Don't cry for Argentina...

It seems that the Argentinian President Cristina Fernandez needs a summer crash course in history and economics, particularly as they relate to capital-intensive energy sectors. It is still to a large extent beyond me how Ms Fernandez was the deemed the most qualified individual in a country of approximately 40 million (at the time), but, then again, we haven't made the wisest decisions here at home either over the past decade or so. But enough of past history. The other week, Ms Fernandez decided that the best way to keep Argentina financially afloat would be to nationalize the 51% stake of Yacimientos Petrolíferos Fiscales (YPF), the country's largest energy company. YPF was formerly Argentina's national oil firm, having been privatized just in the past decade. It seems that popular support in the country's senate makes this move likely to actually occur. (EDIT: Approved by the senate!)

Many outside observers consider this an unwise decision, and rightly so. To start, the entire 51% share being nationalized is owned by Respol, a Spanish company (minority owners, largely Argentine, would be less affected). Spain is one of Argentina's largest trading partners, so that doesn't seem like a good way to spur economic development or any growth. Part of Ms Fernandez's claims include the lack of reinvestment by YPF/Respol. Problematically, nationalization scares away investment. This is particularly noticeable in the energy sector where significant amounts of capital are needed just to take chances of finding and producing energy at a profitable rate. Examples just over the past twelve or so years include Russia and Venezuela, while going further back one can look at Libya. All in all, a country such as Argentina needs the expertise, capital, and sheer willpower of large energy firms just to explore, take chances, and invest in developing new energy opportunities. Nationalization is not going to make the multinational companies who lead the international energy sector eager to invest; the risks of energy investment are high enough without the political risk of expropriation.

Respol is asking for upwards of $10 billion for its stake, a sizable chunk for a country that has repeatedly found creative ways to manage its economy over the past few years, including raiding central bank coffers and pension funds. Compounding this situation is that Argentina still has not fully agreed to pay out for its default a decade ago. Respol may not get any compensation (or may get it decades down the line). In turn, this will lead other industries, beyond energy, to toe carefully before entering Argentina. After all, who wants to risk developing products, markets, and infrastructure in a country that may take it all away without any real compensation?

The repercussions of this move, following a number of other, similarly concerning government decisions (noted briefly above), can have ramifications for Argentina's economy for years to come. Perhaps it is time to move beyond populism and revisit economics and history in Argentina, or is it too late? Regardless of the terminal station this road leads Argentina to, don't cry for Argentina; it chose the road itself.

LIBORrowing, LIBORedom, and the financial LIBORdello

Does anyone know what the LIBOR is? Bueller?

Not being in banking or finance, I can't say that I knew until recently. The LIBOR is the London Interbank Offered Rate. Basically, it is a statistical average of the interest rates that banks loan to money to other banks at. It is published daily and utilized by pretty much every banking and financial institution to set their benchmark interest rates.

Before I delve in, I need to make a correction to the statement above. The LIBOR is the average of the interest rates that banks claim they would get were they to borrow money from other banks. That's right, this rate, which underlies nearly all other interest rates, is computed by self-report. It is meant to be computed by staff at each bank independent of staff that manage exchanges.

Self-report is an ideal alternative to regulation, but it does not always work out when that self-report is tied to more than basic data collection. In this case, a self-report system has grown tied to some of the very foundations of modern banking and finance. Reports from a variety of outlets (a few examples are here, here, and here), including some academic work noting that self-reported interest rates were overly similar across different levels of risk at different banks, suggest LIBOR manipulation. More clearly, they suggest that self-reported interest rates were artificially depressed, implying to consumers that the banks were safer bets than the truly were. As the articles note, regulators are investigating.

Apart from all the noise over who manipulated, how they manipulated, who has standing to sue and how much they can get (being from Baltimore, I really doubt that the city will make use of the funds the Economist article suggests it may win), the biggest question should really be: how can the LIBOR be fixed? It does not seem fair to let the banking sector have yet another mulligan. There needs to be a system in place, and a system that operates efficiently enough to continue daily postings of the LIBOR. One option would be to introduce some sort of computational analysis that would combine with the self-report, a la a BCS-style system in NCAA college football; however, if such a system has so little support in football, could it really benefit in finance? Another option would be to develop a regulatory scheme that would compare submitted figures with independent analysis; however, cost and timeliness could be issues. A third option may be to regulate by reviewing submitted data after the fact and adding accountability for accuracy back into reporting. This option is better, but the possibility of backlog and the potential costs may be issues.

