With the proposed Tobin Tax and looming draconian clampdowns on risky financial practices, will the Western financial system model itself after the Islamic financial system to avert future crises?
By: Ringo Bones
As of late it looks like French president Nicolas Sarkozy is trying his best to push through his Tobin Tax proposal – a tax to penalize unnecessarily risky behavior in the financial trading world – to the Western financial centers. Quite odd, given the French President’s disdain against Islamic headscarves that he finally allowed legislation of a law against the wearing of such “overt religious symbols” in French government institutions now that he is now planning a financial reform that would transform the Western financial system into something that is closely modeled to the Islamic financial system. The question now is how closely – if ever – will the Western financial system be modeled after a financial system that was developed and established in the financial world?
Given that the Islamic world have always viewed gambling or “Maisir” as “Haram” or forbidden under religious grounds, established modern Islamic finance that resembles that of the established modern Western system has always been characterized by a somewhat low-risk trading schemes. Quite a contrast to it’s high-rolling Western counterpart that during the time when Ronald Reagan ruled the free world, Wall Street and other major Western financial trading centers could almost be mistaken as a gambling casino due to the risk and speculation that the traders routinely practiced. Not surprisingly, it seems that sizable financial crises are always around the corner waiting to strike at the expense of the “financially unwary”.
Western insurance companies – especially those dealing in subprime mortgage securitization and credit derivatives – are viewed as the worst offenders. Especially in the light of the subprime credit crisis of 2008 that eventually broke the back of Lehman Brothers on the 15th of September of that year. Even Persian Gulf region financial institutions were exposed to this subprime mortgage debacle to some extent - Which is quite a contrast to the Islamic finance’s Takaful scheme which is based on social solidarity, cooperation, and mutual indemnification of the losses of members. This is “probably” the history’s first multi-billion dollar cultural misunderstanding.
With the upcoming reforms and revisions of the Basel Accord – i.e. the minimum reserve capital requirements of major banks and other financial institutions. Not to mention the proposed clampdown on the “bonus culture” that rewards high-risk behavior and adventurism in the Western financial world (as long as they make tons of money?), will Western financial institutions be modeling themselves to that of the Islamic financial system? And does the West’s future prosperity dependent on it doing so?
Back in August 16, 2009, the credit rating agency Moody’s Investor Service became concerned about unused surplus liquidity being a risk factor for Islamic finance. Does this mean that Islamic finance is Basel Accord compliant if proposed revisions require an increase in minimum capital requirements? Maybe, but I don’t see it as a “risk factor”. Maybe it is the never-ending quest to avoid “Gharar” or uncertainty that makes Islamic finance to have it’s very own distinct “flavor” that is radically different in comparison to the Western financial system. The Islamic world had saved the Western finance back in the past via the zero to nine digits of the Hindu-Arabic numeral system, maybe it is time for another “bailout” this time around.
Tuesday, September 22, 2009
Monday, September 7, 2009
Will Joblessness Stifle Global Economic Recovery?
With the unemployment rates of the under 25s steadily on the up-rise, will the “green shoots” of global economic recovery going to just wither and die?
By: Ringo Bones
When the term “green shoots” became a buzzword in the American economic community back in April 2009, everybody and their dog thought that the much-anticipated global economic recovery is just around the corner. Even though whether or not the data of the economic fundamentals indicate the supposed glimmers of an economic spring is an another thing entirely. But after a series of quantitative easing and bank stress tests, why is it that the endemic problem that points to the fact that the global economy is still not well and good – namely unemployment – still remains unsolved?
Many tenured economic analysts point out that unemployment rate reports – more often than not – tend to lag behind the economic data that indicates the soundness of the fundamentals that point to economic recovery. Though this explanation is quite encouraging, it still not restored investor confidence to pre-subprime mortgage crisis levels. Add to that it seldom – if ever – addresses the on-going problem of rising unemployment and laid-off workers.
Economist held in retainer by big corporations should start to realize that a well-paid workforce is a valuable asset – rather than a liability – when it comes to keeping the wheels of the economic system rolling. I mean to whom does the production sector sell their products? - Certainly not to a vacuum. Governments around the world should start bailing out their workforces, as opposed to just the major banks and other big financial institutions because without a well-paid workforce, a country’s economic system could easily grind to a halt. Destroying any chance for a global economic recovery.
