Author Archives: Lila

Vulture Funds Prey on Third World Debt..

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Johann Hari has a critical piece on “vulture funds” at The Independent that is sure to be polarising:

“Would you ever march up to a destitute African who is shivering with Aids and demand he “pay back” tens of thousands of pounds he didn’t borrow – with interest? I only ask because this is in effect happening, here, in British and American courts, time after time. Some of the richest people in the world are making profit margins of 500 per cent by shaking money out of the poorest people in the world – for debt they did not incur.

Here’s how it works. In the mid-1990s, a Republican businessman called Paul Singer invented a new type of hedge fund, quickly dubbed a “vulture fund.” They buy debts racked up years ago by the poorest countries on earth, almost always when they were run by kleptocratic dictators, before most of the current population was born. They buy it for small sums – as little as 10 per cent of its paper value – from the original holder and then take the poor country to court in Britain or the US to demand 100 per cent of the debt is repaid immediately, plus interest built up over years, and court costs.”

My Comment

I’ve been interested in these lucrative public-private philanthropic ventures for some time. “Doing good” has become the avenue for “doing well.” This is touted by some people as the “markets working for people.” But the markets work for…and against..people all on their own. They don’t need the bells and whistles of public philanthropy added.

And when philanthropy been added, as my earlier post on Jeffrey Levitt indicates, it’s usually been added for an ulterior motive. Thus Hari’s activism against vulture funds.

Having made that point, I have a few problems of my own with Hari’s post that I’ll come back later.

First, here’s a response from the object of Hari’s criticism –  one Michael Sheehan, the founder of Debt Advisory International (DAI) (which manages several vulture funds) and a Republican donor to George Bush’s campaigns.  Sheehan’s letter is cited by Felix Salmon at his Reuter’s blog. The crux is at the end:

“At the end of the day, then, the anti-vulture legislation will accomplish exactly the opposite of what it set out to do. It will have increased the debt burden of all HIPC countries, increased the cost of credit for all HIPC countries, increased the barriers to foreign direct investment for all HIPC countries and increased the amount that will be demanded from the OECD countries in support of aid budgets for all HIPC countries. There won’t be any savings. The costs will be in the billions and will be annual costs you won’t get rid of.
You will, of course, in the process have increased the power and leverage of the development set, but then that was the intention all along, wasn’t it.”

There’s more on Sheehan and the creator of the concept – Paul Singer – in this piece, which also sheds some light on just how influential vulture funds are:

“Debt Advisory International are very generous to their lobbyists in Washington. They have been paying $240,000 a year to the lobby firm Greenberg Traurig – although recently they jumped ship to another firm after Greenberg Traurig’s top lobbyist was put in jail.

Paul Singer has more direct political connections. He was the biggest donor to George Bush and the Republican cause in New York City – giving $1.7m since Bush started his first presidential campaign.”

Many of the debt purchases are also corrupt, as this BBC piece indicates:

“The Zambian deal with Donegal for instance involved an official in former President Frederick Chiluba’s administration who was later found – along with the president – to have stolen £23m from Zambia.”

From Third World Traveler come further details:

“The debt, originally owed to Romania for agricultural machinery and services, was accrued during the cold war. The amount claimed by Donegal was far more than Zambia is due to receive this year in debt relief – as agreed at the G8 meeting in Gleneagles in 2005. It is equivalent to more than six months of Zambia’s health budget.

Since qualifying for debt relief, Zambia has introduced free primary rural healthcare and announced plans to employ 4,500 teachers and hundreds of nurses. But one in three children in Zambia still does not go to primary school, nearly 80% do not receive secondary education and the average income is barely $1 a day. Donegal International’s claim threatens to undermine Zambia’s plans for poverty reduction.”

My Comment:

The vulture funds are, of course, behaving unconscionably. But moral outrage after the fact is less effective in stopping such things as not providing the incentives that entice unscrupulous people in the first place.

And these incentives are usually put in place by the state…in this case, by the global financial organizations, the IMF and World Bank, which were behind the economic policies that turned the once relatively prosperous country of Zambia into a basket-case, where half the population is malnourished.

