20130228

Why the Spanish aren’t entrepreneurs


Why the Spanish aren’t entrepreneurs

Barcelona — Generation Y in Spain isn’t asking why, they’re just floundering about. Sixty percent of the country’s over-educated lost generation of university and master’s graduates aged 30 and under aren’t getting hired. With around 26 percent unemployment nationwide, these young adults are left to fight over unpaid internships and jobs beneath their experience levels, just to get something to put on their resume. According to the Organization for Economic Cooperation and Development (OECD,) 44 percent of the Spanish aged 25 to 29 that actually have jobs are working in ones that require lesser skills than they have. So with no families, no mortgages and little else to lose, why aren’t more of them creating jobs for themselves?

Many say the Spanish are just lazy, but that’s not it. There’s something else, intangible, that’s developed in the culture and history. The children of Spain aren’t raised to follow their dreams. School has become, for the most part, just a place for passing exams, never for debate, discussion or critical thinking. Your curro, or job, is to endure from nine to nine, pushing buttons until the next break. A history of civil war and a 39-year dictatorship, followed by a construction boom and crash, to now, where it’s taken for granted that politicians will be corrupt, has led to a nation that’s devoutly proud of being Spanish, but that can’t define what that even means.

Beyond the absurdly challenging bureaucracy and the fact that banks aren’t offering loans at all anymore, there’s something stagnant about the government-controlled education system and the culture in general that is keeping the nation’s most book-learned generation in history from reaching its potential. SmartPlanet sets out to re-open the discussion of why technically adept young adults are not looking to start their own businesses and why this resistance to altering the status quo has led Spain to be predicted as one of the slowest kids in the PIIGS (referring to Portugal, Ireland, Italy, Greece and Spain, those most hit by Eurozone crisis,) who will take the longest to climb out of its own economic free fall.

“Upon graduation, 70 percent of Spanish people want to work in large companies, while 70 percent of American graduates want to be their own bosses,” writes Juan Angel Hernandez, in a recent op-ed for a Spanish financial magazine, advocating on behalf of start-ups, as a solution to the crisis. He writes about how the goals of recent grads are either to work for the government or one of Spain’s top ten companies.
So instead of between 50 and 80 percent of recent grads studying for absurdly competitive government jobs, why aren’t they creating their own opportunities? One of the EU’s top MBA programs ESADE set out to explore that in their White Paper on Entrepreneurship in Spain. Since entrepreneurship still isn’t commonly talked about in Spanish higher education, this paper from 2010 has the most current, in-depth findings. The researchers concluded that start-up values can best be instilled at a young age and the education system is not up to the task. It states that: “Entrepreneurship can be learnt at school and should be actively promoted so that young Spaniards can develop skills such as independence, self-confidence and decision-making in situations of risk.” The researchers came to the conclusion that, “Young Spanish people don’t feel they have been taught how to be entrepreneurs, which is why teachers need to have the relevant tools and materials to teach business acumen and initiative, whilst also fostering their students’ interaction with local entrepreneurs.”
Blaming the education system — which only maybe changes when a new political party takes power every eight years — isn’t a new theme. This isn’t a nation where kids are asked what they want to be when they grow up. “In high school and university, no one has ever asked them what their motivation is — the most important part” of starting your own business, says Eva Snijders, entrepreneur and founder of Barcelona-based start-up Quimica Visual Storytelling, which helps companies internally innovate in times of crisis and transition. She says, “People here concentrate on whether it’s difficult to build a business and why it takes time and money.”

Rosaura Alastruey, founder of ProyectosTIC, hosts motivational workshops for both the employed and unemployed. She says, “Un emprendedor es un bicho raro,” which translates to “an entrepreneur is a rare bug,” or a freak or oddball. In Spain, “Jobs are to subsist,” she told SP recently. There’s no need to like what you do, you just need to have a job.

It seems that you only look to start a company when it’s the last thing left to try. Alastruey says, “I have students: ‘After a year or two years unemployed, now I want to open a business.’ It’s the last option.” The ESADE white paper states that four out of ten Spanish entrepreneurs act out of necessity, which isn’t exactly the sort of drive most VCs and business angels are looking for.

When asked where the youth of Spain is being directed away from entrepreneurship, Alastruey quickly repeats the mantra: “The schools.”

Folks in their twenties and thirties make up the first generation after the dictatorship of General Franco. “This is the generation where the parents didn’t have anything, so their kids have everything, not learning that everything has a cost.” The sons and daughters of the post-Franco world aren’t living to make ends meet, but are simply waiting for their ideal job or are opositando, the truly Spanish phenomenon of studying for the highly competitive civil service exams. Many, on their parents’ dime, study nine hours a day, six days a week for these exams, for one to five years at a time, while some of these jobs-for-life can see 1,000 applicants for only three spots.

As one entrepreneur at a networking event recently said, “You’re 23 years old with your whole life ahead of you and all you can dream of is to be a public servant?”

Last year, SP interviewed Complutense University’s tiny MBA in Entrepreneurship, which was developed after realizing that the university was actually uninspiring their students. “We realized that the students’ entrepreneurial behavior was much higher when they started [their bachelor's] than when they finished,” said one of the program heads, during the SP interview. The students were “more likely to start a company when they started university. What we discovered was that the university was deterring them from starting their own business.” Moreover, more than half of Complutense’s graduates intended to study for the civil service exams.

The don’t-take-risks mentality comes down from their parents, who, more often than not, hate their jobs, but continue to cling to them. Someone who has been working for the same company for 15 years will, if they lose their jobs, receive a tax-free lump-sum check for two years’ pay. However, since last year’s new labor reform act, the next generation of workers may not have the same access to these severance payouts. Plus, many companies are in the practice of paying part of the salary under the table, which means that is discounted from the total paid if the job is lost. In 2010, 19 percent more Spanish companies closed than were opened, giving everyone reason to be more nervous about their job stability.

Of course, even in times of economic boom, the Spanish, in particular, fear failure. Like Hawthorne’s scarlet letter, in Spain, you get branded with an “X” if you fail, and you never try again. There is no culture of “if you fail, try, try again” or of learning from your mistakes. As Enrique Samper, founder of NIMGenetics, told SP last year, “There’s something in Spain that’s risk adverse,” Samper says. “We are not used to debating, having open discussions in general. This is all flipped in the entrepreneurial community.”

 

In this country, a common cliche is “En el pais de los ciegos, el tuerto es el rey,” which translates to “In the land of the blind, the one-eyed man is king.” It may be a socialist society, but that hasn’t fostered the idea of the united cause here. When politicians are corrupt, most of the people aren’t up in arms, but tolerant, saying they’d do the same thing if they were in that situation. It’s not about keeping up with the Joneses here, it’s about getting more out of the government or any other situation than anyone else does.

Spanish history and culture don’t teach the philosophy of success by hard work and risk-taking, but to have respect for those that have gained success through acting craftily and cunningly. Spain’s most beloved book The Life of Lazarillo de Tormes and his Fortunes and Adversaries tells the story of an extremely poor child Lazaro who is hired as the servant of a cruel blind man. For the sake of survival, innocent Lazaro grows into a cunning young man who learns to cheat the cheaters.

In one tale, this Spanish literary hero is eating grapes with the blind man. They decide to share, each eating one at a time. Soon, the old man starts taking two. Lazaro then begins to eat them three at a time. When the grapes are finished, the old man calls him on being a cheater, to which Lazaro asks him why. The old man essentially says, “If I cheat and you don’t say anything, I assume you’re cheating too. We all try to fool each other.”

Almost five hundred years later, Lazaro’s tale still paints a perfect picture of Spanish society. On January 31, Spanish newspaper El Pais raised allegations of corruption against the top members of the ruling Popular Party, including Prime Minister Mariano Rajoy, for allegedly not declaring hundreds of thousands of euros in income. PP has yet to fully address the issue and there is no real talk of the party leaders stepping down any time soon. This drives home the point that Spain remains a pessimistic country that doesn’t believe in opportunities, but accepts or even praises corruption and underhandedness.

The unemployed in Spain, with impossible-to-replace jobs like architects, aren’t taking advantage of their opportunities either. Here, if you are receiving paro — unemployment benefits — you have the option of capitalizacion, which allows you to write a detailed business plan and, if approved, you may receive around 80 percent of your two years of benefits upfront to invest into your own small business. This is one of the few situations where the government is actually betting on start-ups, but the folks aren’t buying.

Recently, SP attended a free class on how to start your own business, offered by the Community of Madrid, the province that is mostly made up of the capital. It was a full classroom of about 40 individuals, no one under 40, all looking to create clothing shops, convenience stores, or locutorios. Not a single person spoke of e-commerce, technology, or something unique. The only ideas that came up of financing those small businesses were the banks — virtually impossible in Spain right now — and family and inheritance. Up until the crisis, this country’s real estate boom was based on parents co-signing their kids’ zero-percent-down mortgages. Now, the banks are foreclosing on that kid’s house, that parent’s house, and still expecting the both to pay. No fiscal lessons are being learned from the crisis and certainly no one seems to be getting more creative because of it.

