egypt

Carina Kamel: Egypt’s Economic Crisis: Where Are the Promised Billions and What Will It Take for Investors to Return?

by Carina Kamel on January 24, 2012

Huffington Post…

Alarm bells are ringing inside Egypt and outside as the country faces an economic crisis nearly one year after the revolution. Growth has stalled, foreign direct investment has dried up, tourists have stayed away, the country’s safety net of foreign exchange reserves has nearly bottomed out and only a fraction of promised aid has materialized. Experts fear this could threaten an already fragile and fraught political transition. Back in the spring of 2011, after the fall of Mubarak, there was no shortage of goodwill for Egypt. The international community pledged billions of dollars in aid and the world’s richest nations promised Egypt and its Arab Spring neighbors $20 billion in funding under the so-called G8 Deauville Partnership. To date, no actual funds have been received from G8 nations. Thomas Mirow, president of the European Bank for Reconstruction and Development or EBRD, one of the banks tasked with funneling funds to Egypt, told me the money was awaiting ratification by donor nations and could be available by June of this year. “We could spend something like 2.5 billion euros a year in terms of investment in Arab Spring countries,” Mirow said. “Every one euro we spend is normally accompanied by two euros from the private sector because we bring along foreign investors.” Mirow said that up to 1 billion euros of that amount could be made available for Egypt and that “technical cooperation” had begun on the first project, providing business advice to a transportation services company in Cairo and Alexandria. Arab nations pledged a total of $7 billion, but according to Egyptian officials, only $1 billion has been received so far, from Saudi Arabia and Qatar. The African Development Bank or AFDB, also part of the funding effort, has yet to agree any new loans. The head of the bank’s North Africa division, Jacob Kolster, told me discussions have been ongoing since March but “so far that has not materialized into concrete new lending operations.” He said the AFDB has $1.5 billion of disbursed loans that were approved before the revolution. Egyptian officials have been reluctant to sign on to any international loans because of the strings usually attached. But with cash running out, little or no income from investment and tourism, and the cost of borrowing from the local markets increasing, officials are running out of options. So this month, the IMF is back in Cairo to negotiate a $3.2 billion loan, more than six months after it was turned away. “I think it’s highly unfortunate that Egypt didn’t take the [IMF] loan early,” Angus Blair, a Cairo-based executive at investment bank Beltone told me. “It was cheap and came with so few conditions, now you’re having to pay more with greater conditionality.” The amount is only a drop in the ocean and will do little to plug the gaping hole in Egypt’s budget. The cash also comes with the IMF’s tarnished legacy of a deeply unpopular structural adjustment and economic reform program imposed in the 90s. There’s also the IMF supported — but notoriously corrupt — privatization program that made billionaires out of Mubarak’s cronies. Still, investors see it as a positive signal. “It is an encouraging step.” said Jean-Michel Saliba an economist at Bank of America Merrill Lynch. “What the government is trying to do is reassure investors that with the IMF stamp they will pursue more prudent fiscal measures.” Investors took flight when unrest broke out last year and have yet to return. Foreign direct investment or FDI evaporated last year after reaching $6 billion in 2010. Investors are worried they don’t have a credible partner to work with and fear investing in a project only for it to be scrapped a few months later. They also want the reassurance of a transparent legal framework for dispute resolution. “Egypt is being seen increasing by a number of multinationals as anti private sector,” Blair said. “Until this changes you’re not going to see a change in FDI.” Investors are also eyeing the ticking time bomb of Egypt’s foreign exchange reserves. They plunged from $36 billion in December 2010 to $18 billion last month and are expected to hit $15 billion this month. That’s only enough to cover two months of import costs, according to an Egyptian military official. With no foreign investors to pump money into the economy and tourism revenues down by a third, the interim rulers have resorted to draining Egypt’s foreign exchange reserves to keep the government ticking over, finance subsidies, and pay for imports. Foreign exchange reserves are also being used to prop up the local currency. Preserving the value of the Egyptian Pound is a priority for Egypt’s military rulers. It is a matter of national pride but it is also about inflation, which would soar if the currency devalued, making basics like food and fuel more expensive for the millions of Egyptians living below the poverty line. Analysts predict that without a serious influx of aid or investment — and fast — the government may have no choice but to devalue the Egyptian pound. But perhaps the elephant in the room is the issue of subsidies. Egypt spends a whopping $20 billion a year on petrol, food and electricity subsidies, with fuel subsidies alone accounting for a quarter of total state spending. Although these provide vital support to Egypt’s poor, experts agree they are not sustainable and are often doled out to industries that could do without them. Dr. Gouda Abdel Khalek, Egypt’s minister in charge of subsidies, told me an overhaul of the program is underway with the aim of reducing fuel subsidies by 20-30%. It’s a tricky balance for those in charge. They need to lure investors back, restore growth and support the private sector, but in an inclusive, sustainable and socially-just way. “There’s a lot of anger in Egypt over the kind of liberal economic models that led to the level of corruption which in the end led to the revolution,” Dr. Claire Spencer, head of the Middle East program at UK think tank Chatham House, said. She said it’s up to Egyptians to decide what type of economy they want and that they must ensure it is capable of employing the millions of jobless. Time is not on Egypt’s side. Along with the dangerously low cash reserves, Egypt’s youth, faced with 25% unemployment and unfulfilled revolution goals, are running out of patience. But some say they might just have to wait a bit longer. “After revolutions things get worse before they get better.” Mirow of the EBRD said. “I hope young people in Egypt show patience and understanding that the very deep structural changes that are needed will not happen in a month.”

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Carina Kamel: Egypt’s Economic Crisis: Where Are the Promised Billions and What Will It Take for Investors to Return?

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Eli Pariser On ‘Filter Bubbles’

by on December 14, 2011

Huffington Post…

In this special year-end collaboration, TED and The Huffington Post are excited to count down 18 great ideas of 2011, featuring the full TEDTalk with original blog posts that we think will shape 2012. Watch, engage and share these groundbreaking ideas as they are unveiled one-by-one, including never-seen-before TEDTalk premieres. Standby, the countdown is underway! Watch author Eli Pariser discuss secret censorship on the Internet, and read is accompanying blog post below following up on his talk. People love sharing lists — the list is one of the formats that fare well in a Filter Bubble world. So here’s a list of five of the most interesting ideas I’ve come across since I gave my presentation at TED and published The Filter Bubble: What The Internet is Hiding from You . 1. Who owns the right to infer things about you? According to Marissa Meyer at Google, some credit card companies can now use your purchasing decisions to predict whether you’re going to get a divorce with 95% accuracy — two years out. This raises some interesting ethical questions: do companies have an obligation to reveal to us the inferences they make about us? Should you be able to gain access to the fact that your credit card company is betting against your relationship? What about in the health sphere — if Acxiom infers that you’re at high risk of suicide, based on your purchases, does it have an obligation to let you or someone else know? I haven’t found any satisfying answers to these questions — but we ought to start thinking about them more seriously. 2. Transparency’s moving in the wrong direction. Imagine a company where every communication is transparently available to every employee. While corruption at the top is harder, overall, the effect would be to empower the bigwigs — because the kind of private coordination that people use to organize and aggregate power would be impossible. Speak ill of the boss, and you get laid off — that’s how power works. In an ideal world, I’d argue, transparency would vary with power — the more powerful you are, the brighter the spotlight on your activities. But what we’re seeing now is the opposite: the details of most folks’ lives have never been more available to more corporate, governmental or even private citizens. But thanks to the Citizens United Supreme Court decision, the wealthy and powerful are able to cloak their political activities, and there are a variety of services available to scrub private information from the web for a price. We have transparency for the 99%, but not the 1%. 3. Robot journalism. Mostly, I’ve been focused on the impact of code-based editors on how we consume news. But it’s worth noting that drone-like mini-robots are beginning to do some real news gathering as well. Check out this footage from a tiny helicopter piloted by folks at The Daily , or this stunning video from a protest in Poland . It won’t be long before every news bureau — and more than a few amateurs — are using these things to push past military lines, look in celebrities’ windows and generally change all of our assumptions about how video news is gathered — for better or worse. 4. The difference between curiosity and value. Recently, The Huffington Post tweeted about an article with the headline to the effect of “Guess Which Celebrity Got Into a Horrible Accident Today?” I’ll cop to clicking — HuffPost did an excellent job piquing my interest. But I couldn’t tell you which celebrity it was, because I’ve forgotten — there was very little lasting value in that article. These kinds of curiosity-driven clicks are one of the primary signals that sites use to personalize content. But unless they’re paired with something that measures the amount of value we take away from a media experience, they’re only so useful. And they lead toward a world with curiosity-baiting headlines and no payoff. What if, in addition to click signals, personalizing websites also sent folks a list of the 50 articles they’d recently visited and asked them to mark the three that gave them some lasting value? A personalized feed that took into consideration not just what we click on but what we take away from it could help us build information diets that are both delicious and substantive. 5. Seven Things Algorithms Do That Humans Don’t. As we move toward an algorithmically-edited world, there are still a bunch of things that human editors do better. This Harvard Business Review piece has a bit more detail, but here’s the short list: Anticipating what people will be interested in, taking risks in recommendations, giving folks a sense of the whole picture, pairing stories together in a way that adds value, highlighting stories of social importance, valuing content that blows folks’ minds and building the kind of trust that leads audiences to topics beyond their core zone of interest. Oh, and one more thing: As I’ve been discussing The Filter Bubble , the aspect of the problem I’ve become most focused on is the Information Junk Food problem. In many ways, the important question isn’t just whether you see a diverse set of political viewpoints, but whether most people see anything from the political or civic realm at all. I’m working on a new media project aimed at getting ideas that matter in front of millions of people — if that sounds like fun to you, maybe you should come work with us.

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Eli Pariser On ‘Filter Bubbles’

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Jeffrey Sachs: Fairness and the Occupy Movement Revisited

November 28, 2011

A recent Wall Street Journal article by Arthur C. Brooks on the Occupy Movement and fairness (“Fairness and the ‘Occupy’ Movement, November 25) says some interesting things about potential common ground between free-market ideas and the Occupy movement. Yet Brooks also commits some very important errors. Perhaps with clearer facts there could be more common ground on reforming the economy and politics. Brooks, the head of the American Enterprise Institute, denounces crony capitalism as the dark side of American politics and economics. On this we should all agree. The level of corruption in Washington is staggering, growing, and rife in both parties. The White House and Congress dispense billions of dollars of favors to political supporters like a non-stop vending machine. The new book by Peter Schweitzer on crony capitalism ( Throw Them All Out , Houghton Mifflin Harcourt, 2011) should be required reading. Even if wrong on some particulars, as some members of Congress charge, its overall message is powerful and correct. Where Brooks goes wrong is his description of inequality and fairness. The Republican view, which he espouses, is to reduce taxes, cut government services, and let markets be the standard of fairness. Here Brooks is deceptive in his rendition of the facts. First, Brooks downplays the extent of inequality that has been built up in thirty years of crony capitalism. He favorably writes that “every income quintile has seen a real increase in purchasing power of at least 18% over the past 30 years,” citing a recent study of the Congressional Budget Office (CBO). Yet the real point of the CBO report, which Brooks does not mention, is that the richest 1% enjoyed a staggering rise of 275%, while the poorest stumbled by with a meager 18% gain. Moreover, the CBO report takes the data only to 2007. By now, even those meager gains at the bottom have been mostly lost. Second, Brooks fails to note that the situation for the poor will be drastically worse if federal transfer programs are cut as the Republican Party is urging. The poorest quintile depends on these federal programs to stay alive. If the poorest Americans had to survive without government support, their incomes would be slashed to disastrous levels. The Republicans answer to crony capitalism is to slash government. Yet by this they mean mainly an attack on the remaining social programs. This is a kind of bait-and-switch strategy: rev up the anger against government corruption, and then kill the life-support programs of the poor and working class. Crony capitalism exists mainly in the big-ticket sectors of the economy — banking, oil, real estate, private health insurance, military contractors, and infrastructure — not in the essential but much smaller parts of the economy: malnutrition of poor children, lack of quality pre-school, insufficient job training, and inadequate student loan coverage. Yes, crony capitalism should be confronted anywhere in the economy, yet cutting the life-support systems for the working class and poor won’t fix government, but instead would cripple the prospects of more than 100 million poor and near-poor Americans. To control crony capitalism, we need to direct our attention where it belongs: the wealth-support systems of the rich, not the life-support systems of the poor. Here are five specific actions against crony capitalism that should appeal across the political spectrum. First, restore the Glass-Steagall Act’s separation of commercial banking and investment banking, and strongly regulate derivatives trading. The financial casino continues to infect the core of the banking system and the real economy. Second, prosecute the law-breakers of the 2008 crisis. Virtually every marquee firm on Wall Street, including Citigroup, Goldman Sachs, and JP Morgan, committed financial fraud. Lead bankers who oversaw the fraudulent practices are still in place, and need to go. Third, retire politicians like Congressman Paul Ryan who pressed for financial deregulation on the grounds of “free markets,” but who then called for Wall Street bailouts when the crisis hit. They are the agents of moral hazard. Fourth, end the rampant tax loopholes that allow America’s biggest companies to park their profits in the Caribbean tax havens. Rather than giving tax amnesties to these companies, we should pull the plug on these tax abuses. Fifth, crack down on Congressional insider trading. Members of Congress are not only swayed by their big campaign contributors and the lobbyists who hire their families and staff, but also by the prospect of personal gains through trading on their insider information and access to sweetheart deals. Congress’s approval rating is on its way to zero. The biggest point of contention between the free-marketers like Brooks and the Occupy Movement is the affirmative role of government in American society. Today’s free-marketers need to re-learn the wisdom of Adam Smith, Friedrich Hayek, and Milton Friedman, whom they praise but don’t read. These earlier free-market advocates were very clear about the need for government to help the poor, protect the environment, and provide public goods including scientific research and infrastructure. Today’s free-marketers are different. They downplay the suffering of the poor and the extent of inequality. They deny the science of climate change. They stand by as the public infrastructure collapses. They disdain the hallowed tradition of federal support for science and education. They subscribe instead to the ugly philosophy of Ayn Rand, who preached that there is no such thing as society or social responsibility, only a collection of individuals. Rand’s philosophy is a tribute to greed, hate, and ruthlessness. Smith, Hayek, and Friedman would have been aghast. So are most Americans. Yes, Mr. Brooks, let us find common ground. We all agree on the need to end crony capitalism. But let us also work together not to cripple government but to make it work for all Americans.

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Jeff Cimbalo: The Latest Plan to Control Euro Members

November 24, 2011

What’s the newest strategy of the European Commission to remove any democratic accountability from the eurozone members? They are now aiming to consolidate all eurozone members on the IMF Executive Board into a single member, represented by… the European Commission. The move would make the Commission less reliant on the pronouncements of European Council and the interests of the Union’s member states. While there are benefits to consolidating the eurozone’s votes, they don’t have much to do with the eurozone. This action could be part of the more consolidated eurozone that Merkel envisions floating this December in Brussels. If the Commission is talking about it now, it might mean that France and Germany’s longtime opposition to attacks on their prerogatives in international organizations may be thawing. On the face of it, the Union would lose a lot from this plan. Right now eurozone member states control 28.3 per cent of voting quotas, and the Union itself controls almost 32 per cent (not counting Poland which, as an alternate Board member, would vote an additional 2.7 per cent). A larger number of seats influences more votes than the aggregate eurozone as a whole, which controls about 20.5 per cent of the voting quotas. These numbers suggest that the Commission is willing to give up some voting strength for the Union as a whole for greater control over the eurozone’s votes. The biggest risk with the move is the degree to which eurozone members, if transformed into one IMF member called the “eurozone,” can and ought to be held responsible for the failure of a eurozone member to repay its debts. Sanctions for this are rare but they have occurred in Sudan and Zimbabwe, and the Membership Agreement for the IMF provides for suspension of voting rights in those cases (Article XXXVI and Schedule L). Either the eurozone members’ voting rights will have to be joined to the various crises of their members, or one of the only remedies the IMF has for non-compliance will have to be gutted for the eurozone. I would bet on the latter. This move is also likely to drive the eurozone farther from the non-euro members of the Union. By consolidating all eurozone votes into one, it is a bloc vote every time, with no formal need for the Commission to consider the concerns or other EU member states. Keep in mind that all Union members are already obligated under the Lisbon Treaty to “uphold the Union’s position in [international] forums.” (Article 34.) Under this plan, the Union would not even need to try to form a position. It remains to be seen if non-euro members want to give up the Union’s current favorable arrangement in the IMF to essentially allow an organ of the whole Union, the European Commission, to force the eurozone to vote as a bloc even on matters where there is no existing Union position to follow. It is also unknown if changes for how the EU votes at other institutions, such as the G-20 and the UN, might follow.

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Futures Industry Reconsiders Customer Bailout After MF Global Disaster

November 24, 2011

CHICAGO (Ann Saphir) – In November 1986, shaken by traders’ losses after a brokerage went bust, the U.S. futures industry considered, and then rejected, the notion of insuring customer funds in a broker default. The collapse last month of MF Global Holdings Inc, and hundreds of millions of dollars of still-missing customer money, is forcing a rethink of that 25-year-old decision. Executives at the National Futures Association have been talking with senior management at CME Group Inc and other market participants about how best to safeguard customer funds in future broker bankruptcies, Dan Driscoll, NFA’s chief operating officer, told Reuters in an interview. Under discussion is the feasibility of a government-sponsored insurance fund modeled after the Securities Investors Protection Corporation (SIPC). Another option is an industry-sponsored bailout fund, Driscoll said. Neither response would prevent a broker’s misuse of customer funds, as CME has said happened with MF Global, but some type of insurance could help restore shattered faith in the industry, helping allay growing fears that money parked at futures brokerages simply is not safe. “In the past, one reason there hasn’t been a SIPC is there hasn’t been a clearing firm that went bankrupt and lost customer funds,” Driscoll said. “Now there is. It’s a big amount of money, and it really has an impact on customer confidence.” But questions about how to pay for such insurance hang over the debate. Both schemes could make trading more expensive, forcing brokers — many of whom have seen profit margins shrivel — to push more costs down to customers. MF Global was one of the biggest U.S. futures brokerages until it filed for bankruptcy protection on Oct 31, after revelations it had made a bad $6.3 billion bet on European sovereign debt, sparked a liquidity crunch. Customers are still struggling to get their frozen funds back, and the bankruptcy trustee estimates that as much as $1.2 billion in customer funds has simply disappeared. CME, which puts the estimate of lost money significantly lower, has offered $50 million to repay customers stuck with losses after the final accounting. A CME spokeswoman declined to comment on whether CME would support an industry-wide bailout fund for customers. “Could there be a SIPC-type approach for futures? Yes,” said Don Horwitz, of Oyster Consulting in Chicago. “It’s not as if they could just overlay it, there are some costs, but this will be one of the things I’d think would be considered.” After the collapse of the Bernie Madoff ponzi scheme in late 2008, SIPC raised its broker assessments from a flat $150 per firm per year to a quarter of a percent of yearly operating revenues, costing bigger firms hundreds of thousands of dollars, Horwitz said. All told SIPC collected $410 million last year. Talks among industry leaders so far have been one-on-one, Driscoll said, but in “coming days” there would be an effort to bring participants around a table to hash out a formal set of proposals. TOW TRUCK? Adopting an insurance scheme, particularly one modeled after that used to backstop securities markets, would be an about face for the futures industry, which has long said its customer funds are safer and its markets more reliable and transparent than the highly regulated world of stock trading. Created in 1970 to help restore confidence to the securities markets, SIPC has authority to use its funds to pay back securities customers up to $500,000 per account when brokerages fail. The insurance, which is funded by member brokers, does not cover futures accounts. The futures industry seeks to protect customers by requiring brokers to wall off customer accounts from their own funds. The system is an important selling point for CME, which touts the stringency of fund segregation in materials aimed at winning business from fund managers. The safety of customer fund segregation was also among the reasons that NFA cited when it recommended against adopting a bailout fund 25 years ago, in the wake of the collapse of Volume Investors, a brokerage on New York’s Commodity Exchange. With $13.7 million in customer funds, it was one of the largest futures brokerage failures of its time. By contrast, MF Global had about $5.5 billion in funds when it went under. COMEX — which is now owned by CME — in the end spent $3.6 million repaying traders who lost money in the bankruptcy. The payout equaled about 12 percent of the average customer funds held by a futures broker at the time. Futures trading has skyrocketed since then; an equivalent payout today would come to $170 million, based on the latest figures on futures customer funds published by the Commodity Futures Trading Commission. In a 122-page report entitled “Customer Account Protection Study,” dated November 20, 1986, the NFA concluded that insolvencies were so rare and fund segregation and other protections so strong that “it does not appear that even retail customers would require a public commitment to account insurance to maintain participation in the futures industry.” Post MF Global, that argument no longer passes muster. Trader anger at the brokerage and its regulators is mounting, and many smaller market participants are pulling or threatening to pull their money from futures markets. Volume Investors’ 1985 failure affected fewer than 100 traders. MF Global had tens of thousands. Industry executives say that if industry does not come up with its own solutions, change will be foisted on it. “I don’t think they’ll get off without a fix,” Horwitz said. Not all market participants support the idea. John Roe, a Chicago broker and former MF Global customer, said he fears an insurance scheme would only encourage risk taking by assuring traders there will always be a savior ready to pick up the pieces should something go wrong. “When there’s a car wreck, do you look for a better tow truck?” Roe asked. “Let’s build a better car.” (Reporting by Ann Saphir; Editing by Alden Bentley) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Bessma Momani: Bringing the Right Investment to the Arab World