So yes, the vulture funds are predators – but their predation is secondary and far smaller than the predation of the scavengers of the first order – the global managers whose “aid” has a strange way of devastating its recipients...

Sun-Life Financial Review of “Mobs”

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Kevin Press has a short (but sweet) review of “Mobs, Messiahs, and Markets” at his Today’s Economy blog at Sun-Life Financial, where he gives the book a thumbs up for prescience, a slight tut-tut for being a wee bit too contrarian, and another thumbs up for a lot of sound advice on investment. You can see it here.


Mobs, Messiahs and Markets
September 21, 2009

Talk about timing the market. When William Bonner and Lila Rajiva decided to collaborate on a book about the behaviour of crowds in politics and economics, they did so with the understanding that Malcolm Gladwell’s The Tipping Point had generated a level of interest in the subject that they could capitalize on. What they didn’t know, even as the book went to press in 2007, was that the real estate bubble they were watching with such great interest was about to pop.

The best-selling result of their timely partnership, Mobs, Messiahs and Markets, was released in paperback last month.

“We look at the biological evidence behind human behaviour,” Rajiva told me. “People are basically driven by fear and libido. We want to consume. Why do we want to consume? Because we want status. Why do we want status? Because we want to mate well, we want to propagate.”

Behaviour, of course, isn’t all just fun and games. “People do make sacrifices,” said Rajiva. “They’re generous and kind, and they want to help each other. There’s no one explanation for crowd behaviour, at the biological level at any rate.”

The book is far from a Gladwell knock-off. Rajiva is a well-regarded political journalist. Bonner is a successful publisher of financial newsletters and a website called The Daily Reckoning.

To say they are contrarian is to put it mildly. Despite its light-hearted style, there is a strong anti-establishment tenor to the book. Too much so in my judgment, but there is good advice here.

A couple of examples:

* “[T]he less you know for sure, the more important it is to have rules and principles you can follow. So, as we become more ignorant about what is actually going on, we become more stubborn in our opinions about what should be.”
* “A real investor buys a stock as though it were a can of tuna fish. He knows what it is worth to him and buys it when it is a bargain. But how do you know what a business is worth? How do you know when the perfect market has slipped up? Traditionally and sensibly, the investment value of a business is measured by how much money it will return to the investor. This seems only self-evident, but few investors actually figure it out and invest accordingly.”
* “The more someone wants to sell you an investment, the more you don’t want to buy it … The owner of an investment usually knows the asset better than the buyer does. If it were such a good business, why would the owner want to sell it to complete strangers? If it could earn a decent return on equity, why share it?”

Prince of Peace Loses With Christian Neocons

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From the Lew Rockwell blog:

“The Christian neocons voted for Huckabee for president at their Value Voters Summit today in Dee-Cee. There was a virtual four-way tie for second: Romney, Pawlenty, Palin, and Pence. No reports in the media on Ron Paul’s votes, but given that the VVs booed him during the presidential campaign for saying that he worshipped the Prince of Peace, who could be surprised?”

Sandinista General: Kleptocrats ‘R Us – So What?

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“Ortega defends the Sandinista Front’s rise to economic power, which started during the 1980s and has accelerated in recent years. Since President Daniel Ortega returned to power, opponents have criticized him and his party for essentially privatizing Venezuelan aid, which last year totaled $457 million, according to the Central Bank.

The Sandinista government has created a series of privately managed companies under the auspicious of the Venezuela-bankrolled Bolivarian Alliance for the Americas (ALBA). Those companies, which represent more than $530 million in energy contracts, tourism holdings, and cattle farms, are linked to the presidential couple and managed by the family and Sandinista party treasurer, Francisco López…….

Ortega said one can be a self-identified leftist and still be rich….”

More here at The Nica Times.

In other words Nicaragua’s dear “leaders” are in bed with every rich speculator/developer from abroad. And aid to the country is being siphoned off by them. Great news for the foreign speculators/flippers in the country, making their capital gains and throwing chump change to the kiddies to feed their conscience.