By: Ringo Bones
When the term “green shoots” became a buzzword in the American economic community back in April 2009, everybody and their dog thought that the much-anticipated global economic recovery is just around the corner. Even though whether or not the data of the economic fundamentals indicate the supposed glimmers of an economic spring is an another thing entirely. But after a series of quantitative easing and bank stress tests, why is it that the endemic problem that points to the fact that the global economy is still not well and good – namely unemployment – still remains unsolved?
Many tenured economic analysts point out that unemployment rate reports – more often than not – tend to lag behind the economic data that indicates the soundness of the fundamentals that point to economic recovery. Though this explanation is quite encouraging, it still not restored investor confidence to pre-subprime mortgage crisis levels. Add to that it seldom – if ever – addresses the on-going problem of rising unemployment and laid-off workers.
Economist held in retainer by big corporations should start to realize that a well-paid workforce is a valuable asset – rather than a liability – when it comes to keeping the wheels of the economic system rolling. I mean to whom does the production sector sell their products? - Certainly not to a vacuum. Governments around the world should start bailing out their workforces, as opposed to just the major banks and other big financial institutions because without a well-paid workforce, a country’s economic system could easily grind to a halt. Destroying any chance for a global economic recovery.
Tuesday, July 21, 2009
Is American Capitalism a Religious Construct?
As a country that preaches the political doctrine of the separation of church and state, is American-style capitalism for all intents and purposes nothing more than a religious construct?
By: Ringo Bones
Maybe this debate started back when then President Nixon took America off the Gold Standard, and the line “In God We Trust” on the greenback means that the value of America’s money is backed by the nation’s ability to wage war at a moments notice. Or did the debate started with the extensive news coverage of American über-Tele-Evangelists. Especially their material excesses during the latter days of the Reagan Administration that gave non-Americans – especially adherents of Liberation Theology – that American-style capitalism and it’s unbridled pursuit of material wealth is for all intents and purposes a religious construct that took the Protestant Work Ethic to it’s logical greedy end. Which is the mother of all ironies indeed, given that America’s Founding Fathers insisted in a strict separation of church and state as stipulated by the nation’s constitution.
How American capitalism got to this point could be blamed on the scores of Republican presidents that came long after Abraham Lincoln. By this time, the Republican Party doctrine was used by their elected presidents – either by accident or intent – to subtly shape established canonical Christian doctrine to fulfill their ideological aims. The most recent case in point is the Bush Administration’s unlawful – under International Law – invasion of the sovereign country of Iraq in search of non-existent weapons of mass destruction. But can the Republican Party’s obsession of a God-construct they already manipulated for decades to suit their ideological and material goals be blamed for America’s current economic crisis? Maybe, but first, let’s examine the faith-based origins of the Protestant Work Ethic - which seems for all intents and purposes the “Rock” in which American-style capitalism is based.
Many scholars and historians cite John Calvin as the father of Western – make that American-style – capitalism using the doctrine of the Protestant Work Ethic as its cornerstone. Calvinism – the ideology founded by John Calvin as it is later known – also made possible the establishment of an independent Dutch state in the late 16th Century. Even though the Dutch nation – then and now – never fully embraced John Calvin’s somewhat stoic religious ideology. As some Dutch settlers decided to move to America, most of them probably embraced capitalism hook line and sinker when they established their business interests in Manhattan, thus laying the foundation of a Protestant work Ethic that would later drive Wall Street as it is famously known today. With the doctrine that preaches that idle hands are the devil’s own playground; an individual’s productive employment became part of the established Christian canonical definition of morality and of God’s Grace.
In this day and age, the University of Geneva purportedly became the current heir of Calvinism – albeit only in an academic capacity – according to the more recent subsequent scores of dean emeritus. Given the way Calvinism blended itself seamlessly with canonical concepts of Christian piety, how come it haven’t “exactly” gained undisputed global universal appeal?
Probably due to the European “Empire Builders” who trailed Christopher Columbus and Ferdinand Magellan failing to established a pan-global Papist / Anglo-Saxon Protestant monoculture during the crucial periods of the Golden Age of Exploration. Add to that the increasing acceptance of moral constructs that developed independently from the Christian West, thus relegating Calvinism as a quaint antiquated moralist ideology in an increasingly egalitarian global community.
