Category: International Commerce

The Kimberly Process is a Bad Joke

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The process, intended to prevent the sales of diamonds that are mined by entities, largely guerrilla armies, who systematically violate human rights, better known as “Blood Diamonds.”

Well, the Kimberly Process has now allowed Zimbabwe to sell diamonds from its Marange diamond fields.

Not only has the diamond mining there been rife with allegations of human rights abuses, included killings and forced labor, but the proceeds go directly to support the cronies in Robert Mugabe’s ZANU-PF:

Zimbabwe has been denied formal approval for its Marange diamond exports since evidence began to emerge around 2008 that the military had overrun the area to take control of the fields and organize smuggling of diamonds across the nearby border with Mozambique. Human rights activists say they suspect that profits are being used to finance the political and military elite around President Robert Mugabe.

Seriously, any certification of diamonds by the Kimberly Process, or the World Diamond Council, are simply not credible.

Unsurprising Data Point of the Day

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The US Military ranks last in the world on the metric of equipment purchased per dollar spent:

In a study due out March 15, consulting firm McKinsey & Co. examined how efficiently 33 nations that account for 90 percent of worldwide defense expenditures perform a range of functions. The study looked at how these militaries go about doing certain tasks in three key areas: personnel, maintenance and weapon buying.

…………

“The United States and Australia are the lowest performing countries with regard to equipment output for every dollar spent,” McKinsey concludes.

Brazil had the greatest efficiency of the countries surveyed.

The Soviet Union spent themselves to destruction on huge amounts of military hardware, and it appears that the good old USA is spending itself to destruction on tiny amounts of military hardware.

A British Patriot

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J.K. Rowling, author of the Harry Potter series:

No, I’m afraid not. The 2010 election campaign, more than any other, has underscored the continuing gulf between Tory values and my own. It is not only that the renewed marginalisation of the single, the divorced and the widowed brings back very bad memories. There has also been the revelation, after ten years of prevarication on the subject, that Lord Ashcroft, deputy chairman of the Conservatives, is non-domiciled for tax purposes.

Now, I never, ever, expected to find myself in a position where I could understand, from personal experience, the choices and temptations open to a man as rich as Lord Ashcroft. The fact remains that the first time I ever met my recently retired accountant, he put it to me point-blank: would I organise my money around my life, or my life around my money? If the latter, it was time to relocate to Ireland, Monaco, or possibly Belize.

I chose to remain a domiciled taxpayer for a couple of reasons. The main one was that I wanted my children to grow up where I grew up, to have proper roots in a culture as old and magnificent as Britain’s; to be citizens, with everything that implies, of a real country, not free-floating ex-pats, living in the limbo of some tax haven and associating only with the children of similarly greedy tax exiles.

A second reason, however, was that I am indebted to the British welfare state; the very one that Mr Cameron would like to replace with charity handouts. When my life hit rock bottom, that safety net, threadbare though it had become under John Major’s Government, was there to break the fall. I cannot help feeling, therefore, that it would have been contemptible to scarper for the West Indies at the first sniff of a seven-figure royalty cheque. This, if you like, is my notion of patriotism. On the available evidence, I suspect that it is Lord Ashcroft’s idea of being a mug.

You will inevitably find people, both in the UK and the US who will make noise about moving their primary residence, or their company’s “headquarters” to some other country because of taxes or regulations that they do not like.

These people are Quislings, and they should be viewed as the lowest of the low, and their opinions should be of no concern of any person who cares about this country.

Not a Shocker

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The big banks are strenuously objecting to the Basel proposals to strengthen capital requirements.

It seems that they think that it will cost, “13 of the largest banks $20 billion in annual earnings.”

This is probably right. When things are going well, going in hock up to your eyeballs is a good way to maximize your profits, and since the executives of these banks are paid largely on the basis of year to year profits, and the taxpayer bails them out when they fail, it means that they may have to forgo that 5th vacation for a year or so.

As to the dire consequences of such restrictions:

Standard & Poor’s said the new Basel rules could force some banks to change their business models.