November 24, 2011

The causes and determinants of the political revolutions sweeping the Arab world are still too complex and nascent to explain with the authority of an academic analysis. Yet there is an overwhelming belief that economic factors are a key part of the puzzle in searching for determinants. The Arab Spring was not instigated by the poor underclass of the Arab world; instead, it was the educated, unemployed, disenfranchised and likely lower-middle class youth of the region that took to the Internet and the streets to protest. The Arab Spring started in countries that had economic growth and that were lead economic reformers. Tunisia, Egypt, Libya and even Syria were ‘successfully liberalizing’ their economies. But the revolutions hit these same countries where the elite did not distribute the economic growth to the masses at a pace that met the rising expectations of the educated youth. What does this say to foreign investors, like Canadian businesspeople, who want to invest in the Arab world? Undoubtedly, the Arab world needs foreign investment to: provide technological know-how and innovation in short supply throughout the region’s production valuechains and energy facilities; create labour-intensive jobs; augment the technical and post-secondary education sector; and invest in infrastructural development projects needed in meeting urbanization challenges such as transportation, housing, food security and sewage systems. There are plenty of respected studies, particularly that of the United Nations Arab Human Development Report, that reiterate these points. Moreover, there is simply not enough domestic capital and know-how to generate the kinds of employment and productive capacity needed to meet the needs of the Arab masses. Foreign investment is key to the kinds of economic growth sought by the Arab masses — but not all foreign investment is created equal. Good vs. bad investment In recent years, the Arab world heavily depended on Arab Gulf countries to provide needed foreign investment. Much of this intraregional investment, however, was not labour-intensive and often invested disproportionately into real estate, mega shopping malls, tourist projects and resorts. These were further aggravators, I argue, of the social grievances of educated, underemployed young people who were striving to improve their standard of living and meet their dreams and expectations for a better life. Foreign investment into real estate and recreation is not what the Arab world needs now; it needs investment into jobs, and industries and services that spur jobs. The Arab Gulf countries continue to have capital surpluses that can be used for good throughout the region. But the incentive and expertise of Gulf capital is not in promoting the kinds of economic activity needed in the Arab world. More importantly, the tendency of Gulf investors to invest in real estate and recreation is a detriment to the long-term political and social stability of the Arab Middle East. The lesson for Canadian businesses: invest in increasing the productive capacity of the Arab world. There is immense opportunity with an educated and eager workforce. Drivers of the Canadian economy today are keenly in demand throughout the Arab world; specifically, construction and engineering, health services, and education providers are all in Canada’s comparative advantage. Moreover, Canadian products that have already been identified by the Department of Foreign Affairs and International Trade for their untapped opportunity in the Middle East include: wood, pulp, and paper sectors; health products; transportation equipment and machinery; water; energy; petrochemicals; and information technology and communications. These sectors will be an important part of building the Arab world in the post-revolutionary phase. The challenge will be to ensure that Canadian investors do not appear complicit in the political trappings of the inefficiencies of the Arab bureaucracies, and of currying favour with the crony-capitalists of the region. Here, Canadian businesses need to emphasize the virtues of good governance: dealing with a transparent, accountable and responsible political apparatus. This means Canadian businesses must demand operating in an open investment environment and duly report their dealings with Arab governments and businesses. Canadian businesses should not forget that the Arab masses are watching their own governments, and as the wave of democratization continues they will chastise companies and foreign governments that deal with corrupt regimes. Canadian businesses can take advantage of their positive country branding today and increase investment in the region, but by meeting the needs of the Arab economies. If they do this, they will bring positive returns — both financial and political — to the region. Bessma Momani is an associate professor at the University of Waterloo and senior fellow at the Centre for International Governance and Innovation. She will be speaking at the National Council on Canada-Arab Relations’ 2011 national conference in Gatineau from Nov. 26 to 27. (This article first appeared in Embassy magazine at http://www.embassymag.ca/.)

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Occupy Seattle Protester Alleges Miscarriage After Pepper Spray Incident

November 23, 2011

NEW YORK — In recent weeks, the repeated use of pepper spray by police officers against Occupy Wall Street protesters has elicited widespread criticism. (CLICK HERE OR SCROLL DOWN FOR LATEST UPDATES ) Whether it’s September’s use of pepper spray against young demonstrators in New York’s Union Square or last weekend’s forceful confrontation with seated student protesters at the University of California, Davis campus , many critics have questioned the deployment of such tactics against a largely peaceful and nonviolent movement. Meanwhile, in Seattle, a recent crackdown against Occupy protesters may have claimed its latest victim . On Monday, The Stranger , a Seattle-based alternative weekly newspaper, reported that one Occupy Seattle protester allegedly suffered a miscarriage. She said police used pepper spray and hit her in the stomach . “I was standing in the middle of the crowd when the police started moving in,” Jennifer Fox, 19, told The Stranger . “I was screaming, ‘I am pregnant, I am pregnant. Let me through. I am trying to get out.’” Fox is reportedly homeless, living in the Occupy Seattle encampment in Westlake Park without a working cellphone. The Stranger reported that immediately following last week’s incident , Fox was rushed to the Harborview Medical Center in downtown Seattle , where Fox said doctors performed a routine ultrasound and didn’t discover any evidence for alarm. But on Monday, after experiencing cramping and nausea, The Stranger reported that Fox returned to Harborview Medical Center, where she was later diagnosed as having suffered a miscarriage once the fetus’ heartbeat was no longer detected . As of Tuesday evening, Fox had neither provided medical records to substantiate her claim, nor filed a formal complaint with the Seattle Police Department. But despite the lack of a formal complaint, a Seattle Police Department spokesman confirmed to HuffPost that police are launching a formal investigation into the matter. “We are aware of a claim that a pregnant woman who attended the Nov. 15 Occupy Seattle march has been treated for a miscarriage,” said the SPD spokesman. “Consistent with standard procedure, the Office of Professional Accountability has initiated an internal investigation to look into the matter further.” In the coming days, investigators will be actively searching for information to support Fox’s claim, the spokesman confirmed. Until more information is made available, Kathleen Taylor, executive director of the ACLU of Washington, told HuffPost that she remains troubled by what she perceives as an uptick of pepper spray use by members of law enforcement against the movement’s protesters nationwide. “The police have the authority to use force when it’s necessary to prevent physical harm, but the use of pepper spray against non-violent protesters raises very serious questions,” said Taylor, who highlighted the Seattle Police Department’s policy of not using pepper spray and tasers as a first line of defense. “We condemn police violence in other countries,” Taylor said. “Let’s first be sure our own house is in order.”

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Todd Hartley: I’m With Stupid: Wear These Clothes While You Kiss the Pope

November 19, 2011

I don’t know a whole lot about advertising. That may seem kind of pathetic considering I made all the ads for a real estate company for a few years, but that was pretty basic stuff: slap a picture of a house on the page, make up some nonsense about granite countertops and an open floor plan, and ship the ad off to whichever publication was running it. As far as real advertising goes, though, I don’t have much of a clue. I’ve always assumed the point of an advertising campaign was to project the image you wanted people to associate with your company or product. For example, in Gatorade ads thirsty people drink Gatorade, and in Nike ads people do athletic things while wearing Nike sneakers. I can understand that. Those ads make sense to me. I find myself more than a bit confused, however, when it comes to a recent ad campaign for the Italian clothing company Benetton. I’m sure the ads were probably conceived by some high-priced agency, and I imagine they’re considered very cutting-edge, but for the life of me I’m not sure what Benetton’s point is. The ads, in case you haven’t seen or heard of them, feature manipulated images of world leaders kissing. One of the ads shows President Obama locking lips with Chinese President Hu Jintao. Another has French President Nicolas Sarkozy sharing a smooch with German Chancellor Angela Merkel. There was another ad featuring Pope Benedict XVI kissing an Egyptian imam, but that one, to no one’s surprise, managed to tick a lot of people off and since has been pulled. Benetton, in its questionable wisdom, ran a huge banner of the pope-imam image near the Vatican last week but took it down after Vatican officials protested, rightfully pointing out that the ad demonstrated how “publicity can violate the basic rules of respect for people by attracting attention with provocation.” I don’t normally agree with the Vatican on most things, but in this case they’re absolutely right: It seems very obvious to me that Benetton just came up with the ad to try to get a rise out of people and garner some unwarranted publicity for itself. If you believe Benetton’s representatives, however, that was not at all what they were shooting for. According to them, the point of the ad campaign “was solely to battle the culture of hate in all its forms.” Seriously? Does Benetton really believe that showing the pope kissing an imam is going to battle hate? How, exactly? Benetton is an Italian company. Surely they must have known that showing an unflattering image of the pope was going to make Catholics around the world despise Benetton. I would consider that part of “hate in all its forms.” The dumbest part of this whole fiasco is that whoever came up with the ads didn’t even put much thought into the kissing pairs. If the Obama ad is supposed to speak to Americans, it doesn’t. Virtually no one in America has any idea who Hu Jintao is. If Benetton wanted to make a statement, they should have had Obama kissing Rush Limbaugh or John Boehner. And why was the pope kissing an imam? Shouldn’t an imam have been kissing a rabbi? If they really wanted to put the pope with his opposite number, he should have been pictured kissing Sinead O’Connor. Regardless, one thing that the ads definitely do not do is make anyone want to go out and buy Benetton clothing. I would have thought that would be the first priority of an ad campaign, but like I said, I don’t know much about advertising. No, what this really amounts to is a pathetic ploy by a fading company to thrust itself back into the public conversation. In that regard, one can hardly blame Benetton. Since 2000, the clothing manufacturer has seen its market capitalization dwindle from $5.8 billion to less than $1.2 billion. Desperate times call for desperate measures; hence Benetton’s stupid kissing ads. I guess, in one sense, I have to give Benetton some credit. The ads did, after all, manage to get people talking about the company, even if everything being said is negative. And the ads were somewhat successful at increasing brand awareness, at least as far as I’m concerned. I had no idea Benetton was still a company before this whole controversy flared up. I have no plans to buy any Benetton items, mind you, but at least now I know they still exist. Todd Hartley created the “North Dakota and Then Some!” ad campaign for Manitoba. It didn’t do very well. To read more or leave a comment, please visit zerobudget.net .

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PHOTO: Occupy Portland Protester Pepper Sprayed In The Face

November 19, 2011

In recent days pepper spray has become almost synonymous with the Occupy movement. Most recently this photo , which is quickly becoming an iconic image from the movement, has gone viral. It shows Occupy Portland protester Elizabeth Nichols getting hit directly in the face with pepper spray by Portland police. The shot was taken by Randy L. Rasmussen , a photographer for the Oregonian, during Thursday’s protests. The picture itself has been called a lot of things, but intriguingly enough, the most accurate description of how it was taken is that it was an accident . Ramussen explained in an interview with the Oregonian that he didn’t even know he had captured the scene until he saw it appear on a computer screen when he returned to the office. But Elizabeth Nichols, the woman being hit in the face with the spray, certainly knew what happened (though she didn’t know it had been captured on film). Nichols won’t soon forget the incident, regardless of the photo. From the Oregonian : Nichols said a policewoman jabbed her in the ribs with a baton and pressed it against her throat. That made her angry. She yelled at the officer, saying she was being mistreated. That’s when another officer shot her with pepper spray. A photo by The Oregonian’s Randy L. Rasmussen, which flashed across social media websites, shows Nichols was sprayed from a few feet away. “It felt like my face, ears and hands were on fire,” she said. This new shot comes just days after a photo of 84-year-old Dorli Rainey went viral , after she was pepper sprayed in the face during Occupy Seattle protests. The use of the spray has become almost commonplace during recent protests, and the method has been prominent during controversial protests in New York and Oakland . The Photo:

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Fiat 500 By Gucci: Jennifer Lopez Stars In Automaker’s New Campaign

November 19, 2011

Jennifer Lopez is taking yet another spin in a Fiat 500, but this time she’s doing it with even more style. The new J.Lo commercial for the Italian automaker brings the movie and pop star downtown from her native Bronx to the ritzier streets of Manhattan to show off a new collaboration between Fiat and the storied Gucci fashion label. The Turin-based auto manufacturer, which is the parent company to Chrysler, says the Fiat 500 by Gucci represents an “important partnership between two brands that have always expressed Italian genius and creativity across the world.” The small car boasts “true Italian style” and is “brimming with fashion references,” the company says, including chrome accents, a Gucci-logoed Frau leather interior and a simulated velvet dashboard. Gucci and Fiat are also pushing the car’s connection to the 150th anniversary of Italy’s unification, though we don’t think we’d see Giuseppe Garibaldi riding shotgun around Manhattan with J.Lo. The car, which will be available in U.S. dealerships early next year , starts at $23,500. That’s less than a Gucci crocodile tote ($29,900). What do you think? Does a fashion partnership make sense for Fiat? Let us know in the comments. CORRECTION: An earlier version of this article stated Fiat is based in Florence. It is based in Turin.

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Federal Board Rules Delta Didn’t Interfere In Union Vote

November 19, 2011

ATLANTA — Delta Air Lines Inc. says a federal board has upheld results from an election that blocked a union from representing its flight attendants. Delta said late Friday that the National Mediation Board rejected claims by the Association of Flight Attendants that the company interfered in the representation election last year. The union criticized the ruling, saying Delta unfairly pressured flight attendants to vote against representation and, in some case, supervisors made threats against union supporters. “This is not democracy, not in outcome nor process,” the union said in a statement. Delta said the ruling would let flight attendants from Delta and the old Northwest move ahead as a combined group. Vice president Joanne Smith said Delta would immediately begin raising pay for Northwest flight attendants to Delta’s hourly rates. The airline still faces claims of interference in union elections for customer service, cargo, reservation sales and other employees. It said it hoped for a similar ruling in those cases. Pilots were the only large group that was unionized at Delta when it bought Northwest. The combination of Delta and Northwest triggered elections to see whether Northwest unions would represent workers in the combined groups. The Association of Flight Attendants fell about 300 votes short out of more than 18,000 cast in its bid to represent the Delta employees. Delta is the nation’s second-largest airline company behind United Continental Holdings Inc. Delta shares rose 8 cents to close at $7.36.

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WATCH: Faces Of Zuccotti Park: The Chef

November 11, 2011

This story is part of a series that profiles the protesters at Occupy Wall Street. Sean Dolan, 48, has worked as a chef in a variety of restaurants over the last 30 years, most of them in Providence, R.I. While he’s done everything from line to prep to standard short-order cooking, his favorite is Italian — “tossing saute pans and cooking calamari and veal saltimbocca and chicken parmesan,” he said. But when he was fired from his most recent job in early October, instead of applying for other jobs, Dolan hopped a train to New York City and came straight to Zuccotti Park to join the protesters. He’d heard about the Occupy protest on NPR — he doesn’t read print media much anymore, except for the Providence Phoenix — and wanted to help out anyway he could. Within half an hour of arriving, he was put to work at Occupy Wall Street’s kitchen, serving free hot meals to the people who are taking a stand against corporate privilege in this small city park in lower Manhattan. “The minute I got here, it was like this door opened,” Dolan said. “All of a sudden I was a part of something bigger than myself for the first time in my life. And the passion came back.” Dolan lives with his wife, Patricia, in his hometown of Bellingham, Mass., and spends four or five days a week working in the kitchen at Zuccotti Park, then returns to Massachusetts to recharge. “I find it necessary to recuperate,” he said. “Some of the people living down here … you can see the toll it takes on them.” But Dolan is no wimp. “I plan to keep coming down here every week as long as I’m physically able,” he said. “I want to see some results. The awareness issue is through the roof right now. But I want to see a general strike. … Something that grabs the world by the nuts and says, ‘Yeah!’” Video by Adam Kaufman, editing by Hunter Stuart

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Many Cities Leaving Occupy Protesters Alone

October 29, 2011

By ERIKA NIEDOWSKI and MEGHAN BARR, The Associated Press NEW YORK (AP) — While more U.S. cities are resorting to force to break up the Wall Street protests, many others – Philadelphia, New York, Minneapolis and Portland, Ore., among them – are content to let the demonstrations go on for now. (CLICK HERE OR SCROLL DOWN FOR LATEST UPDATES ) New York Mayor Michael Bloomberg, for example, said Friday that the several hundred protesters sleeping in Zuccotti Park, the unofficial headquarters of the movement that began in mid-September, can stay as long as they obey the law. “I can’t talk about other cities,” he said. “Our responsibilities are protect your rights and your safety. And I think we’re trying to do that. We’re trying to act responsibly and safely.” Still, the city made life a lot harder for the demonstrators: Fire authorities seized a dozen cans of gasoline and six generators that powered lights, cooking equipment and computers, saying they were safety hazards. In the span of three days this week, police broke up protest encampments in Oakland, Calif., Atlanta and, early Friday, San Diego and Nashville, Tenn. Nashville police cracked down after authorities imposed a curfew on the protest. Twenty-nine people were arrested and later released after a judge said the demonstrators were not given enough time to comply with the brand-new rule. They received citations for trespassing instead. Fifty-one people were arrested in San Diego, where authorities descended on a three-week-old encampment at the Civic Center Plaza and Children’s Park and removed tents, canopies, tables and other furniture. Officials there cited numerous complaints about human and animal feces, urination, drug use and littering, as well as damage to city property – the same problems reported in many other cities. Police said the San Diego demonstrators can return without their tents and other belongings after the park is cleaned up. Earlier this week, in the most serious clashes of the movement so far, more than 100 people were arrested and a 24-year-old Iraq War veteran suffered a skull fracture after Oakland police armed with tear gas and bean bag rounds broke up a 15-day encampment and repulsed an effort by demonstrators to retake the site. But other cities have rejected aggressive tactics, at least so far, some of them because they want to avoid the violence seen in Oakland or, as some have speculated, because they are expecting the protests to wither anyway with the onset of cold weather. Officials are watching the encampments for health and safety problems but say that protesters exercising their rights to free speech and assembly will be allowed to stay as long as they are peaceful and law-abiding. “We’re accommodating a free speech event as part of normal business and we’re going to continue to enforce city rules,” said Aaron Pickus, a spokesman for the mayor of Seattle, where about 40 protesters are camping at City Hall. “They have the right to peacefully assemble. Ultimately what the mayor is doing is strike a balance.” Authorities have similarly taken a largely hands-off approach in Portland, Ore., where about 300 demonstrators are occupying two parks downtown; Memphis, Tenn., where the number of protesters near City Hall has ranged from about a dozen to about 100; and in Salt Lake City, where activists actually held a vigil outside police headquarters this week to thank the department for not using force against them. In the nation’s capital, U.S. Park Police distributed fliers this week at two encampments totaling more than 150 tents near the White House. And while the fliers listed the park service regulations that protesters were violating, including a ban on camping, a park police spokesman said the notices should not be considered warnings. In Providence, R.I., Public Safety Commissioner Steven Pare said the protesters will not be forcibly removed even after the Sunday afternoon deadline he set for them. He said he intends to seek their ouster by way of court action, something that could take several weeks. “When you see police having to quell disturbances with tear gas or other means, it’s not what the police want and it’s not what we want to see in our society,” Pare said. Similarly, in London, church and local government authorities are going to court to evict protesters camped outside St. Paul’s Cathedral – though officials acknowledged Friday it could take weeks or months to get an order to remove the tent city. Several hundred protesters against economic inequality and corporate excesses have been camped outside the building since Oct. 15. On Oct. 21 cathedral officials shut the building, saying the campsite represented a health and safety hazard. It was the first time the 300-year-old church, one of London’s best-known buildings, had closed since German planes bombed the city during World War II. In Minneapolis, where dozens have been sleeping overnight on a government plaza between a county building and City Hall, the three-week-old occupation has been far tamer than those in other cities, with only a few arrests. Sheriff Rich Stanek has made it a practice to meet with protesters daily to talk about their issues and the day ahead, and he has refused to engage what he called “the 1 percent” who want to cause trouble. “We decided that’s not the tactic we want to take. Doing that sometimes requires biting your tongue,” he said. He added: “Some people have said that’s `Minnesota nice.’ It’s a balance.” ___ Niedowski reported from Providence, R.I. ___ Associated Press Writers Doug Glass in Minneapolis; Lucas L. Johnson II in Nashville, Tenn.; Samantha Gross in New York; Terry Collins in Oakland, Calif.; Jonathan J. Cooper in Portland, Ore.; Josh Loftin in Salt Lake City; Julie Watson in San Diego; Chris Grygiel in Seattle; Ben Nuckols in Washington; and Laura Crimaldi in Providence, R.I., contributed to this story.