Calvinism’s current holdout in corporate America could be seen as a fluke, given that a lot has happened since the Civil Rights movement of the 1960s. People of non-White ethnicity need not “necessary” – albeit in more enlightened workplaces – emulate their White Anglo-Saxon Protestant overlords to gain upward mobility in corporate America. Unfortunately, some still backward thinking parts of America still think that successful capitalism should be ruled by precepts established by John Calvin and the Anglo-Saxon Protestant construct of Jesus Christ.
By: Ringo Bones
Maybe this debate started back when then President Nixon took America off the Gold Standard, and the line “In God We Trust” on the greenback means that the value of America’s money is backed by the nation’s ability to wage war at a moments notice. Or did the debate started with the extensive news coverage of American über-Tele-Evangelists. Especially their material excesses during the latter days of the Reagan Administration that gave non-Americans – especially adherents of Liberation Theology – that American-style capitalism and it’s unbridled pursuit of material wealth is for all intents and purposes a religious construct that took the Protestant Work Ethic to it’s logical greedy end. Which is the mother of all ironies indeed, given that America’s Founding Fathers insisted in a strict separation of church and state as stipulated by the nation’s constitution.
How American capitalism got to this point could be blamed on the scores of Republican presidents that came long after Abraham Lincoln. By this time, the Republican Party doctrine was used by their elected presidents – either by accident or intent – to subtly shape established canonical Christian doctrine to fulfill their ideological aims. The most recent case in point is the Bush Administration’s unlawful – under International Law – invasion of the sovereign country of Iraq in search of non-existent weapons of mass destruction. But can the Republican Party’s obsession of a God-construct they already manipulated for decades to suit their ideological and material goals be blamed for America’s current economic crisis? Maybe, but first, let’s examine the faith-based origins of the Protestant Work Ethic - which seems for all intents and purposes the “Rock” in which American-style capitalism is based.
Many scholars and historians cite John Calvin as the father of Western – make that American-style – capitalism using the doctrine of the Protestant Work Ethic as its cornerstone. Calvinism – the ideology founded by John Calvin as it is later known – also made possible the establishment of an independent Dutch state in the late 16th Century. Even though the Dutch nation – then and now – never fully embraced John Calvin’s somewhat stoic religious ideology. As some Dutch settlers decided to move to America, most of them probably embraced capitalism hook line and sinker when they established their business interests in Manhattan, thus laying the foundation of a Protestant work Ethic that would later drive Wall Street as it is famously known today. With the doctrine that preaches that idle hands are the devil’s own playground; an individual’s productive employment became part of the established Christian canonical definition of morality and of God’s Grace.
In this day and age, the University of Geneva purportedly became the current heir of Calvinism – albeit only in an academic capacity – according to the more recent subsequent scores of dean emeritus. Given the way Calvinism blended itself seamlessly with canonical concepts of Christian piety, how come it haven’t “exactly” gained undisputed global universal appeal?
Probably due to the European “Empire Builders” who trailed Christopher Columbus and Ferdinand Magellan failing to established a pan-global Papist / Anglo-Saxon Protestant monoculture during the crucial periods of the Golden Age of Exploration. Add to that the increasing acceptance of moral constructs that developed independently from the Christian West, thus relegating Calvinism as a quaint antiquated moralist ideology in an increasingly egalitarian global community.
Calvinism’s current holdout in corporate America could be seen as a fluke, given that a lot has happened since the Civil Rights movement of the 1960s. People of non-White ethnicity need not “necessary” – albeit in more enlightened workplaces – emulate their White Anglo-Saxon Protestant overlords to gain upward mobility in corporate America. Unfortunately, some still backward thinking parts of America still think that successful capitalism should be ruled by precepts established by John Calvin and the Anglo-Saxon Protestant construct of Jesus Christ.
Sunday, June 28, 2009
The Michael Jackson Incorporated
Though many of his adoring fans were shocked and saddened by his untimely passing, but how will this “ultimate career move” affect our still struggling global economy?
By: Ringo Bones
One of the few benefits of being older is being fortunate enough to appreciate Michael Jackson’s music and showmanship without the burden of that unfortunate child molestation issue haunting your conscience. But there is no denying the fact that Michael Jackson is the number one money making machine in the global music business. Even as far back as 1984, Time magazine dubbed Michael Jackson as the savior of the music industry. Which is kind of strange, given that the 1980s were the Golden Years of the global music industry in terms of profit earnings. Though a few others had registered on Fortune 500’s RADAR – like Guns N Roses or Bon Jovi – but taken as a whole, they’re on average only one-tenth the average money-making potential of Michael Jackson in terms of record / CD sales, concert tour earnings, merchandising, etc.