“We expect smaller, deposit-funded retail banks to find it easier to comply with more stringent liquidity and capital requirements than larger wholesale-funded institutions with extensive trading operations or large loan books and securities holdings,” the credit rating company said in a report today. “For investment banks, the increase in capital requirements could be sizable.”

I don’t know about you, but it seems to me that this is a plus, not a minus.

I still favor a small (20-50 basis point) Tobin tax on all financial transactions and leverage, as well as a larger tax on M&A activity, but that is in addition to much larger capital requirements.

Economics Update

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Well, we have mostly good news today, with the Summary of Commentary on Current Economic Conditions, aka “The Beige Book”, showed the economy picking up steam in March.

Additionally, the retail sales report for March rose more than expected, and diesel fuel consumption rose indicating increased transportation activities, and the US trade deficit rose, which also indicates an increase in demand.

On the down side, the National Federation of Independent Business’ index of small business optimism fell in March, and since this is where most jobs are created, it does not bode well for jobs in the near term.

In real estate, mortgage applications fell for the 6th straight week, which is not surprising, as mortgage rates have been trending higher and the FHA has started to charge more for mortgage insurance to replenish its depleted reserves.

Finally, inflation seems to remain well under control with the March CPI rising by only 0.1%

So Now, Open Source is Piracy

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These are your friends

The International Intellectual Property Alliance (IIPA), a private group which is the demon spawn of the RIAA, the MPAA, and other evil organizations referred to by their acronyms, has submitted recommendations to the State Department for countries to be placed on a watch list for ineffective protection of IP, a so called “Special 301” list, and one of their criteria is now encouraging the use of open source software:

I am neither surprised nor upset by the addition of Costa Rica to the list, to be fair our enforcement is atrocious. Similarly, I am not surprised by most of the other recommendations, which seems like a rehash of past offenders. What I found rather surprising is that the IIPA seems to be using their Special 301 submission to attack open source software. According to Digital Copyright Canada, several countries are being included in the Special 301 watchlist because they have open source-friendly policies, or in their words, the IIPA would rather people “pirate” than switch to legal competitors.

This is quite a claim, so I have been going through the reports to verify it myself. The country reports for Brazil, India, Philippines, Vietnam and Thailand certainly contain some comments about open source software. Particularly, the IIPA seems to be concerned that these countries have enacted or are in the process of enacting legislation that will make it obligatory for public entities to choose open source software over its proprietary counterparts. I have to admit that I somewhat share the IIPA’s concerns in this regard. I have never believed in open source procurement legislation, I think that forcing institutions to use a specific technical solution is wrong. Open source is an organic, bottom-up movement, and making it state policy seems not only counter-productive, but contrary to the very same principles of openness. Open source should not be imposed, it should win on its own merits.

Here is what the IIPA says:

“While IIPA has no issue with one of the stated goals of the circular, namely, “reducing software copyright violation,” the Indonesian government’s policy as indicated in the circular letter instead simply weakens the software industry and undermines its long-term competitiveness by creating an artificial preference for companies offering open source software and related services, even as it denies many legitimate companies access to the government market. Rather than fostering a system that will allow users to benefit from the best solution available in the market, irrespective of the development model, it encourages a mindset that does not give due consideration to the value to intellectual creations. As such, it fails to build respect for intellectual property rights and also limits the ability of government or public-sector customers (e.g., State-owned enterprise) to choose the best solutions to meet the needs of their organizations and the Indonesian people. It also amounts to a significant market access barrier for the software industry.”

Let’s see, the countries are saying that as a matter of policy, free and open is cheaper, and reduces the risks of violation of IP rules, which could result in US sanctions, so as a matter of policy, wherever possible, go with software that carries a “public license.”

According to the IIPA, that’s the same as piracy.

There is no right for private firms to demand that anyone buy their products, particularly not sovereign governments.

Unbelievably F%$#ing Stupid

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I don’t intend to ban Italian IP numbers
… … … Yet

An Italian court has convicted 3 Google executives on criminal privacy violations because someone posted a nasty video to Google Video:

A judge in Milan, Italy, on Wednesday convicted three Google executives — chief legal officer David Drummond, global privacy counsel Peter Fleischer and former CFO George Reyes — of violating Italy’s privacy laws, a decision that Google is characterizing as an attack on Internet freedom.

