Brazil has much to commend it. People, opportunities, nature.
Public safety does not fall in this category. Living in São Paulo and the other big cities is becoming ever increasingly an adventure, and a little too exciting for comfort.
There I was late Friday morning taking a leisurely coffee and talking about our projects with my friend and co-author, Ricardo, in a very nice coffee bar and restaurant on Alameda Santos, right in front of BBS, the school where we are also both professors. It was warm, sunny and we sat outside in the first rank of tables under the awning so Ricardo could duck outside and have the occasional cigarette. (Bad, Ricardo, bad.)
Out of the blue comes along a young man dressed in a suit who starts yelling at me softly. At first, I didn't pay attention until I saw the size of Ricardo's eyes. Then I looked at the guy who at that moment racked the slide of his semi-automatic pistol and said, "Watch, quick" and a bunch of other stuff I didn't get until later. I took off my watch, gave it to him and he ran away. 15 seconds start to finish. Only wanted my watch, not Ricardo's fake watch.
Ricardo was shaking but I was still cool. And, strangely, not even really pissed off. You know it's going to happen. Faz parte. It's part of life here. Ricardo then told me that the guy had been saying to give him the watch quick or he would shoot. Don't react; don't do anything. But, I was so focused on the gun (a Targus, I think) that I didn't pay attention to the words. What I did notice was that he wasn't speaking as if it were something heartfelt, but that he was reading from a script. Probably was.
We learned from the waitress and owner of the coffee bar (who didn't charge us for the coffee and pão de queijo we had, many thanks) that a gang has been working the restaurants along Alameda Santos in this particular block, always attacking between 11:30 am and 1pm - lunch hour. The cops haven't done anything about it and have taken all their resources off Santos to go after a gang that has been working Avenida Paulista, just one block away. For those who don't know São Paulo, Paulista is the main banking street of all of South America and Al. Santos is its adjunct with many bank and financial services companies located on our street.
I'm certain that my mugger (the description recalls the great line in Steve Martin's LA Story movie--"I'll be your designated mugger this evening.") was working with a spotter, who was looking for swag to steal (the good watches instead of the phonies).
I only started to react to the mugging Friday night when we went to pick up our grandkids. They live near one of São Paulo's big universities and the streets around it are controlled during class hours by flanelinhas, the people who claim parking on stretches of public streets as their personal parking lots. Pay them or find your car scratched or damaged. When I stopped in front of the building and was approached by one of these shmucks, I wanted to a) get the hell out of there pronto or b) get out of the car to pound him. Fortunately, I did neither and we went to bring the kids to our apartment to spend the night with us.
When I bought the watch I lost in 2005, I said to myself at the time that it would just be a matter of time until someone stole it. Friday was the limit. The watch I bought the day I got my pilot's license I NEVER wear in São Paulo. I haven't even changed the battery in the last two years. I only use it when I go to the States or Europe.
This problem, I'm afraid, is not going away. In my 12 years here, it is one of the subjects that you hear a lot of bla-bla-bla from government, but little action that in fact will make the streets safer. The main drug gangs grow stronger and the state's security apparatus seems impotent to control them or protect the citizenry. The police forces of the country just held a conference in Brasilia in which they spent most of the time bitching about each other and decrying any attempt to undermine the privileges that each force feels it has. Feh on all their posturings.
You need to understand this post for what it is - a desabafo. A great Portuguese word which amounts to "getting something off your chest". It helps to move past things like this. But, mugging still leaves a bad taste in the mouth and should serve as a warning to all of you who plan on coming down here. By all means, come - but leave the good stuff at home.
Sunday, August 30, 2009
Sorry for the Absence
First, a short post to apologize for being off line for so long. 3 months. Too much. I'm back.
Wednesday, May 20, 2009
Don't Count Your Chickens . . .
There is much talk in the last week that we have reached the bottom and there is only one direction to look--up. We may have reached the bottom of this recession without it becoming an enduring depression. NBER (the semi-official U.S. judge of recessions) scholars are now saying that the country moved back out of recession in the first quarter of this year. However, there are still more cards to be laid on the table and it is not clear how quickly the "green shoots" of recovery that I read much of in the last 48 hours will turn into the green grass of a healthy economy.
Remember that the commercial real estate bubble still has not fully burst and there may simply not be enough money to pay for stimulus for the real economy, TARP, commercial mortgage (shopping center and office building) failures, credit card losses (remember, it was just a Senate vote, not a Presidential signature), etc., etc.
