Posts of April 2015

What Church Should Catholic Climate Deniers Join?

♠ Posted by Emmanuel in Environment,Religion at 4/30/2015 01:30:00 AM

Marco Rubio, other American climate change deniers should bear the US flag at SSPX's get-togethers.

The past two popes have been firmly ensconced in the green camp. That is not to say that there are any number of Catholic climate change deniers. Oftentimes two things go together: conservatism and climate change denial. I myself am of the "reluctant environmentalist" stripe: Sure I'd love to consume fossil fuels and throw away non-biodegradable petrochemical-based products with reckless abandon. However, as a reasonable person mindful of the impact of my way of life and how it affects others as well as future generations, I am more circumspect. As with most science, we cannot be entirely "sure" that man-made climate change is occurring. Rather, the overwhelming weight of scientific evidence suggests anthropogenic climate change is happening. Following the precautionary principle--we cannot be fully certain about man-made climate change, but the consequences of ignoring this not-unreasonable possibility are too horrific to contemplate--it is advisable for societies to cooperate on steps to mitigate the phenomenon.

Following this line of thinking, I applaud Pope Francis placing emphasis on the issue and await his forthcoming encyclical about it. The leader of the church should speak about meaningful contemporary issues, no? However, the "Republican" wing of the Catholic church is, ah, reheating the same old chestnuts beloved of these deniers:

“The Holy Father is being misled by ‘experts’ at the United Nations who have proven unworthy of his trust,” Joseph Bast, president of the Heartland Institute, a libertarian think tank based in Chicago, and one of the organizers of the press conference denouncing Francis on Monday.

“Humans are not causing a climate crisis on God’s Green Earth – in fact, they are fulfilling their Biblical duty to protect and use it for the benefit of humanity,” Mr. Bast continued in a statement released Monday. “Though Pope Francis’s heart is surely in the right place, he would do his flock and the world a disservice by putting his moral authority behind the United Nations’ unscientific agenda on the climate,” he said in a statement, contradicting the vast majority of world’s climate scientists.”

Francis’s popularity among Catholics could prove politically difficult for many Catholic Republicans, including presidential hopefuls Jeb Bush, Chris Christie, Bobby Jindal, Marco Rubio, and Rick Santorum, most of whom, too, express skepticism about the science of climate change.

Just as the Americans made a ruckus some time ago about leaving British rule called the "War of Independence," I think it's high time that these so-called Catholics in the US sever ties with those other imperialist Europeans at the Vatican. Down with this popery! So they may not like Protestantism and all its denominations, but there are other schismatic options for the Marco Rubio bunch. In particular, I commend to them the Society of St. Pius X [SSPX] which denies the changes made during Vatican II to make church proceedings more relevant to the laity such as delivering the Mass in local languages and facing the congregation and not the altar during Eucharistic celebrations.

Being ever so backward looking, Catholic climate change deniers would fit right in with these folks who haven't recognized changes the church has made since, oh, 1962. Not that we haven't tried to reason with these folks:

Pope Benedict launched a series of doctrinal discussions with the SSPX in 2009, lifting excommunications imposed on its four bishops, who were ordained in 1988 without papal approval, and expressing his hopes they would return to full communion with the church. In 2011, the Vatican gave SSPX leaders a "doctrinal preamble" to sign that outlines principles and criteria necessary to guarantee fidelity to the church and its teaching; the Vatican said the SSPX leaders would have to sign it to move toward full reconciliation.

But [SSPX Superior General] Bishop Fellay said he repeatedly told the Vatican that the contents of the preamble -- particularly acceptance of the modern Mass and the council as expressed in the Catechism of the Catholic Church -- were unacceptable. He said the only reason he continued discussions with Vatican officials was because others "very close to the pope" had assured him that the pope was not in agreement with hard-line official pronouncements from the Vatican.

Some people prefer to live in the past. I think the vast majority of the US "Catholic" Republicans mentioned above should definitely join those who revel in it. (SSPX's antagonistic position on Judaism may be a deal-breaker, though.) The rest of us have long since chosen to move on guided by faith and reason.

Should UK Kick Out--and HK Welcome--HSBC?

♠ Posted by Emmanuel in China at 4/29/2015 01:30:00 AM

Parting is such unsentimental indifference.

Following up on the previous post on HSBC airing the possibility of leaving London for Hong Kong, various pundits have offered their opinions on who would benefit and who would lose out from this mooted move. After all, it is not everyday that the world's second-largest bank in terms of assets at a $2.723 trillion says it's upping sticks. HSBC shares listed in Hong Kong and London have jumped quite a bit in the expectation that more capital could be freed up by less onerous regulations in Hong Kong, but we'll have to see about that.

In the meantime, ponder some comments. The Hong Kong Monetary Authority--obviously the financial services regulator in the Chinese Special Administrative Region (SAR)--says it is ready to welcome HSBC despite its gargantuan stature relative to the size of Hong Kong's economy:

HSBC's $2.6 trillion balance sheet is nearly eight times the size of Hong Kong's economic output. So the HKMA would have to scale up its regulatory operations, analysts and regulatory experts said. "Can HKMA regulate an institution the size of HSBC? They would have to hire in more staff, expand the scope of their coverage and communicate more with other regulators," said Jim Antos, bank analyst at Mizuho Securities Asia Ltd in Hong Kong...

The HKMA said on Friday it would adopt a "positive attitude" should HSBC return to the territory. On Monday, an HKMA spokeswoman said the regulator could not comment in detail on its ability to regulate a bank of HSBC's size. But the size of HSBC relative to Hong Kong's economy should not be a cause for concern because international regulators are devising rules for resolving bank failures without using public funds, she said.

So that's the diplomatic answer from the HKMA. That is, there's no need to worry about the matter until the paperwork begins to be filed for the move. While cautiously suggesting that it is up to the task of regulating an HSBC-sized behemoth, it remains noncommittal at present about the increased resources it would need to marshal if HSBC does move to Hong Kong.

On the other hand, I am more amused by Bloomberg View saying that for the UK, it's goodbye, good riddance, and don't let the door hit you on the way out. In other words, there isn't much point in groveling for HSBC to stay in the UK given its laundry list of nefarious activities:

There’s nothing wrong with companies reviewing their affairs, including which country they choose to hang their brass plaque in. But threatening to leave in a fit of pique every time there’s a threat of increased regulation or a nudge in taxation smacks of teenagers threatening to run away from home because a curfew is too early or performing household chores are too tedious. And HSBC in particular is becoming a bore by regularly trying to blackmail the U.K. authorities.

It may make sense for HSBC -- which started life a century and a half ago as the Hong Kong and Shanghai Banking Corp. -- to move. It's been based in London as a result of its purchase of Midland Bank a bit more than two decades ago. But it made more than 78 percent of its 2014 profit in Asia, compared with just 3.2 percent from its European operations; the figures for 2013 were 70.3 percent and 8.1 percent, respectively.

