The sharp price increases in staple foods and fuel earlier this year

For the poor, finance is always about much more than economics. In practical as well as philosophical terms it is a matter of basic human rights. As the dust begins to settle on the global financial crisis it is certain that all economies will suffer. For the rich, OECD states, stagnation or recessionary losses are predicted, and for the emerging (BRIC) economies of Brazil, Russia, India and China, growth will significantly slow. But it is in the poorest, least developed states that we will likely see the most dramatic effects, simply because they have less to lose.
On top of the sharp price increases in staple foods and fuel earlier this year, least developed nations are especially vulnerable to reductions in foreign direct investment in their economies, in export trade, in the levels of remittances (which in respect of money sent home by Mexican migrants working in the US, for example, has already dropped sharply in the present quarter), or in the quantities of economic aid they receive (legitimate fears of aid reductions are well founded, given the estimated 25% drop that followed the Asian financial crisis last decade).
This was the stark warning that came out of the recent UN meetings in New York on the imperilled prospects of achieving the Millennium Development Goals (of halving world poverty, instituting universal primary education for boys and girls, substantially reducing infant and maternal mortality rates, halting the spread of HIV/AIDs, arresting environmental degradation, and promoting economic development in the poorest states) by the scheduled 2015
Though short on detail, UN Secretary-General Ban Ki-moon has been long on doom-laden rhetoric, warning that the turmoil in global financial markets could have "a very serious negative impact" on the ability (or more likely, enthusiasm) of rich nations to meet the goals. That is despite the sums required to do so being considerably less than the $700 billion bailout package put together to rescue ailing Wall Street banks (the annual aid budget of the US is currently around $25 billion, while that of the World Bank stands at approximately $38 billion; according to the OECD, the total aid commitment from all the world's major donors in 2007 was just over $100 billion).
This temper of concern was echoed in the communiqués emerging from this month's annual meetings of the World Bank and the IMF in Washington DC. Douglas Alexander, the UK's Secretary for International Development who was attending the latter, was especially candid in stressing that "in this interdependent world, co-ordinated action from governments, the IMF and the World Bank is not only a moral imperative, but in our self interest".
The fundamentalist undertones of such an exhortation flows from the circumstances that nearly one billion people face everyday. For without the means by which they can secure adequate housing, health care, education, and enough to eat and drink, and without protection against exploitation, discrimination, and (perhaps worst of all) disdainful disregard, the poorest of the poor will live, if they manage to stay alive at all, only barely.
Poverty does not cause human rights abuse. It is, primarily, the actions or inactions of governments that cause human rights abuse. However, the incidence of poverty is a reliable sign of attendant human rights problems, and an indicator that states are not fulfilling their obligations under international human rights laws.

Financial assets are basically debt

All complex economies need a strong financial sector. Finance, unlike traditional banking that slowly accumulates capital, can be thought of as a capability for making capital - and hence enabling the launch of major projects. Financial assets are basically debt, but debt with the special feature that it promises to make great profits. This ingredient of finance rests in turn on the need to "financialise" non-financial economic sectors. Because finance is about debt it needs grist - bits and pieces of the "real" economy - for its mill.

The larger economies are among the most dependent on their financial sectors. The value of financial assets in (for example) the United States, Japan and Britain by the time the global crisis erupted in 2008 was 450% to GDP (see "Mapping global capital markets", McKinsey Global Institute Report, January 2008). The European Union average is 350% to GDP, while Germany and France - at 250% - are at an even lower level, in a way that bears on their economies' comparative performance in the recession.
From the 1980s, the grist that finance requires was provided by the "bundling" of large numbers of corporate debt, but also of millions of small individual credit-card loans, automobile loans, and residential mortgages.
By 2000, the complexity of what was getting bundled had intensified - via derivatives on interest rates on long chains of corporate debt, credit default swaps (CDS), and other mechanisms. In fact CDSs had become the ultimate power-tool, a "made-in-America" product whose quantitative value jumped from $1 trillion in 2001 to $62 trillion in 2006 (more than the combined GDP of all the world's countries, $54 trillion). This rampaging innovation was the system's demiurge: when these swaps were called in during 2008, amid rising alarm among investors that something was wrong, the result was an all-consuming financial crisis (see "Too big to save: the end of financial capitalism", 1 April 2009).
By September 2008, finance had run out of grist and was reduced to scraping the bottom of the barrel - taxpayers' bailouts and (in the US) over 15 million sub-prime mortgages to modest and low-income households (most of which have or will wind up in foreclosures long after many investors had made their profits).
The relentless finance-mill found a respite in taxpayers' bailouts. But it is still in trouble. The major economies face a critical choice: do they really want to rescue a system with such a high level of financialisation - especially when there are other ways for the average firm and household to secure credit?