As a businessman, Michael Jackson’s shrewdest move was the purchase of The Beatles back catalogue of ATV Music publishing back in 1985 which allowed him to live a lavish lifestyle most of us can only dream of. Although this was overshadowed by his purchases of curio that are more a liability than an asset. Add to that his reckless behavior and lifestyle choice that cost him millions to “get out of jail”. It is estimated that Michael Jackson owes about half a billion dollars from various creditors, despite of selling three quarters of a billion dollars worth of records and CDs.
His announcement to embark on a tour – dubbed as the “This Is It” tour – and was planned to kick-off in the O2 Arena in London was supposed to have reduced Jackson’s outstanding debts significantly. The tour’s promoter, Randy Phillips CEO of AEG Live was confident of Michael Jackson being able to meet the commitments of this “grueling” tour after witnessing Jackson passing his physical exam with flying colors. Sadly, the King of Pop passed away unexpectedly last June 25, 2009.
Even though concert promoter AEG Live managed to purchase insurance from Lloyds for Michael Jackson’s This Is It Tour, doubts have emerged whether the insurance money is enough to cover the cost of refunds to ticket holders. Not to mention the canceled contracts to FOH sound engineers, stage lighting, pyrotechnic personnel, and even the legions of catering crews. Had the tour went underway, it would have earned at least 115 million US dollars in the slated 50 dates in London alone. While a 3-year world tour would have at least earned 500 million US dollars. Enough to put Michael Jackson’s financial problems on hold and could have been enough to stimulate our ailing global economy. Not to mention the employment opportunities a massive concert tour like this would have provided. The world indeed mourns Michael Jackson’s passing in more ways than one. Well, at least my curiously shaped Michael Jackson vinyl – i.e. picture discs – collection will probably be as valuable as my Billie Holiday 78 RPM shellac of Strange Fruit.
By: Ringo Bones
One of the few benefits of being older is being fortunate enough to appreciate Michael Jackson’s music and showmanship without the burden of that unfortunate child molestation issue haunting your conscience. But there is no denying the fact that Michael Jackson is the number one money making machine in the global music business. Even as far back as 1984, Time magazine dubbed Michael Jackson as the savior of the music industry. Which is kind of strange, given that the 1980s were the Golden Years of the global music industry in terms of profit earnings. Though a few others had registered on Fortune 500’s RADAR – like Guns N Roses or Bon Jovi – but taken as a whole, they’re on average only one-tenth the average money-making potential of Michael Jackson in terms of record / CD sales, concert tour earnings, merchandising, etc.
As a businessman, Michael Jackson’s shrewdest move was the purchase of The Beatles back catalogue of ATV Music publishing back in 1985 which allowed him to live a lavish lifestyle most of us can only dream of. Although this was overshadowed by his purchases of curio that are more a liability than an asset. Add to that his reckless behavior and lifestyle choice that cost him millions to “get out of jail”. It is estimated that Michael Jackson owes about half a billion dollars from various creditors, despite of selling three quarters of a billion dollars worth of records and CDs.
His announcement to embark on a tour – dubbed as the “This Is It” tour – and was planned to kick-off in the O2 Arena in London was supposed to have reduced Jackson’s outstanding debts significantly. The tour’s promoter, Randy Phillips CEO of AEG Live was confident of Michael Jackson being able to meet the commitments of this “grueling” tour after witnessing Jackson passing his physical exam with flying colors. Sadly, the King of Pop passed away unexpectedly last June 25, 2009.
Even though concert promoter AEG Live managed to purchase insurance from Lloyds for Michael Jackson’s This Is It Tour, doubts have emerged whether the insurance money is enough to cover the cost of refunds to ticket holders. Not to mention the canceled contracts to FOH sound engineers, stage lighting, pyrotechnic personnel, and even the legions of catering crews. Had the tour went underway, it would have earned at least 115 million US dollars in the slated 50 dates in London alone. While a 3-year world tour would have at least earned 500 million US dollars. Enough to put Michael Jackson’s financial problems on hold and could have been enough to stimulate our ailing global economy. Not to mention the employment opportunities a massive concert tour like this would have provided. The world indeed mourns Michael Jackson’s passing in more ways than one. Well, at least my curiously shaped Michael Jackson vinyl – i.e. picture discs – collection will probably be as valuable as my Billie Holiday 78 RPM shellac of Strange Fruit.
