Tag: Crony-Capitalism

Open the Time Capsule: The Great Recession of 2008

Go Lean Commentary

Time Capsule Pic 1Picture this: one week after the greatest threats to the global financial system, since the Great Depression. You cut out and store – for safe keeping in a “virtual time capsule”, (see Appendix A) – a newspaper commentary and subsequent review/analysis of that crisis. It’s time now to open that capsule! Why so early? Why only after 6 years? So that this analysis would serve as a course correction. Those placing the time-capsule, hoped for a different result.

This is the scenario depicted in the foregoing news article. It was published on September 23 in 2008; 8 days after Lehman Brothers filed the largest Bankruptcy in world history – signaling the peak of the financial crisis, the precipice of a total system failure. The book Go Lean … Caribbean is based on that premise, declaring that a crisis is a terrible thing to waste”, quoting noted Economist Paul Romer’s assessment that the Great Recession would be a crisis for the modern world. The book posits that the Caribbean, with its parasite economy, is still in that crisis – no noticeable recovery.

A joke lampooning economists declares “that an economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today”.CU Blog - Open the Time Capsule - The Great Recession of 2008 - Photo

So now, this review/analysis of a 6 year old newspaper editorial from a Guest Columnist, the focus of which was to an audience in the Bahamas; (but this is equally representative of the entire Caribbean):

It is the assessment by the publishers of Go Lean that the foregoing analysis was spot on!

It describes the new normal, a term cementing the truths that the economic realities that suddenly emerged in 2008 would thereafter remain as the norm. This has proven to be the case. The foregoing writer lamented that his government appeared to be using the same set of tools to fix a new vehicle with all different parts, and they pondered why the vehicle would not repair (recover) and get going. The writer concluded that the stewards of the economy needed to prepare a 20 year plan to navigate his country among the new realities facing the world. But he doubted that such a plan would emerge.

By: Craig Butler

I know what you must be thinking. ‘The new normal’, what in heaven’s name is he talking about? Well, the other day I was in Florida listening to talk radio.

There was a director from the International Monetary Fund, an economics professor, and a few others. They were talking about the global economy and what the future holds. The professor was the one who used the ‘new normal’ phrase and he did so in reference to the high prices that we are experiencing worldwide.

He said that, as he did not expect a significant strengthening of the dollar any time soon; coupled with the fact that the price of oil was likely to remain high and the war in Iraq was ongoing, he believed that the current high prices are going to be the norm.

Most of the panelists agreed that some experts have given folks a false sense of security by suggesting that prices will come back down once the price of oil drops. But all on the panel were of the view that the price of oil will never again be under $90 to $100 per barrel.

This was partly based on the weak dollar and partly on our dependency on fossil fuels and the lack of resolve shown by politicians to fully develop alternatives. They also noted that the oil lobby was one of the most powerful in Washington, which was a leading factor in the stalled development of renewable energy.

And the price of breadbasket items and other basics has not been helped by climatic change, which has led to falls in wheat and rice production over the last few years. Add to this the diversion of corn for use as a fuel (ethanol), and we have the new normal.

My views tend to be conservative so my first reaction was that these are some leftwing liberal nuts talking. However, on reflection much of what was said is correct.

Why should we expect to see a reduction in the price of oil? Producers are making so much money it’s not realistic to think they would relinquish that. And the high price affects so many other industries that have had to pass on these increases to the consumer. Just look at the airlines. And all the solutions being put forward to wean us off our dependency on oil will take at least five years to have any kind of impact.

The panel went on to say that there will be a widening of the income gap – something we are already seeing in the Bahamas. Many people who I know in the middle class are struggling so much that they can now be classified as the working poor.

I say that because they are now living from pay cheque to pay cheque. All their savings have been depleted; and things that they once could afford are out of the question now.

Think about it – how many of the people you know around you have their houses in foreclosure; have lost their car to the bank; have had to take their children out of private school; or have been unable to take a vacation this year?

Look in the newspaper this week and I’m sure one of the leading commercial banks will have a double page ad featuring distressed properties. The other week two banks had ads back to back.

I have written before about misguided priorities and how, despite all that is going on, we still prefer the materialistic rather than seek what is important.

I remember from my youth a song by Eddie Minnis called the ‘Finance Man’. I loved that song, and the words to one of the verses bears repeating: ‘See him there he poor as me and you but he driving round in Malibu. His car sleeps in the road at night, Lord you know that just ain’t right, He is living in the hands of the finance man…’

I apologize to brother Eddie if I did the lyrics an injustice. But it demonstrates how we have lived on credit for a long time. We have maintained a lifestyle well beyond our means without a thought as to what might happen in hard times.