ESADE’s white paper also includes the fact that, while five percent of the Spanish population are small business owners, less than half of these “independent companies” has two or more employees. Only a mere ten percent, or five out of every thousand small businesses, has ten or more employees. This goes to show how many of the Spanish do share a desire with most cultures to be their own bosses, but that it stops there. There are, of course, freelancers, particularly in the architecture industry and others impossibly hit by the crisis, who, following their two years of government-funded unemployment, try to outsource themselves to any job they can get. And there are the shopkeepers. But the majority of these people aren’t Zara’s Amancio Ortega, who went from owning one clothing shop 40 years ago to being one of the five richest men in the world, but rather they usually only open just one shop or bar, as part of creating a legacy to pass down to their children. They rarely think of opening an online store, which is a much lower-risk investment, and they don’t consider whether that’s what their children would like to do anyway.

In fact, according to the 2012 report by European Commission’s Eurostat, Spanish SMBs score average or below average against other EU member states on their ten points of evaluating small businesses, with the exception of Spain doing above average on “Thinking small first.” Spain scores well below the EU average on entrepreneurship, access to finance, state aid and public procurement, and internationalization. It just goes to show that Spain’s small businesses may be good at thinking independently, but only if small and local.

To compound the country’s economic problems even more, with fewer job prospects at lower salaries at home, Spanish university grads are looking off the peninsula, causing a brain drain that could be irreparable if and when their home economy bounces back. The Spanish National Statistics Institute revealed last year that twice as many of Spain’s youth are currently emigrating than were in 2010. This creates a huge risk for the nation’s future.

Castellanos are fond of saying poco a poco or little by little. In the meantime, SmartPlanet is happy to continue to highlight the technology and innovation of the few and the proud here in Spain, those still willing to fall on their asses as they go against the grain to start their own businesses.

Photos: La Colmena/ “Lazarillo de Tormes” by Goya, Wikipedia

20130227

Aaron, 9, ‘bullied to death for being white’

Aaron, 9, ‘bullied to death for being white’ 


THE devastated family of a nine-year-old boy who hanged himself say he took his life after racist taunts by Asian bullies.

Aaron Dugmore — thought to be one of Britain’s youngest suicides after bullying — was found in his bedroom after months of jibes at school, they claim.

His family say that Aaron was threatened with a plastic KNIFE by one Asian pupil — who warned him: “Next time it will be a real one.”

But despite complaints to the school, where 75 per cent of pupils come from ethnic backgrounds, they claim nothing was done to stop the bullying.

Heartbroken mum Kelly-Marie Dugmore is convinced the taunts led to her son killing himself two weeks ago. She sobbed: “We are not racist people. Aaron got on with all the children at his last school, and for him to have been bullied because of the colour of his skin makes me feel sick to my stomach.”

Aaron joined Erdington Hall primary in Birmingham last September after the family moved nearby. But Kelly-Marie, 30, and stepdad Paul Jones, 43, noticed a change in him from his first day.

Paul said: “He became argumentative with his brothers and sisters, which wasn’t like him at all. Eventually he told us that he was being bullied by a group of Asian children at school and had to hide from them in the playground at lunchtime. He said one kid even said to him, ‘My dad says all the white people should be dead’.”

Kelly-Marie claimed: “He was even threatened with a plastic knife by one boy. When Aaron stuck up for himself he said it’d be a real one next time.

“I went to see head Martin Collin a few times, but he only said, ‘You didn’t have to come to this school, you chose to come here’.”

A spokesman for Erdington Hall, labelled unsatisfactory by Ofsted, said Aaron had “settled in quickly”. West Midlands Police are investigating the causes of Aaron’s death.

20130225

U.S. military grounds F-35 Joint Strike Fighter

U.S. military grounds F-35 Joint Strike Fighter



The U.S. military on Friday grounded the F-35 fighter jet due to a crack in an engine component that was discovered during a routine inspection in California.

The Pentagon said in a statement that it was too early to assess the impact on the fleet of jets designed for use by the Navy, Air Force and Marines.

The nearly $400 billion Joint Strike Fighter is the Pentagon's most expensive weapons system. It is currently being tested.

The program has been beset by cost overruns and various technical problems during development.

Currently, there are 51 planes in the F-35 fleet.

20130223

Family Lives Without Money—By Choice—and Thrives

Family Lives Without Money—By Choice—and Thrives
A Berlin family of three has been living on practically nothing but love and the goodwill of others for more than two years and counting—not as a victims of the rough economy, but as activists who are on a money strike to protest what they call our “excess-consumption society.”

“As consumers, we support the system, and we are all responsible for making a wasteful society,” Raphael Fellmer, 29, told Yahoo! Shine. “This strike is to inspire other people to reflect about our other possibilities.”

Fellmer, who said he’d held jobs since he was 12 years old, began his protest after years of working in hotels, bars, restaurants and various offices. In 2010, after graduating from college in the Hague as a European Studies major, he and two friends embarked upon a 15-month “journey of humanity” to raise awareness of environmental destruction and of society’s many wastes, including estimates that about one-third of all food produced worldwide (valued at about $1 trillion a year) gets wasted.

That trip involved hitchhiking from Europe to Mexico without cash, simply depending on the goodwill and excess resources of others. It carried them over more than 19,000 miles on more than 500 vehicles—including a sailboat that took the trio from the Canary Islands to Brazil in exchange for crew duties—and soon led Fellmer to meet his wife, Nieves Palmer, who became pregnant along the way.

Now the couple, along with their 18-month-old daughter Alma Lucia, are continuing to live nearly money-free in Berlin, where they do odd jobs and organizing work in exchange for living space, with roommates, in the Peace House Martin Niemöller, which contains various non-profits. (Though Fellmer uses no money, he said Palmer does use a little, mainly in the form of child support she receives from the government, which is granted to all children.)

Fellmer has become a full-time activist in the name of bringing attention to problem of waste and overconsumption, running organizations and websites including The (R)evolution: In Harmony with the Earth. There is a network of others, too, beyond the two pals he traveled with. A 2010 documentary called “Living Without Money,” for example, profiles a 68-year-old German woman named Heidemarie Schwermer who gave up money 14 years ago. She says she’s never felt freer.

But Fellmer admits his lifestyle is radical, explaining that it’s to get his message across. “Not everybody needs to do this to such an extreme. This is for protest. We want to inspire people to think about changes they can make. There are so many tools out there, so many ways to reduce one's carbon footprint.”

One is through the fast-growing German movement of “foodsharing,” in which adherents use the Internet to share edible food that’s been foraged from grocery-store dumpsters. Fellmer founded an organization in which he partnered with a leading German organic-food chain to create an efficient way of “rescuing” food for distribution just before it is thrown away. He's also part of a website,foodsharing.de, which has registered more than 12,000 people across the country in just two months of its existence, he said, and has drawn interest from around the world in more than 20 languages (6 of which Fellmer speaks). In the U.S., where about 40 percent of food—or about $165 billion worth—gets wasted annually, there exists a similar fringe movement of vegan dumpster divers called “freegans.”

Other ways to take part in what Fellmer calls “collaborative consumption” include using popular couchsurfing sites, or finding people with empty homes who need long-term house-sitters. “We have not only a surplus of food but of housing,” he said. “Everything we need is already there. We just need to make the connections.”

Even as a new parent, Fellmer said he’s been able to stave off money-related anxieties. “Children need from parents love, attention, time. All these materialistic things are really ridiculous,” he said, adding that used baby clothes are as easily had as thrown-away food. Germany offers universal medical care, although Fellmer and his family have managed to find a dentist to give them free services, and did gardening and repair work for a gynecologist when Palmer was pregnant. (They did spend their one bit of money on the overseas journey, however, when Palmer, a former psychologist, used funds she had saved in order to pay a midwife.)

Though Fellmer’s parents are supportive of his lifestyle and “pretty open,” he admitted to having plenty of critics. “People are very creative with their negative comments. They say I’m lazy, abusing other people,” he said. “But when they talk to me, they learn I’m working 40 to 50 hours a week on projects for the good of society.”

Mostly, Fellmer hopes his money strike can help change others’ lives. “Money is hampering our dreams. Most people have forgotten it, or are completely afraid of living without money, so they are enslaved by the monetary system,” he said. “I hope to motivate people to believe a little more in their dreams.”

20130222

China’s housing slaves need lifetime to pay off mortgages

China’s housing slaves need lifetime to pay off mortgages

Sherry Sheng, a 29-year-old Shanghai policewoman, bought herself a 4,000 yuan (US$642) black fur jacket, splurging for the last time before she starts paying off the mortgage on her first home.

Sheng is part of a generation of middle class that Chinese media has dubbed “fang nu,” or housing slaves, a reference to the lifetime of work needed to pay off their debts. They’re taking on mortgages even as the government maintains property curbs to damp prices that have almost tripled since China embarked in 1998 on a drive to increase private home ownership.

