The Financial Services Club's Blog

Capitalism is dead, long live capitalism

Following on from my previous two polemics:

• Stop talking about mobile, it's not important; and
• Money is meaningless

I’m now moving on to the final contentious point which is that capitalism is dead.

We all knew that capitalism died in 2008 when the crisis hit, or at least the Anglo-Saxon version of capitalism that was all based upon selfish greed.

The self-serving focus of modern society was evident throughout the last decade, and no more so than the unexpurgated world of me.

That has changed and is changing.

Fifty Shades of Law: America, Banking and World War III

No, it’s not about flagellation and sado-masochism, although the current regulatory regime is not far off that.  It’s also true that the regulatory regime is pretty mind-boggling these days, with fifty shades of interpretation of fifty shades of law.   This was made clear to me in dialogue with a group of European banks involved in the LIBOR fixing program last week. 

We were talking about the likely implications of American regulatory retaliation, and they made it clear to me that the United States is using LIBOR and money laundering as pure extortion from foreign banks to bolster their political coffers.

That sounds a bit extreme, but it made some sense as the conversation developed.

In deep waters

Back to reality and what’s happening in the world today.

I received a bunch of stats and facts from one of my readers last week lookiing at public (governmental) debt across various countries and geographies, and comparing internal debt (money borrowed within country) with external debt (money borrowed from overseas).

Here’s the low-down.

2013: an Economic Outlook

OK, OK, it’s time to get down to the real business of blogging, banking and bonuses.  As per my usual form, here are four specific forecasts for the economic movements of 2013:

1. The USA is a solid rock (but)
2. South America is the place to be
3. China becomes a hot consumer market
4. The Eurozone stays together with fissures, cracks and holes

2012: Technologies create the Perfect Storm

The #1 buzz phrase that everyone has grown to hate (especially Ron Shevlin) is Big Data.  Sure, you may hate it, but it is still pretty important, as I blogged a wee while ago.

A second area that has become so over debated that it is dull is Mobile.

Add Cloud and Social to the mix and you have the perfect storm of overheated technobabble.

Risk is a many splendored thing

I was asked to give a pre-dinner speech by SAS for a group of Chief Risk Officers (CRO’s) in Amsterdam recently. Here’s the speech.

Good evening ladies and gentlemen. 

I wasn’t sure how to start this evening, and decided to begin with the collective noun for a group of CRO’s.  You are collectively known as a murder.

Now I hope you won’t murder me for telling you that as a murder of CRO’s you are a collective failure. 

Oh dear, that’s not a good start, is it? 

Who are you f-ing Americans?

Standard Chartered paid off the new Sheriff of New York City, Benjamin Lawsky, to the tune of $340 million to get rid of the pest.  As Investec's commentator Ian Gordon said yesterday, they “acted with pragmatism and integrity in the face of extreme provocation”.

Half the world is unbanked, especially women ... it will change

I just received a Gallup report for the World Bank about gender differences in bank account usage.

The headline is that gender barriers exist worldwide to banking.

Hmmm … women are less included in finance than men.

Hmmm … my initial reaction was so what?

No, I’m no misogynist, but it doesn’t surprise me that women are less included in that, in the majority of nations, men are more likely to be the worker still.

Hence, as the work horse, the man is more likely to have the bank account, although the woman is more likely to control how it is used.

And this does turn out to be the case, as the reason for women not having bank accounts is mainlyu because another member of the household has one.

Among all adults without an account, the most common reason cited for not having one was not having enough money to use an account. Among unbanked men, the next most commonly cited reason was that banks or accounts are too expensive. However, among unbanked women, the second most common reason (cited by 26%) is that another family member already has an account. For men, this reason ranks fourth (after too expensive and too far away).

In South Asia, where the overall gender gap in account penetration is largest, the gender gap in this response is 10 percentage points. This suggests that indirect use of accounts is widespread among women in the region -- reflecting a lack of asset ownership that may have implications for economic independence and self-employment opportunities.

What did surprise me is that half of this planet is unbanked with, on average, 55% of men and 47% of women having a relationship with a formal financial institution.

The whole point being that we need more inclusion which, as I recently blogged, will happen as a result of mobile ubiquity.

That’s certainly the belief of Secretary of State Hillary Clinton who commissioned the research through the Department of State.

“As we have learned in this country, what gets measured gets done. Once you start measuring problems, people are more inclined to take action to fix them because nobody wants to end up at the bottom of a list of rankings.”

Aha.  So, by knowing what progress has been made you can move things forward.

As Secretary Clinton goes on to say: “Data not only measures progress, it inspires it.”

So true and yet so undervalued is data by many that they just throw it away, especially banks (as I’ve blogged regularly).

As Secretary Clinton concludes: “Data only becomes valuable when it is organised and put to work.”

I think I get that message.

Maybe the banks should, not only to increase share of wallet in the developed world but also to recognise that with half of the world unbanked, there’s a great opportunity for growth.

 

These results come from a global study of financial inclusion, which measures how adults in 148 economies save, borrow, make payments, and manage risk. Gallup collected the data in 2011 for the World Bank Global Financial Inclusion (Global Findex) database, which is funded by the Bill & Melinda Gates Foundation. The database is the first source of hard data for examining how women make financial transactions, both inside and outside the formal financial sector.

The complete database and related report, along with the survey in 15 languages, are available at http://www.worldbank.org/globalfindex.

Access the complete country-level data set, report, and questionnaire at www.worldbank.org/globalfindex.

 

 

Bill Clinton: "Being pessimistic is dumb"

And so to my final blog piece about Re|source 2012: Bill Clinton’s speech.

Source: Getty Images

What can you say about the man, the legend?

The man who has felt more ladies knicker elastic than Marks & Spencer’s head underwear tester.

No, that’s not important.

You know, I was amazed about the reverence, excitement and awe there was around the Oxford University hall as Clinton walked in.

The audience comprised a select few academics, professors, politicians, bankers, hedge fund managers and captains of industry, and they were all obviously eager to hear every word and nuance of Clinton’s speech … including me.

Looking slim and grey, Clinton was dressed in an immaculate summer light tan suit and shoes, and was at ease from the minute he arrived to the minute he left.

Chatting with many of the audience, joining in the dialogue, generally chin-wagging … not at all the aloof sort of speaker you might imagine his alumni to be (take note Tony and Peter).

So this was the big shot and the big moment.  The closing keynote.  What would he say?

Well, he said a lot.

The BBC and Guardian summed it up quite well so, rather than writing my own summary, I’ve cheated and filched theirs.  No point in re-inventing the wheel is there?

From the BBC:

Former US President Bill Clinton has called for more to be done to persuade voters to support schemes that tackle global warming and resource scarcity.

Source: Getty Images

Speaking in Oxford at the Resource 2012 forum, he said "the whole consciousness of a significant number of voters" had to be altered.

"People are not stupid... they may not know, but they are not dumb."

It would enable governments to make the required long-term decisions that may be difficult in the short-term.

"You have to be prepared to pay the price of time if you want to change the ark of history," said the former president.

"What we do not know is whether we can move quickly enough to avoid calamitous climate change and resource depletion. I for one am glad we don't know.

"If we knew for sure we could, we'd get lazy and push it back to the last minute. If we knew we couldn't, we'd do the immoral thing and stop trying."

'Action model'

Turning his attention to the most affordable ways to tackle global warming, Mr Clinton highlighted the need to make existing buildings more energy-efficient, investing more in solar energy, cleaning up landfill sites, and introducing cleaner cooking fuels in India and other countries in the developing world.

He said this and all other efforts required governments, businesses and non-government organisations all working together.

"My view on this is that the best models of action have all three groups doing what they should do," said the former president.

Regarding the situation in the US, he said opinion had "come a long way" since 1997, when the US Senate rejected the Kyoto Agreement on climate change by a unanimous vote of 95-0.

President Clinton said: "At that moment the prevailing opinion in America was that no country could stay rich or get wealthy if they did not put more greenhouse gases into the air... There are still some people in America who believe that, but most don't."

From the Guardian’s live blog:

5.07pm: Bill Clinton speech

Clinton on optimism and the need to raise the consciousness of the world

Bill Clinton has said the most important change that needs to happen to confront the sustainability challenges of our age is to raise the consciousness of the world's population.

He said he did not know if we will be able to avoid the calamitous effects of climate change and resource scarcity, but that humanity had shown in the past that it was able to "slip the noose."

Clinton suggested it was better not to know what lies ahead because if we do think we have more time than we think, we would wait till the last moment to act, and if it is already too late, then we would stop even trying.

"I always see the glass as half full as pessimism is an excuse for inaction," he said. "It will not help you to wake up in the morning. People need to look forward to something and it is foolish to be pessimistic or wildly optimistic."

Referring to whether civilisation will survive in its current form, he said that "every time we have got close in the past we have slipped the noose. I think it is more than luck. I think it is an intuitive instinct for survival."

Clinton said the future would only be bright if we collaborate more, rather than seeing each others differences.