Bad news for ordinary folks who make their living working and producing for the predator class.

Ah, but the new rich are kind too. A few bones are being tossed to the underclasses to buy respectability. The usual formula of crony capitalism – predation + charity.

I steal whatever I can get away with. Then I go to mass and toss your dying children some old toys. I get to be richer than everyone…and better too. I cheat, lie, defraud, and stomp on a thousand faceless individuals to get what I have. Then I toss some tiny part back to some one else and absolve myself.

It’s the Jeffrey Levitt model of absolution. More than twenty years ago, Tony Korneiser wrote a piece in The Washington Post on the man who “stole Baltimore.”

Back then, Kornheiser presciently put his finger on the moral and social attitudes that would metastasize in twenty years to give us the bank that “stole America.”

“Today’s businessmen seem to have hung a sign that says: We Will Lie, Cheat and Steal Unless You Stop Us. They renounce their responsibility to behave ethically, and dare the government regulators to seal off the border.

The sin isn’t cheating, but getting caught. If Jeffrey hadn’t been caught, he and Karol might still be the toasts of Baltimore. They wouldn’t be seen as gluttons, but as eccentrics and damned entitled to be so.

A few years ago Jeffrey hired a public relations firm to retool his image. The trick, and Jeffrey understood it, was philanthropy. Rockefeller, Ford, du Pont, Morgan — they all gave some away. That’s how they bought respectability. Now their great-grandsons are running for president. Instead of being known as a slumlord, which he was before he got into banking, Jeffrey would be known as a philanthropist. Through Jeffrey’s and Karol’s good charitable deeds, the Levitt name would stand for kindness and compassion. What Jeffrey neglected to tell the public relations firm was that it wasn’t his own money he was giving away. “

To “slum-lord,” add con man, gangster, penny-stock pumper, bid-rigger, racketeer, briber, stock fraudster, blackmailer, thief, extortionist, pimp, charlatan – which is what the word financier really stands for today.

Kind of takes away the glamor…

Tagore on Freedom

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“Where the mind is without fear and the head is held high;
Where knowledge is free;
Where the world has not been broken up into fragments by
narrow domestic walls;
Where words come out from the depth of truth;
Where tireless striving stretches its arms toward perfection;
Where the clear stream of reason has not lost its way into the
dreary desert sand of dead habit;
Where the mind is led forward by Thee into ever-widening
thought and action;
Into that heaven of freedom, my Father, let my country
awake!”

RABINDRANATH TAGORE

Asian Auschwitz…

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Trying to read up on the history of biological weapons (what with all the theories about the swine-flu vaccines circulating on the web, some wildly inaccurate, some more plausible), I came across this article on Z Net:

“ A New Type of Bomb

 After the 1942 failure, the Japanese army general staff lost all confidence in the efficacy of biological weapons. The pressure was on to find a new approach that would ensure the safety of friendly troops and deliver a more reliable, more devastating blow to the enemy.

 The new approach developed was to pack the pathogens in bombs or shells, which would be dropped from airplanes or delivered by artillery. This would satisfy both of the requirements, to deliver massive carnage while maintaining the safety of the attacking troops. At the same time, the only way to prevent disasters like that of the Zhejiang campaign was to improve communication among the troops.

 Two hurdles confronted the effort to load bombs with pathogens. The first was the need to keep the pathogens alive for long periods of time. The second was the need to develop a bomb made of materials that would break apart upon impact using little or no explosives; this would prevent the pathogen from being destroyed by heat. Alternatively, if a bombshell could not be made of fragile material, a pathogen that could withstand the heat of an explosion would have to be selected. When a bomb or a shell lands, people do not immediately gather at the point of impact, so it was necessary to convey the pathogen from that spot to wherever people were. Again a live host like a plague flea that would physically carry the pathogen and infect people was considered the best solution to this problem.