The financial crisis teamed up with an economic recession

Although the Asian financial sector has not completely escaped the ripple effect of the global financial meltdown, its exposure to the centre of the financial crisis - the subprime mortgage crisis in the US - was limited. This is a direct result of the 1997/8 regional economic crises, and since then Asian banks have been quite conservative, as well as being heavily regulated by national governments.
“Most regional banks are not sophisticated enough or are too heavily regulated to engage in those types of risky products,” says Jan Lambregts, global head of financial markets research, Rabobank International. “That has sheltered them from the worst of the fallout from the financial crisis.”
The Asian banking sector has not been left completely untouched - there has been some bank merger and acquisition (M&A) activity, for example Japan's Shinsei Bank and Aozora Bank merger, creating the country’s sixth largest bank. But by and large, the high-profile bank failures seen in the US and Europe, such as Lehman Brothers, Wachovia and Fortis, did not happen in Asia and, until now, the banks have not encountered any insolvency problems.
At a certain point, however, the global financial crisis became so widespread that there wasn’t any shelter from it. The shock effects of reduced global demand inevitably impacted Asia, most significantly through trade. For example, China's exports fell 17.5% in January 2009 compared to a year earlier, marking the biggest drop in more than 10 years; Taiwan’s exports in April fell 34% from a year ago, the eighth consecutive month of decline; while Japanese exports fell 40.9% in May from a year earlier.
“The world has become a much more integrated place,” says Lambregts, “so even though Asia is not at the epicentre of the financial problems, the region has become more integrated into the global trade system over the past few years, particularly since China joined the WTO [World Trade Organisation] in 2001. So instead of de-coupling, this process has really coupled Asia to the rest of the world. Therefore, when the rest of the world went into freefall following the collapse of Lehman Brothers and the financial crisis teamed up with an economic recession, threatening to create the mother of all recessions, Asian exporters cut back on their production very significantly.” This has led to a substantial de-stocking cycle in the ‘workshop of the world’.

International finance structures must be drastically overhauled

International finance structures must be drastically overhauled in the face of the current global economic crisis, a panel of experts convened by the United Nations General Assembly said today, calling on wealthier nations to direct one per cent of their economic stimulus packages to help developing countries address poverty.
A coordinated approach – bringing together not just the so-called Group of Eight (G-8) or even Group of 20 (G-20) nations, but the “G-192” representing all members of the Assembly – is needed to pull the world out of the recession, according to the recommendations of the Commission of Experts on Reforms of International Finance and Economic Structures.
Chaired by Joseph Stiglitz, winner of the 2001 Nobel Prize for Economics, the nearly two dozen-member body stressed that many poorer countries lack the resources necessary to tackle the crisis, and developed nations should not attach inappropriate conditionalities to such funds.
“The nature, the severity of this crisis has really opened up opportunities for change for reform that I think would not have been conceivable even a few months ago,” Mr. Stiglitz told reporters.
The experts also called for the International Monetary Fund (IMF) to increase the availability of funds for hard-hit nations.
A new global reserve system must be put into place to promote economic stability and equity, the Commission said, as this would ease the deflationary effects of the massive accumulation of reserves that countries believe are necessary to brace themselves against global instability. Such a system would offset the risk of a drop in value of a major reserve currency.
Other recommendations included the creation of an elected and representative Global Economic Coordination Council, as part of the UN, to meet annually at the head-of-State level to assess development and serve as a “democratically representative alternative to the G-20.”
Further, a financial regulatory board and competition authority – which would both answer to the Coordination Council – could prevent the expansion of multi-national firms that threaten competition or become problematic when they become too big to fail, the experts said.
The creation of a new international credit facility, under the aegis of the World Bank, would provide additional credit to developing countries without pro-cyclical conditionalities, and the governance of such an entity would represent both new donor countries and take into account concerns of developing countries.
“We see the United Nations system, which includes the Bretton Woods institutions, has the institutional capacity, the expertise, and the global presence to respond in significant and practical ways” to the current crisis, Assembly President Miguel D’Escoto said today.
An interactive dialogue, expected to wrap up tomorrow, is under way at UN Headquarters on the panel’s recommendations. The results of the three-day gathering will help lay the groundwork for the International Conference on the Global Economic and Financial Crisis and its Impact on Development slated to be held in New York in June.

Banks made trillions of dollars in poorly underwritten loans

The populist uprising against paying big bonuses to top executives of banks bailed out with taxpayer money is in large part warranted, according to a study by an independent compensation consulting firm. San Francisco-based Presidio Pay Advisors studied executive compensation at 115 publicly traded banks participating in the Troubled Asset Relief Program (TARP) and found that since 2006, changes in CEO and CFO compensation had no measurable link to changes in performance.