Pointing to the human genome, he said: "If you look round this room, differences in race, gender and body shape are rooted in one half of one percent of your genes but 99.5 per cent of thinking about how we are different.

"What we need is a different level of consciousness that weighs in a different way the competing claims of he common good and private gain, co-operation and conflict, of yesterday and tomorrow."

6.09pm:

Clinton on how change can come in small steps and how passion is the most important agent of change

Bill Clinton yesterday called on people not to be disheartened by the lack of decisive change at a global level and said that numerous small steps could create the foundation for more radical action in the future.

He said that thankfully even the United States now realised that the ability to create wealth was not predicated on consuming ever more and pumping more emissions into the atmosphere.

"You have to grab what you can and get on with it," he said. "Even things that seem small may have an impact on consciousness and what may be possible. One little thing to do is more important than a big speech

"We have come a very long way but nobody knows yet whether we will avoid the most calamitous damage."

He pointed to the work of the C40 group of cities, which now encompasses 58 cities containing 8% of the global population, for not waiting for multilateral negotiations to succeed before taking action.

He said that the C40 had not undertaken nearly 50000 specific projects working on building retrofits, clean energy, lighting and reforestation.

"Good government policies can make a big difference but if there are not here, there is still a lot that can be done," said Clinton.

"Whether we do what we are supposed to do means changing the consciousness of a significant portion of voters.

"Everyone can and should do something and the power of example is vital, but concrete examples is not something much to celebrate. It's not newsworthy because there is no blood on the floor."

However, Clinton did bemoan the fact that politicians were not showing enough passion, and that this was often the more powerful weapon.

"The real problem is that there is not enough informed passion," he said. "There are lots of opportunities to be very far sighted in the political system.

"In competitive political situations, money is on the side of yesterday and tomorrow needs enough passion and information.

"It is a mistake to say is it business or government or NGOs. In my view, the best models of action have all three gorps doing what they can do."

Clinton said it was most important to pick the low hanging fruit, and said most important of all was energy efficiency and its ability to create employment.

He gave the example of the 870 jobs created from building a coal fired power station to the 7,000-8,000 jobs created from retrofitting buildings.

Secondly, he said that solar should be developed as a renewable resource and that we should concentrate on seeking to slow the progress of climate change by concentrating resources on attacking more rapidly dispersing greenhouse gases such as methane.

He said that if new research were to prove accurate, this dispersal could slow the rate of warming in the next few decades by half. " If this is true, we should all be in favour of this."

Clinton heaped praise on the president of Costa Rica for refusing to allow oil companies to drill for oil, even though there were likely to be large reserves both on land and off the coast, asking which other president in the world would take such action.

While it was important to take political decisions, Clinton said the process of change was equally important. "One of reasons Costa Rica works is they have worked for decades making sure everyone is heard.

"They understand how they are connected. The decision matters but the process can matter more to keep it going over the long term."

Clinton said one excellent example of stakeholder engagement was how President Obama had worked to agree transforming the efficiency of the American car industry, by bringing together labour, management, government and environmental groups. He said this would not only create 150,000 high tech jobs but also significantly reduce fuel use.

He said that while the different stakeholders had disagreements, they had met with the goal of reaching a consensus and this was the critical ingredient that is needed for effective change.

"We have got to get back to a stakeholder society where one stakeholder does not get an advantage from the skin they put in the game," he said.

Clinton pointed out that collaboration was equally important on the global stage but that there would only be peace between countries if there was a recognition of the need to share the world's resources.

"Either we have a policy of shared benefits and responsibility. or we act as though each struggle is a zero sum game."

From the Guardian paper:

Former president says US would recover faster from financial crises if more effort was made to use resources sustainably

Bill Clinton has warned that the US needs to cut its consumption of natural resources if it is to stave off the threats of climate change and rising prices.

The former president said the economy of the world's biggest consumer would recover faster from the recession and financial crises if more effort was made to use resources sustainably.

"We can grow even faster if we use less energy," said Clinton in a conversation with the Guardian at the Resource 2012 conference in Oxford on Friday evening. "We have studies that show this. All that we need to do is find ways to finance this."

He said the current financial system favoured the building of major projects such as coal-fired power stations, despite their energy intensity, because the value of energy efficiency was underrated.

Big financial backers are used to weighing up the finances of major infrastructure works, because they have long developed the financial models to work out the payback on their investment over the project's lifetime.

But financing efficiency projects is more complex, and has received much less attention from investors, because the payback is spread more diffusely – among thousands of companies and individuals.

"This is the problem with going aggressively for efficiency, as we need to," Clinton said. "If I want to finance efficiency savings, I need to go to lots of people and add all those savings together. But if I want to build a new coal-fired power station, I go to a few [backers] and I've done it."

Clinton also called for countries to make much more effort to cut greenhouse gases other than carbon dioxide, which has received most international attention.

He said there were easy gains to be made by cutting methane – for instance, by capping off or reusing the methane resulting from landfill rubbish disposal sites – and "black carbon", or soot, arising from inefficient industrial installations or cooking fires.

He said that despite the failures of successive governments – including his own 1992-2000 administration in the US – to forge working treaties on climate change, and to cut greenhouse gas emissions, people should take the initiative by working together and individually to reduce their own impact on the environment. He pointed to the work of the biologist EO Wilson, whose most recent work suggests that human beings and other complex natural societies prosper through co-operation. "I believe that in a complex world … these creative networks of co-operation have to triumph over conflict-driven models," said Clinton.

And finally, from the twitterati:

Harriet Taylor ‏@Haataylor

Very excited to see clinton in Oxford at #resource2012

Re|Source2012 ‏@ReSource2012

President Bill Clinton takes to the stage for his closing keynote at  #resource2012

Chris Skinner ‏@Chris_Skinner

“You have to be prepared to pay the price of time if you want to change the ark of history.”  

roger harrabin ‏@RogerHarrabin

“We don’t know for sure we can solve climate change and resource efficiency - that's good. If we knew we'd get complacent.”

Chris Skinner

“Businesses that adopt a sustainability model are more efficient than those who don't.”    

Re|Source2012

“Best models of action have businesses, govts & NGOs working together at what they do best.”

kamuhinda ‏@kamuhinda

“Innovation for the future needs passion; use power of demonstration to convince.”

Chris Skinner

“A major growing issue is air conditioners in middle class homes in India that are not subject to int'l limits.”    

Stephen Gee ‏@Stephengee

Bill Clinton says “landfills are gold mines!!” “ending landfill is simply about investment”

Chris Skinner

Climate change good news: you can take a boat across the North Pole in the summertime. Bad news: you can take a boat ...  

Chris Skinner ‏

Clinton telling stories about projects in Costa Rica, Maldives, Tanzania, Haiti. Sustainability rocks when brought to life  

Chris Skinner ‏

“The aggregate weight of all the ants on Earth is greater than the aggregate weight of all humans.”    

Re|Source2012

Sustainable growth not just top-down process, value of efficiency must be shared with local communities too - Bill Clinton  

roger harrabin

BC’s tips: efficiency/retro-fits; buy solar cos cheap; cut non CO2 ghgs; close landfills; help people co-operate, compromise

roger harrabin

Clinton: Some day we may have decide that the common good is greater than the private gain. Hmm - wonder when that might be?

Paul Druckman ‏@pauldruckman

Clinton says financial industry to move away from quarterly to longer time horizon investing profile

madano partnership ‏@madano

It's energy efficiency stupid... Bill Clinton calling on picking the low hanging fruit.

Akshat Rathi ‏@AkshatRathi

Bill Clinton at #resource2012  asks can we learn to live with the truth of our past? To deal with climate change, it's the only way ahead.

Re|Source2012

Bill Clinton – actions that may seem small against magnitude of problem can have impact & act as a catalyst for further change  

Chris Skinner

Clinton candidly taking Q&A. Says finance needs to start to focus on the long-term. See the Long Now.   http://thefinanser.co.uk/fsclub/2010/11/the-long-blog-about-the-long-now.html

Chris Skinner

We need a positively shared future .   http://twitter.com/Chris_Skinner/status/223808676559982593/photo/1

Akshat Rathi

Q: Politician's think of the next election, a statesman of next generation. How can we build a statesman?  

Akshat Rathi

Clinton quotes Truman: A statesman is a dead politician.  

Paul Druckman

...and finally President Clinton says ““Pessimism is an excuse for in activism”  

Zac Goldsmith ‏@ZacGoldsmith

Bill Clinton: “small farms have been way undersold in terms of their ability to feed the world and take care of the env”  

Chris Skinner

Being pessimistic is dumb. Be optimistic. It makes getting up in the morning much more fun.    

Re|Source2012

Bill Clinton – must be optimistic in ability to react & adapt to resource scarcity. Pessimism only an excuse for inertia  

 

This is the third of three blog posts about Re|Source 2012 (part one here and part two here).  In addition, there is an official write-up of Clinton's speech here.