A bacteria bomb using the plague bacteria was developed to satisfy most of these requirements. The bomb used plague fleas packed in a shell casing of unglazed pottery made from diatomaceous earth (a soft, sedimentary rock containing the shells of microscopic algae). This same material was used in a water filter that Ishii had developed and patented. As this bomb would break apart using minimal explosive, it was expected that the plague fleas inside would survive the heat and scatter in all directions, to bite people and spread the disease. This bomb, called the Ishii bacterial bomb, was perfected by the end of 1944. In the beginning of 1945, the collection of rats went into high gear, and Unit 731 went to work cultivating fleas to be infected with the plague.

       Japan’s Defeat

 

The main force of Unit 731 left the unit headquarters by train soon after the Japanese surrender and returned to Japan between the end of August and early September 1945. Some members of the unit and officers of the Kwantung Army were captured by the Soviet military. Twelve of these POWs were tried by the Soviet Union at a war crimes trial in Khabarovsk in December 1949. In addition to members of Unit 731, officers of the Kwantung Army and the army’s chief medical officer were also charged as responsible parties. All of those charged were given prison sentences ranging from two to twenty-five years, but aside from one man who committed suicide just before returning to Japan, all had been repatriated by 1956. The record of the Khabarovsk trial was published in 1950 as Materials on the Trial of Former Servicemen of the Japanese Army Charged with Manufacturing and Employing Bacteriological Weapons (Foreign Languages Publishing House, Moscow).

On the other hand, not one of the members of Unit 731 who returned to Japan was tried as a war criminal. Instead, the American military began investigating the unit in September 1945, and unit officers were asked to provide information about their wartime research, not as evidence of war crimes, but for the purpose of scientific data gathering. In other words, they were granted immunity from prosecution in exchange for supplying their research data. The American investigation continued through the end of 1947 and resulted in four separate reports. The investigation took place in two phases……

 The Hill and Victor Report concludes with the following evaluation: “Evidence gathered in this investigation has greatly supplemented and amplified previous aspects of this field. It represents data which have been obtained by Japanese scientists at the expenditure of many millions of dollars and years of work. Information had accrued with respect to human susceptibility to those diseases as indicated by specific infectious doses of bacteria. Such information could not be obtained in our own laboratories because of scruples attached to human experimentation.”

 The above account makes clear the nature of the crimes committed by the Ishii Unit. At the same, it is necessary to question the responsibility of the American forces who provided immunity from prosecution in exchange for the product of these crimes.”

 

More here on the experiments in the Daily Mail.

Central America Musings…

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A number of people have written me and asked my opinion about different parts of the Americas as possible destinations.  So here’s a brief precis of some of my thinking on the subject:

Before I came down here, I went through a lot of research on the different Central American countries and on Mexico too.

Mexico was my prefered expat location, because I’m deeply interested in the Mayans. I love Mexican food, the architecture, the people, the crafts, and the weather. It was always my first choice. But the drug wars and the accompanying violence scared me off. Then too, land is not cheap in Mexico, except in the Yucatan, and the Yucatan has problems. Some areas look like they might have water problems, and other areas are targets for hurricanes. Then there’s the weather – humid and very hot. But the primary problem for me was corruption. I hear everyone has to be paid off and that police can be untrustworthy. Crime is said to be high.  And then the Mexican economy is very tied up with the US economy. So, reluctantly, I looked elsewhere.

In Central America, the only country I really thought long about was Panama. But there again, there were problems. The weather is very humid and hot. Panama City is overcrowded and expensive – more expensive than many parts of the US. I liked the mixed culture, the entrepreneurial energy and the fact that it’s become a hub of financial services and banking. But that has its draw backs too. It’s also attracting attention from the US authorities who are concerned about off-shore havens. Also, land isn’t cheap and what there is of it is attracting the developer crowd – which I tend to avoid. Nothing turns me off more than condo complexes going up, Starbucks everywhere you look. For that, you can go to Miami. It’s probably cheaper now. So no to Panama.

The Honduras struck me as too poor a country. Extremes of wealth, especially in a small country, are a bad sign.  How long will the place go without a revolution of some kind, I asked myself. And how long before US business or government interests start fiddling around. And sure enough, there’s been a coup.

