To quote Kanye: "I ain't saying she's a gold-digger, but..."

... well, you know the rest.

The reason we need the internet...

Crooked Timber are dong a discussion of Charlie Stross's books and it is, as expected, fantastic. Paul Krugman is talking about development economics in the Merchant Princes, for God's sake. Particularly enjoyed this, from CS:

Old certainties have been eroding: family, religion, gender roles, race, the hopelessly compromised multinational news media, politicians mired in the megaphone era and trying to grapple with ubiquitous information overload at the same time that they’ve been systematically stripped of actual power by the trade treaties of Empire. And so the existing establishment figures shout louder to drown out the noise, and foment moral panics and pass increasingly draconian laws just to be seen to be Doing Something. And something is done: anti-terrorism laws are applied to fly-tippers, bugging facilities are used to see that parents aren’t conspiring against the interests of the state by sending their children to the wrong school, and the unforseen complications of the disconnect between authority and real power multiply exponentially.

Nor is it obvious that the control-freak response of the traditional political centres to these challenges will succeed—that the Stasi-esque mountains of metadata being amassed by such processes as the Interception Modernization Program will hold back the flow: they’ve bought into what Cory Doctorow calls the MetaCrap delusion—that metadata is accurate, and if they can only hoard and search enough of it, they’ll find the answer to that which ails them. [[http://www.well.com/~doctorow/metacrap.htm]]

But ultimately the only source of accurate metadata we’ve got is the human species, with its insatiable appetite for gameplay and pinning labels on things.

Stick that in your International Realtions shaped pipe and smoke it!

Economics or Justice?

Another report in the Guardian today about the ridiculous cost of detaining asylum seekers for long periods of time in response to a report by the London Detainee Support Group. This is the second big report in as many months (the first being this one by the Iain Duncan Smith's Centre for Social Justice) that is going big for the economic argument for treating asylum seekers better.

This attitude scares me a little. There are some people about who believe we might win the argument on the economic issue, but what happens next time if we simply can't prove that it will save public money if we treat people with a little respect?

We shouldn't be locking people up for no good reason. We shouldn't have systems that force people into destitution. That's not an issue about money, it's an issue about justice.

This seems promising

Obama's first official TV interview is with al Arabiya:



Yeah, it's a Saudi-backed station, and yeah, the questions are all gimmes and the answers are long on nice rhetoric and short on detail, but at least it's a start.

Don't Believe The Hype

Information Landmine will believe in real change when the interests of ordinary citizens are prioritized over the interests of Wall Street bankers and robber barons.

Information Landmine will believe in real change when the PATRIOT and PATRIOT II Acts are repealed and the US Constitution and Bill of Rights are completely restored.

Information Landmine will believe in real change when every US citizen can visit a doctor without worrying about how they'll pay for it or whether it will be covered by insurance.

Information Landmine will believe in real change when weapons made in - and provided by - the USA are no longer used by Israelis to kill Palestinian civilians.

Information Landmine will believe in real change when we see Bush, Cheney, Rumsfeld, Rove, Gonzales, et al. on trial in a court of law for war crimes and treason.

But not until then.

Rob M Pt. 2

Second half or Rob's analysis:

The main economic effects of the current financial crisis will reveal themselves in developing countries in the form of reduced economic activity in developing countries. A reduction in consumption in the developed world will lead to a fall in the demand for exports in the developing world. As demand falls prices will also fall eroding away gains previously earned from high commodity prices.

Lower Commodity Prices

In Africa, the price of coffee (a commodity exported by more than 21 African countries nearly half the continent) has fallen by 26% since July 2008. Similarly, there has been a 65% fall in the price of crude oil per barrel over the same period with other commodities such as gold, silver and platinum experiencing falls in price but of lower magnitudes. This decline in the terms of trade has reduced vital export revenues and will slow down economic growth in these countries, undoubtedly pushing some people back into absolute poverty.

Reduced remittances

The financial crisis will also reduce remittances to developing countries. Remittances are a particularly important source of finance for developing countries and help reduce poverty and inequality in what are predominantly capital scarce and labour abundant countries. In 2007, the World Bank estimates that remittances to Africa totalled nearly $10 billion. As the financial crisis deepens Labour markets will slacken and as developed countries go into recession employees will be laid off and incomes will be cut hereby indirectly reducing remittances.

Reduced FDI flows

Even Foreign Direct Investment (FDI) that is usually stable will be negatively affected. The African Development bank estimates the continent received close to US$ 35 billion in FDI in 2007 and about US$ 15.73 billion in portfolio flows. As credit lines tighten, investors will cut back or postpone planned investments in domestic (developed markets) and external (emerging/developing markets). Planned investment is more likely to be postponed in the external markets as investors seek greater security.

Portfolio Investments

Developing countries will also experience capital flight as risk adverse investors move short-term investments to more established markets in Western economies. Portfolio outflows will be shown in the form of declines or even collapses in the value of stock markets in developing countries. According to the African Development Bank, which monitors stock markets on the continent, the 8 main stock markets on the continent were all down from their benchmark value on the 31/07/2008 some as much as 50%. The effect of this type of capital flight will be higher interest rates as countries try to hold on to capital, this will lead to capital account deficits and rising exchange rates further reducing the policy space in which governments can act.

Overseas Development Assistance

The financial crisis will weaken the fiscal positions of donor countries. This is likely to result in donors not meeting agreed promises to increase aid made at the Gleneagles summit in 2005. As such ODA at best is likely to stay the same if not reduced. Another channel through which developing countries will be affected will be tourism. Tourism will fall as people have less money to spend and cut back on holidays abroad.

