the US presidential debates - round one

If I was from outer-space, but with a lot of knowledge of history, geography and topography of Earth I would have been horrified that one of the two candidates in the debate would within months lead the most powerful nation on earth! God help the human race!

That is the problem with politics because it is directed at winning the vote of prejudiced ill informed and in the case of the United States broadly a very dumb TV watching populace who have never set foot outside of their continent.

If one breaks the debate down to Foreign and Domestic issues; In terms of foreign policy you only need to change the strategy to enhance public opinion outside the US so that all the world’s trouble-makers are no longer a threat to the security interests of the US. It is conceptually very simple and with good espionage all decisions should merely be congruent with this strategy. It requires countervailing measures to minimize the threats from the three types of nemesis listed below.

One being the economic threat of counterweights of Russia, China and to a lesser extent the EU. The other being consequences of the US policy of defending the state of Israel, which are the jihadists of Iraq, Iran, Afghanistan being given moral authority due to US intransigence on leaning on Israel. The third are those challenging US energy policy which is still dependent on oil where the strategy should be to immediately change direction to alternative sources, which will automatically lessen the clout of Venezuela and bit players using their oil wealth to cause upheavals.

On the domestic front, the crisis that has been created due to greed was expected so those risk takers should pay for taking the risk, with an underlying floor to ensure that people living in their homes are not turfed out, but where the state holds an equity share for bailing them out of their greed. So the bailout will mean a benefit in the long term for the state in taking a profit when the home is eventually sold as all US homes change hands at least every ten years.

Long term structural adjustments to reduce the likelihood of speculation need also be taken, but that is more difficult to implement until there is a sea change in peoples attitudes to “me versus us” syndrome where for example a collectivist attitude on health care is called for to prevent people from being left to die on the roads because there is no social safety net.

The problem with the US Houses of Congress is no different to the Sri Lankan legislators. Once they get elected they want to remain there forever even though most of them are unable to grasp government or carry out the wishes of the electorate. So no one really does a days work and just bamboozle the electorate to believe simple problems have complicated solutions, even though most problems have fundamentally very simple solutions if only one is able to see it without the tinted glasses they wear.

I can solve all of America’s domestic and foreign policy problems in a short while, but because the jobs of millions are to solve these problems, they will all be out of a job so they will not permit simple solutions as otherwise they cannot justify their existence.

While I was explaining to someone why I gave up accounting. It was simply that people were making it complicated to keep their jobs so no one was interested in doing things very simply as then they would not be able to justify and further increase their pay packets. This same theory hold true to politics and running the country, it is so simple, an idiot can do it but those with an education will not permit simple solutions as they have justify why they have got an education in order to supposedly contribute something.

In summary every problem can be broken down into its fundamentals and solved by consensus between reasonable human beings. However as human beings are just not reasonable, due to human nature being fundamentally greedy, we have these so called problems constantly appearing.

It is sad that in this world where 4 billion people will die in the next 50 years, we are creating problems when none ought to be there. We should make life easier and not more difficult, and if we look to enhance quality of life rather than wealth creation, which are completely different things many of the issues of the day will not arise. It is the fact that these simple principles upheld in Christianity and Buddhism are ignored by even the most rabid Christian and Buddhist, that we have these problems. Misuse of religion has contributed to much of what is wrong in the world today.

We know the problem, we have the solution, but we are not ready to share. We therefore commit the rest of society to live in misery out of that greed.

If Marx lived in Sri Lanka today he would be horrified

Marx and his socialist writings were more apt in Germany during the period he lived and in that context would have seemed a perfectly logical theory. In the context of Sri Lanka today, where the populace have been bred on a different diet of asking for the moon and expecting the government to provide, which has been the way the country has operated, has lead to a basic breakdown of productivity of human capital and not its exploitation.