 

 

 

Clinton: the official version

 

For those who are really into the information I've been writing about sustainability and resource management for the future from Re|source 2012, here's the official write-up of Bill Clinton's speech:

PRESIDENT CLINTON TELLS RESOURCE 2012 COOPERATION IS ONLY WAY TO SOLVE RESOURCE CHALLENGES 

 The most important decision of the 21st century is whether the human race can learn to share its scarce natural resources for the common good, President Bill Clinton told business, finance and political leaders at Re|Source 2012.

The 42nd President of the United States said the world needs to rethink the ways it values the ‘competing claims’ of private gain and common good, cooperation and conflict and the past and the future.

He underlined the dangerous misconception that growth is predicated on the use of natural resources, arguing instead that resource efficiency and renewable technologies will be essential growth drivers in the years ahead. He also urged politicians to prioritise the management of finite natural resources, which can feel remote within short-term political cycles, but which need to be made immediate and relevant to the electorate today.

President Clinton was speaking at the Re|Source conference where he was the keynote speaker, a gathering of 250 leaders from business, finance, policy and government dedicated to the issue of how the world can manage resource scarcity with economic growth.

His speech reflected a key theme from the conference about the need for greater cooperation between governments, businesses and other organisations to successfully meet the resource challenges the world.

In particular, the private sector has the commercial leverage and influence to drive significant changes – and can create new models in finance to support these changes.

This same principle applies internationally too: "Either we have a policy of shared benefits and responsibility. Or we act as though each struggle is a zero sum game."

“The only strategy that makes sense is the one that says we are going to share the world with other human beings and we will share its natural resources.” This, he said, “is the fundamental decision of the 21st century.”

In his speech at the University of Oxford, his alma mater, President Clinton said his key ideas and recommendations to tackle issues of sustainability included:

• Pick the low hanging fruit, beginning with becoming more efficient in the use of natural resources, and secondly the development of solar power as an alternative energy source

• Buy time against climate change by going after the rapidly dispersing greenhouse gases which are entering the atmosphere at the moment, e.g. methane

• You can make ‘very big examples in small places’ citing the development of solar power in Haiti following the earthquake and Costa Rica where 92% of electricity is from hydro-power

President Clinton pointed out the strong economic advantages of sustainability. While 870 jobs are created for every $1 billion invested in building a coal fired power station to meet increased energy demand, you can create 7,000-8,000 jobs by spending the same amount retrofitting buildings with more energy efficient measures, he said.

However the current financial system is biased in favour of big infrastructure projects such as coal fired power stations. As a result, investors and financiers are much more likely to back these initiatives than the more complicated and less well understood projects dedicated to improving efficiency.

President Clinton concluded by saying: “We need a different level of consciousness which weighs in a different way the competing claims of the common good and private gain, the competing claims of cooperation and conflict and the competing claims of yesterday and tomorrow.”

In the Q&A which followed, he explained that the key to making long-term decisions in short term political cycles is for politicians to highlight the importance and immediate benefits of these issues, which can otherwise feel remote.

 

Banks decide whether we have a healthy or unhealthy planet

Sir David King (see end of blog for bio) provided a short summary at the end of the two day Re|Source 2012 conference.

It provided a good summary of all the issues these global leaders are facing, and provides some pointers towards the role of the financial community.

First, there is a population explosion.

The global population recently hit seven billion people on this planet, with forecasts of this rising to over ten billion by the end of the century.

In fact, the growth of humanity is smothering this planet:

Year                        Population

1                                     200 million

1000                                275 million

1500                                450 million

1650                                500 million

1750                                700 million

1804                                1 billion

1850                                1.2 billion

1900                                1.6 billion

1927                                2 billion

1950                                2.55 billion

1955                                2.8 billion

1960                                3 billion

1965                                3.3 billion

1970                                3.7 billion

1975                                4 billion

1980                                4.5 billion

1985                                4.85 billion

1990                                5.3 billion

1995                                5.7 billion

1999                                6 billion

2006                                6.5 billion

2009                                6.8 billion

2011                                7 billion

2025                                8 billion

2043                                9 billion

2083                                10 billion

Source: About.com

The issue lies with the basic human needs – food, shelter and clothing – and the basic human rights – education, protection from torture and other abuses and freedom of speech.

Providing such succour to 2.5 to 3 billion people is far easier than guaranteeing such rights to 8 or 10 billion as all of this puts undue pressure on the planet’s resources.

This is why Re|Source spent a lot of time discussing the implications of population growth on the use of minerals, food production, water, energy and the provision of health services.  This also has impacts on other part of the ecosystem as such practices must be managed or you end up with planetary abuse and climate change.  For example, the biggest issue some believe we face today is the rapid rise of air conditioning units amongst middle class people in India, and the fact that many of these units do not meet international emission standards.

Certainly water trading as a scarce resource is something I’ve blogged about on many occasion, and McKinsey even has a practice around Water Resources (see their report Charting our Water Future).

Hence, you can see why the financial community has a key role here as the scarcer a resource becomes, the more demand; the more demand, the more money to be made.

Financial services can either ease the flow, manage the flow or strangle the flow of our scarce planetary resources.

This has been a key concern and you only have to look at the rise in prices of basic commodities and food over the past decade to realise how the financial community can trash or build our world.

This was swell illustrated by cocoa trader Anthony Ward, who cornered the market for chocolate recently, and you only have to look at the food price index charts to realise that something is screwy:

Source: ICMA-RC 

What is screwy is that, like LIBOR and derivatives, too much focus has been placed on shorting the food and commodities markets and not enough on the long-term sustainability for this planet’s health, and the health of our peoples.

Or so these charts and debates would imply.

In fact, Sir David made a key point around future scenarios which paint a picture of either a planet that is sustainable and healthy, or one that is failing and unhealthy.

Which would you rather live in?

 

This is the second of three blog posts about Re|Source 2012 (part one here).  The final post will summarise Bill Clinton’s speech, which is well worth a hearing. 

 

Sir David King is the Director of the Smith School of Enterprise and the Environment at the University of Oxford, Director of Research in Physical Chemistry at the University of Cambridge, Director of the Collegio Carlo Alberto, Chancellor of the University of Liverpool and a senior scientific adviser to UBS.

He was the Chief Scientific Adviser to H.M. Government under both Tony Blair and Gordon Brown and Head of the Government Office for Science from October 2000 to 31 December 2007. In that time, he raised the profile of the need for governments to act on climate change and was instrumental in creating the new £1 billion Energy Technologies Institute. 

 

The greatest minds want to avoid Earth's destruction - do you?

As recently mentioned, I attended the Re|source 2012 conference at Oxford University last week.

The meeting took place in the historic School of Examinations building ...

... and was a meeting of the great and the good to discuss how to build a sustainable world.

The conference had many of the leaders from politics and banking in attendance.

For example, several of the Rothschild financial family were there, as they had co-organised the event with Sir David King, the Chief Scientific Adviser to Tony Blair and Gordon Brown and Head of the Government Office for Science from 2000 to 2007.

I only managed to make it to the second day of the event, but the speaker list is very impressive including David Attenborough, Chris Patten, Jonathan Dimbleby, Peter Mandleson, Will Hutton, Jon Landau, Terry Leahy, Amartya Sen, David Miliband and more.

In fact, probably one of the most impressive line-up of speakers I’ve seen at a UK conference with, top of the list, Bill Clinton delivering the final keynote session.

Why so many of the world’s most elite and powerful?

Because the world has a finite amount of resources and at the current rate of population growth, urbanisation and general human consumption, all of it is going to run out soon:

• Over half of the world’s population lives in cities
• The global middle class will increase by 3 billion people by 2030
• A third of all food produced for human consumption is lost or wasted
• Companies that strategically cut their emissions are twice as profitable as those that do not
• There has been 147% rise in real commodity prices since 2000
• Resource efficiency savings could top a massive $3.5 trillion dollars in 2030

If you’re interested in more on this, then read the briefing papers prepared by Re|Source Academic Programme Directors Professor Sir David King,Professor Sir Chris Llewellyn Smith, Professor Charles Godfray and Professor Jim Hall (there’s plenty more where that came from by the way).

Photograph from the Guardian (see end of blog entry)

If you don’t want to read the papers, but just want a feel for how the day went, then read on as I managed to attend a few panel discussions, and so here’s my notes about them.

First, a dialogue about short-term versus long-term thinking with:

• Conor Kehoe, Director at McKinsey;
• Rowan Douglas, Chairman of the Willis Research Network;
• Will Hutton, Principal of Hertford College at the University of Oxford;
• Donald MacDonald, Trustee Director with the BT Pension Scheme; and
• Professor Lynn Stout, Distinguished Professor of Corporate and Business Law with Cornell University.

It was a great debate as it got into the real depths of why the Long Now is important.  In other words, investing in long-term gains and projects at the expense of short-term gains and profits.

That’s fanciful, but something many have campaigned around including myself.