“It’s a treat for myself because I could never afford such a luxury after I start repaying my housing loans next month,” said Sheng, who paid 1.1-million yuan for the one-bedroom apartment on the city’s western outskirts and will be using about 70% of her salary to service her mortgage.

China’s growing middle class reaching for homeownership helped property prices rebound starting in the second half of last year. They rose 1% in January from December, the biggest gain in two years, according to real estate website SouFun Holdings Ltd. Home prices in Beijing and Shanghai each rose 2.3% from December.

Average per-square-meter prices in 100 cities tracked by SouFun are five times average monthly disposable incomes. A 100-square-meter (1,076-square-foot) apartment today costs about 40 years’ annual income, according to SouFun and government data, even as salaries have more than quadrupled since 1998.

40 Years

Sheng was able to buy her 50-square-meter apartment after borrowing a combined 770,000 yuan through a 20-year mortgage from Agricultural Bank of China Ltd. and a 15-year loan from the local housing providence fund. Her parents helped with the 30% down payment. She will repay about 4,000 yuan a month for the home, a one-hour subway ride from central Shanghai’s historic Bund that cost 16 times her annual salary, based on the apartment price and her income.

Chinese homebuyers typically use 30% to 50% of their monthly incomes to repay mortgages, said Wu Hao, a manager at the loan brokerage of Bacic & 5i5j Group, Beijing’s second-biggest realtor for existing homes. It advises clients to keep monthly repayments lower than one-third of their incomes.

The “general guideline” among Chinese banks is that a borrower’s salary should be at least twice their monthly payment; otherwise they’ll be asked to submit proof of assets, such as property, cars, or insurance to show their ability to service the debt, Wu said. Using 70% of monthly income to pay the mortgage is “very rare,” she said.

Mortgage Lenders

Mortgage rates, which move with the benchmark interest rate, usually have maturities of five to 30 years. The People’s Bank of China’s benchmark lending rate for loans longer than five years now stands at 6.55%.

Outstanding residential mortgage loans grew 12.9% last year to 7.5-trillion yuan, the slowest pace in four years, as China tightened lending, according to central bank data. A credit binge in 2009 fueled inflation, weakened banks’ financial buffers and led to an increase in soured loans.

Still, analysts remain upbeat on Chinese banks. Mortgage loans accounted for 20% of the total loan portfolio of China Construction Bank Corp., the nation’s largest mortgage lender, at the end of June, while at Industrial & Commercial Bank of China Ltd., the second largest, the ratio was about 14 percent, according to their first-half earnings reports.

Stable property prices in 2013 “should benefit CCB the most, as it has the highest real estate-related exposure among the H-share banks,” Grace Wu and Leon Qi, Hong Kong-based analysts at Daiwa Capital Markets, wrote in a Jan. 22 report. H shares are the shares of Chinese companies traded in Hong Kong.

‘Heated Up’

Developers also are benefitting as homebuyers rush to buy because they expect prices to rise further. China Vanke Co., the biggest developer that trades on Chinese exchanges outside of Hong Kong, said sales rose 56% last month from a year earlier, while Evergrande Real Estate Group Ltd., the country’s largest developer by sales volume, said its January sales more than tripled.

Standard & Poor’s raised its outlook for Chinese residential developers to stable from negative in a report released today, saying the companies were able to improve their liquidity at favorable costs because funding channels reopened. The ratings company said it didn’t expect the central government to “drastically” tighten or loosen controls on the property market and average selling prices will rise as much as 5% in the country’s 100 major cities this year.

The volume of residential property sales in China will rise this year, driven by improved funding to developers, Fitch Ratings said in a Jan. 29 research report.

Developer Valuations

The property market has already “heated up,” while home prices in major cities may rise as much as 10% in the next three months, said Johnson Hu, a Hong Kong-based property analyst at CIMB-GK Securities Research, in an interview.

Loose monetary policy will drive housing prices and sales up in the near term, Hong Kong-based Jinsong Du, Credit Suisse Group AG’s head of property research, wrote in a report Feb. 18.

Credit Suisse favours Hong Kong-traded Chinese developers with “strong” sales and “less expensive” valuations, such as Country Garden Holdings Co., controlled by China’s richest woman Yang Huiyan, and Poly Property Group Co., a developer that is partly state owned, Du said. Country Garden and Poly Property trade at a ratio of about eight times estimated profit, compared with 13.4 times for the Hang Seng Property Index, according to data compiled by Bloomberg.

The central government has since April 2010 moved to stamp out speculation in the property market by raising the down- payment requirement on first mortgages to 30% from 20%, ordering a minimum 60% deposit for second-home purchases and an increase in rates for second loans. It also imposed a property tax for the first time in Shanghai and Chongqing, and enacted restrictions in about 40 cities, such as capping the number of homes that can be bought.

More Measures

The new government may introduce more property curbs when it takes power in March. China may tighten credit policies for people buying a second home or raise the tax on gains on transactions of existing homes in the most affluent, or so- called tier-one cities, the China Securities Journal reported Feb. 1, citing an unidentified person.

Home sales in China’s 10 biggest cities almost quadrupled to 8.5 million square meters in the first five weeks from last year, property data and consulting firm China Real Estate Information Corp. said in an e-mailed statement Feb. 19.

“The uncertainty lingers as the government may issue new tightening policies if home prices are rising too fast,” said Tian Shixin, a Shanghai-based property analyst at BOC International China Ltd., in a phone interview.

Private Ownership

Chinese urban residents’ average disposable income rose 12.6% last year to 2,047 yuan a month, according to the statistics bureau. The average one-square-meter of new floor space cost 9,715 yuan in December, according to SouFun.

The shift to private home ownership stems from reforms started in 1998, when then Premier Zhu Rongji privatized state- owned housing provided at low rents to urbanites, transferring home ownership from the government to the families occupying the dwellings. About 230 million people moved to cities in the 2000- 2011 period, the biggest urbanization in history, according to the Chinese Academy of Social Sciences.

The idea of buying a property with borrowed money didn’t become popular until 2004 when home prices in major cities started rising fast enough to compensate for interest payments, enticing buyers to borrow to buy property, said Liu Yuan, a Shanghai-based researcher at Centaline Property Agency Ltd., China’s biggest real estate brokerage.

Today about 50% to 70% of home buyers in the first-tier cities of Shanghai, Beijing and Guangzhou use mortgages, borrowing an average 50% of a home’s value, according to Centaline.

‘Modern Idea’

Cai Yue, a 33-year-old manager at a Shanghai-based pharmaceutical company, bought her first home 10 years ago after graduation, among the first wave of Chinese taking out mortgages as the government tried to encourage home ownership by offering income tax rebates and the cheapest funding in two decades.

Cai borrowed 50% from the bank for her 300,000 yuan apartment in 2003. Her monthly payment was 1,600 yuan, about 40% of her salary at the time.

“It was quite a modern idea to take on a mortgage back then,” said Cai, who earned 3,700 yuan a month back in 2003 and declined to disclose her current income.

With home prices of 6.8 times of her annual income, Cai was able to pay off her debts in 2007 and buy a second home for 2-million yuan that same year. Her first home, the 75-square-meter apartment about 8 kilometres (5 miles) north of the Bund, has surged sixfold in value. Cai paid off all her mortgages in December and is barred from buying a third apartment in Shanghai.

“The housing slaves term is quite reasonable because it will put a lot of burden on home buyers if housing payments are more than half of their incomes,” said Liu Li-Gang, a Hong Kong-based economist at Australia & New Zealand Banking Group Ltd.

20130221

U.S. Banks Bigger Than GDP as Accounting Rift Masks Risk

U.S. Banks Bigger Than GDP as Accounting Rift Masks Risk

That label, like a similar one on automobile side-view mirrors, might be required of the four largest U.S. lenders if Thomas Hoenig, vice chairman of the Federal Deposit Insurance Corp., has his way. Applying stricter accounting standards for derivatives and off-balance-sheet assets would make the banks twice as big as they say they are -- or about the size of the U.S. economy -- according to data compiled by Bloomberg.
“Derivatives, like loans, carry risk,” Hoenig said in an interview. “To recognize those bets on the balance sheet would give a better picture of the risk exposures that are there.”
U.S. accounting rules allow banks to record a smaller portion of their derivatives than European peers and keep most mortgage-linked bonds off their books. That can underestimate the risks firms face and affect how much capital they need.
Using international standards for derivatives and consolidating mortgage securitizations, JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo & Co. would double in assets, while Citigroup Inc. would jump 60 percent, third- quarter data show. JPMorgan would swell to $4.5 trillion from $2.3 trillion, leapfrogging London-based HSBC Holdings Plc and Deutsche Bank AG, each with about $2.7 trillion.