As a lawyer I can see first hand what has happened to many in the middle class. You see, it was important for them to have the grand house with the two European cars parked in the garage, kids in the best schools and all the trappings that went along with it. And I will be the first to say that there is nothing wrong with wanting to attain your desires.

However, the bank loans were in many instances predicated on both the husband and wife maintaining $50,000 a year salaries, as well as some creative financing to help the couple get the loan.

Now that many offshore companies have closed or downsized, one of those pay cheques has disappeared and so has the dream, because the severance package is not going to last long and there is a distinct shortage of similar jobs available.

So what we are facing here is now being experienced all over the world. The radio panel noted that there will have to be a reclassification of the status of many people as the poor are going to be poorer, the middle class are going to be the new poor and only the very rich will be able to sustain themselves.

Dark days are ahead, and this means we need our politicians to get their collective heads out of their rear ends and devise a comprehensive plan for the next 25 years that takes all of the current factors into consideration and ensures our viability.

But there I go dreaming again – most of the time they can hardly get out of their own way let alone see past the next general election. So lets wait for the eventual anarchy that is to follow.

*****

Craig Butler studied law at the University of Wolverhampton, England, and at the Norman Manley Law School in Jamaica. He also has a degree in economics from Rollins College in Florida. Mr Butler’s column runs in the Nassau Guardian, the Bahamas, on Mondays and he also hosts a weekly political talk show on Bahamas’ Island FM.

He is the grandson of Sir Milo Butler, the first governor-general of an independent Bahamas. He blogs at Bahamapundit and can be reached at cfmilobutler@hotmail.com.

The New Black Magazine – Online Source – Tuesday, September 23, 2008 –http://www.thenewblackmagazine.com/view.aspx?index=1596 

Flash forward 6 years later; lo and behold, the book Go Lean … Caribbean is proffered as that plan, a roadmap to navigate today’s troubling economic waters and offer solutions. The book calls for the introduction and implementation of the Caribbean Union Trade Federation (CU), a super-national administration, for the 30 member-states that constitute the Caribbean region. The book posits that the problems of the Caribbean are too big for any one member-state to tackle alone. That rather, there needs to be a methodical leveraging of the 42 million people that populate these island/coastal states. With such numbers come economies-of-scale, and the benefits of these 3 prime directives:

• Optimization of the economic engines so as to grow the regional economy to $800 Billion and create 2.2 million new jobs.

• Establishment of a security apparatus (with prosecutorial powers for economic crimes) so as to mitigate the eventual emergence of “bad actors”.

• Improve Caribbean governance.

These prime directives recognize that the change the region needs starts first with re-thinking community ethos and economic engines. Early in the book, an economic interdependence is pronounced, (Declaration of Interdependence – Page 13) with these statements:

xxiv. Whereas a free market economy can be induced and spurred for continuous progress, the Federation must install the controls to better manage aspects of the economy: jobs, inflation, savings rate, investments and other economic principles. Thereby attracting direct foreign investment because of the stability and vibrancy of our economy.

xxv. Whereas the legacy of international democracies had been imperiled due to a global financial crisis, the structure of the Federation must allow for financial stability and assurance of the Federation’s institutions. To mandate the economic vibrancy of the region, monetary and fiscal controls and policies must be incorporated as proactive and reactive measures. These measures must address threats against the financial integrity of the Federation and of the member-states.

The book identifies a number of new community ethos to forge change in the region and to harvest the benefits of the new global marketplace. From the ethos, comes the solutions – for example, sharing!

Six years ago, the columnist in the foregoing article could only envision his country, Bahamas, seeking solutions alone. This roadmap, on the other hand, seeks solutions as a confederated region, a group of partners. This will mean speaking with one voice, acting together as the CU; the 30 member-states will have far greater weight and influence than acting individually. Benefits will flow from this economies-of-scale, like a Group Purchasing Organization (GPO) to negotiate value and savings.

The CU roadmap drives change among the economic, security and governing engines. These solutions are as new community ethos, strategies, tactics, implementations and advocates; as follows:

Community Ethos – Lean Operations – GPO’s Page 24
Community Ethos – Ways to Improve Negotiations Page 32
Community Ethos – Ways to Impact Turn-arounds Page 33
Community Ethos – Ways to Improve Sharing Page 35
Strategy – Agents of Change – Globalization Page 57
Strategy – Agents of Change – Climate Change Page 57
Tactical – Confederating a permanent union Page 63
Implementation – Ways to Pay for Change – GPO’s Page 101
Implementation – Foreign Policy Start-up Initiatives Page 102
Implementation – Ways to Improve Energy Usage Page 113
Implementation – Ways to Better Manage Debt Page 114
Implementation – Ways to Benefit from Globalization Page 119
Planning – Ways to Improve Trade – GPO’s Page 128
Planning – Lessons Learned from 2008 Page 136
Advocacy – Ways to Grow the Economy Page 151
Advocacy – Ways to Create Jobs Page 152
Advocacy – Ways to Control Inflation Page 153
Advocacy – Ways to Better Manage ForEx Page 154
Advocacy – Reforms for Banking Regulations Page 199
Advocacy – Battles in the War on Poverty Page 222
Advocacy – Ways to Help the Middle Class Page 223

Change has come to the Caribbean; the world is different. It’s not the world before 2008, but rather a new world shaped by 2008. This is illustrated as a moving freight train. It cannot – must not – be stopped. Everyone must get “on board”, or get “run over”.