HSBC seems to hold the mistaken belief it’s doing the U.K. a favor by hanging its hat in London. The levy has been increased eight times since it was introduced in the middle of 2010, which feels excessive -- until you remember that HSBC’s Household Finance unit played a leading role in the U.S. subprime mortgage debacle that triggered the global financial crisis; that U.K. banks have paid billions of pounds in fines for malfeasance in everything from rigging Libor to mis-selling insurance to their retail clients to arranging dodgy swaps for their corporate customers; and that the easiest way to reduce your levy payment to the U.K. government is to shrink your balance sheet.

I guess there's only one way to find out whether the British can really be so blase about letting HSBC so easily--and whether Hong Kong really wants to bring in this colossus and the regulatory challenges it brings.

Yanis Varoufakis: Rise of the Econocomedian

♠ Posted by Emmanuel in Credit Crisis,Europe at 4/28/2015 01:30:00 AM

The real Varoufakis needs to work on the pectoral definition, though.

I have previously commented on the sartorial bankruptcy of Greece's leaders to complement their financial bankruptcy. Apparently, though, Finance Minister Yanis Varoufakis sets new standards in these respects. At the end of last week, the funkily-attired and attitudinally-challenged civil servant got a severe dressing down from his EU peers over his seemingly autistic approach to negotiations. As a "game theorist," he should have recognized the game the EU is playing since it holds all the cards: It's called Now I've Got You, You SOB -

When Yanis Varoufakis warned his fellow euro-area finance chiefs of the dangers of pushing his government in Athens too far, Peter Kazimir snapped. Kazimir, Slovakia’s finance minister, launched a volley of criticism at his Greek counterpart, releasing months of pent-up frustrations among the group at the political novice. They’d had enough of what they called the economics professor’s lecturing style and his failure to make good on his pledges.

The others at the April 24 gathering in Riga, Latvia, took their cue from Kazimir -- they called Varoufakis a time waster and said he would never get a deal if he persisted with such tactics. The criticism continued after the meeting: eight participants broke decorum to describe what happened behind closed doors. A spokesman for Varoufakis declined to respond to their descriptions.

“All the ministers told him: this can’t go on,” Spain’s Luis de Guindos said the following day. “The feeling among the 18 was exactly the same. There was no kind of divergence.” The others who provided an account of the meeting in interviews asked not to be named, citing the privacy of the talks.

What irks admittedly rather faceless and colorless EU finance ministers is the same as what irks me: Varoufakis appears profoundly uninterested in interacting with his peers and addressing their concerns in a meaningful way instead of making endless Communist Manifesto-inspired tweets. He seems absorbed by his emergent cult of personality and stroking his ego at the expense of the plight of ordinary Greeks.

As a result, even the leader of the tie-forsaking neo-Marxist contingent, Greek Prime Minister Alexis Tsipras, has sidelined the bald-headed Narcissist-Leninist who probably fantasizes that he's The Rock, or at least Vin Diesel:

Greece’s outspoken finance minister Yanis Varoufakis has been sidelined after three months of fruitless talks with international creditors to unlock €7.2bn in bailout funds, heartening investors and sparking a rally on the Athens stock market. Eurozone officials said they were encouraged by the move by Alexis Tsipras, Greece’s prime minister, to overhaul his bailout negotiating team in the wake of an acrimonious meeting of eurozone finance ministers in Riga last week.

The shake-up comes as Athens faces questions over whether it can meet this month’s wage and pension bill of nearly €2bn as well as a €750m loan repayment due to the International Monetary Fund on May 12. The Athens stock market rose nearly 4.4 per cent on the news and borrowing costs on Greece’s July 2017 bonds were down almost 4 percentage points from Friday’s close to 21 per cent. Yields on Greece’s benchmark 10-year bonds were down a full percentage point at 11.4 per cent.

His comic antics wouldn't be so intolerable if it weren't for what's at stake for Greece, the Eurozone, and the world economy. Ah, well, I guess Varoufakis' fifteen minutes of fame have run out. Perhaps unwilling to return to the boring old life of a college teacher, there are other career paths beckoning as suggested by this self-styled "socialist" who wears Burberry scarves. Stand-up comedy seems to be a natural thing for him since he's certainly not cut out to be a Eurocrat of any sort. What a joke.

How many eurozone finance ministers does it take to make Varoufakis wear a tie?

5/4 UPDATE: No less than Mohamed El-Erian begs to differ:

Varoufakis was a breath of fresh air in this protracted and exhausting Greek economic drama, which involves alarming human costs in terms of unemployment, poverty and lost opportunities. Backed by considerable economic logic and a desire to do better, he pressed for more realism in the policy conditions demanded by Greece’s creditors. And he never tired of reminding people that Greece's recovery wasn't that country's responsibility alone.

Leaving London: HSBC Returns to Hong Kong?

♠ Posted by Emmanuel in Casino Capitalism,China at 4/27/2015 01:30:00 AM

The once and future home of HSBC?

It may seem odd that the "Hong Kong and Shanghai Banking Corporation" or, more broadly, HSBC Holdings is headquartered in Canary Wharf, not in Hong Kong or Shanghai. However, the name does not suggest the place in the case of the British banking giant since it's been UK-based since 1993 after its purchase of Midland Bank and when there were doubts as to what the PRC would do after the 1997 takeover of Hong Kong. Most readers should be familiar with HSBC embroiling itself with nearly every financial scandal possible in recent years. A laundry list of fines have thus been levied on the bank, though in all fairness, the same can be said about several of its European and American counterparts. You name it and HSBC has probably been fined over it: US mortgages. LIBOR fixing. Forex rigging. And now HSBC is expecting another round of fines over laxity in implementing anti-money laundering regulations. It's literally billions and billions lost in fines.

I am of two minds about public persecution of banks nowadays through these record-breaking fines and other measures. Are banks to be punished simply for being banks--especially those with global reach? Arguably, the end result of so many requirements for minimum capitalization, AML-CFT and so forth is that even bigger agglomerations have emerged post-crisis since it's not exactly cheap to meet all these regulations. If they're even bigger and more central to nations' financial systems, it's hard to imagine them becoming easier to let fail.

Feeling the heat of public persecution--even the usually business-friendly Conservative Party in the UK has turned against the banks in line with the public mood--what's HSBC to do? It can stand around for another round of bank-bashing, or it can move elsewhere. Hence its recently mooted plans to leave the UK where it is currently headquartered.

A move to Hong Kong, viewed by analysts as the bank’s most likely destination should it relocate, would unpick a structure that’s existed since the Hongkong and Shanghai Banking Corp. acquired Britain’s Midland Bank Plc in 1992. A transfer should cost no more than $1.5 billion because HSBC still has a base in the former British colony, said Chirantan Barua, an analyst at Sanford C. Bernstein Ltd. in London. “The work is underway,”

Chairman Douglas Flint told shareholders at the bank’s annual meeting in London on Friday. “The question is a complex one and it is too soon to say how long this will take or what the conclusion will be.” Flint has been under pressure from investors to consider moving from the U.K., where a levy imposed on banks’ global balance sheets following the financial crisis cost HSBC 750 million pounds ($1.1 billion) last year, more than any other lender. Europe accounts for less than a quarter of profit at the bank, which operates in more than 70 nations.