Marx I believe would have concentrated on areas of the economy that could improve productivity without adversely affecting the living conditions of the people who give rise to the increase, but at the same time improve the overall living conditions of the populace at large, permitting free enterprise, where competition is not stifled. In the present bizarre mix, where the supposedly socialist administration is packed with oligopolists and those representing such, so competition from small enterprises are stifled, while at the same time providing social welfare, in the form of health education and free loading government jobs, none of which the country can afford.

Of course it is in the state sector that the productivity is at its lowest, and where in the absence of unemployment in this economy, the potential for the greatest reforms lie, by retraining the sector to be more productive and re assigning them in state jobs that are now in demand in areas of conservation, recycling, alternative energy, marketable skills, pollution control, and agricultural development. He will realize that there is no place for collective ownership in Sri Lanka, as the nuclear family is the greatest source of conflict in the inability to share.

While I don’t even presume to know or actually want to know what Marx was on about when he wrote his seminal work, all I can surmise is that as a rational human being with average intelligence he would have come up with a theory that would be practical and apt to suit the conditions of the day in Sri Lanka, and there would be few who would dispute it. There are many who would try and prevent its implementation, as it would still go against the self-interest of the governing and ruling classes who still form a minority in a country, which is still essentially a parochial country of sheep being lead to slaughter without their knowledge. In this context it is a precipice that is being faced with the leaders ready to step aside the moment they reach the edge so the flock will just get thrown into their doom!

tthe sakvithi scandal that is inevitable again and again

No matter what the Central Bank or government says, people always try to find a better return on investment for their money. In a country where the annual rate of inflation is hovering around 25%, only dodgy deposits offer returns higher than the rate of inflation, and accordingly rich and poor alike invest in such companies. One just has to cautious and follow a few rules.

Rule no 1 – too much of a good thing cannot last forever, and therefore be cautious how long you can expect high returns by just holding a 6month CD
Rule no 2 – never put all your eggs in one basket as every basket has a chance of a leak whether it is metal, wicker or plastic. Have many baskets.
Rule no 3 – if it too good to be true, it probably is not true, so stay away.
Rule no 4 – don’t risk your money if you are over 50 as the period you have left to earn any loss is less, and therefore your chance of recovery is slim.
Rule no 5 – seeing is believing and don’t count on a return until you actually receive the money as all pieces of paper showing CD amounts are just that.

These scandals are daily occurrences and will continue until you can eliminate greed. Be cautious and follow the rules above, and then the risk can be reduced, not totally avoided. The SL case is the same as the US debt security scandal, but in reverse, where the depositors have been swindled, and are holding worthless paper, where as in the US Institutions are holding worthless paper, as people, the Joe Blow’s of this world are unable to meet their obligations because unsafe lending practices were adopted by lending institutions. The common denominator is greed, and securities due to the rating of the debt carried high rates of interest, just because of the level of risk.

EAP a well-known lender’s certificates of deposit pay 24% as they purchase gold, which has been appreciating in value. Jewelry is made and sold. When pawned, a higher rate of interest is charged on the borrower, using the pawned asset as collateral, giving the depositor some sense of satisfaction that the deposit has some gilt edge! As it is registered under the Central Bank there is some additional tracking, but I am not sure exactly what they require as covenants for this registration. It is therefore not wholly without risk, as this institution could fail with depositors losing their funds, and hence follow the rules set out above and minimize your risk, the only way you can. Of course there are additional factors like the size of the institution one should take into account, but size is no guarantee of security.

credit squeeze explained

Which comes first, the chicken or the egg? This analogy partially explains the current crisis. The increasing home prices, that exceeded the growth in inflation, and incomes, inevitably leads to a time when people are unable to afford to purchase a first home. Homebuilders who took advantage of the rise in prices, paid large amounts for their landbank leading to ever increasing prices for new homes. Homeowners, seeing the increase in the value of their homes, released equity. Firstly by borrowing more by re-mortgaging and then later by taking second mortgages at higher interest rates to fund extravagances like autos and vacations, and such like.

