Asian Far East will surely be affected.
Friday, February 22, 2008
Sovereign Wealth Funds: Altruism’s Road to Hell?
Touted as the primary means of revitalizing an ailing “economic system”. Do Sovereign Wealth Funds really help more than they inevitably hurt?
By: Vanessa Uy
Billionaire investor George Soros is one of those people who really have a high praise for Sovereign Wealth Funds. But how many of us have the investment savvy of George Soros? And most of all; will Sovereign Wealth Funds – if properly (and ethically?) used – help alleviate our current (2008) global economic slowdown? But first, a brief primer on what is a Sovereign Wealth Fund.
A Sovereign Wealth Fund is a fund that is owned by a sovereign state. These are usually composed of financial assets such as stocks, bonds, property or other financial instruments. Sovereign Wealth Funds are broadly defined entities that can manage the national savings for the purposes of investment. These pooled funds may have their origins in, or may represent foreign currency deposits, gold, Special Drawing Rights and International Monetary Fund (IMF) reserve position held by central holdings. In other words, Sovereign Wealth Funds are assets of sovereign nations, which are typically (but not necessarily) held in domestic and different reserve currencies such as the dollar, euro, and yen. The names attributed to the respective management entities may include central banks, official investment companies, state pension funds, sovereign oil funds and so on.
Even though it’s really beyond reproach that Sovereign Wealth Funds can save an ailing company or an “economic system”. But the problem of evil rearing it’s ugly head comes along when investors who are controlling a typical Sovereign Wealth Fund can now dictate the company’s policy – which they now own by the way and they can fire / replace the company CEO if he or she doesn't fall in line. Never mind the ensuing massive layoffs that typically occur if the “new management” thinks that this move will “streamline” the company.
This is why some countries are staunchly “Protectionists” when faced with the prospects and / or threats of Sovereign Wealth Funds. Imagine if The People’s Republic of China’s Sovereign Wealth Funds allowing the Beijing Government access to Lockheed Martin’s “Proprietary Trade Secrets”. And what about the Sovereign Wealth Funds of “Despotic Arab States”, are we ready to face another “New World Order”?
And then there’s the issue of corporate ethics and the latest corporate buzzword “Corporate Social Responsibility”. I’ll bet a number of us are wondering if their pension funds are used by the US Central Intelligence Agency to underwrite their “Extraordinary Renditions” program which sadly existing Sharia Banking Laws didn’t mention (preach?) about the sins of investing one’s money in the “Military – Industrial Complex”. Those of us who are weary of the evils of Capitalism should take a stand now.
By: Vanessa Uy
Billionaire investor George Soros is one of those people who really have a high praise for Sovereign Wealth Funds. But how many of us have the investment savvy of George Soros? And most of all; will Sovereign Wealth Funds – if properly (and ethically?) used – help alleviate our current (2008) global economic slowdown? But first, a brief primer on what is a Sovereign Wealth Fund.
A Sovereign Wealth Fund is a fund that is owned by a sovereign state. These are usually composed of financial assets such as stocks, bonds, property or other financial instruments. Sovereign Wealth Funds are broadly defined entities that can manage the national savings for the purposes of investment. These pooled funds may have their origins in, or may represent foreign currency deposits, gold, Special Drawing Rights and International Monetary Fund (IMF) reserve position held by central holdings. In other words, Sovereign Wealth Funds are assets of sovereign nations, which are typically (but not necessarily) held in domestic and different reserve currencies such as the dollar, euro, and yen. The names attributed to the respective management entities may include central banks, official investment companies, state pension funds, sovereign oil funds and so on.
Even though it’s really beyond reproach that Sovereign Wealth Funds can save an ailing company or an “economic system”. But the problem of evil rearing it’s ugly head comes along when investors who are controlling a typical Sovereign Wealth Fund can now dictate the company’s policy – which they now own by the way and they can fire / replace the company CEO if he or she doesn't fall in line. Never mind the ensuing massive layoffs that typically occur if the “new management” thinks that this move will “streamline” the company.
This is why some countries are staunchly “Protectionists” when faced with the prospects and / or threats of Sovereign Wealth Funds. Imagine if The People’s Republic of China’s Sovereign Wealth Funds allowing the Beijing Government access to Lockheed Martin’s “Proprietary Trade Secrets”. And what about the Sovereign Wealth Funds of “Despotic Arab States”, are we ready to face another “New World Order”?
And then there’s the issue of corporate ethics and the latest corporate buzzword “Corporate Social Responsibility”. I’ll bet a number of us are wondering if their pension funds are used by the US Central Intelligence Agency to underwrite their “Extraordinary Renditions” program which sadly existing Sharia Banking Laws didn’t mention (preach?) about the sins of investing one’s money in the “Military – Industrial Complex”. Those of us who are weary of the evils of Capitalism should take a stand now.