World’s Largest

JPMorgan, Bank of America and Citigroup would become the world’s three largest banks and Wells Fargo the sixth-biggest. Their combined assets of $14.7 trillion would equal 93 percent of U.S. gross domestic product last year, the data show. Total assets of the country’s banking system would be 170 percent of economic output, still lower than 326 percent for Germany.
U.S. accounting rules for netting derivatives allow banks to erase about $4 trillion in assets, the data show. The lenders also can remove from their books most mortgages they package into securities, trimming an additional $3 trillion.
Off-balance-sheet assets and derivatives were at the root of the 2008 financial crisis. Mortgage securitizations kept off the books came back to haunt banks forced to repurchase home loans sold to special investment vehicles. The government had to rescue American International Group Inc. with a bailout that ballooned to $182 billion after the insurer couldn’t pay banks on derivatives tied to those bonds.
Derivatives are financial contracts whose value depends on stocks, bonds, currencies or other securities. Because two parties agree to swap cash or collateral at the end of a pre- determined period, that value also depends on the existence of the counterparty when it’s time to pay.

Netting Derivatives

Netting allows banks and trading partners to add up the positions they have with each other and show what would be owed if all contracts had to be settled suddenly. These master agreements are only relevant during bankruptcy and underestimate risk, according to Anat Admati, a finance professor at Stanford University. When a bank’s solvency is in doubt, derivatives partners demand to be paid immediately, causing a run.
“These liabilities do matter in times of distress,” said Admati, whose book “The Bankers’ New Clothes” was published this month. “By netting, you are hiding fragilities.”
The U.S. Financial Accounting Standards Board and the International Accounting Standards Board pledged a decade ago to converge the two bookkeeping systems. After six years of meetings, they remain divided. Proposed rules for how much money banks need to set aside for loan losses may make European and U.S. lenders even less comparable.

‘Can’t Compare’

“Having no uniform standard is challenging for issuers and users,” said John Hitchins, head of U.K. banking and capital markets at PricewaterhouseCoopers in London. “Analysts and investors can’t compare companies’ financials across borders. Banks have to prepare multiple versions of their financial statements in different countries where they have units.”
The U.S. accounting board tightened rules on what needs to be consolidated in 2009 after the financial crisis, forcing more than $200 billion of assets onto the balance sheets of the four biggest banks. Those included most mortgage bonds not backed by the government. Untouched were about $3 trillion of securities guaranteed by U.S.-owned housing-finance companies Fannie Mae and Freddie Mac.
While the board agreed with banks that the securities didn’t need to be counted because they were insured by the government, risk returned to firms that originated the loans after the housing market collapsed. Since 2008, the four lenders have faced demands to take back $67 billion of mortgages sold to securitizations backed by Fannie Mae and Freddie Mac. They repurchased a majority of those and settled some disputes because the loans hadn’t met agency underwriting standards.

Covered Bonds

European banks sell covered bonds to finance mortgage originations and aren’t allowed under international accounting rules to move the home loans that back them off their balance sheets. Covered bonds package mortgages like securitizations, and the bonds are sold to investors. In case of bankruptcy, the mortgages that back the covered bonds are walled off from other assets of the bank and can be seized by bondholders.
Buyers of the bonds can demand that banks replace soured mortgages with performing ones, leaving the credit risk with the originator. That’s similar to buyback requests in the U.S. Executives at U.S. banks disagree, saying the securitizations pass mortgage-default risk to the government and investors, while covered bonds don’t.
During the crisis, European nations bailed out dozens of banks to prevent the collapse of the covered-bond market. That’s similar to the rescue of Fannie Mae and Freddie Mac in the U.S. and shows how both mortgage markets are government-backed, said Hans-Joachim Duebel, founder of Finpolconsult, a Berlin-based housing-finance consulting firm.

Capital Rules

“Covered bonds are not that different from the Fannie- Freddie securitization mechanism,” Duebel said. “U.S. banks are just as liable for what they originate and sell to the agencies as Europeans are for what’s in their covered bonds.”
Canadian banks, which use international standards, aren’t allowed to move mortgages off their balance sheets, even though about 75 percent are insured by the government.
What goes on balance sheets and what’s kept off affect how much capital banks are required to have.
Capital rules are intended to limit how much borrowed money banks can use in relation to shareholder equity. The higher the ratio, the greater the probability firms will have enough capital to cover losses and stay out of bankruptcy.

JPMorgan, Citigroup

The Basel Committee on Banking Supervision, which sets global standards, traditionally has based capital rules on risk- weighted assets rather than raw balance-sheet size. A simpler ratio introduced in 2010 as an additional measure to rein in risk-taking would be based on total assets.
U.S. banks have been complying with a domestic version of that ratio for the past two decades. It requires U.S. lenders to have capital equal to 4 percent of total assets as determined by U.S. accounting standards. Under that definition, JPMorgan and Citigroup, both based in New York, and Charlotte, North Carolina-based Bank of America had capital ratios of about 7 percent, while Wells Fargo’s was 9.4 percent as of Sept. 30, the most recent period for which data are available.
If the banks used international standards for derivatives and consolidated mortgage securitizations, the ratio for JPMorgan and Bank of America, the two largest U.S. lenders, would fall below 4 percent. It would be just above 4 percent for Citigroup and Wells Fargo.
That would make the biggest U.S. banks look no better capitalized, or worse, than European peers such as HSBC at 5.6 percent or France’s BNP Paribas SA at 3.9 percent at the end of last year. It also could require them to raise more capital. Spokesmen for all four banks declined to comment.

Accounting Differences

The accounting differences colored the debate in Basel when a similar ratio was introduced. U.S. regulators on the committee, which includes banking supervisors from 27 nations, at first proposed adopting international rules for netting derivatives when calculating the simpler capital standard, also called a leverage ratio.
European regulators would only agree if the ratio were set no higher than 1 percent, according to former FDIC Chairman Sheila Bair, who participated in the talks. Instead, the committee opted to use U.S. accounting rules for netting derivatives and set the limit at 3 percent.
A 3 percent ratio means that a bank needs $3 of capital for every $100 of assets. For the more traditional Basel capital measure, the same $3 would result in a higher ratio because some of the assets are discounted by the smaller amount of risks they are assumed to carry.
“The U.S. leverage ratio doesn’t capture off-balance-sheet risks,” said Bair, now chairman of the Systemic Risk Council, a private regulatory watchdog. “Once U.S. banks start publishing the new Basel-mandated ratios, more off-balance-sheet assets will become obvious.”

EU Balking

Bair said she favors raising the simple capital ratio as high as 8 percent. Hoenig, the FDIC vice chairman, has called for 10 percent. U.S. regulators are still debating how to implement the rules. Because Basel isn’t an international treaty, each country needs to adopt its own version.
Still, the European Union is balking at implementing the capital rule based on total assets. It’s considering delaying when EU banks have to begin reporting the ratio using the methodology and hasn’t decided whether to make it binding.
The first Basel rules were agreed to in 1988 in an effort to converge global banking regulations. Fourteen years later, U.S. and international rule-setters signed what is known as the Norwalk agreement, named after the Connecticut town where the U.S. accounting board is based, pledging to work together to “make their existing financial reporting standards fully compatible as soon as is practicable.”

Common Standards

Behind the initial push were David Tweedie, the first chairman of the International Accounting Standards Board; Harvey Pitt, who headed the U.S. Securities and Exchange Commission at the time; and Paul Volcker, the former Federal Reserve chairman instrumental in the group’s formation.
Progress on common standards slowed after Mary Schapiro became SEC chairman in 2009 and faced lobbying by companies opposed to what they said would be costly accounting changes, according to four people with knowledge of the discussions who asked not to be identified because the talks were private.
“I’ve always supported working toward convergence, and we pushed FASB and IASB hard to reach satisfactory agreements,” Schapiro, who left the SEC in December, said in an interview. “But I wasn’t keen on dropping the U.S. accounting standard and adopting the international one before those differences were significantly narrowed.”

Financial Footnotes

In 2011, the U.S. accounting board came close to moving in Europe’s direction on derivatives netting. There was pushback from the largest U.S. banks, according to a person familiar with the talks. Lenders argued that gross values overstate actual positions because parties often make opposite bets rather than tear up existing contracts. The board dropped the plan.
Tweedie, a former chairman of the U.K.’s accounting board, failed to win the support of France and Germany for convergence, according to the people familiar with those discussions. While European banks have long favored the U.S. approach to netting derivatives, they haven’t pushed for change because it wouldn’t have an impact on income statements or capital requirements, which are based on risk-weighting of assets, according to Andrew Spooner, a London-based partner at Deloitte LLP.
“When it’s about the size of the balance sheet only, and not a profit-loss issue, it’s not as crucial for firms,” Spooner said.