It is unclear what the best option really is. It may benefit to explore having banks report the rate they claim they could borrow at alongside the rate they would lend at. Also, since banks lend continuously, it may be helpful to group banks by operations and size and have them cross-report lending and borrowing within their cohort. Regardless, accountability needs to be instilled into LIBOR reporting, as well as a penalty scheme for the organization, not just the individual.

Clearly, no option currently on the table is perfect. However, most of the options are better than financial manipulation. Maybe this financial crisis and its after effects will teach us lessons not only about our economic models and their premises, but also about human decision-making.

Ozzie Guillen, Castro, and Free Speech

Although plenty of other news sources have covered the Guillen situation, I feel compelled to add my two cents.  For those of you who avoid sports news, the short of it is this: Ozzie Guillen, manager of the Florida Miami Marlins, uttered the phrase, "I love Fidel Castro."  Everyone went berserk, and the Marlins suspended him for 5 games.  Large numbers of Cubans and Cuban-Americans have understandably expressed outrage and promised to boycott the team while Guillen remains at the helm.  I have no problem with them using the power of the purse-string to make a strong statement of disapproval.  What I do have a problem with, however, is the reaction of both the Marlins organization and Hypocrite-in-Charge MLB Commissioner Bud Selig.

Let's put aside for a moment the fact that, when looked at in its full context, Guillen was clearly expressing admiration for Castro's ability to remain in power and never expressed support for Castro's politics or practices.  The bigger issue is that executives chose to suspend Guillen for what was perceived (rightly or wrongly is irrelevant) as a political statement.  This isn't the case of Ben Roethlisberger, suspended for allegedly committing immoral practices.  I had a problem with that suspension, as it was not based on a conviction or any sort of formal hearing of any sort, just King Goodell holding court and deciding on a whim that a person not even charged with a crime should be suspended for six games.

Rather, this is a suspension designed solely to appease (or try to appease) the Cuban-American population that Miami hopes will form a loyal fanbase (also of note: the sparkling new Miami stadium, financed with taxpayer dollars, sits in the middle of Little Havana).  Now, as I said, that population has every right to express anger over Guillen's statements.  I think that anger is misguided, but again, I support their right to exercise free speech and use their money as they see fit.  There is nothing noble or even justifiable, however, in the reactions of the Marlins and Bud Selig.  The Marlins organization could respond by reiterating the fact that Guillen does not speak for the organization, that people in the organization feel differently, etc.  It could even fire Guillen, should it be of the opinion that its business was sufficiently in jeopardy and that a new direction was needed to maintain/expand its fan base.  A suspension in this case, however, is worse than firing.  Firing could potentially be done as a business/PR justification.  A suspension, on the other hand, signifies improper behavior.  And when it comes to suspending people because of their political speech, the risk of a slippery slope is not just academic.  Honestly: would a player be suspended for wearing one of those hipster Che t-shirts?  Maybe, in Miami, he would be.

Bud Selig, meanwhile -- I have nothing to say about him other than the fact that he's a huge hypocrite (picture of him, on the right, hobnobbing with Castro).

Despite the fact that Guillen is often a moron and says the wrong thing, let's just lay to rest the notion that this suspension and the MLB Commissioner's support of it is anything more than mere grandstanding.

Nine years on, Saddam's fall is overlooked

Granted, there are bigger issues on the political landscape - Libya, Syria, and, of course, our favorite, the looming American election. However, it was noticeable to a select few today that the anniversary of an event that defined a decade and changed the tide of international politics was largely ignored. April 9 represents the nine-year anniversary of the fall of Saddam Hussein.

Though likely next year, at the decade mark, there will be some retrospection, it remains an anniversary that we choose to ignore. It reminds us that nine years later, we have not only not found any direct evidence of weapons of mass destruction, we have not found much direct evidence to suggest that there was much to find in the first place. It reminds us that we put our reputation on the line in front of the world at the United Nations. And most importantly, it reminds us that we've largely left the country in no better shape than it was 9, or even 21 years ago.

It is hopeful that a retrospective on Iraq follows over the next year, one that gives us greater insight into the war within the context not only of our own standard, but also within the changes that follow. Iraq has a future. The only question is how did we contribute or detract from it.