Potential policies and alternatives to the current financial crisis

• Where possible Government’s that have the policy space could pursue expansive fiscal policy to dampen the recession and limit its effects. Where this policy space is available, government expenditure should be on public infrastructure and social services that will create and sustain wealth in the future;

• Developing countries could also look towards regional integration and the development of regional monetary agreements such as the Chiang Mai Initiative and the Banco del Sur. This would reduce the potential for speculative attacks and the negative impact of capital flight in economic downturns and protect these countries better from similar events in the future;

• Reject traditional IMF prescriptions, in the current economic conditions, infant industries should be protected from external competition, where suitable the government should ignore privatisation and free market policies of prescribed by the Bank and IMF; and

• The focus should be on more long-term policies that promote sustainable development and bring economic independence

Rob M Pt. 1

DO NOT PASS OVER THIS POST JUST BECAUSE IT APPEARS TO BE WRITTEN BY ME. For, in fact, I'm posting on behalf of my friend Rob, who's written this rather spiffing piece on how the credit crunch is hitting the developing world. So it's probably worth warning you now that this contains actual facts structured into some sort of coherent analysis. It's also pretty long, so I've broken it into two for the benefit of those with more limited attention spans. This first part is more of a primer on the financial crisis. If you've been wondering why everyone's so fucking depressed all of a sudden, there are worse places to look for answers than right here:

This is a personal discussion on the current global financial discussion. I am not an expert on the subject and only wish to forward my thoughts on the issues so that they can be critiqued and I can learn more about what is an important issue affecting a lot of people across the world.

The current financial crisis that started in America now seems it will affect developing countries too. This post discusses the background of the crisis, outlines the main contagion channels, the effects it will have on developing countries, and the potential policies/actions that these countries can implement now and in the future to shield themselves from similar events.

The root cause of the current financial crisis can be traced back to the burst of the dotcom bubble where as a result of the over-valuation of dotcom companies the NASDAQ dropped from the heights it had reached at the turn of the century.

The fall negatively impacted on the American economy. GDP growth slowed down and was negative in some quarters, the rate of unemployment increased in sectors outside those directly linked to dotcom companies. To stop the economy entering a recession, the US Federal Reserve aggressively eased monetary policy to boost growth.

The Fed’s Fund rate was reduced 27 times between January 2001 and June 2003 falling from 6.5% to 1% over the stated period. The low interest rates stimulated a boom in the housing market. Because of the large percentage house values contribute to peoples’ overall incomes, the housing boom overcompensated for the loss in wealth that had occurred during the stock market decline of 2001-02 creating growth in the economy (with this eventually leading to a housing bubble). The growing incomes in the US economy were further supported by Government expenditure on the wars in Afghanistan and Iraq and the increased spending on domestic security. This led to high levels of liquidity in the real economy and in the financial markets creating an environment in which investors took greater risks and were innovative in maximising their yields.

The full repeal of the Glass Steagall Act in November 1999 under Bill Clinton’s second term was one of a number of financially liberal policies adopted in America at the time. The Glass Steagall Act allowed Banks to fully engage in underwriting securities and dealing activities exposing previously safe Banks to the risks associated with such financial transactions. Bank reserve requirements were relaxed under the Bush administration allowing banks to use a bigger proportion of reserves for trading.

One of the instruments heavily invested in by financial institutions were mortgage-backed securities (MBS). These are basically individual home mortgages pooled together (the pool is usually divided horizontally into credit quality tranches) so that they can be priced and analysed like a bond. Compared to any other financial asset mortgages were given a higher credit rating based on the assumption that when squeezed for income most people will pay their mortgages and cut back on the consumption of other products/services. Various Wall Street firms and an assortment of institutional investors binged on MBSs because of the enormous income fees they generated. And due to their high credit rating, banks/firms/financial institutions could borrow heavily to purchase them and many of them did.

When the housing bubble burst, the value of these MBSs was reduced due to rising default rates on the underlying securities/mortgages. Because a lot of these MBSs had been purchased with borrowed money, creditors raised their capital positions to manage their counter-party risk. In the cases where MBS had been purchased with company funds, the companies found they were making losses on these assets and had to readjust their operations.

Given the manner in which these MBSs had been divided up and sold and the fact that a number of financial institutions had bought tranches of these MBSs for their own accounts (Merrill Lynch and Bear Stearns being the biggest culprits), when the underlying default rate started rising financial institutions became weary of lending to one anther. No government or institution could be sure of which institutions were holding what was now being referred to as toxic debt. This created a credit crunch. As banks stopped lending to each other, the credit supply available to consumers and businesses in the economy dried up.

The effects of this reduction in credit have been far reaching and have stretched beyond the domiciles of those institutions involved. Indeed few if any countries will go unscathed by the overzealous activities of banks and other financial agents in maximising profit. In developing countries, the economic impact of the financial crisis is going to depend on how closely linked national economies are to the developed world (contagion channels) and the policy space governments’ have available to counteract the inevitable negative impact.

Footnote for those who feel that blog-posts are more aesthetically pleasing if there's some text after the quote: Regular readers , such as they are, will probably have noticed that we've been a little light on the posting of late. Dunno about anyone else, but for my part there's the usual plethora of excuses about thesis-related death-marches, time spent getting hit in the face, and a burning urge to consume my own body-weight in ethanol over the seasonal period. Pick your favourite.

Memo: FAO BBC News 24

How do we decide when something is an "attack against Palestinian militants"? Because I'm pretty sure it should involve more than just one side declaring that that's what it is. Seriously - what ratio of civilian-military casualties do you have to have before we just go ahead and call it a general attack on the civilian population?