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Banbury Cross

a pillow for lost thoughts...

Archives for: June 2010

Vampire State Building

Today's financial news proffered this tooth of wisdom:

Raghuram Rajan, professor of finance at the University of Chicago, and former chief economist at the International Monetary Fund was interviewed on Yahoo Tech Ticker peddling a message for Washington: Stop Targeting "Greedy Bankers" and Focus on Growth:

I am sure the IMF has plenty of vested interest in the jugular of perpetual growth, but perhaps it would behoove its brain trust to acknowledge that it is kind of hard to focus on growth while your productive economic body serves a never ending all you can eat buffet to a blood sucking parasite.

Yes, I mean the Wall Street, and by extension the whole financial system.

There used to be times when bankers borrowed money at 3% and then lent it out with some risk at 5% and that was pretty much their standard business model. They rightfully pocketed the spread as a reward for all the troubles associated with the loaning operations: they did the due diligence during the client research phase, they worked out the details of the transactions, they kept up-to-date paperwork and they also carried the risks in case any of the parties defaulted on their promises.

But then one day as they were soaking in their silver bath tubs, they decided that this was not good enough. They wanted golden bath tubs.

And lo and behold, suddenly they figured that money that was no longer backed by gold is a very stretchable and multipliable object. They realized they can conjure it into existence and then lend it to unsuspecting public at high interest. They envisaged complex securities in which they hid the risks of the loans and sold them to gullible investors in a sort of institutionalized shell game. They created financial insemination. They designed derivatives that enabled them to leverage all the dirty tricks known to man. Their accounting prestidigitation never produced anything of value, but it created a mighty swirl of watermarked paper which gave a perfect illusion of wealth. But it was just that - an illusion.

Any high risk industry that operates under the assumption that if any of their vampirous enterprises go wrong taxpayers will pick up the slack satisfies your basic definition of a parasite. And God knows that there was a lot of slack to be picked up in the last few years. The sooner we flush this tapeworm down the toilet, the sooner we can return to an organic growth, free of steroids of deficit spending. It is as simple as that.

Unfortunately, the financial reform concocted by Congress left much to be desired. Sometimes it wasn't even clear whether the lawmakers were still representing the people or were just giving the big bankers a lap dance. Loopholes galore, toothless measures and no effort to break the too big to fail cabal or curtail their risky behavior. Instead of rescuing the economy from the incisors of irresponsible credit peddlers and driving sharp wooden stakes through the heart of the failed institutions, we have been building a state of vampires. That is not a feasible economic strategy.

Here is a snippet from the last year's Atlantic, penned by Simon Johnson, the Ronald A. Kurtz Professor of Entrepreneurship at the Sloan School of Management at MIT.

Simon Johnson: Quiet Coup (The Atlantic magazine, May 2009)
"From 1973 to 1985, the financial sector never earned more than 16 percent of domestic corporate profits. In 1986, that figure reached 19 percent. In the 1990s, it oscillated between 21 percent and 30 percent, higher than it had ever been in the postwar period. This decade, it reached 41 percent..."

So from 16% to 41% in several decades, huh?

How about we return to the banking business as it was originally conceived: providing prudent loans to select applicants and standing by them. We were able to put a man on the Moon back in those days. So it shouldn't be too economically crippling.

Whose Earth Is It Anyway

One would imagine that mineral resources of any given country belong to its citizens. That is what Australian Prime Minister Kevin Rudd must have been thinking when he'd proposed a supertax on all mining companies doing business down under.

I agreed wholeheartedly. That is how countries should protect their natural wealth. I have no problem with corporations making money off of their own ingenuity, whether it is Intel, Apple, or your favorite teen apparel outfit. But if all they can do is to bulldoze a layer of groovy rocks and haul them away in monster trucks - then extra taxes should be imposed as a way of sharing the profits with the people of the land who the groovy rocks belong to in the first place. To mine what is not theirs without proper compensation is just an act of thievery. Not to mention a breeding ground for rampant corruption. What overworked government official has guts and spine to withstand the appeal of a thickly stuffed envelope exchanged discreetly for the keys to the country's riches.

Ideally, the extra taxes would allow states to build highways, bridges, child care centers, hospitals and other facilities which all people could then use as a payback for having their land mildly exploited. But life is hardly ever ideal. Money talks loud and clear and often with a bullhorn. Political clout of corporations is larger than the Ayers Rock these days. Kevin Rudd was ousted faster than you could say "kangaroo" and Australia dropped the plans for the proposed supertax like a hot potato. The wizards of Oz could go back to business as usual.

The recent Deepwater Horizon disaster in the Gulf of Mexico highlighted another ugly side of the corporate hegemony over our natural resources. The lack of responsibility. Extraction of any substance from the ground poses ecological hazards and encroaches upon people's right to freely enjoy their land. Accidents do occur, but some safeguards need to be put in place, so that nature as we know it does not get sacrificed on the altar of corporate greed. Increasing the liability limits for oil companies like BP would be a good start. Otherwise it will be too easy for them to weasel out of their obligations, thanks to the well trained army of lawyers, lobbyists, PR specialists and other well oiled mercenaries.