Appendix A: How to Create a Time Capsule

A time capsule can be as simple as a shoe box full of items reserved (or even forgotten) somewhere. Other time capsules may need to last a very long time, in which case a strong stainless steel container is recommended, with a proper seal. Keep in mind that creating a capsule for unveiling at some future date is really a two sided adventure involving both you and those who will uncover it once again. Make sure that the items you select will add the element of surprise and discovery for those who open this curious treasure chest of history. Learn how to make a time capsule that will be sure to please and surprise whoever opens it. (http://www.wikihow.com/Create-a-Time-Capsule; retrieved May 5, 2014).

Download the book Go Lean … Caribbean – now!!!

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Book Review: ‘The Divide’

Go Lean Commentary

Book Review - The Divide - PhotoSo many Caribbean citizens would love the opportunity to immigrate to the United States. However, the old adage could apply here: “All that glitters is not gold”.

The publishers of the book Go Lean … Caribbean, align with the source book in this review, The Divide by Matt Taibbi. In the Caribbean, we hope to minimize the “push-and-pull” factors that draw our Caribbean youth away. This verse from Matt Taibbi’s book depicts that the US is not the “Promised Land” that many Caribbean expatriates envision:

Violent crime has fallen by 44 percent in America over the past two decades, but during that same period the prison population has more than doubled, skewing heavily black and poor. In essence, poverty itself is being criminalized.

This subject matter aligns with the Go Lean … Caribbean publication, which serves as a roadmap for the introduction and implementation of the Caribbean Union Trade Federation (CU). The Go Lean roadmap calls for the optimization of the Caribbean economic, security and governing engines. We want a society based on justice, but not the “American Justice” we see meted out, as described in the source book.

This Go Lean roadmap first assesses that the Caribbean is in crisis, that we are not able to retain our young people. Many member-states (St Vincent, Puerto Rico, US Virgin Islands, etc.) have lost more than half of their populations to foreign shores. This plight of human flight makes the task of building a functioning society difficult for the remainder, as often our brightest and best talents are the ones that leave. We “fatten frogs for snakes”, as the Jamaican expression depicts.

Many times, the destination of choice is the United States. The goal of Go Lean movement is to forge a better society, to make the Caribbean a better place to live, work and play. While the source book in the foregoing article is indicting the American Justice system, we, in the Caribbean, need to ensure that we are doing even better ourselves in our Caribbean homeland.

Book Review: By Timothy Noah; contributing writer New York Times, April 10, 2014

THE DIVIDE (Spiegel & Grau Publishers)

American Injustice in the Age of the Wealth Gap

By Matt Taibbi

“Low-class people do low-class things.” What’s notable in this reflexive dismissal of those with modest means are not the words themselves. Rather, please turn your attention to the person whom Matt Taibbi, in his ambitious new book documenting America’s unequal administration of justice to rich and poor, quotes saying them: a private attorney hired by New York State to defend low-income people in criminal court. We never learn his name, but Taibbi calls him Waldorf because he resembles the grouchy old balcony heckler on “The Muppet Show.”

Waldorf’s casual contempt for his defendants (and tacit approval of the sloppy policing dragnet that puts them at his mercy) is voiced at the conclusion of a grimly comic vignette worthy of Joseph Heller — one of many deeply reported, highly compelling mini-narratives of dysfunction within the criminal justice system that make “The Divide: American Injustice in the Age of the Wealth Gap” as infuriating as it is impossible to put down.

A 35-year-old black man named Andrew Brown is arrested for “obstructing pedestrian traffic” in Bedford-Stuyvesant. Brown, having been similarly harassed by the cops countless times before, refuses to provide ID and accept a summons, and is consequently brought into court. Once there, Brown explains to Waldorf that he was talking to a friend outside his own apartment building after getting off work, and that, given the lateness of the hour (shortly before 1 a.m.), there wouldn’t have been any pedestrian traffic on Myrtle Avenue to obstruct.

None of this seems to register with Waldorf. “What are you arguing?” he asks. He wonders aloud whether Brown was “being a wise guy” with the cops, and expresses surprise that a person such as Brown would have a job. He advises his client to pay the $25 fine.