Microfinance: The World Economy’s MRE?
Given that the world economy is still in survival mode, will the various micro finance schemes alleviate the world’s burgeoning poverty and unemployment problem?
By: Ringo Bones
Even though the criticisms against the Dr. Muhammad Yunus-inspired micro finance schemes is centered around the easily obtained money for drug and alcohol abuse by signing up for a microcredit loan under false pretenses - i.e. the microcredit / microfinance liar-loan, it is hard to argue against the overwhelming number of success stories. Though it is proven that there are those who are unscrupulously taking advantage of the program for easy money to fuel their various vices and addictions. The scheme is at least transparent enough – particularly in my neck of the woods – to see first-hand how the money that you’ve invested in your local microfinance scheme is being used. Especially when it comes to the small businesses that are more often than not are not more than 300 meters away from the local micro finance financier's headquarters.
As of late, U.S. President Barack Obama has been busy laying the groundwork for an improved regulation of the U.S. financial system so that the corporate excesses that lead into the near-catastrophic collapse of the global economy will never happen again. But in the meantime, those people being laid-off – and are definitely now unemployed - due to the post-credit crisis austerity could need a vital safety net to get them through the tough times. Especially here in the Far East where the recent economic slowdown in Hong Kong, Singapore, and even Japan had sent thousands of overseas workers back to their homelands without any prospect of financial security before they can find new jobs again. Plus, unlike in the United States, almost all of the countries in this region don’t have a comparable unemployment compensation scheme.
Most laid-off workers in the South-East Asian region – especially those former employees of the construction boom-gone-bust of mainland China, Hong Kong, Macau, and Singapore of the past few years. Are now applying for a microcredit / micro finance loan in order to become self-employed using the skills they learned when they were growing up. Like fishing and organic farming of exotic vegetables for the fast-growing slow food sector and herbal medicine market, which for all intents and purposes allows this laid-off workers to make their ancestral wisdom a part of their daily bread-winning scheme. Although the new trade – more often than not – earns only a fraction of the money they used to when working overseas, but without the availability and easy access to microcredit, these people for all intents and purposes will be in dire straits. And it also keeps the money moving around a bit – as opposed to a complete standstill – in a full-blown global depression like the one that started in Wall Street back in 1929.
By: Ringo Bones
Even though the criticisms against the Dr. Muhammad Yunus-inspired micro finance schemes is centered around the easily obtained money for drug and alcohol abuse by signing up for a microcredit loan under false pretenses - i.e. the microcredit / microfinance liar-loan, it is hard to argue against the overwhelming number of success stories. Though it is proven that there are those who are unscrupulously taking advantage of the program for easy money to fuel their various vices and addictions. The scheme is at least transparent enough – particularly in my neck of the woods – to see first-hand how the money that you’ve invested in your local microfinance scheme is being used. Especially when it comes to the small businesses that are more often than not are not more than 300 meters away from the local micro finance financier's headquarters.
As of late, U.S. President Barack Obama has been busy laying the groundwork for an improved regulation of the U.S. financial system so that the corporate excesses that lead into the near-catastrophic collapse of the global economy will never happen again. But in the meantime, those people being laid-off – and are definitely now unemployed - due to the post-credit crisis austerity could need a vital safety net to get them through the tough times. Especially here in the Far East where the recent economic slowdown in Hong Kong, Singapore, and even Japan had sent thousands of overseas workers back to their homelands without any prospect of financial security before they can find new jobs again. Plus, unlike in the United States, almost all of the countries in this region don’t have a comparable unemployment compensation scheme.
Most laid-off workers in the South-East Asian region – especially those former employees of the construction boom-gone-bust of mainland China, Hong Kong, Macau, and Singapore of the past few years. Are now applying for a microcredit / micro finance loan in order to become self-employed using the skills they learned when they were growing up. Like fishing and organic farming of exotic vegetables for the fast-growing slow food sector and herbal medicine market, which for all intents and purposes allows this laid-off workers to make their ancestral wisdom a part of their daily bread-winning scheme. Although the new trade – more often than not – earns only a fraction of the money they used to when working overseas, but without the availability and easy access to microcredit, these people for all intents and purposes will be in dire straits. And it also keeps the money moving around a bit – as opposed to a complete standstill – in a full-blown global depression like the one that started in Wall Street back in 1929.
Tuesday, April 21, 2009
Is War Good For the Economy?