If the US government does not take a very conservative approach to judging when the country will actually come out of recession and take on a healthy rate of growth, it could perpetuate the recession. Alan Blinder, former Vice President of the US Federal Reserve Bank and Princeton professor, wrote a New York Times piece recalling how President Franklin Roosevelt helped to create a recession within the depression in 1936 by tightening the budget and pulling back on his stimulus package. This is the same type of budget reduction talk that is current in Congress as it assumes that the recovery will be self-sustaining and puts its attention to reducing the national debt. Blinder believes that the US Government will be able to withstand the pressure for budget reductions until the recovery is, in fact, really underway. However, skepticism at this moment would be a healthy reaction.
There is also a current, led by Nouriel Roubini, Dr. Doom, in his RGE Monitor, that holds that while we may be really at the bottom of the decline, the question is how long will we remain there. Will we initiate real recovery rapidly or will we languish at this current level without declining further? I think there is a paucity of data to show one trend or the other--recovery in 2009/2010 or in 2010/2011.
Why am I in Brazil concerned with all this? As I've said in other contexts, there are two reasons that what happens in the States has a serious effect on all of us around the world. First, the United States is still the bellweather of the world economy. What happens there affects us all. And, second, it affects us because the US is still the second largest trade partner for Brazil and all Latin countries. If demand is slow there, then exports in Brazil and elsewhere in the world will also be slow. Interestingly, one of the side effects of the current recession is that China has now become Brazil's largest trade partner ahead of the US. If the United States recovers quickly enough, that fact could be short-lived.
The Brazilian government and public opinion now believe we are recovering from the recession. I will not waste space on the comments of our government officials here. However, I will point out that the relief at having reached a recovery (if that is the case) is leading banks and institutions to forget one of the major lessons of this recession--the dangers of leverage. Last Friday, Itaú-Unibanco announced that it would restart an auto loan program that provided financing of cars over 72 months and would not involve credit scoring to determine if the borrower was capable of repayment. This is distressingly similar to the scenario that led so many American families to lose their houses and cause the economy to tank. Now, in Brazil, sub-prime car loans. Distressing.
Remember that the commercial real estate bubble still has not fully burst and there may simply not be enough money to pay for stimulus for the real economy, TARP, commercial mortgage (shopping center and office building) failures, credit card losses (remember, it was just a Senate vote, not a Presidential signature), etc., etc.
If the US government does not take a very conservative approach to judging when the country will actually come out of recession and take on a healthy rate of growth, it could perpetuate the recession. Alan Blinder, former Vice President of the US Federal Reserve Bank and Princeton professor, wrote a New York Times piece recalling how President Franklin Roosevelt helped to create a recession within the depression in 1936 by tightening the budget and pulling back on his stimulus package. This is the same type of budget reduction talk that is current in Congress as it assumes that the recovery will be self-sustaining and puts its attention to reducing the national debt. Blinder believes that the US Government will be able to withstand the pressure for budget reductions until the recovery is, in fact, really underway. However, skepticism at this moment would be a healthy reaction.
There is also a current, led by Nouriel Roubini, Dr. Doom, in his RGE Monitor, that holds that while we may be really at the bottom of the decline, the question is how long will we remain there. Will we initiate real recovery rapidly or will we languish at this current level without declining further? I think there is a paucity of data to show one trend or the other--recovery in 2009/2010 or in 2010/2011.
Why am I in Brazil concerned with all this? As I've said in other contexts, there are two reasons that what happens in the States has a serious effect on all of us around the world. First, the United States is still the bellweather of the world economy. What happens there affects us all. And, second, it affects us because the US is still the second largest trade partner for Brazil and all Latin countries. If demand is slow there, then exports in Brazil and elsewhere in the world will also be slow. Interestingly, one of the side effects of the current recession is that China has now become Brazil's largest trade partner ahead of the US. If the United States recovers quickly enough, that fact could be short-lived.
The Brazilian government and public opinion now believe we are recovering from the recession. I will not waste space on the comments of our government officials here. However, I will point out that the relief at having reached a recovery (if that is the case) is leading banks and institutions to forget one of the major lessons of this recession--the dangers of leverage. Last Friday, Itaú-Unibanco announced that it would restart an auto loan program that provided financing of cars over 72 months and would not involve credit scoring to determine if the borrower was capable of repayment. This is distressingly similar to the scenario that led so many American families to lose their houses and cause the economy to tank. Now, in Brazil, sub-prime car loans. Distressing.
Tuesday, May 12, 2009
Joseph Stiglitz Gets It!
Since my post yesterday, I have read a number of articles that have given me hope that the business press is beginning to get it about the seriousness of our current situation and others that make me despair that we remain in a state of delusion about our economic future. Oddly, all these come from Brazil's Exame magazine and web portal in the last week.