“They may not like the U.K., but I’m not sure there’s exactly going to be a raft of people queuing up to have them” because of the size of HSBC’s $2.6 trillion balance sheet, said Edward Firth, head of European bank research at Macquarie Group Ltd. in London. “Hong Kong is the only serious possibility.”

Markets cheered on the news, apparently being sympathetic to the over-regulation argument:

HSBC jumped 2.9 percent to 629.7 pence a share in London trading. The stock is up 3.5 percent this year, trailing Standard Chartered Plc’s 11 percent gain and Barclays Plc’s 7.5 percent increase.

As you may have surmised, it is not a story solely about HSBC but also the way political classes treat the financial sector and even the future of UK in Europe. With mainstream parties competing to bash banks harder and the Tories still contemplating holding a referendum over the UK being in the EU, now may be the time to return to Asia:

“Investors are excited about the possible move because the U.K. has been tightening their regulations,” said Castor Pang, Core Pacific-Yamaichi’s head of research in Hong Kong. “They are hoping that HSBC could free up more capital when it’s based outside the U.K.” George Osborne, the ruling coalition’s finance minister, increased the levy on bank balance sheets for an eighth time in his most recent budget, and both the Labour and Conservative parties have pledged a more onerous tax regime for banks in their manifestos.

HSBC also said it’s concerned about Britain’s potential exit from the European Union. The Conservative party has pledged to hold a referendum on continued membership if it wins. The bank said the importance of EU markets to British trade make it riskier for the U.K. to leave the 28-member economic union than try to overhaul it.

Both Britain’s main political parties seized on the the bank’s announcement: Prime Minister David Cameron said the move underlines the need for pro-business policy. Opposition Labour party leader Ed Miliband said HSBC’s comments were “very significant” and that the last thing Britain needed was two years of debate about whether to leave the EU or not.

While I too believe that Hong Kong is the only place with a financial services sector big and sophisticated enough for HSBC to call home, you have to wonder if the PRC is going to treat HSBC with kid gloves. The Chinese have a very long memory, and the bank was a key financial intermediary for the opium trade which the Chinese remain rather upset about as evidenced by their histories of this period. None of the major news outlets have not really probed how amenable today's China--well, sort of--is to hosting HSBC, but surely it's a consideration the bank will need to think carefully about soon.

Intervenzione: HK Monetary Authority Peg Defenders

♠ Posted by Emmanuel in China,Currencies at 4/24/2015 01:30:00 AM

These are the days defending the HKD peg.

All manner of currency pegs are being assaulted nowadays by speculators. A few days back we discussed the Danish krone coming under sustained assault but the authorities there successfully defending its link to the euro. But, here in Asia, there's another peg that some are betting will not withstand an attack: the Hong Kong dollar to the US dollar. Since 1983--a long time ago when Hong Kong was still a British colony--the monetary authority there pegged HKD 7.8 / USD 1. Having withstood the Asian financial crisis as other currencies in the region plummeted in value, Hong Kong has a well-deserved reputation for toughness in maintaining this peg.

However, that doesn't mean the Hong Kong Monetary Authority (HKMA) is not challenged every now and again. Since 2005, it has striven to keep the exchange rate between 7.75 to the US dollar on the strong end and 7.85 on the weak end. Unbeknownst to most casual currency observers, the HKMA has intervened thrice in four business days this week. First, on Monday...

The Hong Kong Monetary Authority (HKMA) stepped into the currency market again and sold HK$2.325 billion ($300 million) in Hong Kong dollars on Monday as the local currency hit the strong end of its trading range. The city's de-facto central bank has intervened multiple times in the market in the past fortnight. According to the HKMA, the latest intervention will lift the aggregate balance - the sum of balances on clearing accounts maintained by banks with the authority - to HK$275.3 billion on April 22.

...then on Wednesday:

The Hong Kong Monetary Authority (HKMA) intervened in the currency market, selling HK$1.55 billion ($200 million) in Hong Kong dollars on Wednesday as the local currency hit the strong end of its trading range [...] According to the HKMA, the latest intervention will lift the aggregate balance - the sum of balances on clearing accounts maintained by banks with the authority - to HK$293.863 billion on April 24.

On Thursday, they were at it again:

The Hong Kong Monetary Authority (HKMA) intervened in the currency market, selling HK$1.938 billion ($250 million) in Hong Kong dollars on Thursday as the local currency hit the strong end of its trading range [...] According to the HKMA, the latest intervention will lift the aggregate balance - the sum of balances on clearing accounts maintained by banks with the authority - to HK$295.8 billion on April 27.

These come after earlier interventions in April. How does that Donna Summer song go again? The HKMA works hard for the money.

Cold War II, Really: EU Sues Gazprom for Antitrust

♠ Posted by Emmanuel in Energy,Europe,Russia at 4/23/2015 01:30:00 AM

Is it just me or is Schalke 04 having Gazprom as its sponsor similar to having an "I [HEART] SATAN'S WORKS" jersey?

I had rolled my eyes over the hyperbole about the current freeze in Russia-Western relations being "Cold War II"--until now, that is. Activist EU regulators have long been accused of being busybodies: first with the Microsoft case (which resulted in much ado about nothing) and now, interestingly enough, Microsoft prodding the EU to do something about Google's dominance in cell phone operating systems via Android and its bundling of various apps. To me it's an open-and-shut case of Microsoft's OS being uncompetitive, but hey, I am not an EU competition regulator.

Something I am fairly assured of is that Google will copy the Microsoft playbook in wearing down EU regulators and eventually making token changes. (USA Today's Michael Wolff offers excellent commentary on the upcoming EU v Google case.) However, a reasonable response is not what I'd expect from another case EU regulators are making against the Russian gas giant Gazprom. Having applied all sorts of sanctions that have resulted in doubts about the financial viability of Russian, mostly state-owned firms, to survive without access to Western capital markets, they are now going for Russia's throat.

If Gazprom is not allowed to conduct normal business activities in Western Europe, that is the absolute last straw. What else recourse will Russia have? Other markets are not readily accessible without pipelines, and LNG facilities that will allow Russia to ship gas overseas are not yet fully operational. Go ask the French. Anyway, onto the story:

The European Commission (EC) has charged Gazprom with abusing its dominant market position in Central and Eastern European gas markets. The Commission said its preliminary view was that the Russian energy giant was breaking EU anti-trust rules. It added Gazprom may have limited its customers' ability to resell gas, potentially allowing it to charge unfair prices in some EU member states.

Gazprom rejected the Commission's objections, calling them "unfounded". "Gazprom strictly adheres to all the norms of international law and national legislation in the countries where the Gazprom Group conducts business," the company said in a statement...Brussels began investigating state-controlled Gazprom three years ago, but Moscow says the Commission's allegations are politically motivated.

Yeah, sure, Gazprom. I am sure your activities are not "politically motivated" in the least[nudge-nudge, wink-wink].

The EU's new anti-monopoly chief, Margrethe Vestager, said the Commission had found that Gazprom "may have built artificial barriers preventing gas from flowing from certain Central European countries to others, hindering cross-border competition. "Keeping national gas markets separate also allowed Gazprom to charge prices that we, at this stage, consider to be unfair. "If our concerns were confirmed, Gazprom would have to face the legal consequences of its behaviour." Brussels' competition authority has the power to impose fines of up to 10% of Gazprom's global turnover.

