Different Opinion
Fair and balanced comments about the world from the everyday perspective of a welfare-state citizen.Way to Reduce Risk in Global Financial Crisis
Liquidity crunch in global financial market, Long-term security food supply, disruptive supply chain and energy security are main global risks that need to be resolved. To reduce risk effectively, risk assessment, risk transfer and risk mitigation must be taken into account. The issue is how can we reduce the risk in global financial market and what action should be taken?
First, we need to assess and identify the risks so that we need to improve the understanding of national risk exposures and indentify the clusters of countries that are exposed to the same risks in similar level. Then we can create a framework which is compatible with the global approach taken in previous risks. Individual countries might have their specific set of risks, and an aggregate risks measure can be derived from the model's capability to integrate a wealth of data, account for cross-correlations among risks, analyze specific vulnerabilities, and identify country clusters that engage in similar scenario to alleviate risk. For example, United Kingdom set up the Civil Contingencies Secretariat in 2001 to improve the effectiveness of post-crisis management, and to identify and assess prospective risk to national resilience. Therefore UK has been improving their consistency across governments concerning with assessment, roles and responsibilities clarification and basis for effective risk management.
Second is risk transfer by securitization, insurance-linked securities, and insurance-linked financial instrument. Securitization is the process of pooling risk and dividing that pool into portions sold to wide range of investors on the secondary market. The consequence will be a diversification of risk for insurer to an increase in the pool of capital available to cover insurance risk. Securitization grows more cost effective, insurer will be able to increasingly share cost benefit. To illustrate, it shares one-third of the US fixed income market. Other method is Insurance-linked securities which are able to fulfill the insurer capital requirement by diversifying the increasingly broad set of risks. To cover some traditional peak risks like natural disaster, the price of catastrophe risk is considerably high so that the coverage is insufficient. Therefore, we need to link security covering catastrophe by issuing the bond or note. For example, Hurricane Katrina or earthquake in Japan is traditional peak risk, so that we can issue "cat" bond to provide additional capital to the insurance industry. In "cat" bond process, at first, the sponsor enters into a financial contract with a Special Purpose Vehicle such as bank or financial institution. Second, SPV issues notes to investor in capital market, and securities offering are invested in high quality securities and held in a collateral trust. Third, investment returns are swapped by counterparties. In some transaction, principle and interest of the notes maybe guaranteed. On the other hand, insurance-link financial instrument is also used to transfer insurance risks, yet this method is used in some severe cases, exceptional or extreme weather for instance. Risk transfer is usually done by private sector such as insurance company, bank or other financial institution.
Third is risk mitigation which is required the involvement and action by the government or public sector. Government bodies should play 4 crucial functions. First, in addition to risk identification and assessment, government also manages the risk. To demonstrate, government can subsidize the gasoline price or food price if the price of these commodities is so high. Besides, government also has to communicate to mass carefully because it can make the situation worse especially some risks assessment that need to be kept confidential. Mass media sometimes helps a lot if government can communicate in a proper way, not to make people scare and create chaos, but create the trust. Second, government must regulate the legislation to help prevent the emergence of risks and protect the effect of risks. To illustrate, government can increase the interest rate in order to decrease the bank loan in case of liquidity crunch. However, legislation sometimes also can cause bad effect to investment and economic growth so that we need to study carefully before we set up the rule and regulation. For example, Cambodia just released regulation that all constructors need to reserve 2% of their total expenditure in any banks in Cambodia. As a result, investors complained it harshly and threatened to withdraw their investment, thus this regulation must be put aside; otherwise investors will run away. Third, government should boost economic continuity by using some specific measure such as the release of financial reserves or strategic energy reserve. A good example is America released their oil reserve when the oil price reached the peak in 2008. Forth, government must play a role of insurer of last resort owing to build the trust and motivation for investor and citizens.
In brief, to reduce risk successfully both private and public sector must take the plunge. However, we need to identify and assess the risk clearly so that we can transfer and mitigate it in a proper way.
Labels: America, Cambodia, Government, Insurance, Japan, Katrina, Price, Risk, Security, UK
Latest Recession in US Economy
Is a "Recession" really going on in US economy? Is US currently in the state of recession? Are US citizens face-to-face with recession? Are people living under the fear of ending up with loss of their jobs, losing into stack markets, going bankrupt, heading to ever highest inflation in the economy, huge downfall in property rates and a lot more.....
Recession is a state when country's GDP or Gross Domestic Product descents for two sequential quarters. Recession in an economy focuses on negative growth of GDP over two consecutive quarters. This negative growth during recession is more seeable in people's income, bank balances, payroll systems, lowering employment opportunities, reducing retail sales, lower investment returns and various others.