Many of these loans were made at teaser rates for the first couple of years, but when the higher rates kicked in many borrowers found themselves unable to pay their installments. The secondary mortgage could only be called once the first mortgage was paid off, so the non-performing loans that had been sold through investment banks backed by quasi-Federal institutions like Fannie and Freddie, became worthless. Those, holding such loans in their portfolios, went bankrupt or had to be rescued. This immediately affected the confidence of both investor and lender to the financial institutions. It worsened by the nationalization of Freddie and Fannie, and the house of cards began to unravel, as the prices of property on which much of the consumer confidence in their net worth was placed, began dropping.

The government really has no option but to steady the ship by printing and pumping credit to a market that has frozen credit out of the recoil factor of being shell shocked. The quid pro quo for such intervention should be some upside benefit when the markets settle and things gradually get back to normal after a period of recession. This could be short or long depending on how it is managed both by the private sector and government, with safeguards to re-build confidence, which has been lost.

One should not get confused with the stock market and its performance, which in theory should reflect the short and long term prospects of the companies reflected therein. The credit squeeze no doubt has an impact on company performance both financial and non-financial, but is analyzed independently of the credit squeeze itself. To the extent that each individual has a stake in the stock market through pension funds and retirement savings the fall in the latter does have a bearing, but is indirect and hopefully temporary, with upside once markets settle and volatility reduces.

Who is dumber? the Sri Lanka or US voter

Politicians pander to the voter. In Sri Lanka they promise what the voter wants, irrespective of whether it can be kept and the voter delivers by electing those that sound most convincing! In the United States today, all members of the lower house of congress, namely the House of Representatives are seeking re-election in less than 5 weeks, and the voters are bombarding their congressmen asking them not to vote to bail out the troubled institutions, and they responded by opposing it on Monday.

Due to the meltdown effect, the voter does not realize that passing the bailout is a confidence building exercise, necessary no matter what public opinion says. How does one reconcile this dichotomy? Members have to put country first irrespective of whether they will have a job in a few weeks, and for power hungry individuals, doing this is hard.

As usual the media is concentrating on stock market performance, which bears little relation to the debt problem at hand. The real issue is that businesses are and increasingly will find it difficult to borrow, and such costs would rise. The resulting effect is lower margins, and accordingly, more unemployment. The voter with a job should fear that, not saving the backsides of a few wealthy wall streeters.

The bailout will make it easier to borrow, reducing the severity and sharpness of the Sword of Damocles. It will add confidence to the banking sector reducing the likelihood of people withdrawing money from the banks. The banks will therefore reduce the extent of foreclosures on defaulters, giving them an extension on payments, or permitting some form of refinancing to turn non-performing assets into performing ones.

One must realize that a fundamental concept of capitalism is confidence, and when that is lost extreme action is necessary to restore confidence, and that is all that the government is doing as it is their responsibility for the long term security of its citizens. It is the long-term savings, retirement funds and home equity of the average Joe we are talking about as the wealthy are immune whatever happens, bailout or not! This is the responsibility of any government and its duty. I found it interesting that the Irish government backed the deposits of every bank in Ireland irrespective of balance. No Irishman then need pull out their savings fearing a run on a bank. That’s confidence for you!

media manipulation

I have previously noted the power of media, mainly in the areas of editorial and policy to represent certain points of view. It is common that all Sri Lanka government owned media is unabashedly one sided, influencing public opinion in a dangerously partisan, irresponsible and in the long run detrimental to the interests of the populace at large. History is replete with media barons influencing public opinion in a similar way, with similar results.

I want to concentrate here on the manipulation of unsuspecting journalists to a point of view because the person giving the information is a man with some responsibility inn the field, which he is talking about, and the journalist therefore takes it at face value without checking independent facts.

Sri Lanka is full of people in high positions, deliberately feeding misinformation into the media to highlight their position, but not based on anything other than the figment of their own imagination.

The total farce over a Weerawila International Airport which anyone with any common sense would know it was a non starter is one example. The other more recent example is that of the Kalpitiya Resort, which with the best will in the world cannot be justified under any grounds, and is merely an attempt by some people at the top of their posts misusing it to either pad their positions, and hence justify their existence, or being totally irresponsible, to hook people into spending money to defraud them, later.