Brown refuses and explains it all over again to the judge. The judge turns to Waldorf and asks whether Brown will pay the $25 fine. Waldorf explains, for the second time, that Brown won’t pay, his manner suggesting that for the life of him he can’t figure out why not.

Only then does the judge bestir himself to ask the arresting officer whether he saw any other people on the sidewalk that night. No? “O.K., then,” the judge sighs. “Not guilty.” Out in the hallway, Taibbi asks Waldorf why white people never get arrested for obstructing pedestrian traffic. Oblivious to the lesson that has just played out, and puzzled as to why Taibbi would want to include any of this in a book, Waldorf replies, “Low-class people do low-class things.”

Taibbi wrote “The Divide” to demonstrate that unequal wealth is producing grotesquely unequal outcomes in criminal justice. You might say that’s an old story, but Taibbi believes that, just as income disparities are growing ever wider, so, too, are disparities in who attracts the attention of cops and prosecutors and who doesn’t. Violent crime has fallen by 44 percent in America over the past two decades, but during that same period the prison population has more than doubled, skewing heavily black and poor. In essence, poverty itself is being criminalized. Meanwhile, at the other end of the income distribution, an epidemic of white-collar crime has overtaken the financial sector, indicated, for instance, by a proliferation of record-breaking civil settlements. But partly because of an embarrassing succession of botched Justice Department prosecutions, and partly because of a growing worry (first enunciated by Attorney General Eric Holder when he was Bill Clinton’s deputy attorney general) that any aggressive prosecution of big banks could destabilize the economy, Wall Street has come, under President Obama, to enjoy near-total immunity from criminal prosecution. It had more to fear, ironically, when George W. Bush was president.

The argument isn’t laid out in a particularly rigorous or nuanced manner, but it seems plausible enough. Taibbi, a longtime Rolling Stone writer who is currently developing a publication about political and financial corruption for First Look Media, has in the past written in a blustery style that put me off, but here the gonzo affectation is kept largely in check. What I failed to notice previously — or perhaps what Taibbi shows off to especially good effect here — is what a meticulous reporter he can be, with a facility for rendering complex financial skulduggery intelligible. Especially noteworthy are Taibbi’s detailed accounts of self-­dealing amid the dismantlement of Lehman Brothers — which involved, among other things, hoodwinking Lehman’s bankruptcy judge — and of a vicious harassment campaign waged by hedge fund managers against the employees of a Canadian insurance company whose stock they’d shorted. In both instances, one is struck that, however tricky the standard of proof may be for the white-collar criminal class, the evidence available nowadays in the form of compromising email communications would make Eliot Ness weep with gratitude. And yet the gangsters got away.

Taibbi is similarly skillful at explaining how bureaucratic imperatives in the criminal justice system can spin scarily out of control. In New York City, you start with a “broken windows” theory that says cracking down on petty crime can prevent little criminals from becoming big criminals. Possibly because that’s right, violent crime goes down. But paradoxically, that makes a cop’s life more difficult rather than less, because criminals are getting harder to find even as new computer systems are enabling the police commissioner to keep track of which precincts are making the most arrests. The solution turns out to be aggressive use of a stop-and-frisk policy that gives cops a blank check to “search virtually anyone at any time.” The police start behaving “like commercial fishermen, throwing nets over whole city blocks.” Some of the fish get prosecuted or ticketed for ever-pettier offenses; 20,000 summonses, for instance, are handed out annually for riding a bicycle on the sidewalk. But most fish aren’t guilty of anything and must grow accustomed to being routinely cuffed and ridden around in a police van before they are tossed back into the water. These fish are, of course, typically black and poor. Anecdotal evidence suggests that throwing a similar fishnet over entire Wall Street firms would produce a criminal yield at least as high as any random ghetto block. But innocent Wall Street fish would have a much bigger megaphone with which to proclaim their constitutional rights, and guilty Wall Street fish would have much better lawyers.

One theme implicit in Taibbi’s reporting is the extent to which the justice system’s newer kinds of inequalities are driven by technology. Computers encourage both the government and the banks to operate on a scale at which consideration of

individual circumstance isn’t really possible. The result is unstoppable error by government (say, the frequent miscalculations that leave welfare recipients at constant risk of being wrongly accused of fraud) and unstoppable fraud by banks (say, ­robo-signing endlessly repackaged and resold mortgages and credit card debt). For both government and banks, such scaling up inevitably creates injustices for certain individuals, but so long as the victims are powerless there won’t be much of a legal or political reckoning. The person tossed into jail for welfare fraud he didn’t commit or tossed out of his house because he was mistakenly judged not to be paying his mortgage may or may not get it all sorted out in the end, but even if he does the feedback loop won’t impose too much pain.