Given that different stock exchange markets around the world were originally established to fund wars, is war therefore a vital part of the economy?
By: Ringo Bones
For better or for worse it was primarily the constant search by various governments throughout history of various means to conduct wars – especially when it comes to raising funds – that engendered our contemporary economic systems. Though the financially disastrous “Moral Adventurism” of the Bush Administration’s invasion of Iraq back in March 2003 – which former World Bank president Paul Wolfowitz was the primary architect – would certainly serve as a bad example. No one can deny that throughout history, wars are the primarily effective economic stimulus packages.
Our various stock exchange markets can easily trace their origins in medieval times in many European countries. As governments became increasingly reliant on public loans for the capital need for conducting wars and other operations – though mostly in conducting wars – issues of stocks and bonds multiplied, thus making more and more elaborate financial machinery in the form of financial instruments necessary for the maintenance of a ready market in the various type of paper certificate issue. Out of this need, the stock exchange – as we know them today – was born.
The establishment of stock markets in London and New York during the second half of the 18th Century was primarily driven by war. Probably one of the oldest continuously run stock exchanges in the world was the one established in London. It started when several dealers in bills of exchange – that is, short-term credits – also dealt occasionally in government funds, started to look for buyers for those wishing to sell and vice versa.
As time went on, these dealers took to meeting regularly at a particular coffee house in London. Which at the time financial business of most kinds were often transacted in such establishments, by 1773, this place became known as the Stock Exchange Coffee House. By 1802 the amount of business conducted there, stimulated by the continuous raising of funds required to fight the Napoleonic Wars, had reached to such proportions that a new building – to be used exclusively for these business transactions was constructed. This building occupied part of the site of the present London Stock Exchange.
While the New York Stock Exchange - which now handles more business than any other stock exchange in the world - can trace its origins to the same point in time. Especially to the particular stimulus of the American Revolution in raising funds to defend the then fledgling country from continued British attacks, which the New York Stock Exchange has been in continuous operation since 1792. The American Revolution – like the Napoleonic Wars – made necessary the mobilization of considerable sums of money. Furthermore, the myriad securities issued by the separate states soon produced the need for market facilities.
The then fledgling New York market began with just 24 dealers who formed the habit of meeting for a short while each day under a large buttonwood tree quite close to the present site of Wall Street. These men dealt in securities issued by government banks, insurance companies, and canal builders. It wasn’t too long before business expanded to the point where a special building was required – together with a set of rules – by which the market was organized and controlled.
Even the first incident of short selling can be defined as a war time incident. It happened back in 1609 when Dutch trader Isaac Le Maire, a big shareholder of the Vereenige Oostindische Compagne or VOC. In 1602, Le Maire invested about 85,000 guilders in VOC. By 1609 the VOC still was not paying dividends and Le Maire’s ships on their Baltic routes were under constant threat of attack by the British Royal Navy. Primarily due to trading conflicts between the British and the VOC. Le Maire decided to sell his shares and sold even more than he had. The stock market notables at the time became outraged over this act and this particular incident led to the first real stock exchange regulations: a ban on short selling. The ban was eventually revoked a couple of years later.
Maybe it was the Keynesian dictum of crisis measures having a habit of lasting much longer than the crisis itself or the World War II-era Bretton Woods Conference that largely shaped our present financial system that most of us will note the inexplicable link between war and economic activity. Or is it that we in the Western Civilization had gotten war down to a science that we can easily profit from it provided that the rules that are in place that keep or dear Western Civilization from being destroyed are enforced. If this is the case, then maybe Wall Street insiders should brush up on their game theory knowledge to find out what they did wrong during the Bush Administration that created our present global economic crisis. Maybe there is something about that Sun Tsu’s Art of War being recommended by many as a required reading for aspiring business titans.
By: Ringo Bones
For better or for worse it was primarily the constant search by various governments throughout history of various means to conduct wars – especially when it comes to raising funds – that engendered our contemporary economic systems. Though the financially disastrous “Moral Adventurism” of the Bush Administration’s invasion of Iraq back in March 2003 – which former World Bank president Paul Wolfowitz was the primary architect – would certainly serve as a bad example. No one can deny that throughout history, wars are the primarily effective economic stimulus packages.