The Commission questioned the formulae the energy giant used to come up with the different prices at which it sold gas to individual countries. "Gazprom's specific price formulae, which link the price of gas to the price of oil products, seem to have largely favoured Gazprom over its customers," it said.

The Commission said that, in its preliminary view, Gazprom was hindering competition in the gas markets in eight Central and Eastern European member states - Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland and Slovakia. Russia supplies about a third of the EU's gas requirements, with half that amount going through pipelines that cross Ukraine.

When cornered, Russia will lash back...and boy does it have a lot of ways to do so. On one hand, I am fairly certain that Gazprom has all sorts of anti-competitive practices. On the other hand, the timing of this case with arch-regulator Margethe Vestager at the controls is most unfortunate and suspicious.

I fear this episode won't end well, to be honest.

China's Enduring War on the Bourgeois Sport of Golf

♠ Posted by Emmanuel in China,Socialism,Sports at 4/22/2015 01:30:00 AM

Seen an apparatchik thereabouts? Call 1-888-JAIL-CORRUPT-OFFICIALS.

It's good to know that some things never change: Despite China turning more capitalist than many Western nations in terms of the sheer rapaciousness tolerated and even encouraged by its leaders, there are unspeakable evils that remain...like, er, golf. Last year, an FT journalist Dan Washburn even wrote a well-regarded book on this very topic. By offering three vignettes on the grey area golfing entrepreneurs operate in, he provided fascinating insights into how the sport is still linked to vice despite the "anything goes" attitude that pervades Chinese society nowadays. Here is the book's blurb:

Statistically, zero percent of the Chinese population plays golf, a politically taboo topic still known as the “rich man’s game.” Yet China is in the midst of a golf boom – hundreds of new courses have opened in the past decade, despite it being illegal to build them.Award-winning journalist Dan Washburn charts a vivid path through this contradictory country by following the lives of three men intimately involved in China’s bizarre golf scene.

We meet Zhou, a peasant-turned-golf-pro who discovered the game after winning a job as a security guard at an exclusive golf club – and believes golf to be his ticket to joining China’s emerging middle class; Wang, a lychee farmer whose life is turned upside down when a massive top-secret golf complex moves in next door to his tiny ancient village; and Martin, a Western executive trying to navigate China’s byzantine and highly political business environment, ever watchful for Beijing’s “golf police.”

Recently, Dan Washburn has noted that golf has come under increased scrutiny as of late. How so? Supposedly, the links are where corrupt officials conclude shady deals, thus connecting the ongoing crackdown on corrupt officials to activities connected with golf. Courses, therefore, are scenes of unspeakable crimes. Just for stepping on foot a golf course, one apparatchik has been put "under investigation" (i.e., branded a lawbreaker):

On March 30, Chinese authorities announced the closure of 66 "illegal" golf courses -- roughly 10% of all courses in the country -- in an apparent attempt to start enforcing a long-ignored ban on golf-related construction. The following day, the Commerce Ministry announced that one of its senior officials was under investigation for "participating in a company's golf event," thus putting him on the wrong side of President Xi Jinping's "eight rules" against extravagance among government officials.

In Xi's China, being put "under investigation" is tantamount to being found guilty. Since embarking on his seemingly ceaseless anti-corruption campaign more than two years ago, hundreds of thousands of officials at all levels of government have been put in the crosshairs. The biggest names caught in the web are called "tigers." That's not a golf reference, but China's current crackdown on the sport does show how pervasive and unpredictable Xi's crusade has become.

Apparently, the jihad against golf traces back to Maoist times. That said, there are also ecological concerns about these courses' sucking up huge amounts of water in a country where it is scarce:

As I wrote in my book on the topic, China has long had a complicated relationship with golf. Mao Zedong banned it, denouncing golf as the "sport for millionaires." Even after China opened up and golf re-emerged in the mid-1980s, largely as a way to attract foreign investment, the sport was saddled with serious image problems.

It's not hard to see why. The construction and maintenance of golf courses is particularly resource intensive. China is home to 20% of the world's population, yet just 7% of its fresh water and 9% of its arable land, one-fifth of which is polluted. Golf also remains prohibitively expensive in China (this was one thing about which Mao was right) and it has earned a reputation as a self-indulgent, elitist pursuit.

In a nation of 700 million peasant farmers, only a small sliver of the population can afford to play the game. That small sliver should not include anyone living off the salary of a public official, but it often has over the years. At best, the public would view these backswinging bureaucrats as out of touch. At worst, they are thought to be totally corrupt. In Guangdong province, the birthplace of golf in modern China, an investigative team has been formed to crack down on officials who took part in any of nine golf-related activities. There's even a public hotline for reporting suspected golf violations.

The thing about golf is that it exists in this grey area where the caprices and whims of Communist Party leaders dictates whether the sport is permitted or not. As with many things in China, designation and enforcement of rules can be--how can I put it--selective. To illustrate, the author notes that China is busy training a golf squad since the 2016 Summer Olympics will feature the sport for the first time in over a century. Not that China is expected to medal having no world-class golfers precisely because of its naff image in the mainland, but if there's something to be won, the Chinese will try anyway:

This is a weird time in China. Xi's campaign against corruption has created a very tense and uncertain business and political climate. And yet, in some ways, things seem to be China as usual. Just days before the latest golf crackdown was announced, it was widely reported that Tiger Woods had signed a $16.5 million deal to redesign two courses in China. The week after The Masters, Bubba Watson, the No. 3 golfer in the world, is scheduled to compete in the $2.5 million Shenzhen Invitational, the latest international golf tournament to land on China's shores.

Meanwhile, the Chinese government quietly continues to funnel an unprecedented amount of money into its national golf team, all in pursuit of those all-important Olympic medals. So what does this all mean? And what does the future hold for golf in China? Every time I am asked that, I am reminded of a new take on an old joke: If you want to make China laugh, tell it about your predictions.

The trouble is that Chinese officialdom does not adequately distinguish among three different sets of concerns: (1) the ideological permissibility of golf as a pastime in China; (2) the tendency for corrupt public officials to play golf; (3) whether these courses were acquired by land-grabbing or forced evictions; and (4) the environmental impact of the sport. Until these concerns are sorted out separately, you will have this head-scratching phenomenon of quickly-changing periods of permissiveness and prohibition. The only way I think these matters can be sorted in favor of golf is if a globally competitive Chinese golfing athlete emerges. Venezuela, communistic as it is in different ways, began providing state sponsorship for Pastor Maldonaldo given his (somewhat limited) successes in Formula One despite it having an elitist reputation.

Then again, you suspect that keeping golf in a grey area is actually intended. Asians are more used to living with such ambiguities. F-O-R-E!

Denmark is Victorious Defending the Krone: IMF

♠ Posted by Emmanuel in Currencies,Europe,IMF at 4/21/2015 01:30:00 AM

Welcome to scenic--and financially secure--Denmark.