Just checkout the Long Blog about the Long Now if you really want to get into understanding this area well.

Anyways, Lynn summed it up well when she compared the idea of changing investors thinking from the short to the long being a challenge as everyone has gone short these days.

She noted that the average shareholding in 1960 was eight years but, today, it’s just four months.

The about-face that created such short-term investing was when it became cheap to trade.  Before 1960 a financial transaction tax along with broker commission fees made it too costly to day-trade.  Now those barriers have gone, and everyone wants to short.

We can reverse this through appropriate measures, such as reduced taxation on long-term dividend holdings and higher taxes on short-term gains but, as she put it, that is like ”fishing with dynamite”.

When everyone else is fishing with dynamite, you have to join in or you don’t get any fish.  The same is true in stocks.  If everyone else is shorting, you have to join in or you don’t get any returns.

This is not necessarily the case as, at the end of the panel, a great question was seeded from the audience: “why is that everyone venerates Warren Buffet but so few emulate him?”

It appears to be because Buffet does his research, gets a stock as a value investor, and holds it for the long-term knowing its value will increase.

Too few have such patience, knowledge, time or research.

Shame.

In summary, Lynn stated that: “we need to increase the costs of short term trading to increase long term holdings, and radically rethink senior executive pay to encourage breathing space for long term thinking.”

Agreed, but cannot see it happening whilst everyone is fishing with dynamite.

The next panel also proved illuminating as it discussed the costs of subsidies and whether they were being directed in the right or wrong way.

This panel comprised:

• Peter Mandelson, Chairman of the Global Counsel (aka the Prince of Darkness);
• Dr Lin Bogqiang, Director for China Centre for Energy Economic Research at Xiamen University;
• Dr Hisham Khatib, Energy and Development Expert, the World Energy Council; and
• Ronald Steenbilk, Senior Trade Policy Analyst with the OECD.

The panel talked about a whole range of issues with the way that subsidisation of economies works today, and gave out a whole range of interesting facts:

• $1.1 trillion is spent annually on resource subsidies
• The cost of subsidising fossil fuels was $400 billion in 2010 and will rise to $600 billion by 2020
• The ratio of subsidies spent on fossil fuels compared to renewables is 5:1
• Only 15% of total fossil fuel subsidies are directed to the poorest in society, which means most are going to the richest

It was all depressingly detailed stuff.  For example, Dr Khatib is formerly the Chairman of the Jordan Electricity Regulatory Commission and stated categorically that 80% of the subsidies for fossil fuels in Jordan went to the richest 20% of the people.

The same appears to be true in Indonesia and most other markets, all in all facts that confirm this world is corrupt wherever and whatever way you look at it, so get on with working out how to direct investment to where it’s needed around such corruption.

After lunch we have a final session discussing tomorrow’s economies with:

• Jacqueline Novogratz, CEO of Acumen Fund
• Amit Mehra, Founder and Managing Director of Reuters Market Light
• Charles Tang, Chairman of the Brazil China Chamber of Commerce; and
• Camilla Toulmin, Director of the IIED.

This was probably the most compelling session as it was looking at what to do for tomorrow than for yesterday.  It talked a lot about Africa, India, Pakistan, Brazil and China, and came up with another range of stats:

• Cows in Pakistan are a twelfth as productive as cows in Europe, which is why Pakistan is now importing EU bull embryos to create better cows
• India has over 600 million people involved in farming, with the average farm under two hectares, and yet whilst investment in agriculture in India has gone from $20m - $100m in the last 10 years, productivity has stayed the same
• Of the twenty fastest growing economies in 2011, EIGHT are African
• 40% of African land has no document to show ownership

Much of this I've known since hearing Bob Geldof talking about Africa as an investment opportunity back in 2007.

This discussion was fascinating as it talked about the fact that lots of the world is still to be developed but, in doing so, there has to be a balance between development and dignity.

There was a lengthy discussion here about taking away people’s lands and the issue of land rights.  I had been involved in this myself some years ago – providing technology to the Queen’s Counsel who led the case for Aboriginal Land Rights in Australia in the 1980s – and know just how sensitive and important this subject has, is and always will be.

The debate was particularly interesting as Charles Tang was arguing for development fo lands whilst Camilla Toulmin was underlining that it had to be done with dignity.

When Charles responded: “of course, we recognise that a minimal level of human dignity needs to be retained as you develop lands and resources”, I wondered what that meant as China is regularly questioned about its views on human rights.

I’ve blogged in detail about such things in the past, so will avoid repeating them again here, but there is obviously a fine line between progress and destruction.

Anyways, I will write up the final two keynote speeches – Sir David King’s and Bill Clinton’s – over the next few days.

Meantime, if you want some other great facts, here are the two standouts of the whole year:

A diesel-powered aircraft carrier does 12 inches to the gallon; and

The aggregate weight of all the humans on Earth is less than the aggregate weight of all the ants on Earth!

Meantime, if you want some other perspectives on the event itself, here are three other useful links:

• The Guardian: Live blog from Oxford University - food, water and energy for all 
• The Guardian: The financial community – emerging champions of resource management
• Climate Central: Global Fight For Natural Resources ‘Has Only Just Begun’

 

Who’s going to be at your funeral?

A dreadful question I know, but one that comes up regularly in discussions about work/life balance and, more importantly, money/happiness debates.

The question is at the heart of where you prioritise: family and community or work and wealth.

It came up again during the last few weeks of scandal in the City, and the conversation went something like this.

Isn’t it strange how people seem happier the poorer they are?

If you look at any area where people are poor, they have a real sense of community.

They all look out for each other and there’s lots of support amongst the community. 

On the other hand, the more professional or wealthy you become, the more you become selfish. 

You lose that sense of community and you just become very insular. 

It’s probably to do with selfishness, in that you become motivated by money rather than happiness.

You seek more wealth by dominating and hoarding, pursuing self-interest and focusing purely on what you have rather than what is around you.

When you lose that money focus, you focus upon what is around you: your family, friends, neighbours and community.

This is why the work-life balance is so hard to manage.

You work to earn money.  The more you work, the more money you have but the less life you live.

You cannot nurture friends, family and community if all you do is work.

And then the real question is: who’s going to be at your funeral?

You know when you cop it that the only ones who will come to your funeral will be your friends, family and community.

Work colleagues, if they are still around, will be too busy working and hoarding to bother.

The conversation went on a lot longer than this – yes, you guessed it, it’s summertime philosophy over bottles of wine – but it struck me that there may be something in this, as it brings me back to one of my favourite financial philosophers: Bernard Lietaer.

Bernard has been expounding the idea of community currencies for years, along with other leading thinkers in this space such as Magrit Kennedy.

The idea of a community currency is that it focuses upon nurturing the long-term sustainability of the community or, in a global context, this planet earth.

You can read all about it in previous blog entries:

• Community Currencies, a thing of the future
• The Long Now of Finance
• Can we confidently create ways of investing for the long-term?

The reason why this is important today is that we talk about social networks, but these are not networks.  They are communities.

And the term community has a very particular meaning as it is derived from two Latin words: cum which means together, and munus which means gift.

So a community provides gifts to each other in order to ensure stability and happiness.

A community looks after the weak and ill through the gift of caring from the strong and healthy.

This is why the word community today is defined in various ways, but here’s the Wikipedia view:

The term community describes a group of interacting people, living in some proximity (i.e., in space, time, or relationship). Community usually refers to a social unit larger than a household that shares common values and has social cohesion.

In human communities, intent, belief, resources, preferences, needs, risks, and a number of other conditions may be present and common, affecting the identity of the participants and their degree of cohesiveness.

Since the advent of the Internet, the concept of community has less geographical limitation, as people can now gather virtually in an online community and share common interests regardless of physical location. Prior to the internet, virtual communities (like social or academic organizations) were far more limited by the constraints of available communication and transportation technologies.

The word "community" is derived from the Old French communité which is derived from the Latin communitas (cum, "with/together" + munus, "gift"), a broad term for fellowship or organised society.  Some examples of community service is to help in church, tutoring, hospitals, etc.

In other words, by focusing upon others in the community rather than yourself, you become an integral part of the network recognised for the value you are giving, rather than the value you are taking out of it.

Back to the City and this whole debate about bonuses, governance, insider trading, fraud, rate fixing and more and you can now see where this is all coming from.

If a bank is to behave in the future, they need to recognise their role in the community (not society or the economy) and think about who’s going to come to their funeral (bearing in mind they have a 'living will').

Images sourced from m4id and Kenny Silva.

Russia's greatest challenge is still to come

Just spent a few days in Moscow.

It’s my third visit here, and each time I find the country intriguing, enlightening, engaging and frustrating.

By way of example, the society is still very rules-based but everyone ignores the rules because no-one enforces them properly.

The traffic is jammed all day on the freeways, and cars dodge and dive between lanes in aggressive manner, ignoring all road markings.

The hotel we stayed with offer everything from robes to rubdowns, but ask for a cappuccino at breakfast and the answers a plain: “no”.

