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Showing posts from 2008

Friedman foresaken

Was Milton Friedman right when he said that a government solution to a problem is usually as bad as the problem ? 2008 has turned out to be far worse than suggested in my December 2007 post. The US government has shovelled trillions of dollars into financial institutions but the liquidity issue refuses to walk away. America has seen unprececdented government market intervention. One sees Uncle Sam's hands all over corporate America. What started off as a subprime mortage fiasco has sipped into the real economy. Everything from commodities through stocks to retail sales has been affected by the financial market implosion. This crisis has claimed several giants. The Big Three US car manufacturers are living off government goodwill. Fannie Mae and Freddie Mac are under intensive government care. Citigroup, once the biggest bank (market capitalisation), is suckling from the state. What does the year 2009 have in store for the US economy? Expect to see less US influence i

Iceland melts

The government of Prime Minister Geir Haarde has moved to nationalise Kaupthing Bank hf (the largest bank in Iceland) after failing to secure investor confidence in the economy. The national currency, the Krona, was in free fall before trading was suspended until October 13. With a debt burden almost 12 times the size of the economy Iceland has bested the worst amongst the world's basket cases. Russia, previously chided by western governments for wholesale nationalisation of strategic assets, is looking to provide some EUR 5 billion relief to Iceland's battered economy while allies (the US and Europe) fight their own financial demons. Fervent supporters of free market economies have been dealt a hard lesson. Selling the virtues of privatisation to command economies just got harder.

Whose Shilling?

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Zimbabwe is Africa's Lazarus. The economy is in tatters, the citizenry of this great nation are despondent but Robert Gabriel Mugabe remains firmly in charge. For the time being. Many believe that only South Africa is in a position to determine the destiny of Zimbabwe. Yet President Thabo Mbeki, save for his quiet diplomacy, appears disinterested in employing enough downward pressure for Mr. Mugabe to repent his sins and thereby rid the Zimbabweans of their current economic woes. What exactly does Mr Mugabe have on Mbeki? In exile Mbeki lived, at different times, in the United Kingdom, Botswana and Zambia. He hardly was guest of the Mugabe's. On that score alone, Mbeki does not owe Robert a good turn. Of the two neighbours, Zimbabwe is most reliant on the other. Zimbabwe relies on South Africa's ports for her exports and imports. She draws electricity and routes her telecommunication traffic through her southern neighbour. South Africa is one of Zimbabwe's m

Banking on the phone

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In many so called Third World countries, informal businesses thrive. Hernando De Soto and his team note in The Mystery of Capital: Why Capitalism Thrives in the West and Fails Everywhere Else that an estimated four billion people across the globe operate within the extralegal sector. Most researchers, including De Soto, have shown that this sector contributes significantly to Third World GNP yet the sector exists outside the law and is generally beyond the reach of banks. In the numbers game, where banks have failed dismally, mobile telephone operators have flourished. Annual increase in mobile phone uptake in developing countries and former Communist states have consistently exceeded projections. According to the International Telecommunications Union , of the 1.2 billion mobile phone users worldwide, 45% live in developing countries - a natural habitat of the extralegal. New and improved specifications such as Mobile Information Device Profile (MIDP) and Connected Limited Devi

Cheap talk about talking cheap?

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To avoid expensive overseas calls many people in the developing countries rely on callback systems (invented in 1990 by Argentine/Spanish entrepreneur Martin Varsavsky ). Here is how it works. A call is placed to a toll free number, followed by a PIN code unique to each subscriber. Within seconds of the subscriber hanging up a computer calls back to accept the desired destination number. Trans border calls set up using callback systems are far cheaper than the rates charged by local phone companies since callback calls originate from low tariff networks in the West (notably America). Understandably this practice incenses telephone monopolies and the governments that support them. Large chunks of income is lost by operators along with depressed tax collected. One way to stifle callback systems is to blacklist and block calls to known toll free numbers. In some countries legal action is an option available to the operator and is a deterrent for those contemplating use of call back ne

Abracadabra and interest rates

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Last week The Fed briefly rattled stock markets with an unexpected inter-meeting rate cut. A full 75 basis point adjustment. Rumors suggest that a precipitous drop in global stock markets forced the Fed's hand. It has come to pass that the actions of one Jerome Kerviel, a rogue trader in Paris who committed the bank Societe Generale to a 50 billion Euro position, may have unnerved the Fed. In an effort to unwind Jerome's trades Societe Generale triggered widespread investor flight from the markets. By reducing the rate, a mere week before the scheduled Federal Open Market Committee meeting, did the Fed react to events at Societe Generale ? The Financial Times wrote "The question being asked now by some in the markets is: was the Fed duped into a clumsy and panicked move by the clean up operation for Jerome Kerviel's mammoth losses from the French bank?". If that is the case and with what we know now, this is surely to embarrass Ben Bernanke. In any case, the