Yesterday, I read an article from May 7 that states that the Bovespa at 51,000 points still has room to move up. None of the quoted sources seem to indicate that this is at all based on the same market unreality that led the same index to fall below 30,000 just last October. Two days earlier, it was extolling the virtues of index funds ("the American way of investing"). The appearance of new sounding financial techniques is one of the hallmarks of the type of irrational investing that Galbraith so thoroughly trashes. It provides a new cover, but the content – leverage – remains the same.
The hope comes from an entry I read this morning of the results of a conference of 3 Nobel winners that Exame held yesterday. The stunning remarks were those of Joseph Stiglitz. He gets it.
He basically held that the last boom was fueled and based on the acquisition of more and more debt. He praises Kenneth Rogoff, Jeffrey Sachs and Paul Krugman for predicting the collapse of the real estate bubble because of its basis in high consumer indebtedness.
He also perceives that the government is wasting its opportunities to rescue the economy by instead rescuing banks and that these opportunities are now in danger of disappearing as the US Government will at some point have to begin to cut its debt.
The real danger for the future, the danger that we could end up in a mild version of Depression of the 1930's is that demand worldwide is falling and is now making up part of the same vicious cycle that prolonged the Great Depression: weak economy leads to unemployment leads to payment default which then further weakens the economy.
He also points out that countries, such as Brazil, that have managed and regulated their economies well in the recent past will also suffer because the decline in exports due to weak demand in the US and Europe will weaken the economy overall. This is Lula's marola.
In proposing solutions, Stiglitz focuses on control of the banking sector and regulation of the markets as well as the currently popular solution of a world currency (the Special Drawing Rights of the IMF).
Parenthetically, the conference also featured presentations by Edward Prescott, who focused on the prospects of Brazil as a beneficiary of the crisis and Robert Mundell, who repeated the usual conservative, Republican mantra that the solution for the US will come from lower corporate taxes.
It is important that mainstream economists with Nobels are now speaking of the solutions we really need and are addressing the problems we face realistically. This crisis is a product of an exuberance based on speculation and leverage. We will continue to repeat these cycles until those who speak directly to that issue are not considered crackpots and unbelievers (in the orthodoxy of free market economics). Stiglitz' remarks help considerably.
Yesterday, I read an article from May 7 that states that the Bovespa at 51,000 points still has room to move up. None of the quoted sources seem to indicate that this is at all based on the same market unreality that led the same index to fall below 30,000 just last October. Two days earlier, it was extolling the virtues of index funds ("the American way of investing"). The appearance of new sounding financial techniques is one of the hallmarks of the type of irrational investing that Galbraith so thoroughly trashes. It provides a new cover, but the content – leverage – remains the same.
The hope comes from an entry I read this morning of the results of a conference of 3 Nobel winners that Exame held yesterday. The stunning remarks were those of Joseph Stiglitz. He gets it.
He basically held that the last boom was fueled and based on the acquisition of more and more debt. He praises Kenneth Rogoff, Jeffrey Sachs and Paul Krugman for predicting the collapse of the real estate bubble because of its basis in high consumer indebtedness.
He also perceives that the government is wasting its opportunities to rescue the economy by instead rescuing banks and that these opportunities are now in danger of disappearing as the US Government will at some point have to begin to cut its debt.
The real danger for the future, the danger that we could end up in a mild version of Depression of the 1930's is that demand worldwide is falling and is now making up part of the same vicious cycle that prolonged the Great Depression: weak economy leads to unemployment leads to payment default which then further weakens the economy.
He also points out that countries, such as Brazil, that have managed and regulated their economies well in the recent past will also suffer because the decline in exports due to weak demand in the US and Europe will weaken the economy overall. This is Lula's marola.
In proposing solutions, Stiglitz focuses on control of the banking sector and regulation of the markets as well as the currently popular solution of a world currency (the Special Drawing Rights of the IMF).
Parenthetically, the conference also featured presentations by Edward Prescott, who focused on the prospects of Brazil as a beneficiary of the crisis and Robert Mundell, who repeated the usual conservative, Republican mantra that the solution for the US will come from lower corporate taxes.
It is important that mainstream economists with Nobels are now speaking of the solutions we really need and are addressing the problems we face realistically. This crisis is a product of an exuberance based on speculation and leverage. We will continue to repeat these cycles until those who speak directly to that issue are not considered crackpots and unbelievers (in the orthodoxy of free market economics). Stiglitz' remarks help considerably.
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