Monday, January 28, 2008
In Banks We Trust
Ever since the news of the Société Générale bank fraud spread around the world, bank depositors and the general public are now wondering whether banks are part of the solution – or cause of the problem – of our current global financial crisis?
By: Vanessa Uy
As the French bank Société Générale prepares to close its offices for the weekend last January 25, 2008. A 31 – year – old Junior Executive Trader named Jerome Kerviel now dubbed as the “rogue trader” managed to loose a little over 7 billion US dollars worth of Société Générale’s funds by trading on the European Equities Market. An amount equivalent to 15% of the bank’s total assets or the amount the bank earns in an average fiscal year. The Junior Executive’s questionable action was defined as a fraud under established trading laws. Now under custody, investigators have doubts whether Jerome Kerviel acted alone. If found guilty, Jerome Kerviel may face a 5 - year prison sentence and hefty fines. Since the incident happened, ordinary bank depositors around the world – i.e. you and me – now doubt whether commercial banks and related financial institutions can do their part in solving the current “financial turbulence”.
For as long as I can remember, banks are seen as “agents of economic progress.” This is so because in school our teachers had instilled in us that if we save our money in banks - as opposed to stashing it in our “secret cookie jar” - we will be contributing to the economic progress and welfare of our nation. But recent events, like the Société Générale bank “fraud” case introduced a worm of doubt on everyone’s perceived trust between their money and their bank.
As of late, top economists had been pointing their fingers on the culture of “savings disparity” as the primary cause of the US credit crisis that is now threatening the global economy. These economists point out that on average, typical Americans save an equivalent of about 10% of their annual income, while in China its 50%. The prevailing wisdom about the role of banks on a nation’s / state’s economy lead the economists to conclude that the phenomenon of “savings disparity” is the overwhelming reason why – at present – the US Economy is weakening. While China’s remained strong despite the “bad decisions” made by US banks and related financial institutions that lead to the credit crunch and sub prime mortgage crisis. But since – taken as a whole – the global economy is a relatively complex dynamic system that’s continuously in flux, only time will tell if the Federal Reserve chairman Ben Bernanke and the Bush Administration’s resort to John Maynard Keynes – style economics. Like the 145 - billion dollar “Economic Stimulus” package that will supposedly prevent the US Economy from sliding into a recession. Or should everyone of us prepare for a repeat of the “Banking Panic of 1857”, or the draconian credit control measures of the Roosevelt Administration that lead to the “Bank Holiday” of March 4, 1933. Just remember what John Maynard Keynes wrote early in his career: “In the long run we are all dead.”
By: Vanessa Uy
As the French bank Société Générale prepares to close its offices for the weekend last January 25, 2008. A 31 – year – old Junior Executive Trader named Jerome Kerviel now dubbed as the “rogue trader” managed to loose a little over 7 billion US dollars worth of Société Générale’s funds by trading on the European Equities Market. An amount equivalent to 15% of the bank’s total assets or the amount the bank earns in an average fiscal year. The Junior Executive’s questionable action was defined as a fraud under established trading laws. Now under custody, investigators have doubts whether Jerome Kerviel acted alone. If found guilty, Jerome Kerviel may face a 5 - year prison sentence and hefty fines. Since the incident happened, ordinary bank depositors around the world – i.e. you and me – now doubt whether commercial banks and related financial institutions can do their part in solving the current “financial turbulence”.
For as long as I can remember, banks are seen as “agents of economic progress.” This is so because in school our teachers had instilled in us that if we save our money in banks - as opposed to stashing it in our “secret cookie jar” - we will be contributing to the economic progress and welfare of our nation. But recent events, like the Société Générale bank “fraud” case introduced a worm of doubt on everyone’s perceived trust between their money and their bank.
As of late, top economists had been pointing their fingers on the culture of “savings disparity” as the primary cause of the US credit crisis that is now threatening the global economy. These economists point out that on average, typical Americans save an equivalent of about 10% of their annual income, while in China its 50%. The prevailing wisdom about the role of banks on a nation’s / state’s economy lead the economists to conclude that the phenomenon of “savings disparity” is the overwhelming reason why – at present – the US Economy is weakening. While China’s remained strong despite the “bad decisions” made by US banks and related financial institutions that lead to the credit crunch and sub prime mortgage crisis. But since – taken as a whole – the global economy is a relatively complex dynamic system that’s continuously in flux, only time will tell if the Federal Reserve chairman Ben Bernanke and the Bush Administration’s resort to John Maynard Keynes – style economics. Like the 145 - billion dollar “Economic Stimulus” package that will supposedly prevent the US Economy from sliding into a recession. Or should everyone of us prepare for a repeat of the “Banking Panic of 1857”, or the draconian credit control measures of the Roosevelt Administration that lead to the “Bank Holiday” of March 4, 1933. Just remember what John Maynard Keynes wrote early in his career: “In the long run we are all dead.”
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