I don't know what to make of this news for reasons I can briefly explain: The IMF has been among the international organizations at the forefront of liberalizing exchange rates. That is, changing the world's remaining fixed exchange rate regimes into floating ones has been part of its longstanding advocacy since flexible rates supposedly work better in adjusting to global economic conditions and in dealing with economic shocks. On a paper concerning exchange rates, IMF orthodox is pretty much summed up when the authors ask how, when and how fast countries should adopt flexible exchange rates without questioning "whether."

It is this with some consternation that the IMF reports Denmark's success in warding off speculation that it would follow Switzerland in abandoning a currency peg that had become too expensive in holding down the value of their respective currencies against the euro. It's almost like Dick Cheney lauding the lifting of sanctions on Iran. Sure, the IMF may suggest that it dislikes currency speculators betting against currencies, but the speculators' desired outcomes--replacement with a floating rate regime--is welcome. Go figure, then, when the IMF now says that the Danes have become one of the fortunate few to have faced down these vile, faceless speculators:

Three months after Denmark became the target of a speculative attack against its currency regime, the International Monetary Fund says the country’s central bank has gained credibility after forcefully fighting back the onslaught. Policy makers “did a good job of making it clear that the peg would stand and making it clear that it would be unprofitable to speculate against it,” Thomas Dorsey, the IMF’s mission chief to Denmark, said in an interview. “Having for a generation-plus maintained the peg against pressure in both directions, they gain credibility each time and they did it again this time around.”

It’s a rare example of monetary authorities prevailing against the market. Conjecture that Denmark’s euro peg might break spread after Switzerland abandoned its ties to the single currency on Jan. 15. In the ensuing weeks, Denmark cut its main deposit rate to minus 0.75 percent and raised currency reserves by $40 billion to about 40 percent of gross domestic product to deter investors from hoarding kroner.

“It’s impressive how quickly the pressure abated,” Dorsey said. “It seemed to turn off like a light switch, just like it turned on.” Denmark’s currency regime can also withstand structural pressures coming from the country’s bulging current account surplus and a pension industry with a growing need to cover its liabilities, according to the IMF.

So the Danish krone has beaten back speculators. Then again, this feat is not quite remarkable when you have a current account surplus of, oh, 6.3%. 6.3%! What were these speculators thinking of?

The current account surplus, which reached 6.3 percent of GDP last year, is “reasonable” given the “current circumstances,” Dorsey said. “We don’t see anything unusual going on in the economy that would justify a change in the exchange rate assessment, though we would like to see a departure from the past, with growth picking up.” The IMF estimates that the current account surplus will shrink relative to the economy, and account for just 4.5 percent of Danish GDP in 2020 as output grows.

Still, you have to wonder why the IMF seems to regard this development positively when the IMF orthodoxy remains fixed exchange rates = bad, floating exchange rates = good.

Pol Eco of Japan's Prisons Turned Nursing Homes

♠ Posted by Emmanuel in Health,Japan at 4/20/2015 01:30:00 AM

Elderly doing crime for prison's food, shelter, and--indeed--companionship.

There's a heartbreaking story that's received much airtime in US media concerning the notes a third-grade teacher received after she asked her often underprivileged students to complete the phrase "I wish my teacher knew..." Not to be outdone, an arguably even sadder story appeared in Bloomberg (of all places) concerning the aging of Japanese society that had me reaching for the handkerchief. Having a keen research interest in dealing with aging societies--I have written a short commentary on the migration of health care workers to Japan that should soon be followed by a lengthier article[s]--this one was keenly read.

Japan's depopulation is well and truly underway, with population having declined to turn-of-the-millennium levels as reported recently. With a general population that is rapidly greying, it should be no surprise that the prison population is also greying despite Japan being a law-abiding nation by and large. In fact, with a rising proportion of elderly prisoners, these facilities increasingly act as nursing homes instead of corrective facilities. What is quite sad is that many released prisoners commit petty crimes to get back into prison. After all, homelessness and hunger do not look like attractive propositions in societies where family members are distant or non-existent:

Most prisons spend a lot of time and effort keeping inmates from escaping. In Japan, the greater challenge is persuading convicts to leave. Among developed economies, Japan has one of the highest proportions of elderly prisoners. Crimes committed by senior citizens have quadrupled over the past two decades. Today, almost one in five convicts is over 60. The soaring costs of caring for these graying jailbirds are an added pressure on Prime Minister Shinzo Abe’s government, which is already burdened by a world-class debt load equal to roughly 240 percent of gross domestic product. To reduce repeat offenses, Japan aims to slash the number of convicts who are homeless at the time of their release by more than 30 percent by 2020...

Hitting such targets will be tough, particularly given the surge over the past decade in elderly prisoners, who often prefer a government-subsidized life behind bars to an isolated, destitute one on the outside.

If you think Japan's prisons are cushy Pablo Escobar-like outfits, you are grossly mistaken. However, compared to a life of destitution on the mean streets of Japan, prison life looks relatively attractive, hence the high rates of recidivism among elderly prisoners:

“Japan’s prisons are in poor condition, mostly without heating or air-conditioning,” says Koichi Hamai, a professor of criminology at Ryukoku University’s law school. “But they still prefer to be there, rather than outside. They have mates and food and are well cared for...”

Elderly criminals recycle in and out of the system because they lack family and financial support. They are often disabled and treated like outcasts in their local community. “Some prisons have become like nursing homes,” said Ryotaro Sugi, who was given the honorary title of special corrections officer by the Justice Ministry in 2008 to advocate for prisoners’ welfare after visiting jails over almost five decades. “Many need assistance for walking, bathing and eating...

Criminal offenses by those age 60 and over have quadrupled to 46,243 cases over the two decades that ended in 2014, according to Japan’s Ministry of Justice.

Efforts to reform the system are underway since welfare is actually cheaper than incarceration:

Japan budgeted 230 billion yen ($1.91 billion) for running its jails in the year ended March 2015. It costs about 3.2 million yen [about USD26,900 at present exchange rates] to keep someone locked up for a year, according to the Justice Ministry. That’s about double what a person on standard welfare can get. Under Japanese sentencing guidelines, repeat offenders of petty crimes, such as shoplifting, can spend as long as five years behind bars. In theory, someone stealing a 1,000 yen ($8.30) bento lunch box could end up costing the state 16 million yen to imprison for a maximum sentence.

What makes this story sadder than that of the American third-graders is that these are folks whose lives are near the end and accept a fairly miserable plight as repeat offenders in the absence of any real alternatives. I cannot imagine a loneliness worse than that which haunts these folks. It again raises questions about closed societies and migration: Who will care for the elderly? Who will pay for societal institutions? Make no mistake: like the United States, Japan is another developed society whose accelerated development portends issues the rest of the world will have to confront a couple of years into the future.

It makes me very, very sad indeed, but hopefully the research I am performing can help the plight of developed and developing countries alike deal with the consequences of aging societies. Extreme policies don't count. Make no mistake: these are today's pressing issues -

I wish my teacher knew how sad the elderly people are in Japan.