Fannie, Freddie

New disclosure requirements for U.S. and European banks on how they net derivatives that take effect this year will make comparisons easier, Spooner said. The biggest U.S. banks already are reporting more details in the footnotes of quarterly financial statements, making it possible to calculate their derivatives assets under international standards.
There isn’t as much uniformity in disclosures of off- balance-sheet assets. JPMorgan’s securitizations of home loans backed by Fannie Mae and Freddie Mac were estimated by using the figure for mortgages the bank services and the average ratio of servicing to off-balance-sheet assets at other lenders.
U.S. rule-setters have done more than their international counterparts to force banks to consolidate securitization vehicles. Still, there was little debate about whether lenders should include loans sold to Fannie Mae and Freddie Mac.
Before the financial crisis, the government-backed firms didn’t include mortgage bonds created from those loans on their balance sheets either. After collapsing under the weight of losses and being taken over by the government, both Fannie Mae and Freddie Mac started consolidating the securities. They also tried to recover losses from banks that sold them badly underwritten home loans.

Control Mechanisms

Lenders have said improved control mechanisms for loans they originate and transfer to Fannie Mae and Freddie Mac for packaging into mortgage bonds obviate the need to consolidate or set aside reserves for future repurchases. That optimism isn’t shared by Esther Mills, president of Accounting Policy Plus, a New York-based consulting firm.
“There was clearly a failure by certain institutions to appropriately assess the liabilities before the crisis,” said Mills, a former Morgan Stanley and Merrill Lynch & Co. accounting executive. “Are there enough liabilities going forward for the billions of mortgages being transferred?”
In the first nine months of last year, San Francisco-based Wells Fargo transferred $398 billion of mortgages to residential-mortgage securitizations guaranteed by Fannie Mae and Freddie Mac. The bank recorded a $209 million liability for “probable repurchase losses,” according to its latest quarterly filing. It has faced more than $12 billion of buyback demands from the government-backed firms for crisis loans.

‘Dangerous Things’

“There are probably some dangerous things left off the balance sheet still, and we’ll only find out what in the next crisis,” said David Sherman, an accounting professor at Northeastern University in Boston. “But how many times do we have to go through this to figure it all out?”
After failing to agree on common standards for derivatives netting and consolidation of securitizations, rule-setters are now heading in different directions as they debate how to account for loan-loss reserves.
The U.S. accounting board proposed after the financial crisis that banks mark all loans and debt securities to market values, not just those held short-term. The board abandoned the plan after lobbying by banks, which would have had to recognize losses, according to a person familiar with the deliberations.

No Convergence

A new U.S. proposal that would require banks to record expected losses over the lifetime of a loan has met with similar opposition. The plan would force lenders to set aside higher reserves upfront, leading to lower profits than European peers, Sherman estimates.
Under current accounting rules on both sides of the Atlantic, only incurred losses need to be reported. The international board is considering a change that would require banks to reserve for losses expected over a 12-month period.
While both the U.S. and international proposals probably would result in higher loan-loss reserves, they might not prevent lenders from being too late recognizing losses, as they were in the past, according to Jamie Mayer, a bank-accounting analyst at Grant Thornton LLP in Chicago.
“If their risk models don’t show any problems, and they didn’t before 2008, it’s unclear how solely changing the accounting would solve concerns,” Mayer said in an interview.
In a January survey of 70 banks around the world conducted by auditing firm Deloitte, 88 percent of respondents said they don’t expect convergence on accounting rules most relevant to lenders, including derivatives, balance-sheet consolidation and how to reserve for loan losses.
Leslie Seidman, chairman of the U.S. accounting board, and Hans Hoogervorst, head of the international panel, both said at a conference in New York last month that they hadn’t given up.
“I still hope for one standard,” Hoogervorst said. “But at times it’s easy to be discouraged.”

20130219

Pound land: Derelict houses in Liverpool to be sold for just £1

Pound land: Derelict houses in Liverpool to be sold for just £1

Liverpool city bosses are to sell off derelict houses in a failed regeneration zone for just £1 to revive the stalled project.
The decision to let the homes go at the rock-bottom price comes after months of delays caused by the council's decision to break off talks with developer Leader1.

The firm had been in line to redevelop hundreds of homes in the "Granby Triangle" but city leaders pulled the £25m tender after the company failed to meet deadlines for signing the contract. Since it was revealed the deal had fallen through in November last year the boarded up homes have remained empty.

Now, the council proposes to sell off a cluster of houses for just £1 to residents - on the condition they will be brought up to a decent standard. Private landlords will also be able to bid for the tender to refurbish some of the vacant homes and then buy the freeholds for £1.

Last night, deputy mayor and council finance chief Cllr Paul Brant said: "This allows people who may be excluded from mortgages but have construction skills to play a part in the regeneration of their communities.

"It's been proven to work in other parts of the region. We've seen that the private sector model has not succeeded so far and, through this way of doing things, if there is any profit it will stay with local people."

Residents reacted with a mixture of anger and disappointment when the Leader1 scheme fell through last year. They said they had been uneasy that a private firm with no track record in social housing had been awarded the tender.

Local resident Theresa MacDermott said: "This is a much better scenario. Obviously there were delays because of the situation with Leader1, but although there's some uncertainty at the moment it's positive."

As part of the initial pilot scheme, 20 houses will be offered for sale to residents for £1 in the Granby 'Four Streets' and Arnside Road in Kensington.

In the 'Webster Triangle' in Picton the council will either partner up with housing associations or "dispose of the properties to private landlords".

Council Liberal Democrat group leader Cllr Richard Kemp, who has previously called into question the council's decision to get involved with private firms in the delivery of social housing, said he hoped the scheme would succeed, adding: "I think this is a good idea, provided there's a solid basis for it.

"Either housing associations or private individuals need to be doing this, as there's no profit to be made out of this kind of scheme, as we've seen through those that have failed."

20130217

Emigration: Two million quit Britain in 'talent drain'

Emigration: Two million quit Britain in 'talent drain'

Two million people of working age have left Britain over the last decade in a “drain of talent” that is damaging the economy and forcing employers to rely on immigrant workers, a senior Conservative has warned.

Briton arrested in Bahrain over security scare
Around 149,000 British citizens emigrated last year Photo: PA
Nick de Bois, secretary of the 1922 Committee of backbench MPs, said that Britain needs a “culture change” to stem the flow of talented emigrants by encouraging success.

Office for National Statistics figures obtained by Mr de Bois show that in the ten years to 2011, a total of 3,599,000 people permanently left the UK.

Contrary to the perception of the typical emigrants being older people retiring to a life in the sun, the figures show that 1,963,000 of those who left were aged between 25 and 44.

By contrast, only 125,000 people of retirement age emigrated.

“Our most economically active are leaving to apply their talents elsewhere,” the MP said, warning that talented Britons are being lured away to “growth economies” elsewhere in the world.  

20130216

Portuguese Economy Contracts for Ninth Straight Quarter

Portuguese Economy Contracts for Ninth Straight Quarter


Portugal’s economy shrank for a ninth straight quarter in the three months through December as export growth slowed with the euro area’s deepening recession.

Gross domestic product dropped 1.8 percent from the third quarter, when it slipped 0.9 percent, the National Statistics Institute in Lisbon said in a preliminary report today. Economists predicted a decline of 1 percent, the median of seven estimates in a Bloomberg survey showed. Fourth-quarter GDP fell 3.8 percent from a year earlier. It was the biggest annual and quarterly contraction since the first quarter of 2009.

“The positive contribution of net external demand declined significantly in the fourth quarter,” the institute said. GDP slid 3.2 percent in 2012 after shrinking 1.6 percent in 2011.

Prime Minister Pedro Passos Coelho is battling rising joblessness and lower demand from European trading partners as he raises taxes to meet the terms of a 78 billion-euro ($104 billion) aid plan from the European Union and the International Monetary Fund. Portugal has already been given more time to narrow its budget gap after tax revenue missed forecasts, and the economy is set to contract for a third year in 2013.
Exports Ease

The government projects the economy will return to growth next year, after shrinking an estimated 1 percent in 2013 and 3 percent in 2012. Economic growth has averaged less than 1 percent annually for the past decade, placing Portugal among Europe’s weakest performers.

The Bank of Portugal on Jan. 15 said the country’s economy will contract 1.9 percent in 2013, more than previously forecast, as export growth slows. Exports will rise 2 percent this year, slowing from estimated growth of 4.1 percent in 2012, the central bank said.

The euro-area recession deepened more than economists predicted as Germany, France and Italy, its three biggest economies, suffered slumping output. GDP fell 0.6 percent in the fourth quarter from the previous three months, the EU’s statistics office in Luxembourg said today. That’s the most since the first quarter of 2009 in the aftermath of the collapse of Lehman Brothers Holdings Inc.

The recession is hurting Portugal’s tax revenue, which dropped 6.1 percent in 2012 as disposable income fell. Portugal aims for a budget deficit of 4.5 percent of GDP in 2013 and will only cut the shortfall below the EU’s 3 percent limit in 2014, when it targets a 2.5 percent gap. The government forecasts debt will peak at 122.3 percent of GDP in 2014 after reaching 122.2 percent in 2013.

Portugal’s jobless rate rose to a new euro-era record of 16.9 percent in the fourth quarter, the statistics institute said yesterday. Unemployment averaged 15.7 percent in 2012, up from 12.7 percent in 2011. The government predicts joblessness of 16.4 percent this year.