The charges stem from a video that was uploaded to YouTube in Italy, back in September 2006, that depicts four high school boys in a classroom in Turin, Italy, taunting another boy with a mental disability.

Google received two requests to remove the video in early November, one from a user and one from the Italian Interior Ministry, and did so within 24 hours.

Nonetheless, Francesco Cajani, a prosecutor in Milan, filed suit against four Google employees for violating Italian privacy laws. All four were found not guilty of criminal defamation. The fourth, Arvind Desikan, formerly the head of Google Video in London, was acquitted of the privacy violation charges, unlike Drummond, Fleischer, and Reyes.

If I was running a service with user generated content, I would start denying access to Italian IPs.

The conspiracy theorist in me wonders if this might have been driven in some manner or another by Italian PM Silvio Berlusconi, who has control of something like 80% of the broadcast media in Italy, and might be unhappy with the competition for ad revenue and news.

Another Must Read from Krugman

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He’s talking about free trade and transportation costs, and makes the point that when the costs of transporting goods falls relative to manufacturing goods and services, as they did in the 1870-1913 era, international trade increases, and when the costs of manufacturing goods falls relative to transporting goods, as they did in the era of Henry Ford’s assembly line, pre containerized cargo 1913-1970 or so, international trade falls.

Go read, it’s 599 words well spent.

Napoleon Bonaparte is Smiling

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The French will be taking control of the port of Dover.

Well, it’s not really the French, it’s the Nord-pas-de-Calais regional council, which will be assuming control as a part of a privatization scheme:

A plan to privatise the government-owned Port of Dover has provoked “outrage”, not least because the French are front-runners to take control of the facility.

According to the Daily Mail, the port needs money to fund an expansion plan, and selling it off could net £350m for our cash-strapped government. The harbour board expects to receive the go-ahead for the “voluntary privatisation”, which will likely see Nord-pas-de-Calais regional council, which also owns Calais, adding Dover to its roster of ports.

Chief exec Bob Goldfield explained: “The time is right for the voluntary privatisation of Dover. We want to invest around £400m on a second terminal and need to invest in the existing terminal, but are unable to because of public sector borrowing constraints. We want to throw off the shackles.”

I generally oppose privatization, even if it isn’t the French taking over Dover, and the justification, about avoiding “public sector borrowing constraints,” sounds to me like a recipe for a future bankruptcy and taxpayer bailout.

“Throwing off shackles,” in a finance context generally means, “Engaging in dodgy behavior.”

But still the short Frenchman is up there, or down there, having a good chuckle.

Microsoft Is Outrourcing Legal Work to India

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I have to admit that this development engenders no small amount of Schadenfreude:

Software giant Microsoft will begin outsourcing general legal work to India after signing a deal with legal process outsourcing (LPO) company CPA Global. The news comes as CPA outlined plans to expand its Indian workforce from 600 to 1,000 by the end of 2011, and hinted at opening another outsourcing centre.

Outsourcing to India: It’s not just for engineers any more.

What I want to see is outsourcing applied to investment bankers and brokers.

Economics Update

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H/t Calculated Risk

We have the numbers for the December trade deficit, and it increased by 10.4%, largely on the increases in energy imports. (See graph pr0n)

In the nexus of banking and real estate, home mortgage demand fell last week, despite the fact that rates fell on the 30 year fixed mortgage, and as the Mortgage Bankers Association notes, the fall is in new home purchases, refinancing continues apace:

The Refinance Index increased 1.4 percent from the previous week and the seasonally adjusted Purchase Index decreased 7.0 percent from one week earlier. The unadjusted Purchase Index decreased 1.1 percent compared with the previous week and was 7.5 percent lower than the same week one year ago.

In international finance, the Bank of Korea kept its benchmark steady 2%, largely in response to surging unemployment in South Korea.

Australia, on the other hand, experienced the largest growth in the workforce in 3 years.

In currency, the dollar was mixed, largely on reports that a deal may be in the offing in the Euro Zone for Greece’s debt mess, news of which also drove oil prices slightly higher.