The rain forests of Guatemala sounded..and looked..beautiful. But clearing rain forest isn’t exactly the easiest or the wisest thing to do. Guatemala also has a reputation for corrupt and cruel police. Real estate prices in the capital city were high. I nixed it too.

Nicaragua was cheaper. But also poor and unstable. No foreigner would  make it a permanent base, unless they liked living dangerously. It’s the kind of place where a certain sort of person from Norte America hides out…keeps a low profile.. or swindles the next fool who comes along..none of which interests me. And it’s too close to other hot spots for comfort.

And so it’s turned out….the Honduras coup seems to be spilling over into Nicaragua (see below).

Belize has its problems with hurricanes and it’s not cheap, except in the more remote areas. It also doesn’t have much to offer in the way of infrastructure and business.  But again, the main problem, as for the other Central American countries, was that it looked like the back yard of the US, vulnerable to interference, to a spill over of the drug wars, and to increased surveillance.

That’s why I decided to go further south, despite the expense, and despite the feeling that overwhelms you every so often in a foreign country – what the heck am I doing here? But I was asking that in the US anyway…

And in the US, I understand everything’s that being said….which tends to upset me, as you can guess from my fiery boycott-the-US post (it’s preceded by the word “IF”).

Here, I don’t understand most of what’s said. Ergo – peace of mind…

Some news on the spill over from the Honduras:

 “Mónica Zalaquett, director of the Center for Prevention of Violence, says the problem in Honduras has become a “political instrument” in Nicaragua, used by both the Sandinistas and the opposition to promote their own agendas..

….On Aug. 4, a group of four Nicaraguan opposition lawmakers who tried to travel to the Honduran border to express their discomfort with what they called Zelaya’s two-week “occupation” of northern Nicaragua were turned back 12 miles before the town of Ocotal. Sandinista and Zelaya supporters blocked their caravan on the highway and attacked their vehicles with sticks and rocks…”

 I feel vindicated in my research…I usually do. My problem isn’t sound investment decisions. I make good choices. My problem is I’m too cautious and tend to wait a bit too long.  I don’t lose, but I sometimes miss out – which some people would say is the same thing.

I don’t see it like that though, because you have to take into account your risk appetite and tolerance for stress. If you live your life pretty much on your own terms, answer to no one, can walk away from unpleasant people and things, and spend all your time in your own company and not in the company of annoying people, you are way ahead of 99% of the world.

And the other 1% is probably broke.

Which means that if you’re not broke, then you are better off than practically everyone. 

I’m not broke.

 

Ground Hog Ben: Fed Declares Depression Over…

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I expanded an earlier post into a diatribe:

That’s it folks. Wrap it up. This here recession…er.. correction…er.. depress…oh, whatever..is over. Time to put away your pens and papers, boys and girls.

Professor Bernanke says there’s going to be no test. You hear that? Or maybe, there’ll be one little teeny-weeny take-home. Better yet, you just get to write in and ask for whatever grade you want.

Billy Gross, Bobby Rubin, and Jamie Dimon, you boys get A’s, as usual.

(The rest of you clods better learn to to suck up if you want A’s).

Everyone else gets B’s….

No one fails. Ain’t life great?

Whew. That depression stuff was so, well, depressing. Glad it’s over.

There. That wasn’t so bad, after all, was it, seeing as how it was supposed to be the worst one in half-a-century and the sky was falling and we were all going to live in the Ozarks or Patagonia on canned peas and raw mackerel until we got raptured up… and really all that happened was some green paper got printed and we had to listen to a lot of speeches about schools an’ stuff in Barackistani (not as weird a lingo as Bushlish, but just as daft) and then, bingo, everything’s back to normal again.

Yessir. The economy is healthy. Grade A, certified organic, flu-vaccinated healthy. A bit weak. But wholesome. Except for jobs, that is. No jobs.

What kind of recovery is that, you ask?

What kind? It’s the new deadbeat, can’t-get-a job, rocketing-inflation, trashed-currency, can’t-sell-my-house, can’t-make-my-payments, bankrupt-mafia-government, kazillions-in-debt, trade-warring-with-China recovery – that’s what it is. Glad you asked.