The best way to illustrate the Moscow experience is the restaurant we went to last night.

At the concierge desk, we asked for a table for five.

They said they don’t have one, only a table for four.

We said that’s ok.

They said, you cannot have this table as there are five of you.

The conversation carried on like this for about five minutes until, eventually, the concierge said “OK” and, once past the concierge, the waiter gave us an extra chair for our table of four to accommodate five.

This experience occurred at least once a day during my visit: you arrive somewhere to be told no but, if you believe the answer should be yes, you just stubbornly refuse to accept no until the rules change.

It is this experience that shows that the Russian economy is one where, if they can erode this rules-based rigidity, it could really rock and roll.

However, that is unlikely to happen for many reasons: infrastructure, size, breadth, investment, political structures, financial markets and more; too many to list here but, from this visit, two challenges to Russia’s future stand out more than many others: a complete lack of trust and a culture of corruption.

I hope I am wrong about these two factors and would like anyone to challenge these two factors, but they both appear to be prevalent in my visits to Moscow.

The lack of trust issue I alluded to the first time I visited Moscow.

That time I met the major exchanges – MICEX and RTS – and they told me that, due to the collapse of the financial system years before, no-one trusts each other.  This results in total collateralisation of positions at start of trading, a position untenable in European and American markets.

After all, how can you leverage your positions if you have to show that you have enough collateral to cover them (that’s a joke btw).

This time, the same lack of trust displays itself in Russian society, as illustrated by an article that appeared in the Economist last week.

The article shows that Russia has the largest population of internet users in Europe – yes, some of us think Russia is part of Europe, especially when their grannies come second in our Eurovision song contest – and yet, their internet usage is far more like China’s.

They don’t trust companies to deliver goods and services, and they won’t pay until they see the goods. Hence, Russians order online and pay in cash.  Alongside all this, they don’t like companies if they are unable to complain to a human being, so anyone doing business online has to run a call centre operation to support their online services.

In some ways that seems reasonable to me, although it adds a major layer of cost overhead.

So trust, or lack of it, is a major constraint on the Russian economy.

The second constraint is corruption.

Throughout our trip, we encountered examples of possible corruption from the strange sculptor statue to Peter the Great to the rebuild of the Moskva Hotel.

The statue was originally of Christopher Columbus to celebrate the 500th anniversary of his voyage of discovery of America in 1992 ... but no-one wanted it, so the mayor of Moscow agreed to pay for it as he was friends with the sculptor, but only if the sculptor could change it to look a litlle more like Peter.

Hmmm ...

Another rumour locally is that the rebuild of the Moskva Hotel, which is the new Four Seasons Hotel next to Red Square, is all down to money laundering,

The hotel is an exact replica of the original hotel.

Exact in every detail.

For example, an accident meant that the front of the hotel had two designs.  

Stalin was meant to choose which was better, but signed the designs in the middle of the drawings.  

As a result, both facades were incorporated and have been incorporated once again into the new bulid - note that the left side of the hotel differs in design to the right when, originally, they were meant to be symmetrical.

Our guide felt that the rebuild was either due to the old hotel being full of paranoid Stalin bugs in the bedrooms or was purely being rebuilt as part of a money laundering process.

I am not sure if such things are true, but Russia does have an Occupy movement that is protesting the re-election of Vladimir Putin.

Putin’s position is certainly being challenged in several quarters.

Take the Western styled press publication, the Moscow Times.

Delivered for free to my hotel room daily, the newspaper writes honestly about several big issues in Moscow.  Here’s one example that really caught my attention:

Over the past 12 years, Russia has become a full-fledged mafia state. One day, historians will chart its exact structure, but it seems clear that it consists of several large families headed by President Vladimir Putin's close associates and loyal oligarchs. Alongside them, countless crews of siloviki, bureaucrats, gangsters and affiliated businessmen work on their own, their networks varying from local to nationwide.

Another article was noteworthy:

Continued protests in Russia will likely lead to a violent backlash or chaotic changes in the government, according to a new study ordered by former Finance Minister Alexei Kudrin from the same think tank that predicted the street protests months before they began.

I like Moscow with its amazing Metro system and buzz of life.

I don’t like the undercurrents there however, particularly those of corruption and mistrust, rules and rigidity.

These undercurrents damage the system and possibly will never allow Russia to truly achieve its potential.

Shame.

On the other hand, rules can be changed and society can adapt.

For example, there is an Occupy movement here, protesting about Putin’s re-election.

It built up  a head of steam after the election but, over time, the political protest has fizzled out.

However, it may come back and if the Occupy movement in Moscow ever achieves a breakthrough, its achievement could be similar to Glasnost and Perestroika before.

In other words it, or something like it, could really mean that Russia’s doors are opened for real global competitiveness and integration.

A space worth watching and, just for balance, most countries have corruption and distrust.  It's just more exaggerated in some countries compared to others.

Meanwhile, if you missed the Babushki of Buranovo at the Eurovision, it’s well worth a viewing:

You see, there is a happy side to Russia too.

 

 

Facebook’s IPO makes Wall Street redundant

I’ve spent my life working with banks and technology firms, trying to align technology with business strategy and vice versa.

And yet it was only yesterday that I realised that these two industries are ripping each other apart.

The fact is that banking was managed in a risk averse way for centuries through diligent book-keeping on paper.

Sure, you had crisis but the crisis would occur in a manageable form.

The Italian Medici bankers lent money to the English thinking Royalty would always pay.

They did not foresee the sovereign default of Edward IV due to poor risk management, although such risks were difficult to avoid given the circumstances of the time.

We still have poor risk management but now it is digitised and, as a result, globalised and turbo-charged.

Such evolution of risk is illustrated well by the flash crash of May 2010 and by the subprime crisis, both caused by incorrectly calculated formula for complex derivatives and market operations.

Neither would have occurred without the technology of today, but the issues are manageable.

It can and will be resolved through logic, and global cooperation to develop new business models of liquidity and market risk that are regulated, resilient and reliable. 

But that is not the digital chasm to which I refer.

Nor is it the one about disintermediation.

We’ve had too much discussion about banks being disintermediated over the past two decades and it hasn’t happened, and will not happen, because it is managed through the regulatory regime.

The regulatory regime means that the core of banking has to be licensed, and that core is therefore protected.

That is the reason why Microsoft, Intuit, Amazon, Google, Virgin, Wal*Mart and more have never broken into the core of banking and why many cannot be bothered, as it’s too darn complex and regulated.

But that is where the logic ends and the new world begins.

And that is where the digital chasm to which I refer appears.

This chasm is the one between the old world mentality of financial and economic models and the emerging new world mentality of digitised globalisation.

Now banks are well aware that they are digitised, globalised behemoths.

As far back as the 1970s – when Walter Wriston, the then Chair of Citigroup, said: “Information about money has become almost as important as money itself ” – we knew that banks were digitised beasts.

Four decades later, Craig Mundie, Head of Research and Strategy for Microsoft, made an even more insightful comment: “What we are seeing is the ability to have economies form around the data and that, to me, is the big change at a societal and even macroeconomic level.”

This gets to the core of Big Data, and the Big Data economy.

Now I can see you already raising eyes to the ceiling and thinking oh no, not another Big Data discussion.

No, this is not.

This is about the digital chasm that rips banking apart.

If we accept that the world is digitised and Big Data leverage is going to make the difference, we then need to look at the other side of the coin: what is going to break the past?

And that, my friend, is where I see the digital chasm causing the haemorrhage to break banking from its past and lay waste to the core of what we thought was our world.

It has already occurred socially: take the Arab Spring and the more recent Occupy Movement; take the Molly Katchpole and Bank of America story or the Aaron Barr of HBGary debacle; and you can see the social change.

The social change is that just one person can now change the world, something I blogged about in February.

Now comes the economic change.

Just as Web 2.0 created Society 2.0, Web 2.0 is now creating Economy 2.0.

The economic change can already be seen, if you look to developments such as Bitcoin, a digitised global currency that works with no central issuing authority.

But the movement is more than a few maverick instigators.

The movement is at the core of Silicon Valley.

What?

Yes: the core of Silicon Valley wants to rip the banking system apart.

Not by disintermediating it, but by making it completely redundant.

How did this hit me yesterday?

Where does this come from?

It comes from Facebook’s imminent IPO and the Financial Times summary of what’s going on.

Here’s a précis:

Facebook IPO puts bankers on back foot

As Wall Street makes final preparations for the largest technology debut by value in history, it has also faced what some bankers and investors have come to see as a series of snubs from Facebook.

From the sidelining of the banks through the registration process to the dithering of Mark Zuckerberg, Facebook’s co-founder and chief executive, over whether or not he will turn up for the investor roadshow, the message has been clear: whatever the normal rules governing Wall Street initial public offerings, Facebook is the one calling the shots. The notion that Mr Zuckerberg has even considered steering clear of such a key event in the build-up to an IPO that investors have long been waiting for, is just one illustration of the bargaining power he and his social networking company, with 900m users and counting, wields over some of the world’s most dominant banking institutions.