This is a report for the journalists, to tell them to check their facts before reporting and the facts should always use an element of commonsense by asking the question “is this practical?” In Sri Lanka the manipulation of journalists of both state and private media is a daily occurrence, because the manipulators know that our journalists like the rest of the community don’t use common sense, and are therefore easily manipulable.

Journalists, be a little more critical about everything you hear or see, analyze the practicality of what you are reporting on, and make your own comment as to why you don’t believe what is said, and don’t be afraid to express your point of view as your view and not that of your paper. Later when you are proved correct, you then go with that for your promotion or your next job. “Kalpanakaranna , meka venna bari deyak! Kiyala vedak naha”

fools leading fools into fools' paradise

Related to the media manipulation article, I note that the newspaper reports of tourist numbers, supplied by the Tourism Authority are not questioned, again by the lack of insightful reporting by our journalists.

The arrival of every non-citizen is recorded as a tourist arrival. Needless to say this is grossly erroneous and overstates the tourist numbers, I would guess by at least 100%. In a country where barely 15,000 tourists arrived in September 2008, the figures published will be about twice that, why are we even pretending to have a tourist industry! So much money is collected as a departure tax on everyone to fund the expenses and extravagance of the tourism business, when they cannot even draw this number of tourists, why doesn’t anyone question the moral authority of people in charge.

The individual tour operator or hotel owner in his or her own way performs a better job attracting them, by way of repeat business or their own websites that this money can be far better spent by developing basic infrastructure rather than on promotion. The war is given purely as an excuse, in a country where the war has not accounted for a tourist death let alone an injury.

This clever manipulation, disinformation, and wasteful expense of gathering data that is inherently wrong is discourteous to say the least and fraudulent. Who are we trying to protect? Fraudsters! Newspaper journalists wake up!

The theme of this blog is to think things through, as we still perform tasks and follow traditions like cattle not knowing why we are doing something. It is the duty of those providing information to consider the facts, and in a country where few tell the truth, a national characteristic, we must treat all information fed, especially by official sources with a certain level of skepticism. The colossal waste arising from our mistakes can be avoided.

Use common sense here if you don’t understand what I am telling you. If I was a businessman coming to Sri Lanka, to do business for two days, I still have to obtain a business visa that will cost time and money. If I say I am a tourist, I get visa free access for thirty days, and therefore even a form to state my purpose will not be accurate. We have to use statistical random sampling techniques to get at a truer picture, which whatever route you choose will give you the answer that we don’t have enough tourists rate the industry anywhere near the top 10 foreign exchange earners for Sri Lanka.

a story of life in transition from rural to urban

A boy from Ratmale, left school and reached 18 in May, and followed a few courses in computing in the area. I gave him a PC to enhance his knowledge, and then he pressed me into getting him a job in Colombo to further his skills and get out of the village, where he would otherwise have had either to farm, join the forces or the home guard, or do manual work like brick making or rock quarrying or sand mining, or offer himself as a day laborer.

I managed through friends to place him in a job, repairing and maintaining computers and peripherals, where he has to go to different locations to carry out this work. For the first 6 months when he will receive training his monthly allowance is Rs6,500. I agreed to provide him lodging free, but he has to find his own food and pay for his traveling and clothes.

This is the first time he has left the comfort of his own home, and has now to learn to fend for himself, something he has never done before. He has to find his own food, and now realizes the cost of eating out and expense of clothing as well as traveling. While I agree the allowance is not sufficient for this he has somehow got to learn to manage, if he is to get to the next level and get a training which will make him more marketable and earn a real living. I recall the day when I began working and how difficult the first three years was in order to survive, as I had to pay almost two thirds or my net salary just for the room rent.

I don’t want to see him give up due to these short-term difficulties. He needs resilience to realize that the sacrifice today will pay dividends in the future. Without the close family, he has been used to all his life, except for his mother, who had abandoned the family shortly after his birth, he has to fight his battles on his own and grow up fast. I have done my best to cushion him from the molly coddling at home to the harsh realities of long commutes and city life.