We may be approaching a day when any kind of personal attention from a large institution that wields substantial control over your life becomes a luxury available only to the few, like a bespoke suit or designer gown.

New York Times Online –Book Review – “The Justice Gap” – Retrieved 04-15-2014 –http://www.nytimes.com/2014/04/13/books/review/the-divide-by-matt-taibbi.html?_r=0http://www.nytimes.com/2014/04/13/books/review/the-divide-by-matt-taibbi.html_r=0

Even though the Go Lean book is presented as a roadmap for economic empowerment, it immediately recognizes that there must be an effort for justice among Caribbean institutions or rather, people will continue to flee. At the outset of the Go Lean book, in the Declaration of Interdependence (Page 12), this point is pronounced:

xxi. Whereas the legacy in recent times in individual states may be that of ineffectual governance with no redress to higher authority, the accedence of this Federation will ensure accountability and escalation of the human and civil rights of the people for good governance, justice assurances, due process and the rule of law. As such, any threats of a “failed state” status for any member state must enact emergency measures on behalf of the Federation to protect the human, civil and property rights of the citizens, residents, allies, trading partners, and visitors of the affected member state and the Federation as a whole.

How should the Caribbean be different than the United States in the pursuit of justice?

The book Go Lean … Caribbean details strategies, tactic, implementations and advocacies to elevate Caribbean society. Some of the specific features include:

Community Ethos – Juvenile Justice Page 23
10 Ways to Manage Reconciliations Page 34
10 Ways to Impact the Greater Good Page 37
Separation of Powers–Justice Department Page 77
Separation of Powers–Judicial Branch Page 90
10 Ways to Better Manage Image Page 133
10 Ways to Improve Failed-State Indices Page 134
10 Ways to Impact Justice Page 177
10 Ways to Reduce Crime Page 178
10 Ways to Improve Intelligence Page 182
10 Ways to Impact Wall Street Page 200
10 Ways to Impact Prison-Industrial Complex Page 211
10 Ways to Protect Human Rights Page 220
10 Ways to Impact Youth Page 227

The roadmap also cautions that we do not want to repeat America’s mistakes. If we do not learn from history …

In truth, the Caribbean is still reeling from the effects of the Global Financial Crisis of 2008.

What is worse, the US has “hardly” marshaled any persecutions against the culprits and perpetrators of the mortgage fraud that de-stabilized the American securities markets and the world economy. Matt Taibbi further reports:

In a speech last year that chilled Wall Street, New York Federal Reserve President William Dudley said he feared that the tax dodging, money laundering, mortgage fraud and trampling on homeowners by America’s big banks might reflect not just a few bad actors but ethical flaws deep in the fabric of Wall Street.

In 2010, Attorney General Eric Holder Jr. warned that “mortgage-fraud crimes have reached crisis proportions.” He vowed bravely to fight back, but the Justice Department’s inspector general recently reported that, in fact, Holder’s department has made Wall Street crime its lowest priority and that, since 2009, the FBI has closed 747 mortgage-fraud cases with little or no investigation.

800px-Statue_of_Liberty,_NYThere it is, the United States, where there seems to be a Great Divide in justice, one set of standards for the rich, another set for the poor.

The grass is not greener on that (American) side!

The reasons for emigration are “push-and-pull”. This source book identifies and qualifies a “pull” factor, the issue of justice in America. The book informs the reader that America should not be considered alluring from a justice perspective, especially if the reader/audience is poor and of a minority ethnicity.

This leaves the “push” factors. The Caribbean must address its issues, as to why its population is so inclined to emigrate. This is the purpose of the Go Lean roadmap. It features the assessments, strategies, tactics and implementations to make the Caribbean a better place to live, work and play.

Now is the time for the Caribbean region to lean-in for the changes described in the book Go Lean … Caribbean. The benefits of this roadmap are too alluring to ignore: emergence of our own $800 Billion economy, 2.2 million new jobs, new industries, services and optimized justice institutions.

Download the free e-Book of Go Lean … Caribbean – now!

 

 

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What Usain Bolt can teach banks about financial risk

Go Lean Commentary

Runner GuyThere were 465 US bank failures between 2008 and 2012.[a]

Joke: “The bank returned a check to me this morning, stamped: ‘insufficient funds.’ Is it them or me?”

The foregoing article shows the type of functions that technocrats do: evaluating risk. Any risk that can imperil the complete financial system must be monitored and mitigated. The “extreme value theory” is a model for evaluating risk and predicting future performance; and while not perfect, it is better than doing nothing.

There was no one performing this role in the Caribbean in 2008.