As per experts, the normal period of recession in an economy is about 1-2 years. The whole economy slows down during recession which leads to panic in the country. The hard time of downfall causes lot of stress in the economy. People point out the root of recession towards government. On the other hand, it is important to know that recession is somehow deflation. If the government tries to improve on economy's GDP, it has to invest in a lot more money in order to improve liquidity. But this causes an increase in inflation and ultimately stagflation. Hence, government has to make a choice whether to increase liquidity or reduce increase rate.
The U.S. GDP was down 0.2% in the third quarter of 2008, with U.S. economists forecasting a 0.8% fall in the fourth quarter. International Monetary Fund experts forecast the U.S. economy's growth at 1.6% for 2008. However, they say, in 2009 the U.S. GDP is expected to increase by only 0.1%. Recession has lead to a reduction in global economic growth in U.S., from this year's 3.9% to 3% in 2009, according to IMF experts. Each quarterly GDP report gets three releases..... In their Q3 2008 GDP report, the preliminary report showed a slowdown of .5%, slightly more than the advance estimate of .3% while advance report showed a downfall in growth by .3%, the second time in a year.
During the rough sledding of recession, with all the above mentioned consequences, people certainly look for options to successfully deal with the alarming situation and emerge out of it without getting much affected. But since we survive in this economy, we can't get rid of such a national downfall when every other citizen is suffering. Certainly there are ways to beat the recession in the economy and come out as a more confident one. Lowering down interest rates is one of the major steps that government can take to slightly correct the situation. Everyone in the economy has to be focused towards what they do best. Spend less on luxuries, stick to the necessities, save money are the best steps one can do in their general lives. People should not lose hope and confidence as these are the best remedies to success. After all, this is not the end of the world.
Labels: Downfall, Economy, Government, Growth, Inflation, Recession, Report, State, U.s., U.s. Gdp, Us
Gold and the New Standard
It's a beautiful thing to behold. It represents scarcity, value, glory and prestige but most of all it represents stability. As these months pass, more and more of my friends who thought I was nuts for suggesting we return to a commodity backed currency over our inflationary, prone to radical abuse monetary system are beginning to seriously consider what was once out of the question - gold.
We are at a precipice today; what was once considered the 'good as gold' greenback is now the least risky of all other currencies denominations, but least risky by no means implies secure and stable. The time has come when real alternatives have to be considered.
The benefit of having one is that it is fully transparent and as a consequence self-correcting since the marketplace controls its value, not a minority of 'masters of the universe' central bankers.
Under a gold standard, governments cannot increase the money supply without buying the equivalent value in gold.
A gold standard is not fool proof. There is the risk of deflation but that was a problem before the era of lightning speed electronic transactions and down to the decimal accounting and limited mining capabilities.
Whatever we do, we have to accept the fact that the Federal Reserve does not perform its function as was intended upon being signed into law under The Federal Reserve Act on December 23rd 1913. Here's a quote on what then President Woodrow Wilson wrote the day he signed it - keep in mind that many question its complete authenticity but having read the history so thoroughly, I believe it is authentic and is ironically verified in the congressional record as authentic.
"I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men." -Woodrow Wilson 1913
As ominous as that sounds, consider what President Thomas Jefferson warned about central banking back in 1791. The authenticity of this quote is complete:
"I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a money aristocracy that has set the government at defiance. This issuing power should be taken from the banks and restored to the people to whom it properly belongs. If the American people ever allow private banks to control the issue of currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children will wake up homeless on the continent their fathers conquered. I hope we shall crush in its birth the aristocracy of the moneyed corporations which already dare to challenge our Government to a trial of strength and bid defiance to the laws of our country" Thomas Jefferson, 1791
All the nations of the world who have sold out their liberty for the false sense of security provided by fiat based currencies in the exclusive control of central bankers need to consider alternatives; gold is only one, if there are others, I'd love to hear them and discuss it openly.
Peter Manousakos
Publisher & Editorial Director
Horus Onoma Group inc.
Labels: Currency, Deflation, Federal Reserve, Ggold, Government, Money, Question
Charest defends tax-cut promise
Charest, campaigning in a tight election race, announced he would pass on $700 million - coming Quebec's way in the form of new equalization payments - as a tax cut to middle-class Quebecers.
"I am the premier of Quebec," he told reporters who questioned whether the equalization money was available for him to cut taxes.
"I would never in my lifetime go to Ottawa to try to justify to them, ask them permission, to do what I have to do in my areas of jurisdiction," he said.