20130215

Are you prepared?



Over the last 10/12 years, I have done a large amount of reading and research into history and world events - post 1900. With my dealings around the world in Arms, I have met many very interesting people who have shared ideas and information with me on world events both past, present and future possibilities.  What I want to say now, is a culmination of many years of gleaning as much information as I can about world events and information currently being provided by friends/business colleagues around the world.

It is necessary for me to paraphrase much of what I have so it may seem rather "short on detail' , but if you wanted any more information/detail, I'd be happy to provide it.

Firstly, money has no intrinsic value; and really, neither has Gold as it is a controlled market. The American Federal Reserve {FED} have been printing monopoly money for 75 years and there is no backing to this currently  - other than people's "faith" in the dollar.  It has been a  contrived financial system based on the Petro-Dollar and a debit based economy. Karl Marx said 'war is inherent in Capitalism".  This is because  capitalism needs to expand , based on debt driven greed and waste, in order to survive. There comes a time when this "bubble" cannot be sustained - rather like blowing a large soapy bubble; it grows and grows until a point whereby the surface tension cannot sustain it's continued expansion. Then it bursts. The American economy is such a bubble - already America cannot ever hope to repay it's debt.  The way out of this conundrum, is to devalue the dollar - let it free fall. Then countries like China, Japan etc who are holding huge amounts of American debt will effectively be holding useless paper money.  The FED, after seizing what real value is in the country  by way of foreclosing on mortgages, loans and collection of  businesses etc, will simply print a new currency.  Ala Germany with the Deutschmark and the new Reichsmark. Depressions are generated to redistribute wealth.  Take from the middle class and poor and give to the 10% of the wealthy.

America has been heading along this path of controlled devaluation since the middle of last year - the FED stated in December that the dollar needed to drop 33 1/3rd % . The issue here is, a controlled devaluation is a fairytale; external forces and other markets will cause a run which cannot be anticipated or controlled.  Japan is onto this and they have been printing money [like the FED has] and effectively devaluing their Yen in unison with the US Dollar. This has caused the FED to complain strongly - but there is little that they  can do about it - China and Japan have already begin trading each other's currency [So too, Russia and China] rather than using the Dollar as the unit of trade, further weakening the position of the US Dollar.

However, a collapse of the US dollar will cause major problems for the countries that are holding huge amounts of American debt - China and Japan especially as both of these counties have supported their balance sheets with US debt. Wipe of that debt and they are bankrupt! This will trigger worldwide depression as the two major industrial powerhouses of the world cannot pay for goods.

Switzerland and Germany have requested their gold be returned from Fort Knox - world markets and countries around the world are becoming very nervous. Switzerland would be regarded as one of the cagiest financial counties in the world - why now demand their gold back? The FED refused a German audit of German gold reserves being held by the FED - why??

Speaking with business partners I have in the States, they are not "alarmists or kooks', but they are alarmed and very concerned over current events. The establishment of the Department of Homeland Security [DHS] is a major concern to many in America. THE DHS are not trained police, they are not trained military, they are people who have been "especially vetted" as to their loyalty to the flag [government]. The DHS has recently placed an order for a further 450 million 10mm Hollow Point ammunition bringing their "stockpile" to almost a thousand million. [what's that? A Billion in Yankee talk?]. There are approximately 300 million citizens in America - the question being asked is "what does the DHS need a billion rounds of ammunition for?".  Further, my partner asked me to provide them with Meals Ready to Eat [MRE - military style ration]. When I asked him why they haven't got any in the US - his answer was that the DHS has been buying them up. Again, people are asking "why does the DHS need MRE, and in such high numbers?".

The answer put forward to these questions is quite logical. With a depression of the scale that is planned, the government cannot rely on the loyalty of the Police, after all, they will have their Super schemes wiped out, their saving gone and their families will be in the same boat as the rest of the middle class. Hardly conducive to loyalty! The Army will fair no better - perhaps worse as many who have been recently fighting a war on behalf of the FED [controlled government], will see the stupidity and pointlessness of their sacrifices. Because of that, it is important that the US return it's troops from Afghanistan and reduce the size of it's standing army so that there is less of a threat from an organised armed group. That leaves the trusty and loyal DHS to protect what the "haves" have and keep the have not from getting it.  A frightening scenario.

With money being worthless, there is no point whatsoever in having a bank account - in fact, the more money you have in the bank, the better the governments will like you. So easy to reduce wealth with a stroke of the pen and a closing of the banks doors. 

The only hedge against the possible coming gloom is to store tradable.  Food [long term storage food] and commodities that people need are what current money should be invested in.  This 'investment" is better than money in the bank. Consider the rate of inflation and check out the rate of inflation of food! It will not get cheaper and will hold it's value. What was $1 in current currency will be worth say $50 in any new currency. It will still be worth more than paper value and it is a necessity! Other things that can be stored and traded are certainly worth considering and investing in - especially medicines which will become very hard to procure.

Now, if the worst does not come to pass - what's the problem? The items stored are not spoilt and can be used progressively in lieu of spending money for them later. It is in effect a form of compulsory saving and a hedge against inflation - you will earn more than leaving the money in the bank. Consider also, that shares are a very risky investment in the current market - companies go tits up just like everyone else. Holding shares in a bankrupt company doesn't sound like a great deal.

Personally, I think that the planned time frame for this devaluation is the demobbing of the large standing army [returned troops from Afghanistan], but with current world unrest, events may precipitate a collapse quicker than the FED are planning it.

My free and honest advice is, prepare for a depression and if it doesn't come, you haven't lost anything - rather you have made a wise investment.

Jim Jones
New Zealand

20130214

Jobless Spaniards open secret restaurants

Jobless Spaniards open secret restaurants
NECESSITY is the mother of invention, and jobless Spaniards looking to maker ends meet are taking the proverb to heart by turning their homes, underused lofts and studios into secret restaurants.

In a working class district of Barcelona on Thursfay night, guests were invited to whisper a password into a warehouse buzzer before being ushered into an artist's studio and makeshift restaurant.

"I knew I was going to be laid off," said Angela Vinent, a former PR executive. "So I decided to open a clandestine restaurant".

To the horror of tax collectors, covert entrepreneurship is flourishing in Spain as it grapples with 26% unemployment, he highgest in Europe. In Barcelona discreet culinary hotspots, though hard to find, are popping up everywhere. Underground hair salons, jazz clubs and flamenco halls are also said to be thriving.

An elderly couple murmured appreciative commentts as Vinent's 24-year-old daghter, an art student, served a vegetarian "crisis" meal, including caponata, a Sicilian aubergine dish thst happened to be that day's password. ... the authorities have every reason to take an interes : the black economy is said to represent between 17% and 25% of GDP.

20130212

Brazil, Where a Judge Made $361,500 in a Month, Fumes Over Pay

Brazil, Where a Judge Made $361,500 in a Month, Fumes Over Pay

SÃO PAULO, Brazil — There are many ways of striking it rich in Brazil, but one strategy may come as a particular surprise in today’s economic climate: securing a government job.

One clerk at a court in Brasília, the capital, earned $226,000 in a year — more than the chief justice of the nation’s Supreme Court. Likewise, São Paulo’s highway department paid one of its engineers $263,000 a year, more than the nation’s president.

Then there were the 168 public employees in São Paulo’s auditing court who received monthly salaries of at least $12,000, and sometimes as much as $25,000 — more than the mayor of the city, Brazil’s largest, was earning. Indeed, the mayor at the time joked that he planned to apply for a job in the parking garage of the City Council building when his term ended in December after the São Paulo legislature revealed that one parking valet earned $11,500 a month.

As Brazil’s once-booming economy stalls, these “super salaries,” as they have become known here, are feeding newfound resentment over inequality in the nation’s unwieldy bureaucracies. Powerful unions for certain classes of civil servants, strong legal protections for government workers, a swelling public sector that has created many new well-paying jobs, and generous benefits that can be exploited by insiders have all made Brazil’s public sector a coveted bastion of privilege.

But the spoils are not distributed equally. While thousands of public employees have exceeded constitutional limits on their pay, many more are scraping to get by. Across the country, schoolteachers and police officers generally earn little more than $1,000 a month, and sometimes less, exacerbating the country’s pressing security concerns and long-faltering education system.

“The salary distortions in our public bureaucracy have reached a point where they are an utter and absolute disgrace,” said Gil Castello Branco, director of Contas Abertas, a watchdog group that scrutinizes government budgets.

Privileged public employees, once called maharajahs in a nod to the opulence of India’s old nobility, have long existed in Brazil. But as Brazil nourishes ambitions of climbing into the ranks of developed nations, a new freedom of information law requires public institutions to reveal the wages of their employees, from rank-and-file civil servants like clerks to cabinet ministers.