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Kevin L. Petrasic: Richard Cordray’s Complicated CFPB Confirmation

September 13, 2011

Last week, Richard Cordray, the current head of enforcement of the new Consumer Financial Protection Bureau, or CFPB, testified before the Senate Banking Committee in a crucial first step to obtain confirmation as the agency’s first director. As expected, Senate Republicans, while not objecting to Cordray, continue to be concerned about the structure of the CFPB, preferring a five-member commission to the current single director structure. Most concerning to the GOP members is the lack of accountability of a single director whose only check is a possible super-majority override vote by the ten agency members of the new Financial Stability Oversight Council. For his part, Cordray assured the Committee that he and the agency would be fully accountable to Congress for how the CFPB carries out the laws laid down by Congress. All indicators are that Committee members took him at his word. Of course, Cordray can only provide such assurances for himself — not the agency’s subsequent directors — and that is where things start to get complicated. There is no reason to doubt that any serious nominee for the position would go into it with an open mind rather than risk a Senate hold that would likely end their prospects for confirmation. The challenge, of course, is how to account for differences in philosophy during the confirmation process that will almost assuredly impact agency policy, particularly in a highly charged and divisive political climate. While the Director of the CFPB is appointed to such position for a 5-year term, it is often the case that individuals serve in such positions at the will of the President, and often vacate or tender a resignation when the other party takes over the White House. The more “politically sensitive” an appointed position is to a philosophical change in the White House, the more likely that an existing agency head will step down. While there are numerous recent examples of an appointee staying on in a position after a change in Administration, most often the appointee has the benefit of a moderate political philosophy compatible with a new Administration or the appointee noticeably shifts to the center to achieve that result. In any event, politics and policy go hand-in-hand… and that is where it gets very tricky for the CFPB, not necessarily at the top of the agency pyramid, but significantly throughout the agency’s ranks. The agency has a very clear mission — consumer financial protection. However, there are strident differences of opinion about what that means, and in many cases these different views closely track political party lines. What this means, of course, is that even as the agency is being staffed and tooled to implement its mission, its political detractors will be closely watching for every opportunity to highlight any shortcomings or perceived policy deficiencies. Complicating this is that, while avoiding a political agenda will certainly be an important objective for the agency’s policymakers, in pursuing its mission the agency will be presumed to have such an agenda because it ultimately can only speak with one voice, that of its politically-appointed Director. And the Director, of course, will not receive any benefit of the doubt in his or her policymaking decisions. Interestingly, what this suggests is that the Senate Republicans and former Dem, Committee Chairman Dodd appear to have it right. For the CFPB to be most effective and most insulated from politically-motivated criticism of its polices, it needs to be an agency that has a leadership structure with divergent views — politically and otherwise. Ultimately, such a structure will provide the most stability for its dedicated and highly motivated staff to be able to succeed in their mission without fear that all of their hard work will be undone by the next appointed Director. The reality is that the CFPB has and continues to be a political hot potato that ultimately cost its creator, Elizabeth Warren, the opportunity to head the agency she single-handedly conceived and defended. The ultimate irony is that, with a five-member commission structure, Warren could very well be running the agency today as its first appointed and confirmed Director. Instead, Cordray is faced with a significant uphill battle (even if he is confirmed), not because of his qualifications or politics, but simply because so much responsibility and accountability must be heaped on the shoulders of one person. If confirmed, Cordray will head an agency that has the broadest jurisdictional mandate (including large banks and non-banks in numerous industries providing consumer financial products and services) of any existing federal agency and, certainly one of the most important jobs in restoring consumer confidence in a financial sector besieged with consumer mistrust and still trying to find its footing in an economy recovering from the worst financial crisis since the Great Depression. Consumers, the financial sector and the agency would likely be better served by a commission or similar structure dependent on building a consensus and providing an opportunity for dissenting views. While there was significant sentiment during consideration of the Dodd-Frank Act that a commission approach would water down or hamper decisive agency action, it is hard to imagine that the political heat that the agency could face with a controversial policy decision or provocative stance on an important issue will not have the same effect, or worse. In a very real sense, a commission structure offers a type of deliberative and democratic decision-making process that is much easier to defend in large part because it has the transparency of that process, not one man’s word, to provide accountability.

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Chris Leeson: CFOs: On the Up During the Downturn

September 13, 2011

As the economy hovers perilously above recession, the role of the Chief Financial Officer (CFO) has once again been pulled into focus. Pressure is mounting on finance professionals to manage growth in line with controlling costs; to maintain a lean operation but also an agile one that can capitalize quickly on improved conditions. History has shown us that upturns can gain momentum very quickly and companies don’t want to find themselves on the back foot. I would argue that the global economic downturn has affected the job descriptions of CFOs more than any other C-level position. The “to-do” list of a CFO in 2011 is very different to that of a CFO in 2008. The scope of responsibilities has widened considerably: today’s CFO is not only expected to be technically strong and an expert on matters financial and regulatory, but a strategic-thinker, a visionary, a leader. More a navigator of a ship rather than a chief mate, if you’ll allow the metaphor. In turbulent times, boards tend to put proven, practical and shrewd performers at the helm. This is certainly something I have witnessed over the past few years. I wasn’t surprised to read in Accountancy Magazine that 54% of FTSE 100 companies have a chairman with a background in finance. So, are CFO salaries rising in line with these added expectations? Well, it is hard to comment in the overall as there is such a range but there has been a noticeable trend towards incentivising CFOs within commerce and industry with bonus schemes. This is in contrast to the financial services sector, where intense public scrutiny resulted in the scaling back of bonuses this year and last. CFOs are definitely becoming more prominent within companies and have ‘louder voices’ when it comes to top line strategy. We are seeing this trend – this shift in role requirements – trickle down to finance professionals at all levels. Companies are increasingly seeking commercial accountants with sharp business acumen who can add value and affect their bottom lines, rather than just operating as a back office or support functions. Accountants are now expected to interact with a wider circle of stakeholders, adopt more strategic mindsets and translate financial data coherently and accurately. For these reasons (among others), finance professionals with good interpersonal or ‘soft skills’ in addition to technical expertise are now in high demand. The feedback I’m receiving from employers is that these value-adding skills will become even more important over the next 12 months. But back to CFOs and a final word of caution. With all this increased strategic and operational importance, the weight on their shoulders will be heavier than ever. A number of CFOs have notoriously tried to achieve too much on their own and have become withdrawn from their teams, too reactive, overworked and consequently, ineffective. As the role of the CFO evolves, so will a greater reliance on the collective. CFOs will need to adopt more of an ‘open door’ approach than in the past. They’ll need to delegate more and foster their teams. No man is an island!

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FDIC Approves New Bank Regulations

September 13, 2011

WASHINGTON — The largest U.S. banks will be required to show regulators how they would break up and sell off their assets if they are in danger of failing. The Federal Deposit Insurance Corp. voted 3-0 to approve the rules, which were mandated under the financial overhaul passed by Congress last year. They are designed to reduce the chances of another government bailout of Wall Street banks in the event of another financial crisis. Among the banks affected are Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc. and JPMorgan Chase & Co. The rules require banks with $50 billion or more in assets to submit plans to the FDIC, the Federal Reserve and the Financial Stability Oversight Council and send revised plans annually.

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Arab Nations To Get $58 Billion To Reward Democratic Reform

September 10, 2011

MARSEILLE, France — Wealthy countries and international lenders promised more money Saturday to encourage democratic reforms in Arab nations, promising at least $58 billion. After Tunisia and Egypt ousted their authoritarian regimes earlier this year, eight of the world’s most developed economies along with rich Arab countries and a raft of development banks had pledged in May to give $40 billion in support to their nascent democracies and hopefully keep them on the path to open government. Those uprisings set off a cascade of revolts across the Middle East, and the Group of Eight and others are now increasing their pledges and expanding the recipients to include Morocco and Jordan. So far, at least $58 billion has been promised to the four countries – $38 billion from development banks through 2013 and more than $20 billion from the G-8 and the wealthy Arab countries. Saturday’s meeting was notable for its inclusion of Libya, where rebel forces recently took control of most of the country and are working to create a government to replace Moammar Gadhafi’s brutal regime. Libya is not yet officially part of the program but could soon receive funding, according to Canadian Finance Minister Jim Flaherty. Libya’s vast oil wealth means it is unlikely to need substantial aid over the long term, but its oil exports slowed to a trickle during recent fighting, and the country is still waiting for funds that were frozen under Gadhafi to be handed over to them. Flaherty indicated that the program could bridge the gap. “We did not discuss quantum, but we discussed, yes, the reality that the Libyans may require some assistance in the short term,” Flaherty said. Earlier in the day, British Treasury chief George Osborne said officials would also commit to lifting sanctions on Libya, unfreezing its assets, and also “significantly get oil production going as quickly as possible.” Libya’s new ambassador to France Mansour Seyf al-Nasr called the meeting “a success.” Tunisia’s finance minister, Jelloul Ayed, also praised the meeting. “A very successful meeting. The financial commitment that we obtained today is a general commitment,” he said, noting that it would be determined later how much each of the Arab countries gets. In another step for Libya’s Transitional National Council, it won recognition Saturday from the International Monetary Fund, according to the organization’s chief, Christine Lagarde. She said she would dispatch teams to Libya to help with technical assistance and policy advice as soon as it was safe. The money is intended to help support “transparent, accountable government” and “sustainable and inclusive growth” in North Africa and the Middle East, according to a statement from the nine international and regional lenders who pledged the $38 billion. The plan was hatched in May by the G-8 nations – Britain, Canada, France, Germany, Italy, Japan, Russia and the U.S. – as they sought to support the revolts and reforms inspired by the Arab Spring. They hope the money will reward – and encourage – reform. The Syrian government, which is involved in a bloody crackdown on dissent, was pointedly not invited. But there has been criticism that the funds have been slow in coming. French Finance Minister Francois Baroin said Saturday that everyone was working to hand over the money as quickly as possible. Of the lenders, the World Bank is providing the largest share of financing, with $10.7 billion. The African Development Bank has pledged $7.6 billion, the Islamic Development Bank $4.5 billion, with the rest coming from regional development bodies such as the Arab Fund for Economic & Social Development, the Arab Monetary Fund, and the European Bank for Reconstruction and Development. It wasn’t immediately clear how much the G-8 countries were now offering, though Baroin said the commitments had “increased strongly.” But he only specified France’s new pledge, which has more than doubled to $2.7 billion. The IMF also has another $35 billion available for lending to the region, with the focus to be on oil-importing countries suffering from rising food and fuel prices.

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Corbin Hiar: Stolen State Money: Trillions Lost Annually, Only Billions Have Been Recovered

July 25, 2011

By Corbin Hiar , iWatch News 6:00 am, July 25, 2011 The uprisings of the Arab spring have brought renewed attention to long-standing accusations that kleptocratic regimes throughout the Middle East have plundered their nations’ assets. But recovering those assets — though crucial to the future of these impoverished nations — remains a daunting challenge, according to a recently released report. Crime, corruption, and tax evasion by the global elite cost between $1 trillion and $1.6 trillion and hit poor countries especially hard, says the study, ” Barriers to Asset Recovery .” Yet in the past 15 years, only $5 billion in stolen assets have been repatriated. The report offers advice to policymakers aimed at increasing that lowly rate of return. It was produced by the Stolen Asset Recovery Initiative (StAR), a joint project of the World Bank Group and the Office on Drugs and Crime at the United Nations (U.N.). Like iWatch News’ World coverage on Facebook and get the latest news instantly. The problem, says Raymond Baker, the director of Global Financial Integrity, a Washington watchdog group, is that even in nations like Switzerland that have changed procedures and rules to reduce bank secrecy, “it’s not entirely clear” how foreign governments can get stolen assets back. The first efforts to put the spate of new rules to the test, Baker says, “will probably come from Egypt or Tunisia.” For the impoverished people of both these countries, who recently toppled long-standing authoritarian governments, the stakes are substantial.  U.S. intelligence officials estimate that deposed Egyptian President Hosni Mubarak accumulated between $1 billion and $5 billion during his 30-year reign. London’s Telegraph newspaper reported ex-Tunisian President Zine el-Abidine Ben Ali’s personal wealth at £3.5 billion.That’s the equivalent of $5.7 billion, more than an eighth of Tunisia’s annual gross domestic product . Even those estimates of ill-gotten wealth “[do] not capture… the societal costs of corruption,” the report adds. “Theft of assets by corrupt officials, often at the highest levels of government, weakens confidence in public institutions, damages the private investment climate, and divests needed funding available” for investments in public health, education, and infrastructure. And “there are many obstacles to asset recovery,” said Kevin Stephenson, a senior financial sector specialist at the World Bank and the lead author of the study, in a press release . “Not only is it a specialized legal process filled with delays and uncertainty, but there are also language barriers and a lack of trust when working with other countries.” The StAR report, released in late June, documents the few multilateral international legal instruments dispossessed governments have at their disposal. Chief among them: the U.N. Convention against Corruption, the U.N. Convention Against Transnational Organized Crime, and the Financial Action Task Force (FATF) on Money Laundering, an intergovernmental organization that develops policies to combat illegal cash flows. But they’re not worth much, according to Baker. “So you walk into a bank with those two treaties and the task force’s 40 recommendations and plunk them down, and say, ‘I want to recover money stolen by my corrupt former head of state.’ Then the banker raises his eyebrows and says, ‘You want to do what?’ ” As Baker suggests, financial institutions may be reluctant to honor international standards that are not even followed by many of the governments who seek to enforce them. The compliance rate for one important FATF recommendation is troublingly low, as the U.N. Office on Drugs and Crime pointed out in a 2009 report for the StAR Initiative. More than three-fifths of the 124 jurisdictions evaluated were not monitoring accounts held by politically powerful people. This is a challenge for regulators, even in the U.S., according to Sen. Carl Levin (D-Mich.). “Weakness in our financial regulations have allowed these [politically powerful people] to move millions of dollars into or through U.S. bank accounts, often by using shell company accounts, attorney-client accounts, escrow accounts, or other accounts, or by sending wire transfers that shoot through the system before our banks react,” he said in a 2010 hearing on international corruption. Often times, strong domestic legislation coupled with effective bilateral communication has proven to be a more powerful tool than multilateral international agreements. The report, which was largely scrubbed of specific names and jurisdictions, gives the example of a Swiss law that in 2005 allowed authorities “to declare that a former head of state, his family, and associates constituted a criminal organization” and could therefore have their property confiscated. The example sounds similar to the case of the late dictator General Sani Abacha , whose fortune was seized by the Swiss at the behest of the Nigerian government and then returned to Nigeria for use in poverty-reduction programs there. The World Bank did not respond to iWatch News’ requests for comment. The report may yet go some ways towards improving the implementation of international agreements to repatriate stolen national assets and encourage the spread of effective national legislation and cooperation. But for now Baker believes closing the loopholes that allow corrupt government officials to get away with it in the first place is more important than trying to recover what’s already been lost. For example, authorities in India, from which he he recently returned, have been “all exercised about recovering stolen money , but they’re not going to get very much. By all means, go for it,” Baker said, “but it’s far more important to curtail the outflow.” Read more investigations at iWatch News

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GOP Governor: ‘It Would Be An Embarrassment For U.S. To Default On Its Obligations’

July 17, 2011

By Edith Honan SALT LAKE CITY (Reuters) – State governors meeting in Utah Saturday urged a speedy resolution to the deadlock in Washington over lifting the U.S. debt ceiling to avoid what they called an embarrassing default on U.S. obligations. “This is a dangerous and equally ridiculous situation that’s playing itself out. It takes one sentence to solve this problem — and that’s to lift the debt ceiling,’” Connecticut Governor Dannel Malloy, a Democrat, told Reuters at a National Governors Association meeting in Salt Lake City. Malloy predicted political leaders in Washington would ultimately reach an agreement to avoid a default. State governors are closely watching developments in Washington, where President Barack Obama and his fellow Democrats are in a standoff with congressional Republicans in talks intended to reach a deal to lift the debt ceiling. The governors are concerned over the impact of the debt situation in Washington in part because it could have an impact on their own individual states’ credit ratings. The U.S. Congress must raise the $14.3 trillion limit on U.S. borrowing by Aug. 2 or the federal government will run out of money to pay its bills, causing turmoil in global financial markets and potentially forcing the United States into another recession. Republicans in Washington are demanding deep government spending cuts as part of a deal to raise the debt limit while Obama and the Democrats want tax increases on the wealthy also to be part of the agreement. Republicans oppose tax increases. “I really think we need more statesmen and less politicians in Washington right now because it is a situation that must be solved. And I honestly believe it will be. Everyone’s posturing — both sides,” Alabama Governor Robert Bentley, a Republican, said in an interview. ‘AN EMBARRASSMENT’ Virginia Governor Bob McDonnell, a Republican, added, “It would be an embarrassment for the United States of America to default on its obligations.” “At the same time, there’s got to be a recognition that Congress and the presidents have over-spent and over-promised now for 30 or 40 years. And the bills are due,” McDonnell told Reuters. Rhode Island Governor Lincoln Chafee, a former Republican who is now an independent, said, “We went on a tax-cutting rampage and a spending spree. And the math just does not add up. We’re a crippled economy as a result.” The impasse in Washington, which could lead to missed debt payments, has prompted rating agencies to say the nation’s coveted AAA rating could be in jeopardy. This week, Moody’s placed more than 7,000 ratings affecting about $130 billion in municipal debt on review for a possible downgrade due to a close connection with the U.S. government. “This is big stuff that somebody is playing with, and the fact that it’s become a partisan battle … it’s not what’s good for America,” said North Carolina Governor Bev Perdue, a Democrat. Perdue said on Friday her state finance director was notified by Moody’s that it would review the state’s AAA rating. Perdue expressed confidence North Carolina would hold on to the top rating. A Moody’s spokesman said the rating agency was “looking at the AAA rated states and will announce any rating actions over the next week for states.” (Editing by Will Dunham and Todd Eastham) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Nancy Birdsall: Lipton and Zhu at the IMF: Intellectual and Policy Duopoly?