Latin Left Loses at Summit of the Americas

♠ Posted by Emmanuel in Latin America at 4/17/2015 01:30:00 AM

The only real question is: What took you guys so long?

The first-time-ever participation of Cuba at the recently-concluded Summit of the Americas will probably be remembered for helping end insensibly prolonged Cold War mentalities and being a massive photo-op for Raul Castro and Barack Obama besides [see above picture]. That said, Venezuelan President Nicolas Maduro tried his best to make it another America-bashing festival that it's usually been in years past. Not that he was alone: Ecuadorean President Rafael Correa foretold the imminent American invasion of Venezuela:

“We were all very pleased to see the reconciliation of the U.S. with Cuba” Correa explained, though he criticized ongoing policies saying the U.S. “blockade is completely illegal. Guantanamo is an occupation”. However, he added that “after receiving that good news” on Cuba “we have the executive order declaring Venezuela a danger for the United States, which is a prelude to invasions.”

“They pulled the same thing with the invasions here in Panama, a tremendous injustice, tremendous interventionism. This summit should be celebratory, Obama should be received as the historic president who repaired relations with Latin America. But for that historical error, that absurd, arrogant, imperialist order, everything was lost,” Correa explained.

Not to be left behind in America-bashing sweepstakes, Maduro tried to get into the action...only to be laughed at for his stupid comments. What do you expect from a guy whose main qualification was to be a bus driver?

[G]ringos attending the Summit of the Americas this past weekend considered it eminently fair to chuckle at Venezuelan President Nicolás Maduro – who in his U.S.-bashing speech remarked that he does enjoy American rock guitar icons like Jimi Hendrix and…Eric Clapton. Clapton, unfortunately, is British.

It was that kind of weekend for Maduro. The leader of Venezuela’s left-wing Bolivarian Revolution had come to Panama hoping to turn the summit into yet another anti-Washington fiesta. And on the eve of the gathering it seemed he might have his way.

Then, just before Maduro was set to speak on Saturday, Latin America’s lead leftist – Cuban President Raúl Castro, marking the first time his communist country had ever been invited to the summit – all but short-circuited Venezuela’s agenda. Halfway through his speech, Castro turned to U.S. President Barack Obama, thanked him for his recent efforts to normalize U.S.-Cuba relations and called him “an honest man.” Castro even apologized to Obama, stressing that he’s “not responsible” for what Havana considers U.S. injustices against Cuba, like the 53-year-old trade embargo.

There was no shortage of other leftist Latin leaders at the event, but they shut up for the most part. I may be wrong, but I think it shows the region is moving to a more centrist position:

Many of the heads of state who came to Panama noted that the country with a canal through it lies in the hemisphere’s geographical center. But as the summit concluded Saturday night, thanks to the rare U.S.-Cuba display of common sense, the isthmus seemed situated in the political center as well. So, at least for the moment, did the leaders gathered there, most of whom were applauding the Washington-Havana thaw and the prospect of post-ideological interaction for once from Alaska to Argentina.

As much as the US is responsible for all sorts of wrongheaded actions in Latin America, it is unlikely that everything that has gone wrong there can be laid on the United States' doorstep. Because the US likes to keep butting into others' affairs, however, there is always a convenient pretext for Blaming the US for All Latin American Failings. Oftentimes, the frailties of these countries are attributable to themselves more than anyone else. I guess more leaders are just recognizing this and are trying to move on, even if some would prefer to dwell in a past characterized by misgivings, mistrust, and grudges that refuse to go away.

More PRC Zaniness: HK Market Cap Surpasses Japan's

♠ Posted by Emmanuel in Casino Capitalism,China at 4/16/2015 01:30:00 AM

Is Hong Kong now in thrall to China's stock market bubble?

Let me reconstruct this bubble-tastic story for you that's transferred from China to Hong Kong now: With China's economic growth slowing down relatively speaking to 7% in Q1 2015 and exports down 15% year-on-year in March, you'd expect stock markets there to cool down, too. But no, PRC stock markets are hitting highs day after day nowadays as a mania is taking hold. The "bubble" term is being aptly deployed as unsophisticated PRC retail investors pile in amid a clear economic downturn:

Chinese stocks and economic growth have long had little to do with each other. Between 2010 and early 2014, when China boasted the world’s fastest-growing economy, its stockmarket was consistently among the world’s worst performers. Since July of last year, this relationship has flipped. Whereas China’s growth has drifted steadily lower, its share indices have doubled in value. Does this mean that China’s previously beleaguered markets are now veering into bubble territory?

For those with a cautious bent, there is no shortage of warning signs. Three are especially noteworthy. First, valuations are beginning to look stretched and, in some cases, plainly absurd. ChiNext, China’s small-cap board, has a trailing price-earnings (PE) ratio of 90, more than double that of internet stocks at the peak of America’s dotcom bubble in 2000. Second, leverage has soared over the course of the rally. Outstanding loans to stock investors reached a record 1.67 trillion yuan ($269 billion) as of April 13th, up some 300% from a year earlier. Finally, many of those rushing to snap up stocks are small-time day traders with little understanding of what they are buying. Chinese investors opened nearly 5m trading accounts in March, a stampede that has continued into April. A survey by China’s Southwestern University of Finance and Economics found that two-thirds of new investors last year did not complete high school.

So there are signs that there's a speculative bubble being inflated in the mainland. Now, though, this mania is spreading to Hong Kong, which is still considered as a gateway to China. Some say it's just a better reflection of China's status as the world's second-largest economy, but I doubt it:

Advances in China have swelled the value of its shares to more than $7 trillion and are spreading to Hong Kong, which just eclipsed Japan as the world’s third-largest market. “It’s the reality of the stock market catching up with the reality of the economy’s footprint,” Xavier Smith, who oversees international equities at Centre Asset Management in New York, said by phone. The firm oversees about $1.1 billion. “For the world’s second-largest economy, you’d expect to see some of its stocks in the top 10 list. It’s more bizarre that they weren’t there before.”

Actually, the real reason why Hong Kong stocks are soaring is that previous restrictions on mutual fund investors have been significantly relaxed. Before, institutional investors had to be fairly well-capitalized to buy stocks in Hong Kong, but not anymore. So, the Shanghai-Hong Kong Stock Connect [exchange link] allowing mainland investors to buy HK-listed stocks and vice-versa has been dominated by "southbound" traffic as of late. Those piling into the China bourses in Shanghai and Shenzen can now go to Hong Kong as well to get their fill. From a Bloomberg article late last week on why Hong Kong was set to eclipse Japan in market capitalization:

The value of equities listed in Hong Kong rose to $4.9 trillion on Thursday, catching up to the $5 trillion total for Japanese stocks. The broadest measure of Hong Kong shares soared 1.3 percent Friday as the Topix index slid 0.3 percent. The world’s two largest markets are the U.S. at $24.7 trillion and mainland China’s $6.9 trillion, according to data compiled by Bloomberg that updates daily after the New York close.

The stock mania that pushed the Shanghai Composite Index up 89 percent in the past 12 months is spreading to Hong Kong, where turnover surpassed Japan each day since Wednesday. Chinese authorities last month allowed more domestic funds to access the city’s shares through a cross-border bourse link, spurring inflows that narrowed the discount on Hong Kong stocks compared with mainland shares. Baring Asset Management Ltd. says the rally in Hong Kong has room to run.