Though some officials are resisting the new rules, new disclosures at public institutions have revealed case after case of public employees earning more than Supreme Court justices, who made about $13,360 a month in 2012, an amount established in the Constitution as the highest salary that public employees can receive. In the Senate and Chamber of Deputies alone, more than 1,500 employees earned more than the constitutional limit, according to Congresso em Foco, a watchdog group.

State judges can do even better. One in São Paulo recently pulled down $361,500 in a month. That is not a typo: some judges in Brazil are paid more in a single month than their counterparts in high-income countries earn in an entire year. (The top annual salaries for judges in New York State are climbing to around $198,600.)

The recent revelations, including of an auditor in Minas Gerais State who earned $81,000 in one month and a librarian who got $24,000 in another, have spurred a strong reaction in some quarters. Joaquim Barbosa, the chief justice of the Supreme Court, revoked the super-salaries of the 168 employees in São Paulo’s auditing court in December. Another fed-up federal judge issued an injunction in October suspending payments to 11 cabinet ministers, but the attorney general said he would seek to overturn the ruling.

Some historians blame Portugal, the former colonial ruler, for creating a powerful public bureaucracy in which mandarins wield great influence and earn outsize salaries. Brazil’s byzantine judicial system also provides ways for certain senior civil servants to circumvent constitutional pay limits. Some collect pensions from previous stints in government — often their full salary at the time of retirement — after shifting into another high-paying public job.

Then there are the extra allowances for housing and food, the generous reimbursement rates for distance driven on the job and, of course, the loopholes. One provision dating to 1955 enables some public employees to take a three-month leave every five years. But those who forgo the leave, now intended to encourage workers to take postgraduate courses, can seek to collect extra money instead.

Some high-ranking members of the governing Workers Party, including Finance Minister Guido Mantega, have been able to get around the constitutional limit by receiving an extra $8,000 a month for serving on the boards of state enterprises, and many legislators are entitled to annual bonuses of more than $26,000 so they can purchase attire like business suits.

Still, in the developing world, Brazil’s Civil Service is envied in some aspects for its professionalism. Rigorous exams for an array of coveted government jobs generally weed out unprepared applicants. Pockets of excellence, like some public research organizations, have won acclaim in areas like tropical agriculture.

But some taxpayers fume over the privileges in the public sector, whose ranks swelled by 30 percent in the past decade to encompass 9.4 million employees in a country of 194 million. Powerful unions stymie efforts to fire civil servants, making such jobs exceptionally stable and well protected.

While Brazil’s government comfortably finances itself through tax collection and issuing debt, services like education and sewage treatment remain woeful. Despite imposing high taxes, Brazil ranked last among 30 rich industrialized and developing countries in the quality of services citizens get for the taxes they pay, according to the nonprofit Brazilian Institute of Tax Planning.

Some lawmakers have come under personal scrutiny. Fernando Collor de Mello, a former president who once denounced the maharajahs and is now a senator, was recently found to be spending more than $30,000 a month of public money to employ a gardener and two archivists.

In Maranhão, one of Brazil’s poorest states, legislators have granted themselves the equivalent of 18 monthly salaries — each of about $10,000 — in a single year, justifying the move as a cost-of-living allowance.

The new freedom of information law, supported by President Dilma Rousseff, who earns about $174,000 a year, is intended to expose such practices. Not surprisingly, some entrenched government interests have dragged their feet in complying with the law.

When Congress finally decided in 2012 to allow people to obtain the salary information of its employees, it also required them to find the name of each employee and submit it online. In other words, if someone wanted the information on the legislature’s 25,000-strong work force, then that person had to independently identify them and submit 25,000 separate online requests.

If only it were that easy here in São Paulo. One clerk at the state’s high court, Ivete Sartório, was reportedly paid about $115,000 after convincing her superiors that she should be compensated for not taking leaves of absence. But when asked recently about her wages, a spokesman for the court, Rômulo Pordeus, said that Ms. Sartório’s “matriculation number” was needed to request the information.

When asked how any curious taxpayer could get that number, he replied that it was in Ms. Sartório’s possession, and that he did not want to bother her about it. “I’m not going to ask for her matriculation number, because it’s annoying, understand?” Mr. Pordeus said. “No one likes to say how much they earn.”

Lis Horta Moriconi and Taylor Barnes contributed reporting from Rio de Janeiro.

20130211

British have invaded nine out of ten countries - so look out Luxembourg


British have invaded nine out of ten countries - so look out Luxembourg

Britain has invaded all but 22 countries in the world in its long and colourful history, new research has found.

Britain has invaded all but 22 countries in the world in its long and colourful history, new research has found
21 of the 22 countries that have not been invaded by Britain 

Every schoolboy used to know that at the height of the empire, almost a quarter of the atlas was coloured pink, showing the extent of British rule.

But that oft recited fact dramatically understates the remarkable global reach achieved by this country.
A new study has found that at various times the British have invaded almost 90 per cent of the countries around the globe.

The analysis of the histories of the almost 200 countries in the world found only 22 which have never experienced an invasion by the British.

Among this select group of nations are far-off destinations such as Guatemala, Tajikistan and the Marshall Islands, as well some slightly closer to home, such as Luxembourg.  

20130210

Harvard Losing Out to South Dakota in Graduate Pay: Commodities

Harvard Losing Out to South Dakota in Graduate Pay: Commodities

Harvard University’s graduates are earning less than those from the South Dakota School of Mines & Technology after a decade-long commodity bull market created shortages of workers as well as minerals.

Those leaving the college of 2,300 students this year got paid a median salary of $56,700, according to PayScale Inc., which tracks employee compensation data from surveys. At Harvard, where tuition fees are almost four times higher, they got $54,100. Those scheduled to leave the campus in Rapid City, South Dakota, in May are already getting offers, at a time when about one in 10 recent U.S. college graduates is out of work.

“It doesn’t seem to be too hard to get a job in mining,” said Jaymie Trask, a 22-year-old chemical-engineering major who was offered a post paying more than $60,000 a year at Freeport- McMoRan (FCX) Copper & Gold Inc. “If you work hard in school for four or five years, you’re pretty much set.”

A fourfold gain in commodities in the past decade reflects both surging demand and the industry’s failure to keep up. While new mineral deposits are getting harder to find, companies also are struggling to add enough skilled workers. That’s partly a legacy of U.S. colleges cutting back on mining programs. There were fewer than 28,000 people employed in U.S. metals mining in 2004, from 58,000 in 1993, the National Mining Association estimates. By 2011, it had rebounded to 40,000.

Labor Shortage


As many as 78,000 additional U.S. workers will be needed by 2019 to replace retirees, the Society of Mining, Metallurgy & Exploration said in a report in January. In Australia, the largest shipper of coal and iron ore, there will be a shortfall of 1,700 mine engineers, 3,000 geoscientists and 36,000 other workers in the five years ending in 2015, the report said.

Demand for mining-school graduates is exceptional in the U.S., where the unemployment rate for 20-to-24 year olds with Bachelor’s degrees was 11.8 percent in July. The jobless rate across the economy held above 8 percent for a 43rd month in August, government data show.

Universities trimmed courses in earth sciences, mineral geology and mine engineering when the industry contracted in the 1980s and 1990s, said Diana Stewart, the marketing director at Hampshire, U.K.-based jobs4mining.com, a message board that links recruiters and prospective workers worldwide. Shortages in mine engineering and project management are acute, she said.

“There are simply not enough to go around, so companies are trying to tempt people to their own projects, which is driving tremendous salary inflation,” Stewart said. “When investment finance is tight, skilled labor availability and labor costs are one of the factors that are having an impact on the viability of a project.”

Mining Engineering


Fourteen U.S. schools offer mining-engineering degrees, compared with 30 in 1982, according to Dave Kanagy, the executive director of the Society for Mining, Metallurgy & Exploration in Englewood, Colorado. There were 178 mine- engineering graduates in 2011, from 700 in 1982, he said. The average age in the mining industry is 47.3, compared with 40.7 across the combined U.S. workforce.

The South Dakota School of Mines & Technology, which charged out-of-state tuition of $10,530 last year, graduated 259 students with Bachelor of Science degrees in 2012. Seventeen of those were in mining engineering.

No Miners


Harvard, in Cambridge, Massachusetts, has more than 27,000 students and charged its 10,300 undergraduates about $40,000 in tuition last year, U.S. Department of Education data show. The number of engineering graduates who go into mining is “virtually zero, if not zero,” said Michael Rutter, the communications director for Harvard’s School of Engineering and Applied Sciences. They tend to go to industries including finance, biomedical engineering, software and government, he said.

The median salary for all Harvard graduates at mid-career was $116,000 last year, compared with $96,300 at South Dakota School of Mines, according to PayScale’s survey. Princeton University’s mid-career salary was highest, at $130,000, followed by California Institute of Technology at $123,000, according to Seattle-based PayScale. The company says the data is based on surveys of more than 35 million users.

The South Dakota college, founded in 1885, is a partner in the development of the Sanford Underground Laboratory, which will carry out experiments as deep as 4,850 feet (1,478 meters) down in an abandoned gold mine. Its campus includes the Museum of Geology, which houses a century-old collection of minerals, many of them taken from now-defunct mines. Its football team, known as the Hardrockers, has had one winning season since 1985.