July 15, 2011

There was a lot of justified hand-wringing and tough talk in the media and in think tank and NGO-land about the unseemly use by Europe of its unwarranted voting weight at the IMF to push the election of Christine Lagarde. The appointment this week of Zhu Min , a former deputy governor of the People’s Bank of China, as the one of two IMF deputy directors — the first time that a Chinese official has held such a post — suggests that Beijing extracted something worthwhile in exchange for backing Lagarde. Equally important, Zhu Min’s appointment shows that China is interested in expanding its influence within the IMF. Power still matters; it’s just that power is shifting. The appointment of White House economic aide David Lipton was no surprise and ensures that the U.S. preference for minimally managed capitalism (as Alan Beattie nicely argues (gated) will continue to dominate at the IMF. Even with former French Central Bank governors leading the IMF (e.g. Camdessus in the 1990s), it was the U.S. Treasury’s views (via Stan Fischer and Larry Summers) that mattered. And Lipton was Summers’ eyes and ears and mouth too during the Asian financial crisis. Lagarde will surely rely heavily on Lipton for advice. Lipton is smart and sensible. He will help Lagarde avoid seeming to favor German and French banks. Aside from China’s increased influence, the change from Strauss-Kahn and (John) Lipsky to Lagarde and Lipton doesn’t signal a big change at the IMF. (Lipsky and Lipton share not just those first three letters but basic market-friendly economics). For example, the IMF will probably participate in the next round of Greece-rescuing, still as a minority player. With fingers crossed on 19th Street, the can for now will again be kicked down the road. Ironically, Zhu’s appointment will make Sarkozy’s push for reform of the international monetary system more respectable, if not more likely anytime soon (for radical ideas in clear and careful language on reforming the international monetary system see here ). Min Zhu will raise questions about the dollar and about U.S. monetary and fiscal policy that up to now got no traction in the IMF’s economic monoculture. More and different views at the top is a good thing: as with Justin Lin, who as chief economist at the World Bank has been raising awkward (and unpopular) questions about the state’s role in triggering economic growth, going from monopoly to duopoly on ideas about the global economy is a good thing. Let’s hope at both global institutions it reduces the risk of really bad mistakes.

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Sheldon Filger: Sovereign Debt Crisis Is Now Global

July 14, 2011

Any doubt that the Eurozone debt crisis is no longer contained but has metastasized into a full-blown global calamity is rapidly being erased by fast-moving events. With the second bailout of insolvent Greece in the works, followed by a ratings downgrade to junk by Standard & Poor’s, Moody’s has now weighed in with a double whammy. Ireland’s sovereign debt has been downgraded to junk status, with a clear signal that the marketplace expects the Irish Republic to require a second bailout package, as was the case with Greece. Moody’s has now followed up on its action regarding Ireland with a warning that for the first time in its history, the AAA rating on U.S. government debt is under review for a possible downgrade. This inauspicious development is in connection with the political dysfunctionality that has afflicted Washington policymakers in both the executive and legislative branches over extending the national debt limit. With ratings collapsing and bond spreads widening throughout the developed world, it now appears that another member of the infamous PIIGS nations (Portugal, Ireland, Italy, Greece and Spain) is descending into fiscal anarchy. Italy is on the verge of requiring a bailout of its own, one which would exceed what has already been allocated to Greece, Ireland and Portugal. In desperation, the Italian senate has voted in favor of austerity measures. Based on the failure of the austerity measures in Greece to prevent a second bailout being required, the desperate action by Italian decision makers is unlikely to work, and has the look of panic rather than thoughtfulness. Like a tsunami wave that can travel thousands of miles from the epicenter of a major seismic event, the cascading sovereign debt crisis, which had its origins in policy responses to the global financial implosion of 2008 and the Greek debt crisis of 2010, is now ravaging public finances on both sides of the Atlantic. A point may soon be reached where private investors, Eurozone taxpayers and the IMF can no longer cobble together ever-larger “rescue packages,” all of which, with perverse logic, require even larger levels of public debt to construct. A dark truth may soon permeate this ballooning crisis; the policymakers have no real solutions, and have just about run out of gimmicks and short-term fixes. The global economic crisis that began with the financial collapse of 2008, far from being resolved or a clear path to recovery being underway, is entering a more dangerous phase, in which sovereign debt reaches the level of unsustainability. The result could very well be paralyzing insolvency among the advanced economies, which could destroy the economic future of an entire generation.

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British Policymakers Pursuing ‘Half-Measure’ In Trying To End Too Big To Fail

July 5, 2011

WASHINGTON — British proposals to force large banks to separate their riskier trading operations from their retail units go further than what U.S. policymakers ordered when revamping their financial system, yet still fall far short of truly ending the perception that megabanks are too big to fail, experts say. The Independent Commission on Banking, a panel formed at the urging of the government last year to recommend ways to increase the stability of the British banking industry, suggested in April that lenders should isolate their basic banking operations into separately capitalized subsidiaries within the larger bank. This would make it easier and cheaper for regulators to wind down failing firms while protecting retail and business deposits, the panel argued, and more expensive for banks to engage in capital markets activities like trading in derivatives. Britain spent more than 65 billion pounds in taxpayer funds rescuing Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc during the financial crisis. Policymakers, trying to avoid a repeat scenario, have latched onto the idea of a subtle separation of banks’ retail and investment units. Chancellor of the Exchequer George Osborne backed the proposal last month during his Mansion House speech. But that idea, while it has caused an uproar among British bankers for the costs it would likely impose, barely takes a stab at ending so-called “Too Big To Fail,” say experts like Simon Johnson, a former chief economist at the International Monetary Fund. “The question is what’s the size you’re left [with] and are you afraid of them failing,” said Johnson, a professor at the MIT Sloan School of Management and a member of the U.S. Federal Deposit Insurance Corporation’s systemic resolution advisory committee. “By itself, [ringfencing] is not going to do much.” Johnson reckons the banks will still be too big, and policymakers will remain too scared to let them fail. While banks would be forced to hold a bit more cash as a buffer against extreme losses — a result of having to raise more capital for the separate subsidiary — they would ultimately remain nearly as large as they are now, and would not hold nearly enough capital to protect taxpayers from having to rescue them in case of failure, experts argue. “In principal, this is a perfectly reasonable thing to do,” said Richard Portes, president of the Centre for Economic Policy Research and an economics professor at London Business School. “But it doesn’t strike at the essence of the problems that caused the crisis or try to prevent future ones.” “The banks will still be very, very big — it will be just as big as before — and with that comes not just ‘too big to fail’ but ‘too big to manage’ and ‘too big to cope with politically,’” Portes said. Johnson recommends big banks be broken up. Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, an arm of the U.S. central bank, says the same thing, as do his counterparts in St. Louis and Dallas. Hoenig says that financial firms that take deposits, which enjoy taxpayer backing, should not be allowed to leverage that support to engage in riskier activities like trading for their own account. Last year, the U.S. passed a financial regulation law known as Dodd-Frank that aimed to end the perception that some firms are so big that policymakers would not allow them to fail. One of the law’s provisions mandates that banks reduce trades made for their own account, while another calls for some of banks’ derivatives activities to be organized within a separately capitalized subsidiary. Regulators are at work defining key terms that would govern such moves. The British independent commission, led by former Bank of England chief economist John Vickers, could have gone further, particularly given the size of the banking industry relative to the economy. However, the commission dismissed ideas like Johnson’s as “radical” in its interim report, released in April. Instead, the Vickers panel pursued “more moderate measures.” “You can’t get half-pregnant in this game,” said Amar Bhide, a professor of international business at the Fletcher School of Law and Diplomacy at Tufts University and a former proprietary trader at E.F. Hutton. “It’s not enough to have a ringfenced subsidiary; I think the ringfenced entity ought to be free and clear on its own accord,” Bhide said. Bhide, like Johnson and Hoenig, supports cleaving off capital markets units from retail banks. “These things are spaghetti-like creatures, where no one quite knows who owns what, what the obligations are, and to whom and by whom,” Bhide said. “People have no clue from the outside — including, I suspect, the regulators — what a mess it is, organizationally speaking, within these large entities.” British policymakers, like their counterparts in the U.S., don’t seem inclined to take the sort of steps that would make their jobs easier. Vickers’s suggestion was the next-best thing. “They feel the need to do something,” Johnson said. “This is the least they could do.” Ultimately, the ringfencing idea is “terrific,” Bhide said, “but no half-measures, please.” * * * * * r Shahien Nasiripour is a senior business reporter for The Huffington Post. You can send him an email ; bookmark his page ; subscribe to his RSS feed ; follow him on Twitter ; friend him on Facebook ; become a fan ; and/or get e-mail alerts when he reports the latest news. He can be reached at 1+917-267-2335.

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Gaza Benefiting From Israel Easing Economic Blockade

July 5, 2011

BEIT LAHIYA, Gaza Strip — Maher Khoudari boasts that his Gaza grocery has a wide assortment of chocolates for sale – even some you couldn’t find in the cosmopolitan Israeli city of Tel Aviv. The problem is, there is no one to buy them. Israel eased its blockade of the Hamas-ruled Palestinian territory a year ago and now allows virtually all consumer goods in, meaning there are no longer acute shortages of foods or basic household items. Tiny construction projects have begun sprouting up, and Gaza is awash in big ticket items such as cars and refrigerators. But deep troubles remain. Israel maintains restrictions on the key construction and export sectors, and the vast majority of Gazans are still barred from traveling in and out of the territory. Nearly half the work force is unemployed, and more than 70 percent of the population relies on food handouts, making fancy chocolates, like any other non-essential goods, a luxury most cannot afford. “We have no customers,” says Khoudari, 40, who owns one of Gaza’s biggest supermarkets. His predicament sums up Gaza’s economic situation after blockade was eased amid an international outcry over Israel’s deadly raid on a blockade-busting international flotilla. Now pro-Palestinian activists in Greece are laying plans to launch a new protest flotilla toward Gaza, drawing attention back to the plight of the impoverished territory of 1.6 million. Israel dismisses claims by Palestinians and their sympathizers that there is a humanitarian crisis. Maj. Gen. Eitan Dangot, who oversees Israel’s border policy with Gaza, told reporters last week that Israel has taken numerous measures in recent months to boost the Palestinian economy. He said the number of trucks carrying goods into Gaza has more than tripled, cargo crossings with the area are being expanded and that Israel is now allowing dozens of building and infrastructure projects to move forward. Palestinian officials say the Israeli measures are far too little. Most critically, Israel continues to tightly restrict the entry of construction materials – badly needed to repair the damage from an Israeli military offensive two years ago. Tight restrictions on exports, along with the entry of raw materials, mean that more than 80 percent of Gaza factories are either shuttered or working at limited capacity. “Israel has made much of the fact that there is no starvation in Gaza,” said Gaza economist Omar Shaban. “But the humanitarian crisis in Gaza is not about food,” he added. “The humanitarian crisis is about education, it’s about development, about imprisonment.” The international community has repeatedly expressed concerns about the blockade – but in a statement this week, the “Quartet” of Mideast peacemakers said conditions in Gaza have significantly improved. The statement noted “a marked increase in the range and scope of goods and materials moving into Gaza, an increase in international project activity, and the facilitation of some exports.” Nonetheless, it said “considerably more needs to be done to increase the flow of people and goods to and from Gaza.” The economy of Gaza, a crowded seaside strip sandwiched between Egypt and Israel, has always struggled. Shaban said that even if Israel lifted all restrictions on Gaza, it would take years for the economy to recover. “This is not something you can achieve in days or months,” he said, suggested the territory would need an international bailout similar to the post-World War II Marshall Plan that rescued Europe. Israel and Egypt imposed the blockade after Hamas-linked militants captured an Israeli soldier in 2006. The restrictions were further tightened after Hamas seized control of Gaza the following year. Israel says the measures are aimed at weakening Hamas, which it considers a terrorist group, and to prevent it from bringing arms into the territory. But the blockade failed to achieve either goal. Instead, a flourishing smuggling business sprouted up along the Egyptian border. A vast network of tunnels has actually helped strengthen Hamas, which collects taxes on the industry. Pro-Palestinian activists from around the globe have been trying to breach the blockade since 2008, sending ships laden with supplies bound for Gaza. Israel allowed ships through five times, but has blocked them from Gaza since its three-week military offensive in January 2009. Under international criticism, Israel began to ease the blockade in early 2010. The situation changed drastically after Israeli naval commandos killed nine Turkish activists on board a Gaza-bound ship. The May 2010 incident was a public relations nightmare for Israel and forced it to greatly ease the blockade. The military says the number of supply trucks entering Gaza through Israeli-controlled cargo crossings grew 66 percent from a year ago. Now a loose network of activists organized a new flotilla based mostly in Greek ports, and planned to sail for Gaza last week. But their plans suffered a major setback when Greece banned the boats from leaving for the Palestinian territory, and the project is now in doubt. Israel says the activists trying to send another flotilla are naive and misguided. The International Monetary Fund said Gaza’s economy expanded 16 percent in the first half of 2010, though that leap was largely a result of a very depressed economy the year before. Nonetheless, experts say economic activity remains below the 2006 levels. Israel’s war in Gaza reduced Fayza al-Louh, her husband and eight kids to living in a single room with one bathroom and a small kitchen. With Israel still severely restricting the entry of construction materials into the coastal strip, thousands of homes and businesses damaged in the war still await repairs. Al-Louh’s three-story home is damaged beyond use. “Every night, I expect the remains of my house to collapse,” Al Louh said. “We suffer from the rain in the winter and the sun in the summer. And if the weather weren’t enough of a problem, what about the rats and snakes and mosquitoes?” Earlier this month, Israeli authorities agreed to allow the U.N. to import materials to rebuild some 1,200 homes destroyed in fighting with Israel nearly 10 years ago. It is one of the largest projects Israel has authorized in Gaza, but will still only meet a fraction of Gaza’s needs and will not help al-Louh, who lives in a different part of the territory. The U.N. estimates some 60,000 homes need to be repaired or rebuilt altogether. Israel says its only aim in preventing some materials and impeding some projects is security-related. It believes construction materials could be diverted by Hamas for military use. But critics say Israel applies too broad a definition and that the true, unspoken purpose is to punish Gazans for the rule of Hamas. Amjad Shawwa, a development worker and anti-blockade activist, says the blockade has deprived nearly 7,000 Gaza fishermen of a living, and water, sanitation, electricity and road projects remain stalled. “You probably won’t find hungry people, but the feeling of injustice and frustration is pervasive in all homes,” Shawwa said.

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Daniel Dicker: Strategic Petroleum Reserve Release Under Fire — For Being Effective

June 24, 2011

Argue all you want about the release of 60 million barrels of crude oil from the International Energy Agency, including 30 million barrels from our own Strategic Petroleum Reserve, but one thing you can’t argue is the level of its effectiveness — it is killing the speculators and dropping prices like a stone, at least for now. A lot of pushback from market analysts and oil mavens has emerged in the 24 hours since the IEA decision — that President Obama’s decision was politically motivated for one. Other pundits are convinced that the announcement was coordinated with the Bernanke speech that noted the slowdown in growth acceleration since the start of the recovery. Others are calling the SPR release a new “stimulus” plan, being used because so little is left to be done and the Federal Reserve is holding off on fresh monetary loosening, at least for the present. Argue all the rationales you like, a different QE3, a way for Obama to get ahead of the 2012 elections, I don’t know — but whatever you do, don’t argue how incredibly effective it’s been and how much it will drop gasoline prices, even if only in the short term. Crude oil dropped more than 6% on Thursday alone, despite the fact that the SPR release will represent a literal drop in the bucket — that 60 million barrels is equivalent to 16 hours of global demand, nothing more. The downward move in prices that this release has created, considering how small it is, is nothing less than stunning. It strikes at the heart of the speculators who have been flooding into the oil trade since the start of the year and particularly since the Egypt unrest. It is signalling, whether rightly or wrongly, that sovereign nations are going to use some pretty unorthodox tools to getting at and getting out some of that spec money with no connection to oil other than the desire to make money from a rising price. Along with margin hikes in the past month, this tool should scare the bejeezus out of the hedge fund players and prop desks — the White House intimated that this release should not be considered a “one time only” event. As a market player, you’ve got to be nervous holding long positions with the influence of an SPR release being held over your head. The timing also couldn’t have been better — It is when markets are under pressure that bearish news has the biggest impact. That’s why the argument that oil prices were already coming down and the release was therefore unnecessary was misguided — for full effectiveness, you’d want to release it as a straw to break a camel’s back. With oil streaking higher, a release of reserves would have had far less impact. Will more releases happen? Will this release “do the job” fully? Will it drop prices for the long-haul? Was it a misuse of the SPR and the reason it was created? Is this a political short-term answer to a mismanaged long-term energy policy? All good questions, worthy of answers. But for now, there’s no need to argue how much it has helped, if you’re in favor of lower prices — it’s helped a lot .