Our various stock exchange markets can easily trace their origins in medieval times in many European countries. As governments became increasingly reliant on public loans for the capital need for conducting wars and other operations – though mostly in conducting wars – issues of stocks and bonds multiplied, thus making more and more elaborate financial machinery in the form of financial instruments necessary for the maintenance of a ready market in the various type of paper certificate issue. Out of this need, the stock exchange – as we know them today – was born.
The establishment of stock markets in London and New York during the second half of the 18th Century was primarily driven by war. Probably one of the oldest continuously run stock exchanges in the world was the one established in London. It started when several dealers in bills of exchange – that is, short-term credits – also dealt occasionally in government funds, started to look for buyers for those wishing to sell and vice versa.
As time went on, these dealers took to meeting regularly at a particular coffee house in London. Which at the time financial business of most kinds were often transacted in such establishments, by 1773, this place became known as the Stock Exchange Coffee House. By 1802 the amount of business conducted there, stimulated by the continuous raising of funds required to fight the Napoleonic Wars, had reached to such proportions that a new building – to be used exclusively for these business transactions was constructed. This building occupied part of the site of the present London Stock Exchange.
While the New York Stock Exchange - which now handles more business than any other stock exchange in the world - can trace its origins to the same point in time. Especially to the particular stimulus of the American Revolution in raising funds to defend the then fledgling country from continued British attacks, which the New York Stock Exchange has been in continuous operation since 1792. The American Revolution – like the Napoleonic Wars – made necessary the mobilization of considerable sums of money. Furthermore, the myriad securities issued by the separate states soon produced the need for market facilities.
The then fledgling New York market began with just 24 dealers who formed the habit of meeting for a short while each day under a large buttonwood tree quite close to the present site of Wall Street. These men dealt in securities issued by government banks, insurance companies, and canal builders. It wasn’t too long before business expanded to the point where a special building was required – together with a set of rules – by which the market was organized and controlled.
Even the first incident of short selling can be defined as a war time incident. It happened back in 1609 when Dutch trader Isaac Le Maire, a big shareholder of the Vereenige Oostindische Compagne or VOC. In 1602, Le Maire invested about 85,000 guilders in VOC. By 1609 the VOC still was not paying dividends and Le Maire’s ships on their Baltic routes were under constant threat of attack by the British Royal Navy. Primarily due to trading conflicts between the British and the VOC. Le Maire decided to sell his shares and sold even more than he had. The stock market notables at the time became outraged over this act and this particular incident led to the first real stock exchange regulations: a ban on short selling. The ban was eventually revoked a couple of years later.
Maybe it was the Keynesian dictum of crisis measures having a habit of lasting much longer than the crisis itself or the World War II-era Bretton Woods Conference that largely shaped our present financial system that most of us will note the inexplicable link between war and economic activity. Or is it that we in the Western Civilization had gotten war down to a science that we can easily profit from it provided that the rules that are in place that keep or dear Western Civilization from being destroyed are enforced. If this is the case, then maybe Wall Street insiders should brush up on their game theory knowledge to find out what they did wrong during the Bush Administration that created our present global economic crisis. Maybe there is something about that Sun Tsu’s Art of War being recommended by many as a required reading for aspiring business titans.
Tuesday, April 7, 2009
The London G20: A New Start or Business as Usual?
Touted as the most important economic summit since World War II, but does the proposed reforms of the London G20 really save our ailing global economy?
By: Ringo Bones
Even though US President Barack Obama is probably the most influential policymaker of the London G20 economic summit because the US together with the UK and Japan managed to put forth their proposals of spending more money in order to save our ailing global economy. Never mind President Obama’s powers of “Diplomatic Persuasion” during the London G20 summit. Although France and Germany’s call for tighter regulation of the global economy was eventually approved, it seems like every sensible proposal – make that “conventional proposals” - to save our current global economic crisis was eventually embraced by everyone. The question now is will all these measures that we’ve taken really save our ailing global economy?
Throwing money at the problem was readily approved, given that it had saved Japan’s economy during her “Lost Decade” even though the policymakers haven’t dealt with the bad banks / zombie banks fast enough. Thus the plan to spend 1 trillion dollars to rehabilitate the global economy was given the green light. 750 billion dollars of which will serve as an extra resource for the IMF to help countries on the verge of financial collapse, most of which are Eastern European states. While 250 billion is promised as trade credit overdraft for cash strapped countries, in other words, a kind of export insurance for the global trade to make protectionism less profitable.