“Many US banks are failing to deliver on their often-stated goal of paying for performance,” says Dave Bisson, author of the study, who is a senior consultant at Presidio Pay Advisors. Based on proxy statements filed in 2009, most banks’ compensation committees say their pay programs are fine and no changes are needed. “We believe this is a short-sighted and counterproductive response and increases the odds regulators or politicians will further set the rules,” Bisson says. Congress has already imposed significant pay restrictions on banks with TARP investments, which will be lifted only once TARP funds are repaid in full. “As the debate surrounding the issue continues in Washington, boards should use this time-out to fix their compensation programs,” Bisson says.

Banks made trillions of dollars in poorly underwritten loans, and these toxic assets are now generating huge losses, he says. It typically takes several years for loans to season and for banks to judge their performance. “There is a disconnect between the period of time used to determine annual incentives and the time needed to determine loan performance,” Bisson says. One solution would be for banks to defer annual incentives and place them in a pool to be paid out over a number of years.

Another problem is an over-reliance on stock options, Bisson says. Direct stock ownership is a better incentive, creating a stronger link with shareholders’ interests, he says. There is an asymmetry in the way options work, he says, because they provide executives with the opportunity for gain without a corresponding risk of loss.

Globalization Is Not Standardization

Guillermo Kopp, global research fellow at the research and analysis firm TowerGroup, believes that part of the reason why expectations for emerging markets were downgraded so dramatically early in the year is that people tend to oversimplify globalization. Many observers wrongly assumed that globalization would result in equal pain being felt worldwide. “[But] it isn’t about standardization;it’s about increasing inter-dependencies between markets,” says Kopp.This distinction also undermines the decoupling theory, though. “Despite improvements in some emerging markets, it is wrong to suggest that decoupling is occurring between developed and developing countries,” says Kopp. “Demand still comes largely from developed markets, and the ability of money to move instantly has a profound effect on emerging markets.” Templeton’s Mobius agrees: “It is ridiculous to suggest that emerging markets can be separated from developed markets in terms of trade and capital flows and communications. Decoupling simply does not exist.”Instead, the current divergence of growth between developed and emerging markets can be explained by the different backdrop each had to the financial and economic crisis. Crucially, this is a recession—no economists are claiming a 1930s-style depression is imminent—attributable to too much leverage. However, leverage was not evenly distributed throughout the global economy. Instead, it was overwhelmingly concentrated on developed economies’ assets, ranging from personal mortgages to super-leveraged collateralized debt obligations.Rather than simply making the assumption that the near-collapse of the Western financial system will decimate emerging markets’ economic growth, it is important to draw a distinction between financial markets and the real economy. “There’s a creative tension between the strength of emerging markets and the financial volatility in the West,” explains Kopp. “When demand increases in emerging markets, it has the potential to cause overheating in Western financial markets. Similarly, when Western financial markets crumple, their downturn smothers emerging market economic growth.”

Selling relationships for a better world

Inter Agency Procurement Services Office (IAPSO) is an office within United Nations Development Programme (UNDP) that handles procurement for governments, non-governmental organizations (NGO's), United Nations agencies, international finance institutions etc. Annually all UNDP offices and organizations are measured for performance and customer satisfaction in a quantitative Bureau of Management (BoM) survey. Between 2002 and 2004 IAPSO's ratings dropped from 69% to 54% which had major political implications for the organization. IAPSO has since 2002 utilized a quantitative online survey to measure customer satisfaction; this survey shows a very high satisfaction rating through 2002 to 2004. In order to understand why the two surveys presented different results a third quantitative survey was undertaken. The third survey showed high customer satisfaction but could not explain the low rating in the BoM survey. In both the online survey and the third survey comments provided by the respondents are somewhat contradictive to answers given in bound questions, perhaps indicating that there are issues not captured in the surveys. The different outcomes of the surveys have made staff at IAPSO unsure of how the organization is perceived externally raising more questions than answers and so this thesis aims to understand how IAPSO is perceived externally.Purpose: The purpose of the thesis is to get a holistic view of how IAPSO is perceived externally using grounded theory and symbolic interactionism. Previous quantitative studies fail to give a whole picture of how IAPSO is perceived externally. To achieve the purpose there is a need to understand how IAPSO's stated goals and vision are interpreted, the internal perception and the external perception, and to examine how communication/interaction (or lack thereof) between actors affects the perception.Conclusion: The result show that even though staff members of IAPSO have an accurate picture of how IAPSO is perceived externally and are aware of their customers' needs and problems, IAPSO's vision and stated goals are unclear (both internally and externally) which influence customer experience and affect how and what internal staff communicate to customers, the results show the importance of personal relationships and functional communication. IAPSO do not only provide services, they also sell relationships.