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What The I.M.F. Hackers Were After

June 12, 2011

By Jim Wolf and William Maclean WASHINGTON/LONDON (Reuters) – A major cyber attack on the IMF aimed to steal sensitive insider information, a cyber security expert said on Sunday, as the race to lead the body which oversees global financial system heated up. The U.S. Federal Bureau of Investigation is helping to investigate the attack on the International Monetary Fund, the latest in a rash of cyber break-ins that have targeted high-profile companies and institutions. “The IMF attack was clearly designed to infiltrate the IMF with the intention of gaining sensitive ‘insider privileged information’,” cyber security specialist Mohan Koo, who is also Managing Director, Dtex Systems (UK), told Reuters in London. A June 8 internal memo from Chief Information Officer Jonathan Palmer told staff the Fund had detected suspicious file transfers and that an investigation had shown a desktop computer “had been compromised and used to access some Fund systems.” “At this point, we have no reason to believe that any personal information was sought for fraud purposes,” it said. The New York Times cited computer experts as saying the IMF’s board of directors was told of the attack on Wednesday, though the assault had lasted several months. The IMF says its remains “fully functional” but has declined to comment on the extent of the attack or the nature of the intruders’ goal. News of the hack came at a sensitive time for the world lender of last resort, which is seeking to replace former managing director Dominique Strauss-Kahn, who quit last month after being charged with the attempted rape of a hotel maid. French Finance Minister Christine Lagarde remains the frontrunner to replace him, although Stanley Fischer, the Bank of Israel Governor and a former IMF deputy chief, has emerged as a late candidate, and Mexico’s central bank chief, Agustin Carstens, is another contender. EMBOLDENED Jeff Moss, a self-described computer hacker and member of the Department of Homeland Security Advisory Committee, said he believed the attack was conducted on behalf of a nation-state looking to either steal sensitive information about key IMF strategies or embarrass the organization to undermine its clout. He said it could inspire attacks on other large institutions. “If they can’t catch them, I’m afraid it might embolden others to try,” said Moss, who is chief security officer for ICANN. Tom Kellerman, a cybersecurity expert who has worked for both the IMF and the World Bank, said the intruders had aimed to install software that would give a nation state a “digital insider presence” on the IMF network. That could yield a trove of non-public economic data used by the Fund to promote exchange rate stability, support balanced international trade and provide resources to remedy members’ balance-of-payments crises. “It was a targeted attack,” said Kellerman, who serves on the board of a group known as the International Cyber Security Protection Alliance. The code used in the IMF incident was developed specifically for the attack on the institution, said Kellerman, formerly responsible for cyber-intelligence within the World Bank’s treasury team and now chief technology officer at AirPatrol, a cyber consultancy. “LIFE-THREATENING” Koo of Dtex Systems (UK) said the recent spate of attacks on large global organizations was worrying because they were targeted, well-organized and well-executed, not opportunistic. “Perhaps most frightening of all is the fact that these type of attacks could quite easily be directed toward Critical National Infrastructure (CNI) organizations, for example Energy and Water, where the impact of such a breach would have severe, immediate and potentially life-threatening consequences for everyday citizens.” Cyber security experts said it might be difficult for investigators to prove which nation was behind the attack. “Even developing nations are able to leverage the Internet in order to change their standing and ability to influence,” said Jeffrey Carr, author of the book, “Inside Cyber Warfare.” “It’s something they never could have done before without gold or without military might,” Carr said. CIA Director Leon Panetta told the U.S. Congress on June 9 that the United States faced the “real possibility” of a crippling cyber attack on power systems, the electricity grid, security, financial and governmental systems. Lockheed Martin Corp, the Pentagon’s No. 1 supplier by sales and the biggest information technology provider to the U.S. government, disclosed two weeks ago that it had thwarted a “significant” cyber attack. It said it had become a “frequent target of adversaries around the world.” Also hit recently have been Citigroup Inc, Sony Corp and Google Inc. (Reporting by Lesley Wroughton, Jim Finkle, Jim Wolf, Jim Vicini and William Maclean in London; Editing by Jon Boyle) Copyright 2011 Thomson Reuters. Click for Restrictions

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WATCH: Homeowner Forecloses On Bank Of America

June 5, 2011

Sweet justice. That’s how foreclosure defense attorney Todd Allen described the feeling of going to a Bank of America branch in Naples, Fla. to seize their assets. Faced with a pair of sheriff’s deputies locking down his building, the branch manager capitulated and handed over a check for $2,534. The sum was to cover Allen’s fees from a case where he represented clients that the bank had tried to foreclose on — despite the fact that they paid for their home in cash. According to the News-Press in Fort Myers , Bank of America opened their case against Warren and Maureen Nyergers in February of 2010 and voluntarily dropped it two months later, but never coughed up for the couple’s legal fees as ordered by a judge. North Carolina’s WFMY has the details on how justice was served: Sheriff’s deputies, movers, and the Nyergers’ attorney went to the bank and foreclosed on it. The attorney gave instructions to to remove desks, computers, copiers, filing cabinets and any cash in the teller’s drawers. After about an hour of being locked out of the bank, the bank manager handed the attorney a check for the legal fees. WATCH:

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Max Fraad Wolff: Disrupted Economies and Disruptive Technologies

May 31, 2011

We have seen residential housing lose what little steam it had built up. Jobs numbers, due Friday, are likely to show moderation in the pace of new job creation. The debt ceiling continues to loom. Gas and food prices are straining corporate earnings and household budgets. Social media marches forward despite a rising chorus of bubble suspicion. The precariousness of jobs and budgets pushes Americans to seek deals online, socialize online and use fewer resources. Sony and Nintendo are struggling and Zynga’s online social games are generating real revenues. Twitter and Facebook are helping change patterns of public information and engagement. In this disrupted period social networks seem to be well aligned to emerging constraints and realities. Across this short week we will get a flood of macroeconomic data and news. We will see productivity, Case Shiller Housing numbers, Chicago PMI, ISM reports, Consumer Confidence, payrolls and unemployment. It will be a whirlwind few days. It appears likely that the balance of this week’s numbers will signal a slowing of growth. The continued impact of the Tsunami, an underwhelming developed world recovery, Euro Zone issues, U.S. Budge issues, housing market trouble and rising commodity prices will be visible in many of the numbers to come. It is fair to say we are living in a disrupted economic environment. From Tunisia and Egypt to your home town, new technologies are emerging with impact. Facebook and Twitter relay news — and waves of meaningless chatter — to millions in real time. Revenues in the social media space are driven by advertising and deal seeking. Thus, social media is neither magical, nor immune to economic dislocation. However, we continue to see flocks heading into virtual space to save time and money. We are using GroupOn, Living Social and other group discount services, to afford meals, services, indulgences. We are on E-Harmony finding matches without long drives and costly restaurant meals and drinks. Resumes are posted and scanned in LinkedIn as we look for work. Facebook, YouTube and Twitter offer free communication and entertainment as cable and cell phone bills weigh heavily on taxed budgets. Social media offers an inexpensive way to travel the world first class and save on purchase of increasingly expensive transportation and hard resources. No matter one’s limited budget, we can deal shop, connect and foster image, in the social network, at little cost. Disruptive technologies are fighting for market shares and revenues in a rough economic context. So far, they are fighting very successfully. As we have seen before, disruptive technologies can sometimes thrive in disrupted economies. Netflix, Hulu and YouTube offer TV and movies for low or no cost. This saves on cable bills, on demand rentals and trips out and about in an expensive world of hard assets. Smart phones and tablet PC’s offer to replace home internet, TV, landline phones and traditional cellular voice minutes and text messages. Wi-Fi and 3G/4G service with cloud computing portend fewer and cheaper devices and services delivering more through social media. Clearly Microsoft glimpsed this in the Skype purchase. The angst of the developed world middle class and the tentative rise of the developing world middle class are disruptive to established businesses. New technologies are well suited to collect both groups as heavy users. As we wait for Friday’s job numbers. We see disruptive technologies outperforming in the present disrupted economy. Also Available at http://www.greencrestcapital.com/blog/disrupted-econ…ive-technology/

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Former Chairman Of Major Egypt Bank Arrested On Charges Of Sexually Abusing Hotel Maid

May 31, 2011

NEW YORK — The former chairman of one of Egypt’s major banks has been arrested on charges of sexually abusing a maid at a Manhattan hotel, just weeks after the arrest of former IMF chief Dominique Strauss-Kahn on similar allegations. Police say Mahmoud Abdel Salam Omar was arrested at the Pierre Hotel on Monday morning. The 74-year-old businessman is accused of sexually abusing the maid and holding her against her will inside his hotel room. Police say the incident happened Sunday night. Police spokesman Paul Browne says detectives found the complainant to be credible. Omar is the former chairman of Egypt’s Bank of Alexandria. Strauss-Kahn quit as the leader of the International Monetary Fund on May 18 after he was charged with sexually assaulting a maid at a different city hotel. He has denied the allegations, but is under house arrest as he awaits trial.

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Video: Naguib Sawiris Calls U.S. Aid for Egypt `Disappointment’

May 20, 2011

May 20 (Bloobmerg) — Billionaire Naguib Sawiris, former chairman of Orascom Telecom Holding SAE and a founder of the Free Egyptians Party, talks about President Barack Obama’s promise of $2 billion in loan guarantees and debt forgiveness for Egypt. Sawiris, speaking with Erik Schatzker on Bloomberg Television’s “InsideTrack,” also discusses the political environment in Egypt since the resignation of President Hosni Mubarak and the nation’s economic outlook. (Source: Bloomberg)

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Video: Sawiris Says U.S. Debt Relief for Egypt Is `Good Start’

May 20, 2011

May 20 (Bloomberg) — Samih Sawiris, chairman and chief executive officer at Orascom Development Holding AG, discusses the outlook for Egypt’s economy following U.S. President Barack Obama’s pledge to provide up to $1 billion in loan guarantees for that country along with the cancellation of $1 billion in debt, about a third of what Egypt owes the U.S. Sawiris speaks with Margaret Brennan on Bloomberg Television’s “InBusiness.” (Source: Bloomberg)

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Rahim Kanani: Aleem Walji of the World Bank Institute’s Innovation Team on the Future of International Development

May 6, 2011

As part of an on-going series on social innovation, I recently interviewed Aleem Walji, Practice Manager for Innovation at the World Bank Institute. We discussed the intersection between innovation and development, the future of social enterprise, current initiatives and efforts underway in the Innovation Practice, challenges and opportunities moving forward within these sectors, and much more. Aleem joined the World Bank Institute as Practice Manager for Innovation in November 2009. Previously, he was Head of Global Development Initiatives at Google.org and Chief Executive Officer of the Aga Khan Foundation in Syria. Aleem was trained as a social anthropologist and urban planner at Emory University and MIT. Rahim Kanani: How would you characterize the intersection of innovation and development, and the emergence of social enterprise as a widely studied, taught, and advancing discipline? Aleem Walji: Governments alone cannot meet the service delivery needs of all their people. They need partners, expertise and access to pools of capital. The private sector helps to fill this gap as commercial actors and non-commercial actors expand access to public goods and basic services to the poor. Social enterprise is a fuzzy term that’s used to describe many things but largely refers to private actors providing goods and services to the poor and optimizing for something other than a pure financial return. The challenge has been in measuring non-financial impact. Investors may be willing to accept lower financial returns if they can measure precisely they are achieving in meeting health, education or water outcomes. The emergence of industry standards for social metrics, industry associations like GIIN (Global Impact Investing Network) are all very promising and will help unlock additional sources of capital motivated by some combination of financial and social objectives. Capital is often but not always the primary constraint. The challenge is matching the right kind of capital with the needs of entrepreneurs at a particular stage of development. Cash-flow based lending and access to working capital for example, are still rare in much of Africa and South Asia and yet that’s what many early stage entrepreneurs need. Rationalizing the deployment of capital — that is understanding when grants are the right instrument, when equity can play a role, and when debit is appropriate — is key to helping the sector grow. And from the perspective of the World Bank is critical in leveraging private resources to complement public capacity in meeting the needs of the poor. Rahim Kanani: How will social innovation and social enterprise shape the next decade of international development, and what role do you envision the World Bank playing in that regard? Aleem Walji: Our role is to be a catalyst. We should be focusing on creating infrastructure for others to build on and use. In the world of social enterprise and social innovation more broadly we’re focused on developing platforms and networks bringing global players together to solve really important problems. For example, if we can contribute to the creation of a new asset class — impact investing — by supporting intermediaries, targeted technical assistance, and incentivizing investments where gaps exist today, then others will help grow the sector and expand opportunities within it. Our role may not always be most visible but good infrastructure works in ways that people sometimes take for granted. Another example is our work around Open data. Data is fuel and good data is rocket fuel. By making information and better data available on indicators like infant mortality, GDP growth rates, and CO2 emissions, we motivate others to build applications based on our curated data sets and reach people we cannot reach ourselves. Our  Apps for Development competition is a case in point. Developers built applications we would have never thought to create. They saw a pain-point and used our data to build their own aspirin solutions. It’s not about vitamins and telling people what’s good for them. It’s about making ingredients available so people can develop their own remedies to their own problems. The right information available to the right people at the right time can be transformative. Rahim Kanani: What do you now know, that you didn’t know when you joined the World Bank Institute in November 2009? Aleem Walji: I feel even more certain after joining the World Bank Group that no single institution can be the global repository of knowledge. Knowledge lives everywhere and is inherently decentralized. The key is to make it easy to find and accessible when and where where it is needed. In agricultural extension for example, the expertise of the best farmer in a region is often more valuable than any textbook or external expert. Making that knowledge available to large numbers of farmers is hugely valuable. That’s the central goal of the World Bank Institute’s practitioner to practitioner exchange. The Bank aspires to connect learning, knowledge, talent, and innovation wherever it lives. It’s about South-South, North-South, and South-North  learning, it’s about connecting experts and expertise, and putting innovators into direct contact with each other. As Judy Rodin from the Rockefeller Foundation eloquently says, “the world is our laboratory and the combination of globalization and information technology just accelerates the spread of innovation”. If we can make innovation more inclusive , user-driven and user-centric, there will be more opportunities to tackle poverty and tap expertise wherever it lies. Rahim Kanani: What worries you the most about the way in which international development is currently understood and practiced? Aleem Walji: Top-down models that replicate what hasn’t worked for decades. Getting more efficient at doing the wrong thing is a real risk. We have to come to terms with what simply has not worked. There is plenty of data and evidence to suggest we need to re-think traditional development paradigms. For example, the expert-led model where knowledge is highly centralized and parcelled out from the North to the South is out-dated. We are moving towards a much flatter world in which countries and people can learn from one another no matter where they sit. A key opportunity for the World Bank Group is to connect the supply and demand sides of knowledge and talent. That implies a transformation in how we see ourselves: a move from the knowledge bank to being global connector and curator of learning, knowledge, and innovation. Institutions like the World Bank can be powerful enablers when we partner with people and institutions in the countries in which we work. But we need to listen better, be honest about what has and hasn’t worked, and move from centralized, expert-led, and linear models to collaborative, open, and networked approaches that connect experts with  expertise which is widely distributed. Rahim Kanani: At the same time, what are you most optimistic about? Aleem Walji: That some of the most impactful innovations that improve the lives of poor people are coming from the poor themselves and from non-traditional actors. Jeff Sachs has called the mobile phone the most important technology for ending poverty in the world today. I think that’s right. It’s not technology alone but how people adopt and adapt technology and use it as an enabler to accelerate change. Moving the phone from the ear to the hand will unleash a revolution in poor countries that we’re only beginning to understand. Eric Von Hippel at MIT’s Sloan school writes about democratizing innovation and the rise of user-led innovation. I think we’re seeing it all around us in how people are using mobile devices and developing off-grid solutions to access power in remote parts of the world. Perhaps the greatest value we can add is in removing constraints to people-led innovation and lubricating their path to growth. Legal and regulatory obstacles often prevent scale. Managing risks is preferable to eliminating them. The example of mobile money in Kenya is a case in point. It’s precisely because the regulator was willing to take risks and allow a phone company to build on a user-led trend of exchanging phone credits, that mobile-based money emerged and drastically expanded access to financial services by the poor. The role of progressive donors like DFID was no less important in testing early stage prototypes. These are important examples we can learn from and notice that user-led innovation fueled the growth of a new industry. When we look today at Egypt, Tunisia, or others countries in the Middle East, we see similar citizen-led social innovation. The use of technology certainly didn’t create social transformation but it accelerated change from one country to another and mobilized young people in unimaginable ways. What can we do to support these people and help them move from protest to democratic transition to engaged citizenship? That’s a question I hope many people are asking themselves because getting it right is so important. Technology is just an enabler but a powerful tool in the hands of a responsible and engaged citizenry. Rahim Kanani: As the former Head of Global Development Initiatives at Google.org, what does your Google experience have in common with your World Bank experience thus far? Aleem Walji: The World Bank and Google both think big but think about scale in different ways. At Google, scale is about developing and rolling out products to millions of users. At the World Bank, it’s about recognizing and developing solutions that will affect the lives of millions of people. In both roles, I’m interested in how innovation and technology can enable and accelerate progress in fighting poverty.  I don’t think incremental change is sufficient to solve the hardest problems in the world. Given the urgency of so many challenges we face today, there is a need for disruptive and transformative innovation. Rahim Kanani: What does the word “innovation” mean at the World Bank, and how would you describe your position within the context of Bank activities around the world? Aleem Walji: In my mind, Innovation within the context of the World Bank is about  what we choose to do and how we go about doing it. I spend the majority of my time focusing on the  what and encouraging the Bank to think about doing very different things. Our Global Apps for Development Competition for example, gave us the opportunity to put development experts into direct contact with software developers. We opened-up very large data sets and challenged the world to create useful applications. We were amazed by the creativity and innovation of developers who created  uses of our data that would have never occurred to us. And that was the point. People closest to problems are incredibly imaginative and if properly equipped with information and tools can offer solutions to problems that outside experts would not. And I think we’ve only scratched the surface of what’s possible by reaching out to a world of non-traditional  experts to help us move the needle on poverty. But that simply can’t and won’t happen unless we create the institutional space for people to take risks and learn from failure. That’s the critical  how of innovation. It’s less about coming up with perfect solutions and more about creating an environment where staff and partners feel free to take initiative, move quickly towards execution, rapid learning, and continuous improvement. Failing fast and learning from failure is not part of the World Bank’s parlance. But it’s essential if we’re going to evolve as an institution and iterate rapidly. This requires our leaders to ask probing questions, be open to new ideas, and give people permission to try them. The world around the Bank is changing fast; innovation is happening all around us. Our relevance depends on our ability to adapt to it. Rahim Kanani: What have been some of the milestone achievements of the Innovation Practice in recent past? Aleem Walji: We’ve been involved in several areas that I think are worth mentioning. The first is Open Data. Last April, through a cross-Bank effort, we adopted a new policy resulting in more than 7,000 development indicators becoming available in our data catalogue at no cost. Our information and data are not just public but  searchable ,  downloadable in machine-readable formats (including through APIs), and  re-usable . And users are coming to our data catalogue in huge numbers surpassing traffic to our World Bank homepage. We’ve realized our clients and our users are not the same group. For most people we’re as much the Databank as the World Bank. This has led to our Development Economics and Research Group to expand our data catalogue regularly. Open Data is pushing us to re-think our role in the development space: what information do we share, how do we share it and collaborate with partners, and what does it mean to create open-source solutions to development problems? The Bank’s  Mapping for Results initiative complements Open Data by adding a geospatial dimension. Interactive poverty maps overlaid with information about where the Bank’s projects are located and where funding flows is eye-opening at many levels. We see relationships between for example infant mortality and where we’re our loans support health and water projects at the sub-national level. The question of  who does what where is a such a black hole in development and Mapping for Results shows where gaps exist in development programs, the clustering of aid programs, and whether results correlate with aid flows. All of this became possible by capturing geo-data (now even possible on most mobile phones) and creating simple mash-ups. We’re working with the Development Gateway Foundation to create a  geo-coding manual to allow other donors and Governments to learn from our experience and develop their own geo-tools. We’ve learned that maps are a very powerful story-telling tool particularly when they help visualize the relationships between very large and disparate data sets. Rahim Kanani: Walk us through some concrete examples of innovative development practices that your office was involved in, with respect to identifying the model, evaluating the model, and ultimately taking the model to scale. Aleem Walji: Scale is everyone’s goal but eludes most development actors. At the World Bank Institute, we talk about moving from retail to wholesale. In practice, this often means working through partners, supporting intermediaries, and figuring out  how and  where we can best add value. The Development Marketplace (DM) program comes to mind. For more than 10 years, we’ve been making small grants to social enterprises globally. The program aims to complement the provision of public goods by Governments by scaling-up the provision of public goods through non-public actors. But for the World Bank to make small scale grants to social entrepreneurs is inefficient and often cumbersome for our grantees. So we want to support local intermediaries to provide pre-investment technical assistance to social enterprises and connect them to a growing pool of socially motivated investors particularly local capital. Our goal is to use the DM Platform to connect high potential pipeline to impact investors, philanthropic capital and social investment funds. We see a major gap between the needs of most social enterprises (requiring early stage angel finance) and where most impact investors sit along the conveyor belt of capital (wishing to deploy private equity/debt). To increase deal-flow, there is a role for targeted pipeline development, reducing due diligence costs, and making early-stage finance available for a broader range of small but growing enterprises. We’re working with a range of government partners, philanthropies, and social investors (including the Aspen Network of Development Entrepreneurs) to test this model in India and East Africa as a starting point. If we can leverage our convening power, relationship with governments, and balance sheet, we can help fill a key gap in the social investment ecosystem. Rahim Kanani: If your work and the Innovation Practice rest upon one core philosophy about the way in which the world works, what is that philosophy? Aleem Walji: Focus on the user and start with problems that matter. Too often we’re answers looking for questions. And the answer can’t be the same if the question is different. Scale is ultimately about the repeatability of a solution based on a homogeneous problem. The private sector has learned the importance of listening to clients. Non-profits and public agencies struggle because the incentives of their funders and their end users are not always aligned.  But if you can create the right incentives for groups to be client or user-focused, I think you get better results. Getting something wrong because it’s a really hard problem is understandable but getting something wrong because you don’t listen to your users is totally avoidable. We can do better and we must do better in listening to our clients and ultimately our clients’ client — the citizen. While I would not describe myself as a techno-determinist, I do believe in the disruptive power of technology to accelerate positive social and economic change. We’ve seen it now in the Middle East with social media and communications technologies and in Kenya and the Philippines with mobile banking and financial inclusion. But intent matters a great deal as technology is value neutral. When harnessed with positive intent, I believe ICTs can enable people to make enormous progress in timeframes that were previously just not possible. — Below is a short video marking the one-year anniversary of the World Bank’s Open Data initiative. For more information: Apps for Development: Website | Video Apps for Development Ceremony Photos: Part 1 | Part 2 Mapping for Results: Website Development Marketplace: Website Aleem Walji: Blog Posts | Video — Previous interviews on social innovation include Bill Drayton of Ashoka, Sally Osberg of the Skoll Foundation, Eric Nee of the Stanford Social Innovation Review, Judith Rodin of the Rockefeller Foundation, and many more. Cross-posted with World Affairs Commentary

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Dylan Ratigan: How Much Longer for the "Royals"?