Boosting Costs


The labor squeeze is boosting the cost of new projects and may contribute to delays limiting production growth, especially in copper, said Frank Holmes, the chief executive officer of San Antonio-based U.S. Global Investors Inc., which oversees $1.72 billion of assets. Morgan Stanley is forecasting a fourth consecutive year of global copper supply shortages in 2013.

“It’s hard to get mining managers and engineers, and trying to bring projects on line has gotten very expensive,” Holmes said. “Ore grades are lower, fuel costs are higher, and labor costs are higher, and that will continue to put a floor under copper prices.”

Copper futures rose 10 percent this year, beating the 3.9 percent gain across the 24 commodities in the Standard & Poor’s GSCI gauge. The MSCI All-Country World Index of equities advanced 13 percent, while Treasuries returned 1.3 percent, a Bank of America Corp. index shows. Goldman Sachs Group Inc. expects the metal to rise an additional 8.2 percent to $9,000 a metric ton by the end of this year.

Delaying Developments


Mining companies are delaying developments because of rising costs and concern that prices may tumble as economic growth weakens. China, the biggest consumer of everything from copper to coal, has slowed for six consecutive quarters. The 17- nation euro area will keep contracting for at least through the first quarter, according to the median of as many as 24 economist estimates compiled by Bloomberg.

BHP Billiton Ltd. (BHP), the world’s biggest mining company, said Aug. 22 that it put approvals for about $68 billion of projects on hold after second-half profit at the Melbourne-based company plunged 58 percent. Rio Tinto Group, the third largest, said last month it may spend less on expansions next year. The S&P GSCI tumbled into a bear market in June, falling more than 20 percent from its peak in February, before entering a bull market once more in August.

Capital spending by the industry will likely contract from next year after average growth of about 30 percent from 2005 to 2011, excluding a decline in 2009, Citigroup Inc. said in a report last week. Expenditure will probably grow 16 percent this year, down from a March estimate of 34 percent, London-based analyst Natalia Mamaeva wrote. It will drop 7.5 percent in 2013 and about 12 percent in 2014, she said.

Mine Production

World copper-mine production was 16.03 million tons in 2011, little changed from a year earlier, according to the Lisbon-based International Copper Study Group. The industry’s production estimates may need to be cut because of worsening technical glitches and lower-quality ores, Barclays Plc said in a report Aug. 16. Mining companies on average are processing about 15 percent more ore than they were in 2000 to extract the same amount of metal, according to Macquarie Group Ltd.

“A lot of the cost blow-outs come down to haste, inexperience, lack of properly done mining studies, and that reflects the fact that mining is missing a generation,” said Robin Adams, a managing consultant at London-based research company CRU. “They are learning though, so that problem is going to go away in a few years.”

Takeover Bid


Labor costs in copper mining rose 16 percent last year, after an average annual increase of 11 percent from 2006 to 2010, according to Barclays. Xstrata Plc (XTA), the Zug, Switzerland- based target of a $35 billion takeover bid by Baar, Switzerland- based Glencore International Plc (GLEN), has 197 job openings posted on its website, ranging from a mining production engineer in Australia to a logistics officer in the Philippines.

“There are shortages everywhere in mining, so it’s an employees’ market right now,” said Kevin Loughrey, the chairman and chief executive officer of Thompson Creek Metals Co., which is developing a copper and gold mine in British Columbia. “Basic economics tells me that as the cost of these projects increase, the cost of what these projects would produce has to increase as well.”

To contact the reporter on this story: Joe Richter in New York at jrichter1@bloomberg.net

20130208

Germany's Merck halts supply of cancer drug to Greek hospitals

Germany's Merck halts supply of cancer drug to Greek hospitals

 German pharmaceuticals firm Merck KGaA is no longer delivering cancer drug Erbitux to Greek hospitals, a spokesman said on Saturday, the latest sign of how an economic and budget crisis is hurting frontline public services.

Drugmakers raised concerns with EU leaders earlier this year over supplies to the euro zone's crisis-hit southern half and Germany's Biotest in June was the first to stop shipments to Greece because of unpaid bills.

Publicly-owned hospitals in some countries worst hit by the euro zone debt crisis had been struggling to pay their bills, Merck's chief financial officer, Matthias Zachert, was quoted as saying by German paper Boersen-Zeitung in an interview on Saturday.

He said however that the only country where Merck had stopped deliveries was Greece.

"It only affects Greece, where we have been faced with many problems. It's just the one product," he told the paper.

A spokesman for the company told Reuters that the drug concerned was Erbitux and that ordinary Greeks can still purchase it from pharmacies.

Some countries have taken action to pay bills, such as in Spain, where the government has said it will help hospitals to pay off debts.

"That has improved things, even though the situation should still be regarded as critical for the coming years," Zachert said.

Erbitux is Merck's second best-selling prescription drug, bringing in sales of 855 million euros ($1.1 billion) in 2011 from treating bowel cancer and head and neck cancer. ($1 = 0.7785 euros)

(Reporting by Frank Siebelt and Victoria Bryan; editing by Patrick Graham)

20130207

Rajoy scandal threatens political rupture

Rajoy scandal threatens political rupture - FT.com
By David Gardner

Finance allegations have several precedents

The avalanche of slush fund allegations threatening to engulf the ruling Popular party of Mariano Rajoy is only the latest in a long line of illegal party financing cases in Spain, after the restoration of democracy in 1977 brought with it the expensive inconvenience of regular elections.

In the mid-1990s, there was the Filesa scam whereby the then-ruling Socialists collected large corporate donations for fictitious consultancy work not carried out by dummy firms. The scandal helped bring down the government of Felipe González, which had already been weakened by revelations of its involvement in death squads sent against Basque separatists, and the attrition of four terms in office.


The current, so-called Bárcenas case, which centres on the purported secret accounts kept by former PP treasurer Luis Bárcenas that detail covert donations and cash payments allegedly made to senior party figures including Mr Rajoy, is in the same league.

The Bárcenas documents, published last week by El País, date back to 1990 when the PP had just been taken over by José María Aznar, the former prime minister. The party was busy dodging another case involving a treasurer charged with receiving illegal donations from a construction company. That case was eventually dismissed by the Supreme Court on a technicality.

But another slush fund scandal now grinding through Spain’s labyrinthine courts, the co-called Gürtel case that has ensnared PP regional barons as well as Mr Bárcenas, may corroborate some of the new allegations.

Documents in the Gürtel investigation, for example, exactly replicate one of the payments in the Bárcenas ledger. Several PP officials have confirmed payments to them in the Bárcenas dossier did take place.

The increasingly baroque Gürtel tale also revealed that the former party treasurer, appointed by Mr Rajoy, had €22m in an undeclared Swiss bank account


Mr Rajoy has stoutly denied receiving or handing out “black money”. Reluctant to answer questions before Spain’s parliament or press, he muddied the waters at a press conference in Berlin on Monday alongside Angela Merkel, Germany’s chancellor, describing claims made in the Bárcenas papers as “false, except for the odd case”.

The prime minister’s main line of defence – that he and his colleagues will now publish their tax returns – does not really address the substance of the allegations. If any of them were receiving covert funds, why would they advertise this in their annual income declarations?

There are similarities between today’s scandals and the Filesa affair two decades ago – not least that Filesa netted the Socialists nearly €15m in today’s money. But the differences are more important – and more dangerous.

In the mid-’90s, a new generation of the centre-right PP was ready to take over from the tired and tarnished Socialists. Now, a PP back in power for barely a year risks implosion, but the Socialists, demoralised and divided regionally as well as ideologically, are in retreat.

If elections were to take place now, Spain could face Greek-style political fragmentation, with the two main parties reduced to something like the diminished size of Greece’s conservative New Democracy and former prime minister George Papandreou’s Pasok (which, like the PP, also had a recently won absolute majority).

Two decades ago Spaniards were enamoured of Europe. Now, amid the compound devastation wrought by the fiscal, banking and euro crises, the EU is “like a wicked stepmother”, one Spanish analyst says.

Relentless austerity makes recent revelations, battering institutions from the monarchy to the judiciary, particularly odious to many Spaniards.

The monarchy’s ability to unite the country is diminished. King Juan Carlos turned out to be on safari in Africa as the crisis started to bite, and an embezzlement scandal has enveloped his son-in-law, Iñaki Urdangarin, due in court on Wednesday to post €8m in bail.

The highly politicised judiciary has been tarnished after its former head, Carlos Dívar, was forced out last year when a colleague denounced anomalies in his expenses. Factionalism among the judges was also behind the suspension last year of Baltasar Garzón, Spain’s most celebrated crusading magistrate, who had been investigating the Gürtel scandal.

Still, it is worth recalling it took six years for the courts to pronounce on Filesa. By then, voters had already given their verdict, ejecting the Socialists at the ballot box