"We live in a federation. I'm responsible for my areas of jurisdiction," he added. "And I'm accountable for that to the people of Quebec who will be choosing their next government on March 26. I am not accountable to the government in Ottawa in my area of jurisdiction."
Equalization is a federal program to transfer money from Ottawa to the provinces, "to ensure provincial governments have sufficient revenues to provide comparable levels of public services." Asked what he would tell Canadians who woke up to learn their tax dollars were going to fund tax cuts for Quebecers, Charest said he would tell them Quebec is better run now under his government.
"We have cleaned up our public finances, our credit rating has gone up, the health-care system is in better shape, our education system is in better shape and there's a government in Quebec that has a strong team that's making the right choices so that the economy and the middle class can benefit from the decisions we're making," he replied.
Charest denied the tax cut - which is not a cabinet decision but a commitment by his Liberal party - is an attempt to buy votes.
"It's an announcement during the election campaign by the party and we will implement it as the government," he said.
Charest said his government has achieved 65 per cent of its goal to lower Quebec's tax level down to the Canadian average.
The extra equalization money gives that effort a boost.
"We said if we had room to manoeuvre, we would go faster," he explained.
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'Staging' homes with works of art gets them sold faster
by Virginie Montet
With home sales tumbling to a two year low, real estate agents looking for innovative marketing techniques to boost sales have found that a work of art hooks a buyer better than a fresh coat of paint.
From coast to coast, "staging" homes is quickly becoming the industry standard in a highly competitive real estate market, and more and more agents are hanging expensive works of art to glamorize a room.
And it works, said Jan Sewell, a real estate agent in the northwestern city of Seattle who specializes in decorating homes for sale.
"Many times the houses sat there and after we stage them, we've got multiple offers," she told AFP.
Sewell works with the rental/sales gallery of the Seattle Art Museum, which makes 20 percent of its one million dollar-a-year business by lending local contemporary works of art to real estate agents, according to gallery coordinator Jodi Bento.
With around 100 paintings currently showcased in homes he represents in the Seattle area, Sewell said an artist's creation "helps to create an impression on a subliminal level, unconscious level ... making people fall in love with the house."
"People think they want to be rational in buying a house. Nobody is," she added.
Angela Di Bello, who runs the Agora Gallery in New York with a similar rental program, agrees wholeheartedly.
"When you walk into a room that has artwork, the space becomes more personalized. It instills a sort of passion, excitement in the mind," she said.
"It has a very positive effect. It makes people feel good. If they feel good they say yes, if not they become negative and say no," Di Bello added.
"It's a balancing act," cautioned Sewell. "The principle behind staging is to sell the house. You don't want the potential buyer to be overwhelmed by the art" to the point that they buy a painting instead of the house, as sometimes is the case.
Most often, contemporary abstract art is chosen for staging homes. A rental fee of three percent of the painting's sale value will keep it hanging in a house for three months.
The works of art rarely surpass 20,000 dollars in value, putting rental prices usually between 50 and 600 dollars for three months.
While the marketing technique is mostly used for upscale homes, "it has infiltrated the lower market," said Di Bello.
The Larsen Gallery in Scottsdale, a suburb of Phoenix, Arizona, has a comprehensive rental policy. "We can offer a wide variety of artwork for clients to choose from, ranging from traditional landscapes to contemporary abstracts," said owner Scott Larsen.
"We have found that the style and type of artwork is really dictated by the clients furniture, home design, etc. and therefore we have placed a myriad of subjects and styles," he said, adding that the gallery has even loaned engravings by Salvador Dali.
"With the slow down of the real estate market, real estate agents are trying to be more innovative," said Gopal Ahluwalia, vice-president for research at the the National Association of Home Builders.
New US home sales tumbled 4.3 percent and existing homes 4.1 percent in July from June, according to the latest Commerce Department data.
Besides artwork, he said, people seeking expensive homes are offered a wide variety of incentives including fireplaces, wood floors, swimming pools, travel packages and even cars.
Copyright © 2006 Agence France Presse.
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Why trying to kill yourself may be a smart business decision
But when it later came out that Jones had boasted to a friend, "If I go over and I live, I am going to make some money," it was time to call in the economists.
Jones is now negotiating with tabloids to sell his story for thousands of dollars. His case, however, will complicate a debate that is roiling suicidology, one that pits economists against psychiatrists over a basic question: Is suicide a rational decision?
This controversy began in 1974 when two Princeton economists created a model to forecast suicidal decisions. Admittedly, the economists wrote, some suicidal behavior is purely irrational. But evidence suggests that economic theory explains some suicides. The economists proposed that the value of a life might be calculated the same way we value companies: Measure all the happiness a life might contain, discount it by the cost of achieving that happiness, and if the net present joie de vivre is less than zero, suicide is a viable option.