April 28, 2011

It is the best of times, it is the worst of times. Tomorrow we will see a wedding between a Prince and a soon-to-be Princess. Polling in the US and UK shows that the public itself is largely apathetic, but we in the media can’t seem to get enough of the event. The wedding will cost over $100 million in security and ceremonial costs, and the British government is giving everyone the day off. Ordinary people will use this day ostensibly to celebrate the ceremonies of those born to privilege. But what they will probably do instead is ignore the wedding and spend time with their families. In America, we’re seeing our own version of this. According to the Business Roundtable, the confidence of American CEOs has never been higher . But 70% of the American public thinks that the country is on the wrong track. If you listen closely, you can hear a subtle creaking under the hood of the global economic system, like a car on the road that is slowly breaking down. Every day there’s a new funny noise, something that says it’s just not working right. The basic dynamic is inequality all over the world, in staggering proportions. But the interesting nugget is not the unfairness, but the increasing inability of elites to manage the increasing anger coming from the global losers. Last week, it was in China, a country with even worse inequality than our own. The largest container port in the world — Shanghai — saw a serious strike by Chinese truckers. The strike was muzzled by a combination of a media blackout, police power, and select concessions by the Chinese government to the strikers. So what does that have to do with us? Plenty. China makes what America consumes. Take, for instance, Walmart. Walmart is increasingly a Chinese company these days, orchestrating the shipping of goods made by incredibly poor Chinese workers to increasingly poor American consumers . Apple is another hybrid Chinese company, a middle-man. Steve Jobs makes billions running a design, retail, marketing, and R&D shop in the US known as Apple. His business partner Foxconn CEO Terry Guo makes his billions making iPads, iPods, and iPhones with 800,000 “iSlaves” in China. This is a system, and the strategy behind it is quite explicit. Economists have designed it, and they call it fighting inflation. Since wage gains contribute to inflation, stopping wage gains is the goal of the international trading regime. The natural end result is low wage workers in China selling to high debt consumers in America. You get an unstable system with a deeply immoral core, but hey, at least there’s no inflation. How do I know this is done on purpose? Well, the people in charge of the system say it when they think no one’s paying attention. I’m going to return to this Federal Open Market Committee transcript from 2005, which has received too little attention. Here’s Fed Dallas President Richard Fisher describing his conversations with area CEOs. Everyone I’ve talked to continues to try to figure out ways to exploit globalization. Each of them, from the IT [information technology] guys to the big box retailers to the specialty chemical firms to the service firms, wants to have offshore supply. One of the CEOs said, “We have a long way to go in exploiting China.” We’ve heard that forever. If you read the New York Times article two days ago about Shanghai’s new deep water port, you have to realize that those facilities are being built to ship goods out of China, not so much to ship goods into China… Now, this is good news on the disinflationary front. The bad news is stateside. We don’t have the capacity to absorb it. Long Beach and the Northwest harbors are constrained. Work rules, according to our interlocutors, are very slow to adjust. But there are ways to beat the bottlenecks… Wal- Mart just built a four million square foot warehouse in the Houston port, in order to shift part of the burden from Long Beach. But it is evident that the enemy is us as far as exploiting globalization, and I think that’s a long-term problem that we might want to take note of over time. Get that? Shanghai is increasingly an export-only port. Fisher’s statements were in 2005, when our country couldn’t accept enough goods because of bottlenecks at our ports. But beat the bottleneck we did, by widening the Panama Canal a few years later so China could ship to east coast ports as well. So now the American factory floor is being transferred to China at a faster and faster rate. Which brings me back to the strikes. American CEOs have exported not just our job base, but all the labor unrest that can come with it. China is running out of capacity to make our products, and commodity prices are going up for them as well. So inflation is hitting Chinese workers very hard right now — one of the causes of the trucker strike was a significant hike in fuel prices. The Chinese government quickly made concessions to the strikers, and is broadly attempting to deal with an incredible gap between the rich and the poor. But as Reuters noted , they aren’t doing this because of goodwill. Their worry is political: The Party leadership is especially jumpy about threats to its control following online calls for “Jasmine Revolution” protests inspired by anti-authoritarian uprisings across the Arab world, and has detained dozens of dissidents. Food price hikes sparked strikes in Egypt, which eventually turned into a political revolution. The Chinese government isn’t stupid, but it is trapped. Their strategy is to take American know-how by undercutting us on price, using protectionist measures that we stupidly allow. Our own corporate oligarchs are well-aware of this dynamic as well. They have been preparing for this moment for some time. Walmart (along with GE and even more surprisingly, Google) led the fight in April, 2007 to gut a new labor law proposed for Chinese workers on issues like collective bargaining, severance, etc. The American Chamber of Commerce in Shanghai is using aggressive tactics to ensure that Chinese wages would remain low. Perhaps there is something ironic about aggressive lobbying tactics by multinationals being used effectively in both communist and capitalist legislatures to suppress worker rights. Or perhaps not. But you cannot suppress reality forever, and the strikes in Shanghai show that top-heavy gains eventually have consequences, even for those who make the rules. It’s not always as dramatic as Mubarak’s fall, but then again, Mubarak’s fall wasn’t the point when those first Egyptians began striking in 2007. It was the rising prices. It’s a very good time to be rich. The global trading system is benefiting those who manage huge capital flows. But unstable systems have a way of collapsing. And you can hear the creaking, even above the media circus of the royal wedding. Catch more from Dylan at DylanRatigan.com .

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Gaddafi? Kadhafi? Arabic Names Spell Trouble For Banks

April 19, 2011

International banks, acting on government orders to freeze assets from Libya, Egypt and Tunisia, are scouring hundreds of millions of client files for individuals on the new watch lists. But in doing so, bank compliance officers are grappling with a peculiar challenge: the myriad ways of transliterating Arabic names. The arcane problem is opening the door to niche players, including a unicycling polyglot, who promise to help banks ensure they don’t miss anyone because of misspelled names.

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Ending Egypt’s Bread Subsidies Could Cause Drastic Price Increases

March 28, 2011

CAIRO — In the gritty gusts of a sandstorm, men in turbans and women in veils stood uncomplaining for hours outside a ramshackle kiosk, lined up for their daily loaves of “life.” Political change may be remaking Egypt, but “we trust in God that the bread’s going to stay cheap,” said Shadia Abdul Halim, 45, a mother of six patiently queued up to buy. Bread has stayed cheap even as Egypt’s other food prices leaped upward by 17 percent last year – cheap because the government pays for most of it. Twenty of the flat, round pieces of local “eish” – “life” in Arabic, the word Egyptians use for the staple – cost just one Egyptian pound. That’s the equivalent of 17 U.S. cents for more than 2 kilograms (more than 5 pounds) of bread. But halfway around the world on this day, on a Chicago trading floor, the price of wheat edged up again, raising the pressure another notch on poorer states like Egypt that have made subsidized bread a fixture of Arab life, an increasingly unaffordable one. The Middle East’s bread subsidies are just one dilemma in a world facing a potential food crisis this year, like the troubles in 2008, when skyrocketing prices touched off riots in developing countries. The U.N. global food price index hit a record high in February, surpassing even 2008′s peak. The average price of wheat so far this year, $346 a ton, is more than double 2005′s price. The reasons for the increases are various – growing demand, impact of higher oil prices, diversion of corn to ethanol. Drought and floods have cut into wheat production, possibly previewing what some analysts say will be growing global grain shortages. The head of the U.N.’s World Food Program said hard-pressed governments are being pushed toward cutting food subsidies, at great risk. “When it comes to food, the margins between stability and chaos are perilously thin,” Josette Sheeran said in a statement on the Middle East situation. How much could bread prices rise for poor Arabs? “Without the subsidy, it would triple the price,” said Abdul Elah H. al-Hamawi, president of the bakers’ association in nearby Jordan. “There would be a revolution!” Egypt has already had a revolution, the ouster of President Hosni Mubarak, in the wave of political protest sweeping the region, ignited in part by higher food prices. Now whatever government emerges in Cairo will have to grapple with the subsidy dilemma. Under the half-century-old system, a “safety net” for Egypt’s poor, the government sells cut-rate wheat flour to bakeries for mandatory production of “baladi,” or local, bread. “Bread inspectors” enforce the mandate, but leakage still occurs, as unscrupulous bakers siphon off flour to sell at higher rates to producers of finer, unsubsidized baked goods. Subsidized bread also “leaks” to better-off Egyptians, since anyone can buy it. Half of Egypt’s 80 million people rely on the everyday “baladi eish.” Bread accounts for one-third of Egyptians’ calorie intake, and some blame it for the fact that people here on average are more obese than even Americans. But the bread program is credited with having eased malnutrition and child mortality, and has become a symbol of the “social contract” between Egypt’s governments and its people. Along the way, however, it has also fattened the import bill, as the population exploded. From wheat self-sufficiency, Egypt has become the world’s biggest wheat importer. The government buys more than half the country’s needs on the international market. A decade ago, the basic market cost for those imports was about $700 million a year. This year it could top $3.5 billion, for 10 million tons of wheat. In Jordan, 99 percent dependent on imports, “our budget has been increasing about 10 to 12 percent a year for the subsidies,” Emad A. al-Tarawneh, that government’s chief wheat importer, said in Amman. Although global grain prices dropped in recent weeks because of world events, “our prediction is that prices will continue to go up, same as in 2008,” he said. Here in Cairo, the agronomist known as the “father of Egyptian wheat” for his work improving the local crop, said the subsidy should end. “Otherwise the government cannot afford it all,” Abdel Salam Gomaa said. “And the rich are benefiting more than the poor. They don’t buy to consume but to feed the cattle and animals” – with bread cheaper than animal feed. “But now, with the revolution, it’s not the time to talk about removing subsidies,” Gomaa added. Instead, to counter a tightening global market, he is promoting a plan to boost domestic wheat production, through stepped-up research for better-yielding local seed, reclaiming land for cultivation, financial support for farmers’ purchases of costly fertilizer, herbicide and irrigation. For the Arabs and their bread, however, other challenges lie ahead. Gomaa says climate change – warmer temperatures – is already cutting into Egypt’s wheat yield. Across the Red Sea, Saudi Arabia’s bid for wheat self-sufficiency, successful for two decades, has crashed as an underground water table runs dry. Even Jordan’s small grain crop is threatened by rains that have turned unreliable. Back at the kiosk, baker Essam Hosni, 29, arrived to tell the patient crowd their eish would soon be delivered. What did he think of the revolution? It’s good, he said: “The bread inspectors have stopped asking for bribes.” But what if a new government rethinks the wisdom of cheap bread? “No, no. They can’t do that,” the baker said. “The whole world would collapse if that happened.”

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Video: Sawiris Sees Egyptian Infrastructure Boom After Crisis

March 25, 2011

March 25 (Bloomberg) — Nassef Sawiris, chief executive officer of Orascom Construction Industries, Egypt’s biggest publicly traded builder, talks about the Egyptian revolution and the outlook for the country’s stock market. He speaks with Andrea Catherwood on Bloomberg Television’s “Last Word.”

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Video: Salem Sees `Tremendous’ U.S. Investor Interest in Egypt

March 25, 2011

March 25 (Bloomberg) — Mahmoud Salem, head of depository receipts for the Middle East at Bank of New York Mellon Corp., discusses the role of depository receipts during the closure of Egypt’s stock exchange, investor interest in Egypt and investment opportunities in the country. Salem speaks with Margaret Brennan on Bloomberg Television’s “InBusiness.” (Source: Bloomberg)

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Crisis Of Conscience: Lobbyist For Bahrain, Yemen Loses Top Execs

March 24, 2011

This story has been updated NEW YORK — One of Washington’s best-known lobbying and public relations firms has been upended in the wake of the turmoil in the Middle East due in part to its representation of some of the region’s autocratic governments. In the last two months, more than a third of the partners at Qorvis have left the firm to start their own lobby shops, partly because of the firm’s work on behalf of such clients as Yemen, Bahrain, Saudi Arabia and the Central African nation of Equatorial Guinea, say former employees. “I just have trouble working with despotic dictators killing their own people,” a former Qorvis insider tells The Huffington Post. “People don’t want to be seen representing all these countries — you take a look at the State Department’s list of human rights violators and some of our clients were on there.” The governments of Bahrain and Yemen, which have been condemned by the United Nations for their brutal crackdowns that resulted in dozens of protesters killed and hundreds injured, are both represented by Qorvis through a subcontract to British public relations giant Bell Pottinger . Saudi Arabia, which last week sent troops to assist in riot control in Bahrain and has long been cited for its poor human rights record , is a longtime client of the firm. And Equatorial Guinea, an oil-rich dictatorship considered one of the most corrupt and undemocratic regimes in the world, likewise pays Qorvis to burnish its reputation. Several former Qorvis staffers blamed the firm’s current management for cultivating such “black hat” clients, noting that much of that business came about through the firm’s partnership with Bell Pottinger, the United Kingdom’s largest public relations firm, which took heat for representing Sri Lanka during that South Asian country’s brutal crackdown on rebel groups during the last two years. “They have zero conscience in what they do,” says the first former insider, referring to Bell Pottinger. A spokesperson for Bell Pottinger did not return calls for comment. Such “black hat” countries pay well — Equatorial Guinea pays Qorvis $55,000 per month and Saudi Arabian initially paid Qorvis $14 million per year back in 2002 to polish its reputation in the wake of the Sept. 11, 2001, attacks, though in recent years the latter contract has been much less lucrative. “These scumbags will pay whatever you want,” says the former insider. “You can charge retainers that are huge.” The firm’s founder and CEO, Michael Petruzello, says that such complaints are “ridiculous” and disingenuous, asserting that the firm’s work with international clients preceded the tenure of departing partners and that no one complained about it. “If they had a problem with it, it would have been discussed,” he said. He adds that most of those former partners worked at Qorvis for six to seven years and that they left primarily to start their own businesses, which is very common in the hothouse world of D.C.-based lobbying and public relations outfits. The principals who departed include Kelley McCormick (who left in early March for Gibraltar Associates), Don Goldberg, Michael Quint and Jason Siegel (who resigned in February to start a new firm, Bluetext), and Maura Corbett , who left in November to launch the Glen Echo Group. Petruzello defends the firm’s work on behalf of countries with troubled reputations, explaining that the firm’s international clients represent only 20 percent of its business (which primarily consists of large corporate clients such as Cisco and Sprint). “The reason they hire Qorvis and others is that they have a narrative they feel is not being heard — and they want a chance to be heard in the court of public opinion.” He adds that he’s proud of the work the firm has done for Bahrain, for example, explaining that every Secretary of the Navy has said that there is no stronger ally of the United States than the island nation, which hosts the U.S. Navy’s 5th Fleet. And Petruzello, who quickly named four new principals in recent weeks , insists that the firm “has the strongest leadership team in [its] 10-year history.” Among them are former State Department staffer Greg Lagana and former Washington Times editor Seam Dealey, who are handling a new $92,000 litigation communications contract with Cairo-based EZZ Industries. That company’s owner, Egyptian business tycoon Ahmed Ezz, a friend of the Mubarak family, was arrested amid the unrest in that country. Qorvis’s role is to promote “a transparent judicial system in Egypt,” reports O’Dwyer’s. It’s not the first time that Qorvis has witnessed a mass exodus due in some part to its unsavory clients. After Qorvis was retained by Saudi Arabia several months after 9/11, the contract attracted controversy and a Justice Department probe of the firm for its involvement in a radio ad campaign that burnished the image of the country, leading three top principals (Bernie Merrit, Jim Weber and Judy Smith) to leave the firm . Weber and Merritt, who run their own firm, did not return calls for comment. One of the methods used by Qorvis and other firms is online reputation management — through its Geo-Political Solutions (GPS) division , the firm uses ‘”black arts” by creating fake blogs and websites that link back to positive content, “to make sure that no one online comes across the bad stuff,” says the former insider. Other techniques include the use of social media, including Facebook, YouTube and Twitter. Recently, Qorvis helped frame the kingdom’s crackdown on protests by highlighting statements made by Secretary of State Hillary Clinton, in which she emphasized America’s commitment to Bahrain and affirmed its “sovereign right” to invite security forces from other countries. Clinton’s comment that the government is “on the wrong track,” however, was omitted, notes the Sunlight Foundation’s Paul Blumenthal . The firm’s work for Equatorial Guinea, whose strongman Teodoro Obiang has been accused by the UN Commission on Human Rights of directly overseeing the torture of his opponents, includes sending out news releases about the country’s support for animal conservation and a native daughter being named Michigan “Teacher of the Year.” In a lengthy Harper ‘s profile of Obiang and his son, Qorvis principal Matthew J. Lauer defended the country, saying, “No one is saying there are no problems, but it’s not North Korea,” but declined to respond to questions about claims of corruption and money laundering by U.S. investigators. Other high-powered firms operate in the Mideast — Patton Boggs, which owns a percentage of Qorvis and which recently made headlines when President Obama sent one of the firm’s lawyers , Frank Wisner, to negotiate with Egypt’s recently-ousted former president Hosni Mubarak, has long worked with Egypt and Saudi Arabia. Qorvis and Patton Boggs were both subpoenaed in 2002 by the House Committee on Government Reform , which was investigating reports of American children kidnapped and held in Saudi Arabia. The Livingston Group, founded by former Louisiana Rep. Robert L. Livingston, was paid $2.4 million to represent Libya in 2008 and 2009. And the Washington Media Group ended its $420,000 contract to enhance the image of Tunisia in January after images of the country’s brutal crackdown on protesters made headlines around the world. The United Arab Emirates was the second-biggest foreign lobbying client , paying $5.3 million to DLA Piper and other firms in 2009 to help get more access to U.S. nuclear technology, among other issues. And former Wall Street Journal reporter Christopher Cooper was recently hired for $20,000 a month by Bahrain’s envoy to the U.S. government to help get the administration and members of Congress behind the Crown Prince’s idea of a national dialogue, says Cooper. Envoy Abdul Latif Zayani, Bahrain’s former chief of police, is a familiar presence in military and diplomatic circles and was once a classmate of Joint Chiefs Chairman Mike Mullen. The region is attractive to lobbying firms due to the lucrative contracts but it can also present challenges. “If you get associated with somebody who turns out to be a Gaddafy kind of person, you’re not in the company of one of the nice people of the world and that could harm your reputation,” says Howard Marlowe, president of the American League of Lobbyists. “And in the lobbying world, your reputation is everything.” “Most of us are not guns for hire — we would like to be able to wake up in the morning and look in the mirror and feel that we are not associated with child molesters, wife beaters. And to do work that meets our own test of ethics and conscience,” he added. Making sure to emphasize that he was not referring to the Qorvis situation, he called on lobbyists to follow their conscience. “It’s a commendable thing for a lobbyist to have their own set of ethics — if I’m doing something that I’m uncomfortable with, then I need to get out of it.” Correction: A previous version of this story erroneously reported that legendary publicist Judy Smith died last year based on an incorrect online report. I sincerely regret the error.