It’s kind of a new thing. No one’s really tried it so far, but they’re doing it in Europe, we hear. And maybe a bit of it in Asia. But it’s back here in the US of A that we’ve got the whole thing down. Right here in Washington. And from now until the economy gets really going, we’ll be getting the full Bernanke on it – at least, that’s the buzz.

Yep. Professor Ben’s all but promised us he’s going to be inflating grades all around this time.

No F’s. No D’s. Heck, no C’s. It’s A’s and B’s all the way. That’s the way they do it in Princeton. It’s a self-esteem thing.

 Like that pep talk back on March 16, when Ben first spotted those green shoots. Now it’s September15 (exactly six months later), and Ben says the recession is over.

He says it’s all in the numbers from the National Bureau of Economic Research. The numbers say the recession ended this summer or fall. Man, the things they can predict these days.

Ole Ground Hog Ben. Puts his head out and the sun comes up. Amazing. Who knew you could even keep score of an economy?

Kind of like a lacrosse game at Princeton. Swat. Swat. Swat Take that, Harvard.

Of course, being a Princeton professor and religious and a pretty nice guy from all we’ve heard, Ben couldn’t bring himself to tell an outright whopper. He let the truth out dribble-drabble at the end.

Something about “impaired credit”…. and “head winds”…. and “digging out from personal debt”…. and “ongoing adjustments”….. and “unwinding massive stimulus efforts”…. and “risking igniting inflation”…. and “lingering high unemployment”…. and “sluggish outlook”…. and “higher gas prices” and…. “consumer reluctance”…. and “widespread job insecurity”…. and “significantly impaired credit”…. and “less lending”…. and “higher costs”…. and “deep freeze in credit”…. and “fearing defaults.”

But they put that way down in the report, after paragraph 5 (“Bernanke: Recession is Over,” Kansas City Star, Sept 15, 2009).

Before that, they just had him muttering something about the economy “underperforming”. ‘ Yeah, underperforming. Like the old geezer just needs a shot of Viagra.

But don’t let any of that bad stuff worry your little head, ’cause you know, the numbers say we’re okay. The numbers say the recession…er correction..er depress…oh, whatever…is over.

And numbers don’t lie, you know.

Like August retail sales. That went up by 2.7% over July. (I know, I know, cash-for-clunkers, high gas prices, blah blah blah. Gimme a break. It was still up wasn’t it?)

And the ISM numbers are good too.

August PMI (Purchasing Manufacturers Index) came in at at 52.9, 4 percent points higher than July.

(A number over 50 indicates an expanding economy. Below 50 is a contracting economy. This is the first time since June 2007 that the number’s been over 50).

Oh you don’t say!

And New Orders came in at the highest reading since December 2004. You know what that means. Businesses are stocking up. GDP is on it’s way up.

Woo-hoo

. Ride that gravy train.Ka-ching! Bada boom!

Hold just a moment though.

What’s this Non-Manufacturing Index stuff here?

Oh, you mean those bozos in medicine and law and teaching and real estate and construction and finance and retail?

Yeah, consumers. You know, guys who consume stuff. That stuff the manufacturing guys are producing. Seems like they still aren’t doing so good. So who’s going to buy all the stuff?

Not consumers. They’re cutting back.

You don’t know? That’s what comes of being a grade-inflated B student.

I bet Bob Rubin knows. And Jamie Dimon. And Bill Gross. And Warren Buffett.

And all their hedge-fund managing, private-equity-directing, leveraged-buying-out, sovereign-wealthy speculator buddies lining up to start the casino all over again. 

They know whose money they’re using to do it too.

Hey, Professor Bernanke. Can we see you outside class? We have some questions….
 

 

Note:

The indicators that are looking positive (ISM number, retails sales, the price of copper) are all numbers that could reflect no more than

1. The business cycle restocking of inventories 2. Cash for clunkers 3. The beginning of the school year 4. State purchases/investments being made by China in an effort to get rid of dollars