The foregoing article and its reliance on calculus, quantitative methods and econometric modeling is an example of the required technocratic oversight in managing an economy. Usain Bolt is used here as an allegory, a fable. The Economist magazine thusly explains how complex issues can be taught with simplified analogies and illustrations. Banking is more complex than track-and-field; but the pursuit of excellence is similar. Just like any world-class athletic pursuit, this goal is hard to master.

The Economist explains…

THE banking industry did a bad job in the run-up to the financial crisis of assessing “tail risks”, extreme events that represent the least likely of a range of probable outcomes. The Basel Committee on Banking Supervision, which is the international standard-setter for bank capital, has proposed changes in the internal risk models that financial institutions use. In particular, it wants banks to shift from a technique called “value-at-risk” (VaR) to one called “expected shortfall” (ES).

VaR is a way of measuring a firm’s risk of suffering really big losses over a certain period (a day, a week, a month) to a certain level of “confidence”. A daily VaR of $1m at 1% probability means that there is a 99% chance that you will not lose more than $1 [million] on any one day. The problem is that if you have that one bad day in 100, the potential losses could go much higher than $1 [million]. VaR doesn’t have much to say about what those losses might be. The expected-shortfall approach is meant to provide an answer to that question. Instead of asking, “What are the chances that things get so bad that we lose $1 [million]?” it asks, “If things do get that bad, how much would we actually lose?”

To do this, it uses a statistical method called “extreme value theory”, which looks specifically at what happens in the tail of distributions. To take a more trivial example of where extreme-value theory has been used, a 2011 paper by two researchers at Tilburg University collected data on the personal bests of elite athletes between 1991 and 2008, in order to try and calculate the “ultimate world record” for 100m sprints—the absolute edge of human performance given the times, equipment and drugs-policies that then prevailed. For the 100[meter] for men, the boffins (British slang for technical expert) put the ultimate world record at 9.51 seconds, compared with the record that then prevailed of 9.72, and a current world best of 9.58, set by Usain Bolt in 2009. That looks pretty good: the model came up with a number that was well inside the mark that then prevailed, and is still a hefty improvement on the current record. If extreme-value theory is meant to help banks think through the extremes, this is encouraging.

But like every model in history, expected shortfall cannot predict the future. In an earlier 2006 paper, researchers from the same university tried to calculate ultimate world records for a wider range of events, including the men’s marathon. The researchers reckoned back in 2006 that the best possible running of that distance would yield a time of two hours, four minutes and six seconds. Yet the world record today stands at two hours, three minutes and 23 seconds (Wilson Kipsang in 2013). To be fair to the researchers, they did not claim that their ultimate record could not be broken. But whether bankers will remember that reality can be worse than expected is a different question. Expected shortfall is an improvement on VaR; it is not a crystal ball.
The Economist (Retrieved 04/09/2014) – http://www.economist.com/blogs/economist-explains/2014/04/economist-explains-4

EquasionThe book, Go Lean…Caribbean, serves as a roadmap for the implementation of the Caribbean Union Trade Federation (CU). The book presents the CU as a technocracy, to ensure economic failures of the past do not re-occur. From the outset, the book identified that the Caribbean is in crisis, with the pronouncement that a “crisis is a terrible thing to waste”. The prime directive of the CU is to optimize economic, security and governing engines to impact the Caribbean’s Greater Good, for residents … and bank depositors. This was pronounced in the Declaration of Interdependence – (Page 13):

xxv. Whereas the legacy of international democracies had been imperiled due to a global financial crisis, the structure of the Federation must allow for financial stability and assurance of the Federation’s institutions. To mandate the economic vibrancy of the region, monetary and fiscal controls and policies must be incorporated as proactive and reactive measures. These measures must address threats against the financial integrity of the CU and of the member-states.

In line with the foregoing article, the Go Lean book details some infrastructural enhancements/advocacies to the region’s financial eco-system; to facilitate efficient management of the economy:

  • Fostering a Technocracy (Page 64)
  • Caribbean Central Bank (Page 73)
  • Deposit Insurance Regulations (Page 73)
  • Securities Regulatory Authority (Page 74)
  • Modeling the European Union / Central Bank (Page 130)
  • Lessons from 2008 (Page 136)
  • Banking Reforms (Page 199)

The mis-management of the economy has led to many episodes of “fight-or-flight” among Caribbean society. For many member-states, their Diaspora is more than half their population; i.e. Jamaica and Puerto Rico.

While there is no crystal ball, according to the foregoing article, there is much that can be done. Now is the time for the CU!

The purpose of this roadmap is to make the Caribbean, a better place to live, work and play. No more flight! Now we stand and fight with these technocratic weapons of modern economics.

Download the book Go Lean … Caribbean – now!