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Robert Lenzner: Gold, Silver Prices Hit New Peaks on Political Unrest

March 24, 2011

Gold bullion closed at $1438 Wednesday after hitting $1442, and will rise as investors try to protect themselves in a world gone mad with chaos and blood. Silver actually hit a new 35 year peak at $37.19, and getting closer to the $40-$50 goal we set last fall. Gold is no longer just a hedge against QE2 and inflation — or a hedge against deflation. Nor is it a hedge against a declining dollar. Today, gold has become an expression of the instability spreading from Tunisia to Egypt to Libya to Syria, to Yemen, to Saudi Arabia, to Iran, to Bahrain — and those street dissensions to come, conceivably in Kuwait, UAE, and elsewhere. Oil supplies are threatened. Buy gold and silver. You don’t believe? Look at a chart of gold against silver. They are moving in absolute tandem now. Any Sheikh trying to preserve his fortune must own gold and silver. In the US the price of GLD, the largest gold ETF, hit a peak of $140 and looks set to breakthrough that mark tomorrow or the next day. Let’s see if net selling turns into net buying. Are you listening Soros and Paulson, and their camp followers? Then, there’s the WikiLeaks impact on gold and silver. The FT reported a few days ago, via cables released by WikiLeaks, that more central banks are plowing into gold, playing catch up with China, Russia and India. Listen up!. Iran, says the Bank of England via the FT , is making “a significant move… to purchase gold. Likewise, the Qatar Investment Authority, no slouches, and Jordan’s central bank are putting reserves into gold. I must call my friend at the Bank of Israel to find out what he’s doing. I’m sure I won’t get anywhere. Imagine; gold and silver at new peak prices. While oil is only at $106 — high for sure, and going higher in fits and starts, and copper has eased recently as the Chinese reduced their purchases. A shocking development. Goldman Sachs is still bullish.

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Video: Egypt Stock Exchange’s Abdul Salem Discusses Trade Halt

March 23, 2011

March 23 (Bloomberg) — Mohamed Abdul Salem, chairman of Egypt’s stock exchange, talks about the halt in trading after shares tumbled following a closure of almost two months. He speaks with Francine Lacqua on Bloomberg Television’s “On The Move.”

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U.S. Banks Oppose Stricter Money Rules

March 22, 2011

Even as governments freeze assets tied to regimes in Libya, Egypt and Tunisia, U.S. banks are resisting efforts to tighten international rules to prevent the flow of money from corrupt politicians.

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World Bank: We Must Rethink Our Role In The Middle East

March 21, 2011

WASHINGTON (Reuters) – The World Bank is rethinking its role in the Middle East and North Africa to tackle economic and social problems that sparked political unrest, the bank’s President Robert Zoellick said on Monday. The poverty-fighting institution needs to find some way to convince resistant governments change is needed, he said. “We have produced a number of flagship reports on governance, youth inequality, quality of education, special disparities, and the noncompetitive nature of the private sector in the region,” Zoellick said in opening remarks at a World Bank conference on Arab issues. “But the record of action has been spotty. Like others, we also have much to learn,” he added. The conference, held at the bank’s Washington headquarters and carried live on the Internet, brought together journalists, think tanks, youth and women groups, and academics from the Arab world to discuss changes taking place across the region. Protests against political repression, corruption, high unemployment and a rising cost of living toppled rulers in Egypt and Tunisia and spurred uprisings in Yemen, Bahrain, Morocco, Jordan, Algeria, Saudi Arabia, Syria and Libya. The changes have forced institutions like the World Bank and the International Monetary Fund to take a harder look at their roles amid criticism they supported economic and development policies of authoritarian governments that worsened poverty and unemployment. Zoellick said part of the process of modernizing multilateral institutions was to learn from mistakes. “The challenge we have as an institution is when a government resists, how do we engage?” he told reporters. “Some people say pull back, don’t do anything, but often there are opportunities to … make a difference,” he added. Zoellick said such issues need to be debated by World Bank member countries who fund the institution and meetings of the World Bank and IMF in mid-April present an opportunity to address ways the bank can support the transitions. In the near-term, Zoellick said he worried about high expectations for change at a time when global food prices are rising, adding to the fiscal burden of countries in the region that import most of their food. LEARNING FROM HISTORY He said while there may be a tendency to want to forget the past, there were important lessons “not necessarily to be choked by them but to understand what questions to ask going forward”. “In order to identify and explore these issues, we need first and foremost to open up a genuine and deep dialogue with and between the different voices in the region,” Zoellick told the conference. “They are issues that will not go away simply because one government fell, or one leader replaced another.” Samer Shehata, a professor at the Center for Contemporary Arab Studies at Georgetown University, told Reuters revolutions in Tunisia and Egypt were reactions against economic and social policies championed by the World Bank and IMF. “In many ways the Tunisian and Egyptian revolutions were against neo-liberal economic policies that were merciless on poor people because they bet on the future,” Shehata said, pointing at the 14.4 percent unemployment rate in Tunisia. Shehata said the institutions needed to change the methods they use to evaluate development and progress in the region, and should not sidestep sensitive political questions. “They need to focus on the vast majority of the population and their living conditions, and also political issues like how good is the quality of institutions, is there political participation, and are elections free and fair,” he said. “It can’t just be simply about rates of growth.” (Editing by Padraic Cassidy and Andrew Hay) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Fred Teng: Why China Won’t Be the Next Egypt

March 21, 2011

The recent eruption of protests and violence in Egypt and the resignation of its president, Hosni Mubarak, lead some pundits to predict that the same movement will happen in China. However, China’s circumstances are entirely different and a similar outcome is unlikely. Along with India and Greece, Egypt and China are two of the oldest civilizations in the world. However, both the Arab Republic of Egypt and the People’s Republic of China only established their current governments about 60 years ago. How did these two governments conduct their affairs? Why are the events that caused the collapse of the Mubarak regime not likely to happen in China? The main issues that surrounded the downfall of the Mubarak regime appear to be the leadership and the economy. In Egypt, Hosni Mubarak served as the only President of Egypt for over 30 years; yet in China, since Deng Xiaoping’s launch of the Open and Reform Policy in 1978, China has made orderly transitions through three generations of leaders. Starting with Deng Xiaoping leading the second generation from 1976 to 1992; then Jiang Zemin leading the third generation from 1992 to 2003; and from 2003 the fourth generation with Hu Jintao as the core figure (General Secretary), along with prominent leaders including Wu Bangguo, Wen Jiabao, Jia Qinglin, Zeng Qinghong and Li Changchun. By 2012, the fifth generation of leaders will emerge, and the sixth generation of leaders is already being prepared. In Egypt, the last three presidents — Nasser, Sadat and Mubarak — all came from military backgrounds. By contrast, Chinese leaders are mostly from civilian backgrounds, and many of them are in fact engineers. While many historical great leaders have come from military backgrounds, civilian leaders tend to seek non-military solutions, and they also have a broader vision for science, business, and society as a whole. One of the rumors was that President Mubarak was plotting to let his son inherit his presidency, which upset a lot of people in Egypt, including the military council, and resulted in a forced resignation. When we look at the history of the People’s Republic of China, no leader has ever been succeeded by their offspring. The orderly transition of leadership, a well-planned succession, and a merit based leadership selection process has resulted in maintaining China’s stability and progress. On the economy, both Egypt and China face a daunting task to deal with a vast number of people that need education and employment. In the last 30 years, the Egyptian government has reformed the highly centralized economy it inherited from President Nasser. The pace of structural reforms, including fiscal and monetary policies, privatization and new business legislations, helped Egypt to move towards a more market-oriented economy and prompted increased foreign investment. The reforms and policies have strengthened macroeconomic annual growth results which averaged 5% annually, but the government largely failed to curb the growing problem of unemployment and underemployment among youth under the age of 30 years. In this period China has followed its own socialist market economy and become the world’s fastest-growing developing country, with average growth rates of 10% for the past 30 years. China has lifted 300 million people, about four times the size of Egypt’s entire population, out of poverty. Certainly, China still has a lot of work to do, but its amazing accomplishment is clear. China’s success is largely due to its long-term planning strategy — the Five Year Plans . Moreover, China is committed to stay on the course of its Five Year Plans and not by piecemeal legislation. One of the example is China’s overall economic construction objectives were clearly stated in the Three Step Strategy set out in 1978: Step One — double the 1980 GNP and to ensure that the people have enough food and clothing. This was attained by the end of the 1980s; Step Two — quadruple the 1980 GNP by the end of the 20th century. This was achieved in 1995 ahead of schedule; Step Three — increase per-capita GNP to the level of medium-developed countries by 2050, at which point the Chinese people will be fairly well-off and modernization will be basically realized. The 12th Five Year Plan that was adopted in March 2011. Those who are interested in having a deeper understanding of China’s future direction should study the plan and watch the events unfold. China will stick to its plan. In most democracies, the citizen’s trust and satisfaction with their own government is critical to the success of the nation, and China is no exception. Let us take a look at how most Chinese people view their government. According to 2010 Pew Survey: China is clearly the most self-satisfied country. Nearly nine-in-ten Chinese are happy with the direction of their country (87%), feel good about the current state of their economy (91%) and are optimistic about China’s economic future (87%). Moreover, 64% of Chinese have a very favorable view of their own country, a self regard that exceeds that among Americans (48%), Russians (43%), Germans (12%) and Brazilians (31%). Citizen confidence leads to productivity, investments and stability. When the citizens are satisfied, the government can conduct its functions; business can produce goods and services, and people can work and provide for their family. While there might be some similarities between Egypt and China in their long civilization, and the moving from a centralized economy to a market economy in the last 30 years, the difference is that China has maintained an orderly transition of leadership, and an economic planning process that is producing results. Most importantly, China’s people are satisfied with their own government. This article was originally published in CHINA US Focus (www.chinausfocus.com)

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Oil Prices Jump After UN Approves Military Action In Libya

March 18, 2011

SINGAPORE (Reuters) – Brent crude jumped by more than $1 to $116 on Friday on fears of rising geopolitical tension in the oil-rich Middle East and North Africa, after the United Nations approved military action to contain Libyan leader Muammar Gaddafi. Front-month Brent rose $1.10 to $116 by 3:25 a.m. ET, after earlier touching a one-week high of $116.50, while U.S. crude for April rose $1.49 to $102.91. Japan’s strongest earthquake on record a week ago sent fear coursing through global financial markets, raised concerns of reduced demand from the world’s third-largest oil user and triggered a drop in Brent to a three-week low near $107 two days ago. High oil prices and Japan’s disaster may pose a twin blow to the nascent economic recovery. Brent is less than $4 away from a 2-1/2-year high of almost $120 reached on February 24, when an uprising against Gaddafi shut down at least two-thirds of Libya’s oil output. “The initial shock in the markets with regards to the negative impact on growth as well as the short-term effect on Japanese demand is now subsiding and people are turning to the medium- and long-term implications of the earthquake on oil demand and turmoil intensifying in the Middle East,” said Yingxi Yu, a Singapore-based commodities analyst with Barclays Capital. The involvement of foreign forces “could prove to be a further escalation of the situation in Libya. It seems difficult that this will speed up the flow of Libyan oil back into the world market,” Yu added. The U.N. Security Council, meeting in emergency session on Thursday, passed a resolution endorsing a no-fly zone to halt government troops now around 100 km (60 miles) from Benghazi. It also authorized “all necessary measures” — code for military action — to protect civilians against Gaddafi’s forces. French diplomatic sources said military action could follow within hours, and could include France, Britain and possibly the United States and one or more Arab states; but a U.S. military official said no immediate U.S. action was expected. Libya’s pre-crisis oil output of about 1.6 million barrels per day (bpd) is unlikely to reach international markets even if Gaddafi holds on to power, controls and repairs oil infrastructure and resumes shut-in production, analysts said. “To go from condemning Gaddafi to buying his oil in short order would be politically difficult, and while sanctions would be financially painful for consuming countries, it would be an easier option if OPEC fully fills the gap,” JP Morgan oil analysts headed by Lawrence Eagles said in an e-mailed note. Saudi Arabia and other member countries of the Organization of the Petroleum Exporting Countries (OPEC) have increased production this year, partly to offset the loss of Libyan barrels. That has also eroded spare capacity, leaving a thinner cushion to compensate for potential further disruptions. BAHRAIN UNREST Earlier this week, Bahraini forces cracked down on Shi’ite protesters demanding reform by the Sunni monarchy, which drew criticism from key Bahraini and Saudi ally the United States and also from Iran. The involvement of Saudi Arabian troops and other forces from Gulf Cooperation Council (GCC) countries in Bahrain also raised the stakes of confrontation in the island state, which lies less than 100 kilometers from the hub of the Saudi oil industry. “Events over the past week suggest that something profound has changed in the dynamics of the region,” Yu said. “The relation between the U.S. and Saudi Arabia has been the key foundation of the oil market for many decades. Recent events seem to be creating some stress on the relationship.” Saudi Arabia’s King Abdullah will address the nation on Friday to issue a number of decrees, the royal court said in a statement released by the top oil producer’s state news agency late on Thursday. “It’s absolutely crucial for the oil market to watch for potential changes in the Saudi leadership,” Yu from Barclays said. “It’s the only country that holds a meaningful amount of spare capacity and the disruption in Libya has already put some stress on it.” Saudi Arabia has mostly avoided the wide unrest that toppled rulers in Egypt and Tunisia and spread to other Gulf countries, but there are pockets of dissent in the absolute monarchy, which has no elected parliament. Most demonstrations have been in the east of the kingdom, where the world’s largest oil reserves are located and home to a large Shi’ite population. “Day of rage” protests planned for a week ago in Saudi Arabia failed to materialize or fizzled quickly amid a widespread police presence, but social media networks had initially also called for a second day of protests on March 20. (Editing by Clarence Fernandez) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Chriss Street: Fed Policy Squanders the Peace Dividend

March 17, 2011

The U.S. Federal Reserve’s second round of Quantitative Easing stimulus, QE II, has caused vicious unintended consequences around the world. The 42% rise in the CRB index of food prices has already caused starvation for millions of people, burned down the Middle East, and is increasingly creating havoc in Asia. But QE II’s most venomous consequence may be its squandering of the United States Federal Budget’s expected “peace dividend”, as America is now re-ensnared in the Middle East sectarian turmoil. The goal of the Fed’s QE II stimulus was to create enough inflation to force reluctant consumers to open their wallets and start spending. The program’s result has been vicious food and commodity inflation causing consumers to be more reluctant or unable to spend on anything but basic essentials. Given that the Middle East has the highest percentage of income spent on food with Morocco at 63%, Algeria at 53%, Egypt at 48%, and Libya at 38%; it should not be surprising the region would be the first to burn down from protests. Iran’s Shiite leadership has clearly stoced the fires of popular dissent that has caused the uprisings in North Africa. The recent spread of this havoc to the Arabian Peninsula now represents a once in a generation opportunity for Iran to try to regain dominance in the entire Persian Gulf. For the last decade the Iranians have used covert paramilitary capabilities to undermine America’s military missions in Iraq and Afghanistan. Iran has seen their efforts as a low cost and high reward opportunity to bleed America’s public support for the Gulf commitments. Barack Obama ran for president as a centrist candidate with a strident pledge to military intervention in Afghanistan. As Obama campaigned in 2008 the Bush Administration was achieving a modest victory in Iraq and a stalemate in Afghanistan. Most analysts assumed if Barack Obama became president he would quickly cut-back spending and draw-down American ground forces in the Middle East. But once in office, President Obama almost tripled the U.S. troop strength and spending in Afghanistan and pursued an aggressive war. With current spending on Iraq and Afghanistan running at approximately the same $250 billion annually as in the Bush administration, there is an still an expectation that by the 2012 election campaign the United States will begin to realize a “peace dividend” from an American troop withdrawal of about $150 billion per year. Saudi Arabia has watched in horror over the last two months as their allies in Morocco, Algeria, Egypt and Libya have been devastated by popular unrest. After its neighbor Bahrain with its 60% majority of Shiite Muslims was rocked by protests, Saudi Arabia decided to send in its military to “rescue” their embattled Sunni Muslim Al Khalifa family who ruled Bahrain since 1783. The “rescue” of Bahrain and the liberation of Kuwait are the only two direct military actions by Saudi Arabia since World War I. The Iranians had probably hoped to destabilize Bahrain without triggering an invasion by Saudi Arabia, but the introduction of an occupying military force into a fellow Shiite majority country creates a probable third front for Iran to challenge and bleed the United States and her allies. The Obama administration now finds itself in the midst of a boiling Middle East cauldron with massive political and military risks. Bahrain is the home port to the U.S. 5th Fleet, which provides America with control of the Persian Gulf and protection for the world’s largest sources of crude oil and natural gas. Even though the latest Washington Post/ABC News poll released today finds that sixty-four percent of Americans think the Afghanistan war “hasn’t been worth it”; President Obama will probably soon be forced to announce a halt to or even reverse of the withdrawal of U.S. combat forces from Iraq and Afghanistan as Iran becomes more emboldened by America’s new political and military weaknesses. The American government has racked up a sorry record in its misguided attempts to stimulate the economy, which seems to have only resulted in a doubling of our national debt and even higher unemployment. With a new Congress determined to cut deficit spending, the Administration obviously pressured the Fed to do something bold to help the economy. So far, the Fed’s QE II bold stimulus has spewed inflation and harmed many nations. With the Middle East heating up and the “peace dividend” about to evaporate, QE II may soon inflict tremendous political and financial damage to the United States.