Ever since our elected representatives tasted sweet milk from the big business teats, people have been losing their battle against incorporated leviathans on all fronts. If we don't want to end up merely subsisting on a slice of scorched wasteland in some post-orwellian nightmare, this would be a good time to take a stand and consider the bigger picture. How on Earth are we going to manage the unique environment of this planet? Are we going to plunder it for the lucre of a few hoggish multinationals or are we going to take proper care of it and preserve it for those who will inherit it from us. Wholesale recycling and green energy, however expensive, should get on the political agenda as soon as possible. The controversial supertax could help offset the associated costs.

I am sure our grandchildren will appreciate it if we leave them some fertile soil to plant crops in, reasonably clean rivers and lakes, deep forests and jungles, and maybe even a wild meadow here and there, rather than countless industrial graveyards dotted with depleted oil fields and abandoned strip mines. Even hundred years from now, they will enjoy the view of wild ferns cascading down a mountain slope under the canopy of hoary trees. And if it means slightly higher prices of copper or iron, so be it.

Don't quarry, be happy.



When two peoples lay a claim to the same chunk of land, problems often ensue. And I am not just talking about quarreling whether to plant wheat or tobacco in the tillage.

Imagine that Native Indians declared the whole West to be the Sacred Dirt of Quietly Slumbering Chieftains and moved in to take control of all territories that once used to be theirs. Imagine they created large refugee camps on the West Bank of Mississippi and on the Las Vegas Strip and gradually besieged sprawling urban areas with new teepee settlements. That would surely stir up some action among descendants of hunky Anglo-Saxon settlers who moved into that same area several centuries ago.

When Israeli commandos stormed the Turkish-flagged ship Mavi Marmara that was carrying humanitarian aid to Gaza, the eyes of the whole world turned again to that precious piece of desert surrounding the Dead Sea, that largely inhospitable terrain which both Israelis and Palestinians consider their historical homeland.

Their decades long effort to conjure up a semblance of peaceful coexistence has been repeatedly marred by religious and ethnic hostilities and, over the years, became reduced to diplomatic equivalent of wishful thinking. Smack in the center of their disagreements lies Jerusalem, one of the oldest capitals in the world, a city so ridden and riddled with divine presence that you can't throw a rock there without hitting a notorious shrine. That, of course, makes any negotiations harder, because liturgical and spiritual aspects of our existence have deep roots in our soul.

When I was reading about the circumstances accompanying the creation of the Jewish state, I stumbled upon an interesting document: United Nations General Assembly Resolution 181 (II) - Future Government of Palestine from 29 November 1947. In plain terms, the resolution suggested termination of the British mandate over Palestine and recommended that the contentious Jerusalem-Bethlehem area be placed "under special international protection, administered by the United Nations".

Sometimes long forgotten solutions deserve second chances. And this one sounds so tantalizing that I would dare to push it a bit further. Why not make Jerusalem the seat of the United Nations? Can you see the UNESCO buildings next to the Temple Mount, the Western Wall, the Church of the Holy Sepulchre, or al-Aqsa Mosque? I can. If there ever was a place on Earth deserving to be the unofficial Capital of the World, it is Jerusalem. What other city lies at the intersection of three major religions and sports a municipal history four millennia deep? In my book, you don't get more natural authority beyond that. And placing the venerable metropolis on the center stage of global politics would have several other advantages.

1. Many new and aspiring powers (EU, China, Russia, India) like to grumble about the americentric bias of the United Nations that has been painfully visualized by placing the organization on the banks of the East River. Such domicile may be convenient, but it gives rise to the perception that UN is but an extended arm of Washington DC. Relocating its headquarters and facilities into a neutral area would create a more realistic illusion of an Arthurian round table, where no single nation is being favored.

2. Many of the tensions in the Middle East stem from hardship and lack of economic opportunities. Building a necessary infrastructure for such grandiose project would bring an economic boom to the region. Thousands of jobs and higher standard of living that would come with it would put a soothing gauze on the festering wound of the Palestinian issue. Economically sated nations have usually less reason to quarrel with their neighbors.

3. Israel's main concern is for the safety of its young state. With Jerusalem becoming a de facto heart of the world, it would be self-defeating and outright suicidal to even ponder terrorism in this area. Any individual of group that would dare to inflict damage anywhere within this fiercely protected district would be faced with swift and severe consequences from the whole international community.

Sooner or later Barack Obama and Benjamin Netanyahu will have to sit down and mull over the possibilities. I hope they will have enough sense to also consult history. Critics might argue that times have changed since 1947, but didn't Ancient Romans used to say: "Historia magistra vitae est"?

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