“I look at Wall Street as broken, from the point of view of Silicon Valley,” says Roger McNamee, an established tech investor and founder of Elevation Partners, the $1.9bn fund.

Facebook’s handling of its offering is taking the slowly shifting power dynamic in favour of Silicon Valley to a new level in its historically tense relationship with Wall Street; a tension that stems from bankers’ success in the 1990s “bullying” often young management into deals benefiting investors more than the companies, according to Silicon Valley veterans.

Google’s co-founders Sergey Brin and Larry Page are credited by these industry insiders as being the first technology entrepreneurs to wrest significant control of the IPO process away from their bankers back in 2004 …

Reuben Daniels, partner at EA Markets, a boutique investment bank, adds that a more common view has developed among tech entrepreneurs that Wall Street is a service provider rather than offering essential insight or relationships …

[Facebook] has maintained tight control of the entire [IPO] process, including -- in a rare move -- writing its own registration filing with very little input from the banks, according to people familiar with the situation. It has also hired 31 banks to help sell its stock and attract the specific investors it seeks, compared with the 10 more typical for this size of deal …

One banker involved says his biggest worry is whether the power that Facebook wrests from Wall Street will set a precedent for future tech IPOs.

That last line is the one that resonates with me: where a company that is just eight years old has Wall Street afraid, something is changing.

The other line in the above which jarred was the comment from Roger McNamee, founder of Elevation Partners, the $1.9 billion fund: “I look at Wall Street as broken, from the point of view of Silicon Valley”.

Wall Street isn’t just broken from the view of Silicon Valley, but it’s broken from the view of many: regulators, governments, corporations, society, academia and more.

The NGOs are marching; the Occupy movement is rife; the digital community are connecting; and the world is changing.

Will this mean the destruction of the old world and the creation of a new?

Possibly and, even if it does not, it will mean a severe test of the mettle of the old world as they grapple with the new.

For example, if Wall Street is broken, in the eyes of Silicon Valley, where can they look towards for the future?

Take note: 

China tells IPO bankers to Like Facebook

After a regular two-day training session for IPO sponsors in Beijing on April 23-24, Facebook’s listing prospectus has become a must-have accessory in China’s investment banking circles. At least three senior CSRC officials praised the quality of Facebook’s prospectus in their speeches during the seminar.

“The CSRC reckons Facebook’s information and risk disclosures are exceptionally full and tailor-made, which is exactly what they want domestic IPOs to do in the future,” said a banker who attended the session.

We sure do live in interesting times.

 

 

The Occupy Spring: shareholders meetings disrupted and a general strike ...

Occupy Wall Street is seven months old.

It started on September 17^th 2011, inspired by the Arab Spring, and rapidly became a global movement representing the 99 percent who are squeezed out of opportunity by the 1 percent who control all the assets and wealth of the world.

The trouble is, being seven months old and now turfed out of their occupancies by the authorities, the movement has nowhere else to go.

Or does it?

In a fascinating series of articles, the US magazine the Nation asked a range of commentators and analysts to discuss the movements future.

And there are some key things in the articles that point to more radical action and activism.

For example, from April 25^th, the annual general meetings of major US banks like Wells Fargo and Bank of America, along with GE and more, will see their shareholder discussions disrupted.

And, on May Day, there are calls for a General Strike across America, something that strikes fear into many as we have not seen General Strikes in most developed economies since the 1930s.

Oh yes, there are many comparisons with past struggles, and so, in the spirit of sharing, here are a few highlighted paragraphs from the over twenty pages of analysis:

Horizontal Meets Vertical; Occupy Meets Establishment by Stephen Lerner, architect of the Justice for Janitors campaign

Starting with GE on April 25 in Detroit and moving on to Wells Fargo, Bank of America and dozens of other corporations in May and June, tens of thousands of people from Occupy, community organizations, unions and environmental groups will show up at the annual shareholder meetings of major corporations. Some people will be on the inside with proxies, and others will be massed in the streets, all delivering the message that it is no longer acceptable for giant, unaccountable corporations to decide the political and economic fate of the country.

Labor and Occupy: A Match Made in... by Gabriel Thompson, author

The next big challenge and opportunity is May Day.  In New York, heeding calls for a general strike that originated with Occupy LA, Occupy Wall Street has been in lengthy meetings with organized labor and a collation of immigrant groups.  It appears that after some initial hiccups – labor didn’t think a general strike was feasible – compromise wording will for a day that combines militant occupy actions with a mass march in the late afternoon, beginning at Union Square and heading to Wall Street.

More Than a Protest Movement by Todd Gitlin, author of Occupy Nation 

It’s not a bad idea to restate Occupy’s core principle: it is a movement on behalf of the thwarted 99 percent against the dominant institutions that fatten the 1 percent. It aims to bring to an end the grotesque state of affairs in which the burden of big money crushes democracy and to depose the forces that produced economic catastrophe, along with their shabby ideas and financial delirium. It knows, in the words of one sign, “The system isn’t broken, it’s fixed.”

Occupy Climate Change by  Jeremy Brecher, author of many books on labour and social history

An economy driven to enrich the 1 percent cannot meet the needs of the 99 percent for a secure, sustainable future. We need a strategy to counter the threats to economic security and climate security by putting people to work to create a low-pollution, climate-friendly, sustainable global economy—what is sometimes described as a Global Green New Deal. It will require democratizing our economy so that we can direct our labor and our investment to sustainably meeting the needs of all people. It will require not just different policies, or even different structures, but a global society mobilized for change. A Global Green New Deal will ensure jobs and livelihoods for all, because it will take all the work—and all the creativity—we can muster.

The Purpose of Occupy Wall Street Is to Occupy Wall Street by Michael Moore, filmmaker and author

It’s important to remember that Occupy Wall Street is about occupying Wall Street. The other Occupies that have sprung up around the country are in solidarity, and while they attack the tentacles and the symptoms of the beast that exist locally everywhere, the head can be chopped off only in one place—and that place is in downtown Manhattan, where this movement started and must continue.

Occupying the Unexpected by Arun Gupta and Michelle Fawcett

The secret to Occupy’s strength remains its ability to disrupt power—an ability retained by Occupy movements working on housing, labor, finance, electoral reform, corporate accountability, the food supply and pretty much any other issue you can think of. It can be seen from Occupy the SEC, which released a stunning 325-page critique of the Volcker Rule

Occupy Is Dead! Long Live Occupy! by Ilyse Hogue, former director of MoveOn.org

The rallying cry of the Occupy movement—“We are the 99 percent”—has also taken on a life of its own. With a spirit of inclusiveness that mimics the slogan, established institutions from MoveOn to National People’s Action to the United Auto Workers are investing collective resources into The 99% Spring, a massive training project that aims to train 100,000 people in nonviolent civil disobedience and economic literacy.

Occupy the Imagination by Bill Fletcher Jr., co-author of Solidarity Divided and racial justice activist

The fact that several opinion polls over the past four years have indicated that about 30 percent of the population is open to alternatives to capitalism seemed to have gone almost unnoticed, at least until the emergence of the Occupy Wall Street movement.  Thirty percent is about 90 million people, but it also roughly the proportion of the colonial population that supported the Revolutionary War. 

What Does Democracy Look Like? by Marina Sitrin, editor of Everyday Revolutions

Under capitalism, decisions are made by those with economic power and then political decisions follow to support them. The Occupy movements turn this trajectory on its head and say, No! First comes democracy; first people decide, and this political process is inseparable from economic and social issues. That is the slogan of the 99 percent. It is a framework of the majority—the people lead. This is the meaning of democracy, coming from the Greek, δημοκρατία (dēmokratía), “rule of the people,” which says nothing about economic interests predominating.

Occupy! and Make Them Do It by Frances Fox Piven, faculty member of the City University of New York (CUNY)

The great victories that have been won in the past were won precisely because politicians were driven to make choices in the form of policy concessions that would win back some voters, even at the cost of losing others. Thus the Democrats who finally supported civil rights legislation were not stupid. They knew that by conceding to the civil rights movement they were risking the long-term support of the white South. They tried to straddle the divide. But the movement forced their hand.

Thanks to the lunacy that has overtaken the GOP, Obama is in a good position to win re-election. But he is vulnerable to an escalating Occupy movement. In particular, minority, young and poor new voters are volatile voters, and they are susceptible to the appeals of Occupy. I, for one, hope the movement forces Obama to pay for its support, in desperately needed economic, political and environmental reforms.

And there’s lots more at the Nation’s website area dedicated to Occupy Wall Street http://www.thenation.com/occupy-wall-street.

 

The next major financial crisis will be in 2045 (presentation)

I was asked to keynote at the ISITC 18th Annual Industry Forum & Vendor Show in Boston this week.

Knowing that it’s always important to pull the chain a little bit, I put forward the title: “The next mega global financial crisis will be in 2045”.