———-

Appendix Reference:
[a]. https://news.yahoo.com/facts-numbers-us-bank-failures-183852568.html

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Fed Releases Transcripts from 2008 Meetings

Go Lean Commentary

Photo - US Federal reserve Bank Building (1)This foregoing article is part of the process of post-mortem analysis, sometimes referred as “Monday Morning Quarterbacking” or “Armchair Quarterbacking”. This can be a helpful process as it allows for lessons-learned of previous episodes and the mitigation of future risk. This is the premise of the book Go Lean … Caribbean. This book, serving as a roadmap for change in the Caribbean region, posits that the effects of the 2008 Great Recession continue to linger. Therefore the book advocates lessons from 2008 and the implementation of reforms, re-boots and turn-arounds to steer the region to a better outcome.

The book is inspired by the words of famed American Economist Paul Romer, who coined the phrase: “A crisis is a terrible thing to waste”. The above article shows that this philosophy was also incorporated in the undertakings of many of the stakeholders battling the challenges of 2008 – they did not waste the crisis. Many things that were blatantly wrong in the macro economy before 2008 were corrected by this crisis. The “easy money” policies and NINJA (No Income No Job or Assets) loans of the 2000’s decade were abated. The financial industries have now moved back to more sound, fundamental lending principles.

By Dunstan Prial:

Transcripts from 2008 Fed meetings divulge publicly, for the first time, details of decisions made by the central bank during the height of the financial crisis. [US Federal Reserve Chairman Ben] Bernanke proposed two options: an emergency term securities lending facility and to expand and extend the currency swap lines with struggling European banks.

By late October, after the collapse of Lehman Brothers and the fire sales of several other large banks on the brink of collapse, the Fed had dropped interest rates to about 1% and introduced a host of other emergency measures. And Fed policy members were apparently quarreling over whether those measures and how they were communicated to the public were helping or harming.

At the Fed’s Oct. 28-29 meetings, Timothy Geithner, then president of the New York Fed, scolded some colleagues for suggesting the Fed’s bold moves were hurting broader confidence in the economy: “Now, a lot of things happened over the last three months and the last year, and a lot of things happened in terms of policy over the last six weeks. There is no doubt that communication about policy by all the arms of the U.S. government and the uncertainty created by the actions by all the arms of the U.S. government contributed in ways to uncertainty about the policy response going forward,” Geithner said.

“There is also no doubt that inevitably in a crisis like this, when policy moves forcefully, it is scary because a lot of people are not yet at the point of assessing or understanding the forces driving our decisions. But I think it’s just unfair to suggest that the actions by the Chairman and this Committee were a substantial contributor to the erosion in confidence and to uncertainty about further policy actions, even though it’s true that when we move with force and drama it has the risk of adding to uncertainty.”

Geithner was a key supporter of the activist measures taken by the Fed before being named Treasury Secretary after Barack Obama was elected in November 2008. The transcripts, which run into the hundreds of pages, reveal that this was the beginning a series of unprecedented measures taken by the Fed in an effort to stave off another Depression.

The 14 transcripts are from eight scheduled meetings and six emergency meetings of the policy setting Federal Open Market Committee, which sets the central bank’s monetary policy, including the level of short-term rates.

The transcripts do not include other meetings at which smaller groups of Fed officials, working with the Treasury Department, arranged the bailouts of bankrupt Bear Stearns, the American International Group (NYSE: AIG), and housing service entities Fannie Mae and Freddie Mac.

Nor do the transcripts include notes from the meetings at which policy makers decided to let investment bank Lehman Brothers fall, which occurred in September 2008 and proved a key event at the outset of the crisis.

Fox Business News Online (Retrieved 02/21/2014) –http://www.foxbusiness.com/economy-policy/2014/02/21/fed-releases-transcripts-from-2008-meetings/

How about the Caribbean? Has the lessons been learned in and for this region? Have the blatantly wrong policies been abated? Has the markets returned to fundamentally sound policies?

Unfortunately, with the ever-expanding brain drain/human flight crisis in the Caribbean, the economic problems persist. Is it fair to conclude that when people move from the Caribbean to the US mainland, Canada or EU member-states, that there is some failure on behalf of Caribbean society? The Go Lean roadmap so declares, identifying “push-and-pull” underlying factors.

What qualifies the writers of this book to make these assessments?

Simple! They have lived the issues depicted in this foregoing news article and the Go Lean roadmap. The book is published by the SFE Foundation, a Community Development Corporation constituted by members of the Caribbean Diaspora. These are people who love their homeland, and would rather live, work and play there, but instead, find themselves toiling as alien residents in foreign lands. Principals of this foundation were also there in 2008, engaged with major stakeholders of the Global Financial crisis: Lehman Brothers, BearStearns. JPMorganChase, CitiGroup, etc. They were on the inside looking out, not the outside looking in. They were movers-and-shakers of the macro economy, not just armchair quarterbacks.