So it happened this week. That the Japanese stock market has been rallying as well given easy money policies there makes you appreciate the astronomic rise of Hong Kong stocks since it's been overtaken while on the upswing. I don't mean to sound alarming, but it seems to me that PRC authorities have inflated stock markets not only in Shanghai and Shenzen but now also in Hong Kong. Make no mistake: they are goading Jian Average on. For what reason I am not entirely clear about since they will bear the brunt of the fallout: If this bubble pops, they will have a lot to answer for as ill-informed Chinese investors lose their shirts.

Vietnam's Casinos Welcome All (Except Vietnamese)

♠ Posted by Emmanuel in Gambling,Southeast Asia at 4/15/2015 01:00:00 AM

Macau-Upon-Mekong: Champagne wishes and caviar dreams in Vietnam.

As a longtime supporter of legalizing online gambling Stateside and a follower of the global industry, I am clearly not one of those who disavow the activity over dubious "moral" grounds. It's in human nature to take a wager, and who am I to stop others from doing so when I am not negatively affected? Pretty much the same logic has been adopted by governments all over the world: Why don't we legalize gambling and bolster government revenues in the process? It sounded like a perfectly good strategy--way back when there were still taboos in most places on gambling. The problem, though, is when nearly every government is trying to make money off casinos--it may not work since legalized gambling no longer constitutes an advantage when everywhere lets you do the same..

An interesting (semi-)outlier in this regard is Vietnam. Like its other regional peers, Vietnam has allowed gambling for a number of years now. I guess the last hurdle fell when antiseptic Singapore opened up its casinos. So there a few places left like China where gambling is confined like Macau in the PRC and entry can be limited among, say, Communist Party officials betting using state funds. But, instead of geographic discrimination, Vietnam is, interestingly enough, discriminating by nationality. More interestingly, it is not allowing its own citizens to gamble in Vietnamese casinos. From late last year:

Vietnam is drawing closer to allowing its citizens to gamble in the nation’s casinos as the government tries to boost revenue and compete for regional gaming investment.The finance ministry plans to submit the final draft of a new casino decree to Prime Minister Nguyen Tan Dung as soon as October, Ngo Van Tuan, head of the department for banking and finance at the ministry, said by telephone in Hanoi yesterday. Approval is likely before the end of the year, he said. The decree is modeled on Singapore’s gaming regulations and would permit Vietnamese to enter local casinos
.
“There are many Vietnamese who gamble at casinos in Singapore and Cambodia, and it’s obvious that we’ve lost some state revenue here,” said Phan Thi Thu Hien, deputy head of the banking and finance department. “We’ve studied what regional countries have done and think we should do the same. These changes would help increase government income.”

Vietnamese policy makers are seeking to replicate the success of Singapore and Macau in attracting gaming resorts and tourism. Vietnam’s government is grappling with the challenge of spurring an economy that risks missing this year’s growth target of 5.8 percent. The government collected about 250 billion dong ($12 million) of taxes from the five casinos operating in 2012, on gaming revenue of 900 billion dong, state radio reported on its website last week. There are six casinos in operation, with another licensed one yet to start. Only foreign passport holders are permitted to enter and gamble in the casinos.

The new rules will be Singapore-esque in allowing residents entry--but only relatively well-off ones:

Under the draft proposal, Vietnamese who are at least 21 years old, and have “sufficient financial ability” will need to pay an entrance fee to gamble in casinos, according to Hien. The financial-assessment criteria and entrance fees will be specified by the prime minister in separate regulations after the decree’s approval, Hien said. In Singapore, citizens and permanent residents must pay a S$100 ($80) daily levy to enter the casinos, or S$2,000 for an annual pass, in a government effort to deter those who can’t afford to gamble.

Suffice to say that has not happened yet as locals are still restricted from entering casinos in Vietnam, oddly enough. (But some get in by paying off security, but that's not as intended.) I suppose the Communist leadership doesn't want the reckless hedonism of this bourgeois capitalist pastime to pollute the minds of the people. Then again, money may talk louder soon as larger casinos hence larger revenues can be generated--but only by allowing more Vietnamese punters in:

Vietnam’s Prime Minister Nguyen Tan Dung has approved a casino project for the country largest island, prompting mixed reactions from industry observers and economists, some of whom are calling on the government to legally allow Vietnamese to gamble in such venues to keep more revenue inside the developing country.

The casino will be located on Phu Quoc Island, a special administrative economic zone and resort in Kien Giang province in the Gulf of Thailand, and be part of a larger investment project consisting of a tourism and entertainment complex/ It will join a handful of casinos already operating in the country that only allow foreign passport holders to legally gamble in them.

Bui Long Quan, a Vietnamese tourism industry expert who says he has seen many groups of Vietnamese tourists in casinos abroad, believes that the project’s planner should take the Vietnamese people into account. “The first benefit of this project is we don’t lose money—not letting the money out of the country, because if we let the Vietnamese go to casinos in Cambodia, Macau or Malaysia or other places, we let the money flow out.”

He said it would be impossible to stop Vietnamese from gambling in casinos in their own country. “Casinos for foreigners mean nothing,” he said, adding that wealthy Vietnamese manage to gamble in the country’s casinos by paying off guards. “So the ban is impossible.”

I believe it's only a matter of time before these restrictions are limited, and I further believe that the ultimate spur will be the arrival of high-profile foreign-invested casinos. To make the most revenues out of them, they will need to have local patrons.

Air India, From Losing Money to Pilot Fisticuffs

♠ Posted by Emmanuel in India,Travel at 4/14/2015 01:30:00 AM

Captain said knock you out: aboard not-so-amazing Air India.

Oh dear, these national carriers keep coming to our attention with their unprofitability and headline-grabbing incidents. After Malaysia Airlines and Lufthansa, we now have India's flag-bearer, Air India. Like the two others mentioned earlier, Air India is saddled with "legacy" costs being the flag carrier. Moreover, militant unions will oppose any sort of rationalization or, indeed, privatization. Still, plans were mooted late last year to do just that in the face of expected opposition from vested interests despite the money-losing airline hemorrhaging cash that the government needs to keep replenishing:

The government will form a committee within the next fortnight comprising bankers, aviation experts and technocrats to help turn around and look at privatizing money-losing national airline Air India, two government officials aware of the matter said on Thursday...

It’s the latest effort by the central government to turn around Air India, which made a loss estimated at Rs.5,389 crore in the year ended 31 March and has accumulated losses of $5 billion in addition to total debt of Rs.40,000 crore. The government, in 2012, promised an equity infusion of Rs.30,000 crore till 2021 to bail out the airline. Of this, it has already infused nearly 18,000 crore.