Our Financial Crisis, Brought to You by the WTO

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There are a lot of people out there who think that free trade will always do all kinds of good things: It creates peace, it creates democracy, it keeps your daughter from dating the guy with the tattoos and piercings.

I’m not one of these people.

First, I think that we have yet to see an economy becoming a developed economy with a large middle class in a free trade environment, and second, I think that a bad free trade deal is worse than no, or a more limited, free trade deal.

Well it appears that on March 1, 1999, the United States signed onto a free trade deal that mandated the sort of reckless deregulation that has nearly destroyed out economy:

But the U.S. is not being sold out in a vacuum.

On March 1, 1999, countries accounting for more than 90 per cent of the global financial services market signed onto the World Trade Organization’s Financial Services Agreement (FSA). By signing the FSA, they committed to deregulate their financial markets.

For example, by signing the FSA, the U.S. agreed not to break up too big to fails. The U.S. also promised to repeal Glass-Steagall, and did so 8 months after signing the FSA.

Indeed, in signing the FSA and other WTO agreements, the U.S. has legally bound itself as follows:

  • No new regulation: The United States agreed to a “standstill provision” that requires that we not create new regulations (or reverse liberalization) for the list of financial services bound to comply with WTO rules. Given that the United States has made broad WTO financial services commitments – and thus is forbidden by this provision from imposing new regulations in these many areas – this provision seriously limits the policy [options] available to address the current crisis.
  • Removal of regulation: The United States even agreed to try to even eliminate domestic financial service regulatory policies that meet GATS [i.e. General Agreement on Trade in Services] rules, but that may still “adversely affect the ability of financial service suppliers of any other (WTO) Member to operate, compete, or enter” the market.
  • No bans on new financial service “products”: The United States is also bound to ensure that foreign financial service suppliers are permitted “to offer in its territory any new financial service,” a direct conflict with the various proposals to limit various risky investment instruments, such as certain types of derivatives.
  • Certain forms of regulation banned outright: The United States agreed that it would not set limits on the size, corporate form or other characteristics of foreign firms in the broad array of financial services it signed up to WTO strictures …
  • Treating foreign and domestic firms alike is not sufficient: The GATS market-access limits on U.S. domestic regulation apply in absolute terms; that is to say, even if a policy applies to domestic and foreign firms alike, if it goes beyond what WTO rules permit, it is forbidden. And, forms of regulation not outright banned by the market-access requirements must not inadvertently “modify the conditions of competition in favor of services or service suppliers” of the United States, even if they apply identically to foreign and domestic firms.

In other words, the problem isn’t just that Congress and the White House have sold out to the Wall Street giants.

The problem is also that the U.S. has signed WTO agreements that have given the keys to the too big to fails, and have neutered their regulators. Even if some politicians tried to stand up to Wall Street – or even if we “throw out all of the bums” currently in political roles – the U.S. would still be locked into the WTO’s scheme for helping the financial giants to grow ever bigger and to take ever-bigger and ever-riskier gambles.

Yet another reason to oppose the so-called “Doha” round, which promises to deregulate financial services even further.

What has gone on at the WTO is that it has been functioned as a prostitute for elements in our economy which do not produce tangible goods, finance, insurance, entertainment, patent holders, etc. at the expense of absolutely everything else in the economy.

It’s killing us.

Google Mans Up On China

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Google set up a Chinese search page, Google.cn, in 2006 to accommodate the censorship demands of the Chinese government.

At the time, it said that it would, “carefully monitor conditions in China, including new laws and other restrictions on our services.,” and thatif it determined that it was, “unable to achieve the objectives outlined we will not hesitate to reconsider our approach to China.”

Well, it’s reconsidered its approach, and it is telling the government of China to go Cheney itself.

The proximate cause appears to be sophisticated, and repeated efforts by the Chinese government to hack the Gmail accounts of Chinese democracy activists, as well as similar, and pervasive attempts to hack other businesses with similar goals.