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Heba el Habashy and Charles LaCalle: The Burberry Revolution

March 9, 2011

Rain poured from mechanical spouts above the podium, splashing the bloggers, the editors, and the celebrities in the front row of the Burberry Prorsum show. Transparent rain slickers protected the model’s matching Burberry trenches. Perhaps this was Christopher Bailey’s allegory for Burberry’s unique ability to weather the global financial crisis that left veterans Lacroix and Yohji Yamamoto in financial ruin. Yet, financial meltdowns sometimes provide unique opportunities for reinvention. In the early stages of the crisis in November 2008, Burberry’s stock price was £175. By January 2010, the share price had risen to £1,116. Is it Emma Watson, a la Hermoine Granger, bewitching consumers through her advertising campaign? Probably not. The real reasons for Burberry’s success are complicated but can serve as a guide for both luxury brands and young designers trying to survive in the competitive retail sector. Step 1: Rejuvenation of the Brand Image From 2000 to 2004, Burberry’s image was hijacked by what the financial times called a “sub-culture prone to drinking and anti-social behavior.” Slate called them a group of “tough guys, skanks, soccer hooligans, lower-class unsophicates, and cheesy celebrities”. The Chavs, as they are known in England, began wearing Burberry plaid as a sort of Droog uniform to signify their status. Given their reputation, it was not long before they became victims of sartorial profiling. The denouement of the Chav takeover came when Daniella Westbrook, one of the high priestesses of the Chav religion, was photographed in a tartan ensemble complete with a tartan baby stroller (or “pram” since we’re talking about the Brits). Needless to say, Burberry became the classic example of prole-drift, a term coined by Paul Fussell to describe when products of culture become associated with the working class or sub-culture of a society. This proved financially expedient in the short term as sales for products with the tartan design flew off the shelves, but it could not be sustained as the print became too closely associated with the subculture. In 2004 the brand responded by scaling back the tartan on the outside of apparel, while still allowing the iconic print to mark the lining. Then in 2005, the Buberry Prorsum collection saw an abrupt shift. The previous season was inspired by the singer and drug addict Marianne Faithfull and by Christopher Bailey’s home in Yorkshire. In 2005 , the collection seemed closer to weekend attire for Balmoral than for Yorkshire. In the years since, Christopher Bailey has continued to produce heritage with an edge for the historic house. Step 2: Supply Chain In 2006, Angela Ahrendts joined Burberry as CEO and began transforming the business as drastically as Bailey was changing the image. Currently, Burberry may be more poised than any other brand to compete with fast fashion retailers. Their secret weapon lies in their responsive supply chain. For a luxury brand like Burberry, a streamlined infrastructure is vital for sourcing raw materials and finished goods, maintaining wholesale accounts, and merchandising Burberry distribution outlets. In 2006, Burberry began a full-scale makeover of its supply chain management systems, the fruits of which investors are just now able to see. The costs associated with such a system were extremely high because of the complexity of the Burberry supply chain. Burberry spent £21.6 million in 2009 on the installation of the system. As of now, approximately 90% of Burberry’s stores are converted to the new SAP systems. In 2009, Burberry deployed its new SAP system in the United States. A retailer’s dream is to decrease inventory levels, and Burberry was able to do so by an astonishing 36% as a result of this new system. The company could now monitor and predict what items to merchandise. Imram Ahmed notes that this system allows Burberry “to react rapidly to sales trends and capitalize on bestsellers.” Step 3: China Burberry has taken big risks by opening stores in emerging luxury markets like Serbia, Egypt, and Israel, but the most rewarding market has not surprisingly been China. Burberry added 13 new stores in China last year, making a total of 50 in the mainland. Burberry has operated in the country since the early 1990s through a partnership with franchiser Kwok Hang Holdings. In 2010, the brand bought back the license from its business partner for 70 million pounds in order to create a consistent global brand image. The China strategy was the last major effort to rein in the global Burberry licenses. Shareholders overwhelmingly approval of the China strategy, which put Burberry in a position to take hold of the rapidly expanding Chinese luxury market. A Mintel report recently stated, “despite unemployment and extreme poverty, China’s young, affluent consumers have enjoyed a fast rate of growth over the past five years, making it the fourth largest [luxury market] in the world.” Burberry’s rival Prada saw a 75% increase in turnover in China in 2010 alone. By many accounts, China is set to become the largest luxury market in the next few years, and Burberry is now in a position to easily take advantage of this. Step 4: Retail Burberry is relying less than ever before on its wholesale accounts by shifting to a retail-led growth model and utilizing creative retail schemes. Burberry chose to buck the trend of showcasing specific collections in certain stores, instead featuring all lines in each of its retail locations. Additionally, the existing stores in its portfolio have been upgraded and remodeled to achieve consistency across locations. While most luxury houses were reluctant to imperil their brand image by moving online, Burberry focused heavily on e-commerce development. This strategy has proven extremely successful. Online sales for Burberry rose 60% last year and are likely to continue increasing as more consumers shop online. Even in the brick and mortar locations, shoppers have access to tablets to purchase clothes to be delivered later. For the spring 2011 collection, the brand partnered with Verizon Communications to create a retail theater in its stores. Shoppers in 25 outlets worldwide were able to order items straight off the runway as the show was being broadcast live during London fashion week. Items were delivered within seven weeks. While many luxury companies rely on one ‘it bag’ to make up the bulk of revenue, Burberry offers an array of popular items and also recently introduced a cosmetics line. Because of this variety, the company has not had to resort to a diffusion line like many other luxury companies. While companies are fighting fast fashion by going down market, Burberry has had massive success with the Prorsum line. Established in 1998, this line was meant to bring a youthful flair to the historic brand while maintaining luxury prices and quality. Burberry’s bottom line has also been bolstered as one of the fastest growing segments in retail in part due to its focus on menswear. Men’s clothing is an afterthought for most brands, but Burberry places equal emphasis on both men’s and women’s ready to wear. Burberry’s grip on e-commerce, strong product lines, and focus on menswear will surely amount to huge profits in the coming years. Step 5: Social Media Just last year, Tom Ford created a frenzy when he closed off his fashion show to only the most select coterie of editors. Burberry is doing the exact opposite as it strives towards “democratic luxury positioning”. For its Fall 2011 show, the brand live streamed the event on the iconic Piccadilly Circus mega-screen as well as to 150 countries around the world. Burberry is the brand that is most “liked” on Facebook with over 2 million fans. Burberry’s “Art of the Trench website capitalizes on the craze for street fashion by portraying highly stylized ways common Burberry consumers wear their trenches. This site inspired rival Hermes to create a similar site focusing on their iconic scarves. The focus on the consumer does not stop there. Burberry recently introduced a bespoke line for the classic trench. Now customers can choose the detailing of their coat and make it as edgy or as classic as they want. This emphasis on “customer knows best” is in line with Buberry’s focus on “democratizing luxury”. Instead of forcing styles on consumers, Burberry is giving them the power to reinvent the classic trench. This shows a huge confidence in the sophistication and awareness of the luxury customer. Consumers no longer buy idly as they are given reign make crucial design decisions. For those who want a one of a kind piece, the bespoke line offers unique pieces that others do not have access to. For those who want to share their design with friends, the bespoke line creates a new sales force of consumers-cum-designers. Despite Burberry’s historic roots, the brand refuses to be tied down by the heavy burdens that tradition can sometimes impose. Burberry has evolved even faster than many other younger brands and as a result has maintained a loyal customer base as well as growth in the double digits. Burberry’s embrace of the Internet goes farther than e-commerce. The real value that the company has gained from the Internet is a close connection with its customer as social media has allowed the brand to reach millions of followers. Instantaneous feedback from these followers allows the brand to outpace its competition in crafting strategy. It’s not immediately apparent how to draw the lines between a major brand like Burberry and emerging fashion designers. Up and comers don’t have massive supply chains and they definitely do not have enough volume for their image to be hijacked by a subculture. Nevertheless, connecting with consumers, expanding into new emerging markets, and brand consistency are important for designers at any stage of development.

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Video: Doha Bank’s Seetharaman Says Middle East Bonds `Cheap’

March 7, 2011

March 7 (Bloomberg) — Raghavan Seetharaman, chief executive officer of Doha Bank QSC, talks about investing in the Middle East and North Africa as Egypt’s bourse remained closed following the fall of President Hosni Mubarak. He speaks with Francine Lacqua on Bloomberg Television’s “On The Move.”

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Dan Dorfman: On the Trail of the Next Revolution

March 2, 2011

From Tunisia to Egypt to Libya. So where does the parade of revolutions head next? Did I hear someone blurt out Bahrain, Yemen or maybe Oman? Sounds reasonable to me since all three have been stung by recent protests and riots. Or maybe, suggests Jordan militant and trader Caise Hassan, even Saudi Arabia, the world’s biggest oil exporter, whose stock market slumped to a nine-month low on a hefty 11.6 percent loss in just the past three days alone on fears the demonstrations in Libya could spread there. But wait. Bryan Rich, editor of the World Currency Trader, a Florida-based investment newsletter that tracks the action in currencies around the globe, offers another perspective. “Don’t rule out Europe, especially Ireland and Greece,” he says. Surprisingly, he thinks the social unrest could also strike China and India, the planet’s two fastest growing economies. Why so? Because despite the growth, he feels both countries are vulnerable to such strife as they have the world’s largest poor populations where the distribution of wealth has become increasingly disparate. Russia and Brazil are also included in his candidates for social unrest. “But before we see social unrest in China and India choke off global growth, Europe may derail the world’s economic recovery first,” says Rich. His warning about fresh European unrest sounds like old news, since riots and demonstrations have already happened there. What’s more, they’ve been widely reported. Rich, though, looks at it as new news. In essence, he sees a resumption of the protests and riots that occurred in a number of Eurozone countries during the past few years as a result of the sovereign debt crises, possibly within the next three months. “Unrest begets more unrest; it’s contagious,” he says. Judging from last year’s $1 trillion rescue package from the European Union and the nonstop climb in stock prices here, Wall Street is clearly viewing future European risks as ho-hum. Rich, though, isn’t yawning. In contrast, he expresses concern, essentially arguing that Europe’s financial dilemma remains serious and explosive and could resurface in a major way at any time. Why could we see renewed chaos in Greece and Ireland (Rich also tosses in Spain and Portugal)? Because all the ingredients in Europe are there, explains Rich, such as high unemployment, stagnant growth, austerity measures, and little hope of restoring the standards of living of three to five years ago. He also points to Europe’s fractured fiscal policies, flawed structures and the lack of a unified monetary policy. Given the massive $2 trillion exposure European banks have to Eurozone sovereign debt, “government defaults,” warns Rich, “could easily send the global financial system back into a dangerous tailspin.” He also believes that if people in the weak Eurozone countries get fed up with the reality of austerity and rising food costs, they could well stand up to their governments and scream “no more.” That implies, as well, a call for a reduction of the interest on their debt and the need for bondholders to be willing to accept losses. What does all all of this mean? Some of the ominous possibilities, as Rich sees them, economic shocks that threaten stability, runs on European banks, which we’re already seeing to some degree in Ireland and Greece, the withdrawal from the European Union of some PIIGS (Portugal, Ireland, Italy, Greece and Spain), a big decline in the Euro and a massive sell off of equities around the globe, including the U.S. Viewed as yet another likely result: a flight into the dollar as a safe haven. What do you think? E-mail me at Dandordan@aol.com.

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Bernanke: Don’t Sweat The Oil Stuff

March 1, 2011

WASHINGTON (Reuters) – Federal Reserve Chairman Ben Bernanke said on Tuesday the surge in oil prices is unlikely to hurt the U.S. economy unless it is sustained, even as investors sold off equities on fears of a slowdown. Bernanke, making his first comments since the turmoil in Libya drove U.S. crude oil above $100 a barrel, said he would expect higher prices to lead to only a modest, temporary increase in U.S. inflation “at most.” The Fed chief told the U.S. Senate Banking Committee he saw increasing evidence that the economic recovery has enough momentum to become self-supporting. But job growth remains far too anemic, he said, indicating the Fed was unlikely to cut short its $600 billion bond-buying stimulus. “We do see some grounds for optimism about the job market over the next few quarters,” Bernanke said, citing a steep recent decline in the jobless rate among other factors. Bernanke, who will testify for a second day before a House of Representatives committee on Wednesday, also reiterated a warning that a failure by Congress to raise the U.S. government’s $14.3 trillion debt ceiling could lead to a devastating debt default. “It would be extremely dangerous and very likely a recovery-ending event,” he said. The U.S. Treasury Department on Tuesday said the debt limit could be reached as early as April 15, 10 days later than its previous estimate. Bernanke’s warning came just hours before the House approved a short-term funding bill that would avert a looming government shutdown and buy time to fashion a longer-term budget. The Senate was expected to quickly take up the measure. Some Republicans have vowed to use the need to raise the debt ceiling as a lever to push for deep spending cuts. Bernanke told the panel that downside risks to growth had eased and, for the first time, said the prospect of deflation was now “negligible.” The threat of deflation, a downward spiral in wages and prices that could derail the economy, was a key justification for the Fed’s bond-buying spree. “It’s encouraging to see that the risk of deflation is moderating according to the Fed,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. “That’s one of the keys that will be necessary for the Fed to wind down its quantitative easing program.” NO SPILLOVER At the same time, Bernanke did not appear concerned that the recent spike in the price of crude oil, driven in part by a wave of pro-democracy revolutions in the Middle East and North Africa, would do much harm to the U.S. economy. “The most likely outcome is that the recent rise in commodity prices will lead to, at most, a temporary and relatively modest increase in U.S. consumer price inflation,” Bernanke said. However, he warned that if expectations of future inflation were to build, the Fed may need to act. “We will continue to monitor these developments closely and are prepared to respond as necessary to best support the ongoing recovery in a context of price stability,” he said. U.S. crude oil futures rose 2.7 percent on Tuesday to settle at $99.63 a barrel, not far from highs hit late last month. Crude had traded at roughly $86 a barrel before protests swept through Egypt in late January. ( For graphic on oil’s effect on world growth, see bit.ly/hsRlo R) Financial markets showed little reaction to Bernanke’s comments, but the jump in oil prices weighed on stocks, with the Standard & Poor’s 500 index closing down 1.57 percent. Wall Street’s so-called fear gauge, the CBOE Volatility Index, jumped 13.1 percent. U.S. government bond prices rose as investors sought safety. With official interest rates held near zero since December 2008, the Fed in November embarked on a controversial program to buy government debt to keep down long-term interest rates. Bernanke said buoyant financial markets suggest the policy is working, but the labor market still has a long way to go. In January, the jobless rate stood at 9 percent. “Until we see a sustained period of job creation, we cannot consider the recovery to be truly established,” Bernanke said. MANDATE BATTLE BREWING Much of the discussion at the hearing centered around Washington’s heated budget debate. Bernanke refrained from offering detailed advice on fiscal matters, but urged lawmakers to get the deficit under control. “The long-term imbalances are not just a long-term risk,” Bernanke said. “They’re a near and present danger.” The banking committee’s chairman, Democrat Tim Johnson, kicked off the session with a strong defense of the Fed’s dual mandate of price stability and maximum sustainable employment. Some Republicans who have been critical of the Fed’s ultra-easy monetary policy have vowed to introduce legislation forcing the central bank to focus solely on inflation. Johnson suggested that would not be an easy fight. “As the economy continues to struggle to recover, we should be using every tool in the toolbox to create jobs and spur growth,” he said in a statement. “Taking tools away from the Fed now is the wrong idea at the wrong time.” (Additional reporting by Emily Kaiser, Doug Palmer, Lucia Mutikani and Tim Ahmann; Editing by Tim Ahmann, James Dalgleish and Leslie Adler) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Daniel M. Cofall: Dangerous Games

March 1, 2011

Just a quick show of hands… how many of you have discussed the internal conflicts in the Middle East with your friends? Now, how many of your friends have concluded that this conflict in Egypt is good because they are pro-democracy and that this will be good for equities as even more of the world opens up to free trade? I have heard this same discussion over and over but it’s just not true. To quickly bring you up to date, there are now demonstrations beginning in Oman. The Chinese Premier Wen Jaibao just pledged to punish the abuse of powers within China and to close the growing wealth gaps just as he limited any news of the Middle East protests from entering China. South Korea is dropping leaflets into North Korea telling the North Koreans of the revolts in the Middle East and suggesting that they control their own destiny and can over throw Kim Jong Il’s regime. Secretary of State Hillary Clinton is reaching out to folks in Libya from various anti-Quaddafi movements and has pledged US support. Activists in Saudi Arabia are now demanding increased political rights and a movement toward a constitutional monarchy. The Tunisian Interim Prime Minister just resigned. Unions and other sympathetic organizations spread their protests across America. Did you think that only Egypt is unstable? I believe that events of this magnitude are neither random nor spontaneous. I also believe that these are not pro-democracy rallies because students of history know that democracies are not stable. And there are plenty of groups opposed to any form of republic or democracy and these forces are not sitting on the bench. If these demonstrations are the product of experimental social engineering, we must accept that we can’t know what will emerge. Promoting instability is a tricky avocation, much like a professional water balloon catcher. We assume that it is a good thing to support Libyan anti-governmental protesters but is it possible that those that have contempt for both Quaddafi and the West will ultimately see us as merely interventionists? We may be welcomed as some transitional facilitators but will continued intervention result in anything more that more Mubarak-like governments? Of even greater concern is amount of change the world can tolerate at one time. This is the reason that I have great concern that many financial assets are currently significantly over-priced. Two huge risk factors are not being priced into the markets… uncontrolled instability and inflation… neither of which is easily modeled. We do know that returns based upon historically low interest rates do not reflect inflationary realities and these low returns completely ignore the unintended consequences of waves of protests and instability. There was an interesting article by Chris Mayer last week discussing economic forecasting tools and their accuracy and relevance. He quoted the famous investor Peter Lynch as saying, “If you spend more than 13 minutes analyzing economic and market forecasts, you’ve wasted 10 minutes.” Yet, at the extremes, mal-investments are more likely to happen. Financial assets are currently priced with exceptionally large presumed growth rates, low interest rates and low inflation rates. I cannot think of a time in recent memory where there was a worse matching of risk to return. In a world of real turmoil (with no clear-cut direction or winners in sight), we blithely accept forward Price to Earning’s of 20+. We think all sectors are just about as likely to expand (OK, excluding retail). We compare actual performance to “expectations” without ever asking whose expectations are being used. We use data we know to be erroneous generated by the Treasury, the Fed and the Bureau of Labor Statistics. Mayer went on to critique the use of performance statistics and their presumed accuracy. I have these discussions with folks all the time suggesting that no one can precisely measure expected returns, upon which all valuations are based, because contained within these returns are risk factor estimates, generally the product of our own governmental reporting and, yet, we must make an attempt. Erring on the side of conservatism would seem natural yet today we continue to seek justifications for higher prices and solace in low metrics and low volatility. I would say it reminds me of the tech wreck in 2000 or the real estate bubble in 2007-8 but that would be unfair, as both of those “corrections waiting to happen” were not surrounded with worldwide political uncertainties. The short answer is that you cannot truly measure inflation or unemployment month to month any more than you can put a specific risk factor on political turmoil. But you can say that these two factors are likely greater than the “official” reports and that worldwide turmoil at least deserves “a few hundred basis points” of consideration. I continue to see much more risk than the market is pricing in. If this is true, then a correction cannot be far behind.

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Gold Surges To Record On Libya, Political Unrest

March 1, 2011

NEW YORK (By Frank Tang) – Gold rose more than 1 percent to an all-time high on Tuesday above $1,432 an ounce as chaos in Libya and political turmoil in the Arab world prompted safe-haven buying and soaring oil prices boosted bullion’s inflation hedge appeal. Unrest across the Middle East and North Africa, which unseated leaders in Tunisia and Egypt before spreading across Libya, Bahrain, Yemen and Iran, fueled a 6 percent rise in gold prices in February. “What gold needed was a catalyst, and it found it in the form of tensions that are surfacing in the Middle East and rising oil prices, which served as an inflationary threat and also led to political instability,” said Mark Luschini, chief investment strategist of Janney Montgomery Scott, a brokerage that manages $53 billion in client assets. On Tuesday, Iranian security forces fired teargas and clashed with anti-government demonstrators protesting the treatment of opposition leaders. The United States said Libya could descend into civil war if Muammar Gaddafi refuses to quit, after word of unspecified Western military preparations. Gold has rallied strongly since political unrest sent U.S. light sweet oil futures soaring nearly $3 to just under $100 a barrel, driven by worries about supply disruptions. Global stocks dipped as oil’s surge fanned concerns about a dampening effect on economic growth. Spot gold rallied to a record of $1,432.10 an ounce, surpassing its previous record of $1,430.95 set on December 7. The metal gained 1.4 percent to $1,430.69 an ounce by 2:50 p.m. EST (1950 GMT), extending its winning streak to three consecutive trading days. U.S. April gold futures settled up 1.5 percent at $1,431.2 an ounce. Bullion rose 6 percent in February, its largest monthly rise since August. It traded mostly sideways last week, then gained on Tuesday on resurgent safe-haven bids. Silver hit a fresh 31-year high at $34.59 an ounce and later climbed 2 percent to $34.46. Silver has risen about 11 percent this year. The gold-silver ratio, which shows how many ounces of silver it takes to buy one ounce of gold, approached a 13-year low. Silver has risen amid limited supplies for near-term delivery and on prospects of rising demand for industrial metals as the economy recovers. (Graphic: link.reuters.com/ker38r) BERNANKE COMMENT HELPS Federal Reserve Chairman Ben Bernanke told the Senate Banking Committee on Tuesday that the recent surge in oil prices was unlikely to have a big impact on the U.S. economy, but could dampen growth and raise inflation if sustained. Bernanke’s comments boosted gold as he offered no hint that the U.S. central bank was considering winding down its loose monetary policy, which also sent the U.S. dollar to a 3-1/2 month low against major currencies. “From the start of crude oil’s ascent based on Libya, you are seeing general risk issues become more of a front burner in peoples’ psyche,” said James Dailey, portfolio manager of the TEAM Asset Strategy Fund. (TEAMX.O) “You’ve had the U.S. long-term Treasuries rally. You’ve had a lot of the things that traditionally occur when people start to get afraid, all except the U.S. dollar rally,” Dailey said. Since the Fed cut interest rates to 0.25 percent in response to the global financial crisis in late 2008, gold has risen 70 percent. In a reflection of investor ambiguity on gold, holdings of the metal dropped in the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund. Holdings fell for a fifth consecutive month in February, marking its worst string of declines since the creation of the fund in 2004. Platinum gained 1.8 percent to $1,837 an ounce, while palladium climbed 2.5 percent to $814.22 an ounce. (Additional reporting by Amanda Cooper and Rebekah Curtis in London; Editing by Walter Bagley and Jim Marshall) Copyright 2010 Thomson Reuters. Click for Restrictions .

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