Air India’s woes date back to a failed merger with Indian Airlines, another state-owned airline (the latter flew domestic routes and a few international ones in the neighbourhood; the old Air India flew only international routes) in 2007 and laxity on the part of India’s aviation ministry that effectively allowed international airlines to expand their presence in India without any reciprocal benefit for Air India. “Air India is bleeding the country. Every year we have to pump in Rs.6000 crore,” one of the two government officials cited above said on condition of anonymity, adding that the mandate of the committee would be to “look at making the airline better—cut costs and increase revenues, before privatization”.

Fortunately for Air India, its headline-grabbing event is not a spectacular air crash or a flight disappearance. Then again, the event hardly paints a flattering portrait of the carrier as pilots on a flight had a fistfight [!] before taking off:

Struggling state-run carrier Air India has grounded two of its pilots after a fight erupted between the pair just before takeoff, reports said Monday. The co-pilot allegedly assaulted the captain inside the cockpit as they were preparing the passenger plane for takeoff from the Indian tourist city of Jaipur to New Delhi on Sunday night, the Hindustan Times newspaper said.

The co-pilot was irritated by his superior's request to write down critical information for the flight, such as the number of passengers on board, take off weight and fuel uptake, the Times Of India reported." The co-pilot took offence at this and reportedly beat up the captain," the newspaper said, quoting unnamed sources...

Air India -- which has not reported an annual profit since 2007 -- has been hit by a string of technical glitches and other embarrassing incidents, including staff turning up late for flights.

The unprofessionalism is beyond belief. It's been a long series of hijinks that give Air India a bad image, and the latest incident certainly doesn't help. Given keep competition on international routes from Middle East-based carriers having the advantage of straddling Euroep and Asia, comic episodes aren't bound to inspire consumer confidence.

Larry Summers, 'Gross Hypocrisy' and PRC's AIIB

♠ Posted by Emmanuel in Americana,China,Economic History,World Bank at 4/13/2015 01:30:00 AM

Zzzzz...Barack yaps too much...will set things straight in WaPo...zzzzz...

I am utterly perplexed by this recent, bizarre op-ed by former US Treasury Secretary Larry Summers in the Washington Post. In many respects, he embodies negative stereotypes others (justifiably) have of Americans in general: fat, loud, self-important--and crucial for this post--hypocritical. After all, this is the same guy who turned from grand architect of financial deregulation not only in the US but also worldwide using the American bully pulpit to financial regulator in the wake of the global financial crisis. Having played a part in bringing the latter on, he sought to downplay its proximate causes leading to, well, him. To no one's real surprise, Summers is at it again while voicing his superior American insights to us unenlightened colored folks on How To Fix the World.

The historical reinvention he is attempting to make this time around concerns what I've mentioned above--use of the American bully pulpit. In decades past, American influence in international finance usually involved the Bretton Woods institutions--the World Bank and IMF--serving this purpose as the world's largest development lender and lender of last resort, respectively. Very oddly, he claims that the United States' loss of face as a result of so-called allies rushing to be charter members of China's newfangled Asian Infrastructure Investment Bank (AIIB) was avoidable:

But I can think of no event since Bretton Woods comparable to the combination of China's effort to establish a major new institution and the failure of the United States to persuade dozens of its traditional allies, starting with Britain, to stay out.

This failure of strategy and tactics was a long time coming, and it should lead to a comprehensive review of the U.S. approach to global economics. With China's economic size rivaling that of the United States and emerging markets accounting for at least half of world output, the global economic architecture needs substantial adjustment. Political pressures from all sides in the United States have rendered the architecture increasingly dysfunctional.

Largely because of resistance from the right, the United States stands alone in the world in failing to approve International Monetary Fund governance reforms that Washington itself pushed for in 2009. By supplementing IMF resources, this change would have bolstered confidence in the global economy. More important, it would come closer to giving countries such as China and India a share of IMF votes commensurate with their increased economic heft.

At the same time, pressures from the left have led to pervasive restrictions on the infrastructure projects financed through the existing development banks — which consequently have receded as infrastructure funders, even as many developing countries have come to see infrastructure finance as their principal external funding need.

Actually, I am in agreement with the above: the United States should not only say that it welcomes the participation of other countries in global economic governance as they have become major economies in their own right, but also take the necessary steps to reform the World Bank and IMF. What's more, I agree that global economic governance should not be held hostage to domestic US politics:

First, U.S. leadership must have a bipartisan foundation, be free from gross hypocrisy and be restrained in the pursuit of our self-interest. As long as one of our major parties is opposed to essentially all trade agreements and the other is resistant to funding international organizations, the United States will not be in a position to shape the global economic system.

Other countries are legitimately frustrated when U.S. officials ask them to adjust their policies — only to then insist that state-level regulators, independent agencies and far-reaching judicial actions are beyond their control. This is especially true when many foreign businesses assert that U.S. actions raise real rule-of-law problems.

The legitimacy of U.S. leadership depends on our resisting the temptation to abuse it in pursuit of parochial interest even when that interest appears compelling [my emphasis]. We cannot expect to maintain the dollar's primary role in the international system if we are too aggressive about limiting its use in pursuit of particular security objectives.

Wow, this Larry Summers guy really sounds like a statesman...at least on par with Lee Kuan Yew! The only problem is that this "dysfunction" and "gross hypocrisy" can again be traced to, er, him. The AIIB is but the latest manifestation of other countries wishing to address their financial challenges...but the US trying to frustrate them. During the Asian financial crisis, Summers was the American official tasked with dissuading others from creating international financial institutions not dominated by the US. From yours truly in a handbook on international monetary relations:

Just as James Baker vigorously sought to kill the East Asia Economic Caucus behind the scenes for excluding America, so did Clinton-era officials seek to undermine plans for an “Asian Monetary Fund” (AMF) when they caught wind of its proposed existence [during the Asian financial crisis]. For instance, US Deputy Treasury Secretary Larry Summers called Vice Minister for Finance Eisuke Sakakibara—better known as “Mr. Yen” in trading circles—at his home at night, starting a testy conversation opening with “I thought you were my friend”. Seven days later on 21 September 1997, Japan tabled the formation of a $100 billion AMF at the annual World Bank-IMF meetings held that year in Hong Kong, but it proved to be a stillborn gesture due to entrenched opposition. Despite concessions such as statements to the effect that the AMF would supplement rather than bypass the IMF by increasing the monetary firepower available in dealing with monetary crises, objections were made on the lines of moral hazard and duplication of efforts vis-à-vis the IMF.

For another source, see Paul Blustein:

The phone rang on Saturday night, September 14, 1997, at the Tokyo home of Eisuke Sakakibara, the Japanese vice minister of financial for international affairs. The caller was Larry Summers, obviosly angry and apparently in no mood for conversational niceties. "I thought you were my friend," he sputtered.

Bottom line: the "failure of strategy and tactics" Summers faults the Obama administration with regarding AIIB can be traced to himself and other American predecessors. Nobody's changed them yet. They've always been haughty and smugly self-important like Summers, but the difference is that, unlike say Japan in 1997, the likes of China now have enough influence to sway others to ignore American pleas to stick with US-dominated institutions like the World Bank and IMF. That's all, Larry, and there's no need to come up with some alternative US economic history in which others are to blame insofar as you exemplified exactly this sort of attitude way back when.

It was not so long ago. I remember and do not forget.