The economics of suicide were largely ignored in the ensuing decades. But last year Dave Marcotte, a professor of public policy at the University of Maryland, Baltimore County, pushed the field forward when he wondered what happens to people like Jones who attempt, but do not achieve, suicide.* There are about 20 attempts for every successful suicide. (Approximately 2.9 percent of the U.S. population has attempted suicide—1,760 attempts per day.)
Previous studies had demonstrated that as personal incomes rise, the propensity for suicide falls (presumably, money does buy some happiness). Marcotte's insight was that individuals contemplating suicide do not just choose between life and death. Rather, they choose between three alternatives: life, death, and the gray area of unsuccessful suicide, which may be negative (expensive injury and permanent disability) or positive (a "cry for help" that elicits attention).
The resulting formula contains a somewhat paradoxical conclusion: Attempting suicide can be a rational choice, but only if there is a high likelihood it will cause the attempter's life to significantly improve.
Marcotte couldn't test the relative "life improvement" of successful suicides—since they were, of course, dead—but he could study those who had failed at suicide to determine if their lives improved after the attempt. The results are surprising. Marcotte's study found that after people attempt suicide and fail, their incomes increase by an average of 20.6 percent compared to peers who seriously contemplate suicide but never make an attempt. In fact, the more serious the attempt, the larger the boost—"hard-suicide" attempts, in which luck is the only reason the attempts fail, are associated with a 36.3 percent increase in income. (The presence of nonattempters as a control group suggests the suicide effort is the root cause of the boost.)
Why should suicide be an economic boon? Once you attempt suicide you suddenly have access to lots of resources—medical care, psychiatric attention, familial love and concern—that were previously expensive or unavailable. Doubters may ask why the depressed don't seek out resources earlier. But studies have demonstrated that psychological and familial resources become "cheaper" after a suicide attempt: It is difficult to find free medical care when you are sad, but once you try to kill yourself, it's forced on you.
Suddenly the calculus of suicide has become even more complicated. Now attempting suicide seems a rational choice, as long as the attempt isn't too successful. But this conclusion alarms suicidologists: Treating suicide as a logical act runs counter to everything they have been advocating for the past 40 years.
The suicide-prevention movement of the 1960s was founded upon the idea of "suicide crisis moments"—relatively brief periods when "psychological pain and mental illness causes irrational thoughts, which are treatable and temporary," explained Dr. David Rudd, president of the American Association of Suicidology. This idea is the basis of suicide hotlines, which studies prove are effective in saving lives. Suicidology suggests that most failed suicide attempts are not caused by permanent mental illness. Rather, they are the products of momentary lapses in reason. Once the crisis moment is resolved through intervention and care, suicidal instincts pass and would-be attempters go on to fruitful and healthy lives. (Many economists and suicidologists agree that multiple suicide attempts and successful suicides are often products of longstanding mental illnesses.)
Constructing suicide as a momentary loss of reason is vitally important to the suicide-prevention movement because it suggests that men and women who have attempted self-murder should be allowed to shrug off social stigmas. If suicidal instincts are just momentary delusions, they are easily explained and dismissed. The suicide-prevention movement fears that if suicide is deemed the rational product of someone's mind, we may feel justified in suspecting that mind forever.
But by objecting to rational explanations of suicide, the suicidology community may be undermining its own cause. Although suicide attempts cost the nation more than $3 billion per year, and suicides claim more American lives than homicides, suicide prevention is hampered by scarce resources. Ultimately, say mental health advocates, legislators don't like to fund suicide prevention because they believe that suicidal people must be crazy, and crazy people don't really want help. Perhaps if suicide were considered a rational and combatable disease, like skin cancer or high cholesterol, we might see well funded educational campaigns similar to those for more socially acceptable ailments.
http://www.slate.com/
Labels: Business
Tax Beauty is in the Eye of the Beholder
BCA President Michael Chaney in the WSJ, proving that international comparisons are what you make of them:
We are particularly concerned that there is no overarching plan or vision for Australia’s tax system…
Mr. Costello’s review, which has confirmed that key areas of the Australia’s tax system are not competitive and need immediate reform, provides the conceptual groundwork for a program of more comprehensive and sustained reform.
Costs of the War in Iraq
Most analyses of the cost of the war in Iraq fail to take adequate account of the relevant counter-factuals. This paper by academics at the University of Chicago GSB is a notable exception. They conclude that not only are the costs of intervention on a par with the pre-war containment strategy, but that the war will lead to large improvements in the welfare of the Iraqi people.
(via DBRB)
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