In addition to his struggle, he also has to cope with the petty jealousies of people in the village he comes from, not wanting to see him succeed even though they do not see the hardship he has to undergo just to live from day to day. Sinhala people have a very bad characteristic of not wanting see a neighbor succeed and do all in their power to prevent success. Discouragement is the evil he has to face when he goes home.

Central Bank and failed finance companies

In light of the failures of financial institutions, we must face reality. Sri Lankan borrowers, be it individuals, banks, or finance companies, are inherently unreliable. So a lender or depositor must always be wary.

A credit guarantee for a million rupees per name per institution, must be backed by the Central Bank, and for this backing to be given, stringent oversight powers must be given. This seal will then be the only guarantee an individual has of the safety of his or her investment.

As an ex-auditor with over 11 years of experience internationally, I know how easy it is to hoodwink the most seasoned auditor, if one is to perpetrate a fraud. So the Central Bank, which does not have people with common sense, just overqualified prima donnas, and bureaucrats who are promoted on seniority, is easily misled. The onus is on the bank therefore to improve their audit practices to prevent abuse of the system for which they don’t appear to take any responsibility, and not even a statement from the governor of the regret or lapse on their part has been broadcast to date.

There has been the failure of Mercantile Credit, primarily a lender for auto financing, and then latterly Pramuka Bank and even more recently the pyramid schemes and there appears to be no forewarning until the horse has already bolted. The Central Bank has been caught napping in all these cases.

It is time, people are advised of the risk whatever the statements made by institutions on the security of the deposit. The Central Bank can only realistically do so much due to a skill shortage of people able to understand basic truths and deal with perpetrators of fraud who are extremely cunning.

The strict oversight of the remaining financial institutions, will then strengthen their credibility, and before there is a bubble that bursts on the Colombo property market, steps should be taken to examine critically, all loan portfolios primarily on real estate developments before there is even one bank failure. This could then have a knock on effect on the others. A credit crunch and withdrawal of deposits will stifle investment and growth, both of which we badly need having an adverse impact on the economy.

Governor you are in a make or brake moment, and how you command yourself in this critical juncture determines the future course of this nation.

Central Bank please wake-up

With recent disclosures about the bank being asleep while the unsuspecting depositor was losing money, is no surprise. Go to any floor of the mighty central bank at 9am and you will not find a lazier sleepy bunch of people if you wanted to. Then after their “Rs50 all you can eat buffet” lunch in the canteen, no one is competent enough to do any productive work as it is siesta time.

The hierarchy is aware of the problem, but as they have given up on getting productivity from the lifers who only get promoted on seniority there is little a progressive leader can do. This is called ossified and fossilized bureaucracy. No one takes the blame for a crisis and is the governor even has the gall to say it was they, who alerted and precipitated the crisis.

This is an example, like we have in the police force or the judiciary, where the laws and rules and regulations as well as powers are all in place, but no one wants to rock the boat, and instead hides under a cloak anonymity.

All government servants are the people’s representatives, and are supposed to look after the interests of the public, but no one is diligent in their jobs.

I agree that the Central Bank and its 3,000 overpaid staff have different job descriptions. No one has questioned whether it is necessary that they all occupy expensive offices in the heart of Colombo, or whether the job they do is really necessary. In the meantime the country is suffering due to incompetence and I have not heard one word uttered against this place.

A reform of the Central Bank on a meritocratic basis is sorely needed with an evaluation of what they do and the effectiveness and usefulness of some of their functions. I have forever maintained that even the statistics published of the foreign remittances are grossly understated. No one has been able to measure the shortfall in an objective way.

The malaise of a highly educated but totally impractical workforce is not only common to the Central Bank, but also to many government institutions, however I believe we should concentrate on cleaning this up as it has a detrimental effect to good governance and thereby default a drag on economic growth of the nation. I have a plan that will solve this problem, but we have to get rid of the dead weight in the Bank first.