The money phrase is this:

These attacks and the surveillance they have uncovered–combined with the attempts over the past year to further limit free speech on the web–have led us to conclude that we should review the feasibility of our business operations in China. We have decided we are no longer willing to continue censoring our results on Google.cn, and so over the next few weeks we will be discussing with the Chinese government the basis on which we could operate an unfiltered search engine within the law, if at all. We recognize that this may well mean having to shut down Google.cn, and potentially our offices in China.

They just gave the Chinese government 3 weeks to shut them down.

It is possible that this may be a game of chicken, as is the case with Google news and AP stories, but I am inclined to doubt this.

If they have any understanding of China at all, they must understand that this public statement, and the associated loss of face for the Chinese authorities should they accede to Google’s demands, will result in the shuttering of their site, and their operations, in China.

Full statement after the break:

A new approach to China
1/12/2010 03:00:00 PM
Like many other well-known organizations, we face cyber attacks of varying degrees on a regular basis. In mid-December, we detected a highly sophisticated and targeted attack on our corporate infrastructure originating from China that resulted in the theft of intellectual property from Google. However, it soon became clear that what at first appeared to be solely a security incident–albeit a significant one–was something quite different.

First, this attack was not just on Google. As part of our investigation we have discovered that at least twenty other large companies from a wide range of businesses–including the Internet, finance, technology, media and chemical sectors–have been similarly targeted. We are currently in the process of notifying those companies, and we are also working with the relevant U.S. authorities.

Second, we have evidence to suggest that a primary goal of the attackers was accessing the Gmail accounts of Chinese human rights activists. Based on our investigation to date we believe their attack did not achieve that objective. Only two Gmail accounts appear to have been accessed, and that activity was limited to account information (such as the date the account was created) and subject line, rather than the content of emails themselves.

Third, as part of this investigation but independent of the attack on Google, we have discovered that the accounts of dozens of U.S.-, China- and Europe-based Gmail users who are advocates of human rights in China appear to have been routinely accessed by third parties. These accounts have not been accessed through any security breach at Google, but most likely via phishing scams or malware placed on the users’ computers.

We have already used information gained from this attack to make infrastructure and architectural improvements that enhance security for Google and for our users. In terms of individual users, we would advise people to deploy reputable anti-virus and anti-spyware programs on their computers, to install patches for their operating systems and to update their web browsers. Always be cautious when clicking on links appearing in instant messages and emails, or when asked to share personal information like passwords online. You can read more here about our cyber-security recommendations. People wanting to learn more about these kinds of attacks can read this U.S. government report (PDF), Nart Villeneuve’s blog and this presentation on the GhostNet spying incident.

We have taken the unusual step of sharing information about these attacks with a broad audience not just because of the security and human rights implications of what we have unearthed, but also because this information goes to the heart of a much bigger global debate about freedom of speech. In the last two decades, China’s economic reform programs and its citizens’ entrepreneurial flair have lifted hundreds of millions of Chinese people out of poverty. Indeed, this great nation is at the heart of much economic progress and development in the world today.

We launched Google.cn in January 2006 in the belief that the benefits of increased access to information for people in China and a more open Internet outweighed our discomfort in agreeing to censor some results. At the time we made clear that “we will carefully monitor conditions in China, including new laws and other restrictions on our services. If we determine that we are unable to achieve the objectives outlined we will not hesitate to reconsider our approach to China.”

These attacks and the surveillance they have uncovered–combined with the attempts over the past year to further limit free speech on the web–have led us to conclude that we should review the feasibility of our business operations in China. We have decided we are no longer willing to continue censoring our results on Google.cn, and so over the next few weeks we will be discussing with the Chinese government the basis on which we could operate an unfiltered search engine within the law, if at all. We recognize that this may well mean having to shut down Google.cn, and potentially our offices in China.

The decision to review our business operations in China has been incredibly hard, and we know that it will have potentially far-reaching consequences. We want to make clear that this move was driven by our executives in the United States, without the knowledge or involvement of our employees in China who have worked incredibly hard to make Google.cn the success it is today. We are committed to working responsibly to resolve the very difficult issues raised.

Posted by David Drummond, SVP, Corporate Development and Chief Legal Officer

Economics Update

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Decline in job openings since 2007
h/t Zero Hedge

The US trade deficit grew by 9.7% in November, largely on the recent run up in oil prices.