This was based upon an earlier blog, where I talked about the tensions of China and India leading to another crisis.

Here is the slide deck:

ISITC - next major crisis

View more presentations from Chris Skinner

Pretty much speaks for itself I think and to be clear, some of this I truly believe will happen, and some of it does not stand a cat in hell’s chance of ever happening.

You decide which.

There were a few questions afterwards about where Russia sits and what about Canada?

I answered that Russia is too unfocused to have a clear picture of its future, whilst it stays under the iron first of Putin, and what about Canada?

Anyways, hope you enjoy.

 

 

£ $ € ¥ …元/圆: the Rise of Renminbi

We have a continual dialogue about Renminbi (RMB), or Chinese Yuan (CNY) if you prefer. 

What’s the difference? 

Well, Remnimbi is the proper term for the Chinese currency, as is referring to UK currency as the Pound Sterling and the American currency as the Dollar; whilst Yuan is the more colloquial term for Remnimbi, and is more like referring to pounds and dollars as quids or bucks,

FSClub friend Wim Raymaekers, Head of Banking Market at SWIFT, talks about this all the time, probably because so much currency movement is now moving through the SWIFT network.

He’s so wrapped up in this space, he sent me a guest blog post about it so, as it’s a worthwhile space to note, here’s what Wim has to say:

At the end of 2011, the RMB’s share of the global payments market was just 0.29% – dwarfed by that of the €/$ which combine to represent 90% of global volumes, at 43% and 47% of payments respectively – but the RMB did weigh in at #17 in the world’s payments currency league table, and its growth certainly outpaced that of other major currencies including the beleaguered euro.

The battle for supremacy among RMB offshore trading centres is also hotting up.

UK Chancellor George Osborne’s recent deal with Hong Kong, to position London alongside Hong Kong as such a centre, lays bare London’s ambitions in this regard – and the City could be starting from a stronger position than even Mr Osborne realises.

Hong Kong remains the world’s biggest RMB offshore centre, handling 78% of all RMB payments sent and received in December 2011, but the UK is well on its way to becoming the next big RMB offshore trading centre.

In Q4 2011, it already handled 30% of RMB payments (levelling with Singapore) and 46% of RMB FX transactions - not considering China and Hong Kong volumes in both cases.

This business intelligence is being generated by SWIFT to see which financial institutions have growing RMB volumes, where the corridors of activity are, which countries’ RMB businesses are growing, which are diminishing.

Taken as a whole, this data also demonstrates how rapidly the international RMB payments business is growing, and how actively many financial institutions are already participating in it.

Keep track of such information with the SWIFT RMB Tracker, published monthly.

Download the latest SWIFT RMB Tracker, January 2012

How to deal with an insolvent bank

Sitting in a conference talking about living wills isn’t how you want to spend your typical day, but it did spark a whole bunch of thoughts in my mind.

The FSA issued their consultative paper 11/16 last summer.

The idea is that every bank with assets over £15 billion must produce a Recovery and Resolution Plan (RRP) by the end of this June.

The RRP = a ‘living will’.

I’m not going to delve into the depths of such matters – you can read all about it on the FSAs website - except to say that the RRP comprises a Recovery Plan and a Resolution Plan.

The Recovery Plan must include a sufficient range of material and credible options to address a range of crisis scenarios, and show how the institution would address these issues to continue operating in a stable way, avoiding capital shortfalls and pressures on liquidity.

The Resolution Plan would show how a firm would wind-down if it failed for any reason, including how it would avoid any impact to taxpayers and the public funds.

All well and good.

Or is it.

Whilst I like the idea of a living will for a zombie bank, it strikes me that we still haven’t gotten to the heart of the matter.

The question is really: what do we do with an insolvent bank that could bring down the economy of our nation?

The answer is not to let a bank become so big that it could bring down the economy of the nation.

So the real answer should actually be more to do with limitations on bank size, structure and asset base leverage, rather than getting it to open up a living will.

To me, this is what the Vickers report separating investment and retail banking, and the Volcker Rule shutting down prop trading is all about.

So the two work in tandem – a bank must shrink its size to be big enough to fail and, if it does, have a clear plan for how to deal with failure.

Yet even then, it doesn’t solve the issues.

For example, the average life of a company in the S&P500 is just 15 years today; most banks have been around for over 100 years.

The reason why banks have been around so long is down to governments regulating and maintaining them, rather than any c0mpetitive forces.

If banks weren’t protected by regulations, they would fail far more often, just as commercial firms do.

And if a large commercial firm fails – Rover, BP or Tesco – they just get acquired or shutdown. 

They don’t bring down the entire economy.

When a bank fails, it brings down the whole economy because the economy runs on finance.

Finance is the oil in commerce – no oil, no commerce.

That’s why banks aren’t allowed to fail.

It’s also why we realise the mistake when they do.

A small bank – a Northern Rock – can fail, but it won’t shake the fabric of the economy of system.,

A large bank – a Citibank or Royal Bank of Scotland – is different.

At the height of the banking crisis, UK bank liabilities were 400% of GDP: £5 trillion against GDP of £1.2 trillion – and the Royal Bank of Scotland alone had more liabilities (£1.8 trillion) than the UK’s GDP.

So now we get into the heart of the matter.

How do you deal with an insolvent bank that could break the economy?

A living will is one piece.

The separation of investment and commercial banking (Vickers) is another.

But the real test would be to go back to the trigger of this crisis: would these regulations have dealt with Lehman Brothers collapse any better?

There are two or three things that come to light in this area.

First, when Lehmans collapsed they had $400 billion of debt on their books.  That debt was linked to global credit default swap derivatives (CDS) and amplified by a factor of 20, according to Barclays Capital.

So for every $1 of debt that Lehmans were exposed to, the markets were exposed to $20 due to their AAA-rating backing derivatives traded through the OTC markets.

Hence, the real exposure of risk the markets felt on September 14^th 2008 was a $8 trillion market collapse, not a small bank folding.

Do living wills, Vickers and Volcker deal with this spaghetti of complexity that each banks’ balance sheet is linked with?

Not yet.

Second, when Lehmans collapsed the company most wrapped up in their web of debt was AIG.  AIG Financial Products in London had been trading CDS to such an extent that most of the market exposure landed on their doorstep and dragged the firm down.

However, AIG Financial Products was also a complex web of structure.

AIG was the largest insurance firm in America, trading in risks through their London office which was registered for European operations in Paris.

So three regulators were meant to track the global risks being traded by one global firm through a web of global offices.

Fail.

Do living wills, Vickers and Volcker deal with this web of globality that each banks’ balance sheet is linked with?

Not yet.

The two points made here are making it clear that the regulators need a global level playing field if their attempts to regulate the markets successfully are going to truly succeed.

But a global level playing field is also impossible, as no country can agree with another on taxation, fiscal and monetary policies.

Just look at the EU right now, and the transaction tax, if you want to see why a global level playing field is not going to work.

Sorry to be a downer Messrs Osbourne, Barnier and Bernanke but, as one speaker said yesterday, “the worst mistake regulators can make is to believe in their own rules”.

Point taken.

 

Postnote: yes, I know that OTC Derivatives regulations with a single data repository is addressing some of the last points made here, but do bear in mind that they haven't yet agreed how to define 'speculative' versus 'commercial' derivatives locally, let alone globally, and you get a sense of why this isn't working yet.

 

Amartya Sen: thoughts on poverty and the global financial crisis

I attended an interesting lecture last night from an economic legend: Professor Amartya Sen of Harvard University.

If you haven’t heard of him, he’s known as the Mother Teresa of economics in his native India, and has spent a lifetime fighting poverty with analysis rather than activism. 

Awarded the Nobel Prize in Economic Sciences in 1998, for his contributions to welfare economics and interest in the problems of society's poorest members, Sen is best known for his work on the causes of famine.

He is currently Professor of Economics and Philosophy at Harvard University, as well as being a senior fellow at the Harvard Society of Fellows, distinguished fellow of All Souls College, Oxford and a Fellow of Trinity College, Cambridge, where he previously served as Master from 1998 to 2004.

An impressive guy.

Amartya delivered his speech as part of the London Stock Exchange Group series of lectures on the future of global finance, and the evening was hosted by LSE Chairman, Chris Gibson-Smith.

Here’s a brief summary of Amartya’s sentiments (I say ‘sentiments’ as this is not a record of his speech and incorporates my own spin on his words).

Some people say we live in interesting times, but I think we live in baffling times.

We live in baffling, rather than interesting, times because it is very hard to get any clarity about the future. 

The only thing that is certain is, in the words of George Bernard Shaw, “the greatest of evils and the worst of crimes is poverty”.

Shaw wrote this in the Preface to his brilliant play, Major Barbara, published in 1907. 

The tragedy of poverty is, of course, obvious to all - whether in Latin America, or in Asia or Africa, or in Europe and the United States. 

The calamity of deprivation and penury can hardly be missed by those who have bothered to think about the subject, no matter whether they are themselves poor or not. 