 

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How to Create Money from Thin Air

money-magic-rival-logoGo Lean Commentary

“Money does not grow on trees”, according to the old adage.

If it did then the tree would be special, it would be producing a chattel good that is designated as monetary currency. Even still, this scenario would not be “thin air”, it will be trading goods for goods. This can be illustrated with a barter exchange of fruit for some other merchandise, say silver. If the silver is viewed as money, then the process of growing and harvesting the fruit will result in money (silver) being acquired based on the fruit from the tree. So money can grow on trees!

Something more amazing happens in our modern economic system, money is created out of “thin air” – no trees, no fruit, no silver. How is this possible? This is accomplished through the Commercial/Central Banking system.

First of all, banks are financial institutions that take in deposits from people and use their money to give out loans to others. The reason why banks provide this service [to the community] for free is because they earn a profit by letting people deposit their money. Banks charge higher interests rates on the money they lend out compared to the money deposited. All in all, banks are both borrowers and lenders. People trust banks to store their money. The deposits allow banks to lend out money with higher interest rates with the expectancy that the loans will be paid back.

Banks have something called a required reserve ratio, mandated by the Central Bank; (the “Fed” in the US). This is the ratio of reserves to total deposits that banks are supposed to keep as reserves. Banks also have the right to increase the reserve ratio. They lend out the remaining percentage. For example, the bank has a 10% reserve ratio meaning it reserves 10% of its total deposits. It will then lend out the remaining 90%. When a person deposits $100, the bank is able to lend out $90 and keeps $10 for reserves. The $10 does not count as money since it is used as a reserve and may not be used for lending. So far, the bank has $100 and $90 currency loaned out. This is a total of $190 created as opposed to $100 before. Currency held by the public is money.

Of course, the borrower doesn’t simply keep the $90 but he will spend it. For instance, he will spend his money for a pair of soccer cleats at the Nike store. Now the Nike store has $90 but it will then deposit it back into the bank. The cycle then repeats itself. If the bank has more borrowers, it will certainly make a profit. If it lends again, it will lend out $81 and keep $9 on reserves.

The way banks create money is a cycle and over time, the profit compounds on top of each other and the original $100 can be [extended] potentially [to as high as] $1,000.[a]

So the new $900, compared to the original $100, is created from “thin air”.

“To whomever much is given, of him will much be required” – Luke 12:48 (World English Bible)

This scripture is quoted in the book Go Lean … Caribbean, in the advocacy “10 Ways to Improve Leadership” (Page 171) showing the great responsibility and accountability of leaders managing monetary affairs; they can create money out of “thin air”. This power, however, has often been abused by Caribbean officials and has resulted in tragic cases of hyper-inflation, currency devaluation and ultimately: human flight – people’s money lost value overnight due to no fault of their own. The same as money can be created, it can also disappear into “thin air”– Anecdote (Page 149) & Appendices (Pages 315 – 7).

The Go Lean roadmap does not just state the problems but provides solutions as well. Those solutions are proposed in the implementation of the Caribbean Union Trade Federation (CU) and the adjoined technocratic Caribbean Central Bank (CCB), as an independent agency. The mandates in the Go Lean roadmap focus on inflation (Page 153), foreign exchange (Page 154), interest rates/credit ratings (Page 155) & debt management (Page 114). The CCB is to be led by professionals who are well trained to execute the leadership roles for a unified Caribbean currency. They will be “given much”; because the CU is modeled after the European Union and the European Central Bank (ECB) – see (Page 130). The CCB leaders will be schooled in the arts and sciences of monetary affairs by the ECB. In addition, the leaders of the existing Central Banks of each member-state will serve as Governors of the CCB with appointments for 14 years, thus insulating them from political influences and persuasions – see “10 Reforms for Banking Regulations” (Page 199). This is the hallmark of a technocracy!

The book Go Lean … Caribbean serves as a roadmap for Caribbean economic optimization. It posits that the creation of money will be enhanced when all Caribbean member-states integrate their currencies into a single currency, the Caribbean Dollar (C$), and also their economies into a “Single” Market. The economic initiatives will create new services, jobs, investments and opportunities.

Yes, the end result will be money created out of “thin air”, but more so because of a vibrant economy than just the deposit-loan-commercial banking paradigm.

The originating activity, as defined in the roadmap, is the stimulus for economic gains. The roadmap projects an $800 Billion economy (GDP) after the 5-year implementation, up from $278 Billion. These numbers will be manifested with the creation of 2.2 million new jobs, and a better place to live-work-play.

🙂

Download the book Go Lean … Caribbean – now!

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Appendix – Reference:

a. Wiki-Answers; retrieved on 03/19/2014 from http://wiki.answers.com/Q/How_are_banks_able_to_create_money.

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