The call for tighter regulations on financial institutions was also given a green light. Especially those pertaining to key players like hedge funds, credit derivatives, and credit rating agencies. Plus stricter compliance of capital requirements; especially when it comes to capital risk requirements; like Basel Accord / Basel II implementation compliance; a crackdown on tax havens and a call to end arcane bank secrecy laws as an institution. And finally the creation of an early warning system to prevent the repeat of the July 2007 subprime mortgage crisis from spreading out of control. Even though every key players of the London G20 eventually reached a somewhat concise consensus, but does all of these proposals really work in practice?
Brazil’s president Luis Inàcio “Lula” da Silva said that the financial sector should be congruent with the production sector in order to avoid a repeat of our current economic crisis, or to avoid our current one from becoming worse. Has he got it all figured out? Given that investment banking had been making money out of thin air in an unsustainable manner, Brazil’s president could be on to something. Though his suggestion will never ever be taken seriously or do most of the ones proposed during the London G20.
For the very reason that the global capital markets had already grown into a powerful economic entity since Ronald Reagan ruled the free world and it is very unlikely to be influenced by the various heads of state’s consensus made during the London G20. This is where the “business as usual” part of the global economy trumps the altruism of the London G20 consensus. It looks like “leave it alone” capitalism is a dead end because it tends to go into excesses. In short, it can’t reform itself.
But there are very good reasons for everyone to be optimistic of the consensus reached during the London G20 summit. The proposals put forth by the various NGO’s to aid the world’s poor during times of crisis were eventually given the green light. Even the rock star and anti-poverty activist Bob Geldof was very optimistic about the consensus reached during London G20 summit. The London G20 could be capitalism’s make-or-break moment to reform itself.
By: Ringo Bones
Even though US President Barack Obama is probably the most influential policymaker of the London G20 economic summit because the US together with the UK and Japan managed to put forth their proposals of spending more money in order to save our ailing global economy. Never mind President Obama’s powers of “Diplomatic Persuasion” during the London G20 summit. Although France and Germany’s call for tighter regulation of the global economy was eventually approved, it seems like every sensible proposal – make that “conventional proposals” - to save our current global economic crisis was eventually embraced by everyone. The question now is will all these measures that we’ve taken really save our ailing global economy?
Throwing money at the problem was readily approved, given that it had saved Japan’s economy during her “Lost Decade” even though the policymakers haven’t dealt with the bad banks / zombie banks fast enough. Thus the plan to spend 1 trillion dollars to rehabilitate the global economy was given the green light. 750 billion dollars of which will serve as an extra resource for the IMF to help countries on the verge of financial collapse, most of which are Eastern European states. While 250 billion is promised as trade credit overdraft for cash strapped countries, in other words, a kind of export insurance for the global trade to make protectionism less profitable.
The call for tighter regulations on financial institutions was also given a green light. Especially those pertaining to key players like hedge funds, credit derivatives, and credit rating agencies. Plus stricter compliance of capital requirements; especially when it comes to capital risk requirements; like Basel Accord / Basel II implementation compliance; a crackdown on tax havens and a call to end arcane bank secrecy laws as an institution. And finally the creation of an early warning system to prevent the repeat of the July 2007 subprime mortgage crisis from spreading out of control. Even though every key players of the London G20 eventually reached a somewhat concise consensus, but does all of these proposals really work in practice?
Brazil’s president Luis Inàcio “Lula” da Silva said that the financial sector should be congruent with the production sector in order to avoid a repeat of our current economic crisis, or to avoid our current one from becoming worse. Has he got it all figured out? Given that investment banking had been making money out of thin air in an unsustainable manner, Brazil’s president could be on to something. Though his suggestion will never ever be taken seriously or do most of the ones proposed during the London G20.
For the very reason that the global capital markets had already grown into a powerful economic entity since Ronald Reagan ruled the free world and it is very unlikely to be influenced by the various heads of state’s consensus made during the London G20. This is where the “business as usual” part of the global economy trumps the altruism of the London G20 consensus. It looks like “leave it alone” capitalism is a dead end because it tends to go into excesses. In short, it can’t reform itself.
But there are very good reasons for everyone to be optimistic of the consensus reached during the London G20 summit. The proposals put forth by the various NGO’s to aid the world’s poor during times of crisis were eventually given the green light. Even the rock star and anti-poverty activist Bob Geldof was very optimistic about the consensus reached during London G20 summit. The London G20 could be capitalism’s make-or-break moment to reform itself.
Subscribe to:
Posts (Atom)