The National Federation of Independent Business’s small business optimism index fell for the 2nd straight month in December, indicating that the small business segment is still not ready to start hiring.

In central bank land, the yield on 30-year treasuries fell again, indicating an expectation that rates would remain low, while in China, the central bank raised the reserve requirement for banks by 50 basis points.

In energy, oil continues to fall on the promise of warmer weather.

In currency, the dollar rose, both on investor jitters, and on the Federal Reserve Bank of Philadelphia President being a complete moron and talking up rate hikes. (more on this later)

The Right to Blaspheme is the Core of Civil Rights in a Modern Democracy

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So, we now have the breaking news that a a man armed with knives and axes attempted to break into the home of Kurt Westergaard, one of the artists who created the Danish cartoons (see pic).

The response to such terrorism must be more speech that religious fundamentalists find blasphemous, hence my reposting the picture. If you allow the clergy to determine what can, or cannot, be said, you eventually create a theocracy, and history has shown that theocracies are amongst the worst forms of despotism.

Additionally, as I have said before, “If your God can’t take me calling him a pig felcher, then he ain’t much of a God.”

While I understand how backward 3rd nations, like, for example, Ireland might want to outlaw blasphemy, I think that modern nations must necessarily understand that as a condition for full access to the benefits of western economies and markets.

The free traders believe that open markets create open societies, but given the explosion of blasphemy laws, and blasphemy prosecutions, since the adoption of the GATT (Now WTO), I would argue that the opposite has occurred.

The reduction to costs involved in acceding to the demands of medieval fundamentalists, because the current model of “free trade” means that a country has full access to international markets unless their policies are nearly genocidal, has led mainstream politicians who are looking for allies and coalition partners, to sign off on demands that are contrary to modern civil rights.

FWIW, I believe that the same sanctions should be applied to laws that criminalize criticism of royalty (Thailand) or the nation (Turkey, etc.).

Economics Update (For the Week)

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Yes, it does appear that the seasonal adjustment for the week after Christmas is whack

The lede for the week is obviously that first time unemployment claims fell to the lowest level in 17 months, down 22K to 432K, though, as Brad Delong notes, this is likely because of problems with the seasonal adjustment for this week. (See graph pr0n).

Continuing claims, as well as the 4 week average fell too, but emergency claims, for people (like me shortly) who exhausted their regular benefits (i.e. out of work more than 6 months), rose sharply, by 199 thousand to 4.82 million, a 4.1% jump in one week. (!)

Earlier this week, the Institute for Supply Management released its Chicago index, aka the Purchasing Managers’ Index (PMI), and it unexpectedly jumped to 60 in December from 56.1 in November………Only they just revised it, and oops, it the PMI was only 58.7, largely on a downward revision on employment…………Happy, happy, joy, joy.

That’s not to say that the numbers aren’t better, they are better, much like the ATA Truck Tonnage Index November numbers, and the ShopperTrak year over year retail sales for last week, though the latter saw a drop in traffic.

In real estate, the 30-year fixed mortgage rate rose to a 4 month high, 5.14%, which is still at a level which is historically low, and the recent uptick in housing prices seems to have petered out, with the Case-Shiller index showing flat prices in October, following 4 straight months of price increases.

This is unsurprising, as home price subsidy new home buyer tax credit was supposed to end in November, and homes needed to close by November 30, which meant that there were a lot of sellers who knew that they had to move their houses quickly, or not at all.

Houses are still well above trend, both in terms of rent to own price to income ratio, though you still have claims that housing affordability is better than the historical numbers, because the mortgage rates are still incredibly (see above) low.

If rates return to their historical levels, about 9% for the 30-year fixed, we have a downward pressure on house prices of roughly 1/3, because people buy houses on monthly payment, not price.

We do have some good international news, with South Korean exports rising rapidly, and Chinese manufacturing growing at a 20-month high, though I wonder how much of the latter is the result of provincial bureaucrats goosing the numbers, or encouraging local industries to over produce, in order to score brownie points with Beijing.