Lives are battered, happiness stifled, creativity destroyed, freedoms eradicated by the misfortunes of poverty. 

But Bernard Shaw was not talking, on this occasion, about the hardship of poverty, or the misfortune that goes with it. 

He was commenting, in a rather unusual way, about the causation and consequences of poverty - that it is bred through evil and ends up being a crime.

If poverty is indeed an evil, not to mention “the greatest of evils” as Shaw puts it, then there must be some wickedness, or at least some culpability, behind poverty - some wrong-doing that allows such human tragedies to occur and persist. 

This raises the immediate question: who, then, are the wrong-doers?

If you look to protesters today, such as the Occupy Wall Street movement, the wrongdoers are represented by the corporate greed of capitalists and the banks.

You can just as easily take the opposite view however, and look to the Tea Party movement who see the failure being that of government and government policies.

The Tea Party align with Adam Smith, the guru of capitalism, and believe that free markets should rule.

Who is right and who is wrong?

Or is this the right question? 

In thinking about strategic issues, we cannot but go into the question of culpability and the failure of duties and obligations. 

We have to ask: how can things be done differently so that the evil of poverty is ousted? 

We have to identify the nature and genesis of the wrong-doing that is responsible for the affliction. 

That is not, however, the same as trying to identify the wrong-doers?

The identification of wrong-doers is not our task and trying to identify the evil-doers is not the right strategy since the responsibility for creating an evil is very widely dispersed in the society. 

We have to see how the actions - and indeed inactions - of a great many persons together lead to this evil, and how changing our modes of actions - our policies, our institutions, our priorities - can help to eliminate poverty. 

Our focus definitely has to be on removing evil-doing, as part of our strategies and programs, rather than going on the wild-goose chase of catching the hugely dispersed collectivity of evil-doers, who may not even fully understand how their actions can be seen as part of an evil state of affairs.

In fact, we should eliminate the discussion of wrong doers completely, and focus our efforts more on how to stop poverty full stop.

This is why strategies such as closing sweatshop labour factories in poor countries, or arresting those who employ children in the making of carpets, would fail to eliminate the poverty of the victims if such action is separated from a general economic and social program. 

In the vast majority of cases the employees are there in those terrible jobs because they have very few options - none that are particularly good. 

This is because there has been a failure of the state and the society to create opportunities for decent employment, which makes it possible to recruit labour to do terrible jobs as the alternative may be unemployment and starvation.

That is why exploited labourers are led to soul-destroying work today in the poorer countries, and closing down sweated-labour factories without giving the victims alternative opportunities for employment or education - the latter is extremely important in the case of child labour - is not an adequate solution to the problems and predicaments of the precarious poor. 

There is, of course, moral merit in restraining the pursuit of profit of businessmen through exploiting vulnerable and freedom-less labour, but a fuller solution can emerge only through positive opportunities of alternative employment and occupation, and that demands societal action. 

So the first action to address poverty is to expand labour opportunities and assist in education, and not to just shutdown existing sources of income.

My argument so far has been based on seeing poverty as lowness of incomes. 

Is employment with income a full solution to all problems of poverty? 

To believe that would be to underestimate vastly the complexity of poverty, particularly the nature of persistent poverty. 

By way of example, lowliness of income is the primary cause of starvation rather than the lowliness of the availability of food.

Is employment for income in order to buy food the answer to everything therefore?

No, as this misses the point of why there is persistent poverty

Strategic examination about eliminating poverty, or even reducing its burden, has to go more deeply into the nature of poverty. 

Poverty is about the inability to lead a decent, minimally acceptable life, and while low income does make it difficult to lead a life of freedom and well-being, an exclusive concentration on seeing poverty as lowness of income misses out a great many important connections.

What are the other non-income factors that contribute to poverty: a lack of education, availability of work, investment in infrastructure and more, and capitalism addresses these issues by providing an insurance.

For example, all affluent societies have addressed extreme poverty issues through public policy programs, such as the public pension, the provision of school education, the availability of healthcare and more non-market non-commercial arranged facilities.

The economics of these areas are not obvious except that an insurance system run by the state or by some other social support system, not by profit-oriented private firms, may be a necessary part of the elimination of poverty. 

Affluent societies focus upon profit maximisation and the unrestricted search for profit, but if they only relied on profit maximisation they would not function.

As a result, they balance between market mechanisms and state activities.

There is no strategic formula as to the correct balance between market mechanisms and state activities – the contrast between China and Taiwan or America and Sweden are good examples of how approaches differ – but we need to understand these balances in order to create a better world that addresses poverty with finance.

Does this mean arguing against Adam Smith’s principles for free markets?

Not really.

That view is a result of a huge misunderstanding of Adam Smith’s principles, and my position is strongly influenced by his.

Adam Smith clarified how markets work and how they can work exceedingly well.  He believes that you need a well-functioning market economy and clarity of why you want such efficient markets to be.

The task of politicians in managing the economy is then to search for two distinct objectives: first, to provide plentiful revenue to cover the basic subsistence needs of the people before the subsistence needs of the state; and second, to provide the state with enough revenue to finance public services.

The financial focus of public services is a critical part of Smith’s work and Adam Smith had an overwhelmingly clear view about support of the poor and undersupported in his market view.

Within his free market principles, he clearly defended the role of the state to fund public services, such as education and poverty relief.

Adam Smith was deeply concerned about the inequality of society and never used the word capitalism.

The word capitalism does not appear in any of his books or any other writing, and it would be hard to carve out anything in his works on market economies that were based purely upon capital.

For example, he specifically argued about protections from unlimited usury practices.

So how should we think about the wrongdoers that need rectification, and how should we address poverty?

According to Adam Smith and my own thinking, the key is increasing employment.

Increasing employment must remain a worldwide priority and China, Brazil and India are doing much better at this than America and Europe.

As employment and economic welfare rises, the state must use such employment to improve public services for good living and public welfare and, in this respect, India is not doing this as well as China and Brazil.

Finally, for the West in general and Europe in particular, the crisis of 2008 was created by the malfunctioning of market economies – the result was the state had to create support for their economies and this is the reason for rising sovereign debt.

But the cause of this malfunctioning is clearly what was thought of as lack of accountability of governments, but governments are accountable and this is what we are seeing today.

What we are seeing is that, in order to pay back their debts, governments have far more accountability.  However, they are addressing this accountability in the wrong way.

It’s hard to see how massive austerity drives, which cuts demand and growth, can therefore be supported,

Just look at Japan and learn from what happened there over the last 20 years of austerity, which is still biting.

What these governments need is fast economic growth.

Economic growth creates resources to address unemployment and poverty.

This is the key to addressing issues in Europe and the West, and it is the indiscipline of governments that has failed the markets, not the markets themselves.

Europe needs a better form of economic accountability and management of their economies, rather than austerities which decimate human lives and economic growth.

In conclusion, I end by affirming that George Bernard Shaw was right, a hundred years ago today, to point to the connection between poverty and evil and crime.  The fact that this insight came not from an economist but from a dramatist and literary giant fits in well with my general thesis that the economics of poverty involves much more than just economics.  Human lives in society are interlinked through economic, social, political and cultural associations.  The nature, causes and consequences of poverty reflect the richness of those connections.  We have no reason to be surprised by that elementary understanding.

Amartya then took Q&A from the floor and was asked a few interesting questions.

Q: You appear to be saying that in this current crisis, it is the failure of states to regulate markets effectively that failed, rather than the markets themselves. Is this your view?

You cannot separate markets and state, and this crisis was a failure of both, but you also have to be aware of the relationship between free markets and state influence. 

For example, Adam Smith argued against usury, but was convinced to change his thoughts on interest after reading the works of Jeremy Bentham. 

The core of how markets and state should work is that free markets is the most efficient model of economic management, but free markets need states that set efficient regulations to avoid failure in order to be truly workable.

As this shows, free markets and the state are two separate entities that are interdependent.

A key question in the last crisis however is whether globalisation killed that interdependency to cause the spiral of crisis we see today.

Globalisation may have undermined national states, as government can no longer effectively regulate the free markets?

There may be some truth in this statement, and this is why the G20, G8 and other global activities – the World Bank and IMF included – are key to solving these issues this time around.

Q: Do you think the euro will survive?

No.

When the euro was created, I didn’t see why it was needed and didn’t believe it made sense.  I am a fan of Europe, don’t get me wrong there as my late wife was Italian, but to start a European integration without a fiscal foundation meant that it was never going to work.

You can see this today as many parts of the EU are not served well by a Europe that has no fiscal union.   Greece is a good example.

Now however the loss of a country would be very destabilising for this European Union.

This is why Germany is being forced to bailout Europe.

Could they retreat out of it? Yes.

Is that the right thing to do? I think so.

 

Postnote: some of Amartya’s speech is taken from a write up of an earlier presentation he made in 2007.  These words of wisdom are integrated in parts of this article to ensure more accuracy of content.