Futures markets in oil create more, not less, volatility

Another piece of news in today’s Financial Times designed to restore our faith in the efficiency of financial markets.  It turns out that last Tuesday’s big spike in oil was caused by one man, Steve Perkins, a  “rogue trader” purchasing a huge number of Brent Oil futures contracts in the middle of the night.  When other traders staring at their screens saw the rising prices, they jumped in, bidding oil up to the highest price of the year.  In one hour, Perkins all by himself traded as much  oil as Saudi Arabia produces in a day.

When introductory finance textbooks explain the function of futures markets, they use the homely analogy of a farmer, fearing a drop in wheat prices and a bread maker fearing a rise.  To lock in their tight margins, the farmer and the bread maker get together, agree on a price for future delivery. That way each can proceed to harvest and bake, without worrying that conditions out of their control will make all their hard work unprofitable.  What could be wiser, what could be more efficient, what could be farther from the truth of modern futures markets.

It is speculators, not producers that dominate the futures exchanges.  Almost none of the buyers of pork belly futures expect to take delivery.  The huge majority of contracts are unwound before they are due.  The original purpose of futures markets was to limit risk. Today these electronic casinos increase risk, increase volatility in commodities markets to little benefit to the rest of us.

There is a solution, not that complicated, although the City will scream if it is imposed. If exchanges worldwide impose a Tobin tax, force speculators to pay the government a small percentage of the value of each transaction, it would make much of the speculation unprofitable without affecting our farmer and our baker’s risk management strategy.  Economists have discussed the Tobin tax for decades. Good luck getting it passed.

In the middle of the night, last Tuesday oil prices worldwide shot up 3 per cent. One man sitting at a keyboard had spectacular impact on the value of the world’s most important commodities. Since then prices have fallen 10 per cent, even though the real world supply and demand of oil is about the same as it was a week ago. The notion that deep financial markets make our economy more efficient becomes harder and harder to swallow. It is time to stop letting the financial tail wag the real economy dog.

Obama and Medvedev's summit is an opportunity for bold action

The first summit between President Barack Obama and Dmitri Medvedev is only days away and so far there has only been perfunctory mention of this in the media. Odd, not to say irresponsible.

If played right this could be the most important summit since presidents Mikhail Gorbachev and George Bush, having torn down the Iron Curtain, decided that they had enough confidence in the other side to introduce unilateral nuclear arms cuts, a valuable ancillary to what they formally agreed.

 In the opinion of Georgi  Arbatov, Gorbachev’s (and before that Brezhnev’s) foreign affairs advisor, the time is overdue for more unilateral cuts. “Being honest”, he told me two summers’ ago, “we in Russia are not right in our approach. We have so many weapons we could decrease the numbers unilaterally and set an example. We could dismantle our rockets, take others off alert, and the Americans would be obliged to follow us.”  

When I recently asked one of Medvedev’s advisors, Igor Yurgens, what the “re-set” button statement   by U.S. Secretary of State Hillary Clinton meant, he replied “the tone is different”. He then added, somewhat amusingly , “We have a new generation- Obama and Medvedev. Since they are both internet lovers then the promise of change could be substantiated.”   

“The US and Russia have identical views on Afghanistan. We are on the same page as the US with North Korea. We have some nuances in policy towards Iran, but I think they are surmountable. So on those three plus Pakistan plus broader Middle East issues there is more that unites us than divides us.”   On Iran, Yurgens was tough. “When President Mahmoud Ahmadinejad is saying the Zionist state must be eliminated from the face of the earth everybody in Russia thinks he has gone too far and if he is re-elected in June [this interview was in May], and if there is no change in both vocabulary and in deeds, then it’s my expectation that we will come even closer to the US in certain positions.” However, Yurgens added an important caveat. “For the last century Iran has been a very good neighbour. But it was a dangerous neighbour if we mishandled them. In the Soviet period, Soviet Azerbaijan had 25 million Azerbaijani people on the territory of Iran.  If Iran had started to make ethnic trouble and problems we would have been in a very bad situation. Iran never did, so unlike the US we cannot go all the way to hostility, unless we have a very real reason to do so.”

At the coming summit, the Americans will have to to give ground. The Russians are extremely angry at the way the expansion of NATO was implemented.  This, they say (correctly), has broken the word of German Chancellor Helmut Kohl and US Secretary of State James Baker  that the West would not take advantage of the Soviet Union if East and West Germany were allowed to unite. While Moscow accepted that the US could expand the membership of NATO, it believed this would not involve developing military infrastructure on the ground. But the US has set up military bases in Latvia, Romania and Bulgaria.

Washington has capped this with building an anti-missile shield in Poland and the Czech Republic. From Moscow’s point of view, the US is failing to acknowledge that eastern Europe and central Asia forms part of Russia’s sphere of influence, just as the Monroe Doctrine still applies to US influence in Mexico, Central America and the Caribbean.

The Kremlin is also gravely upset that after the then president, Vladimir Putin, gave George W. Bush all the help he could after 9/11, for example not objecting to, even encouraging,  the U.S. making  bases in Tajikistan and Kyrgyzstan to fight the war in Afghanistan, there was again no give, just take.

Under Bill Clinton and George Bush the US took advantage of Russia whilst it was in a weakened state. To truly press the restart button and not just pretend to, Obama at the summit has to change this. The US must now give more than it takes.  

Don Cabana: former warden at the Mississippi State Penitentiary

According to Dostoyevsky, we can judge a society on how it treats its prisoners. If so, a new exhibition by the artist Claire Phillips, which opened at the Oxo Gallery on London’s Southbank last night, provides a bleak assessment of the condition of the most advanced nation in the world.

The aim of the project, supported by the charity Reprieve, is unambiguous: it wants to show us how crude, inhumane and unjust the ongoing use of the dealth penalty in America is. Yet the artist, who travelled to Miami, Atlanta and Mississippi, chose a wide range of subjects whose relationship with death row vary enormously. There are, as to be expected, current inmates (some who have already been executed) and their family members, as well as former inmates exonerated after long periods of incarceration. But there’s also an executioner responsible for four executions; the foreperson of a jury that convicted and sentenced to death a man who was later proved innocent; and a congressman who voted to reinstate the death penalty in the 1970s and then subsequently pioneered the use of the lethal injection method. This lends the experience an unusual texture and nuance.

All of the pieces avoid explicit visual reference to the death penalty, instead capturing the ordinary, human qualities of each individual; at the same time, an accompanying soundtrack featuring interviews and a commentary from a 1984 execution in Georgia is played—providing a dark counterpoint to the rich, warm visual representations of the subjects themselves.

The devil is in the detail here: reading the accompanying commentary, we learn that one subject, Ryan Matthews, had his conviction for murder quashed 7 years after his arrest; upon his release his family had to pay $100 to have an electric tag removed from his ankle. Another received just $1.11 in compensation for each of the 9 years he was wrongly incarcerated on death row.

Many of Phillips’s subjects have either been put to death or died of natural causes. One woman, however, whose face looks out towards the entrance of the gallery particularly catches your eye: Linda Carty, currently on death row in Texas. Linda’s case, like so many depicted, was shambolic: read about her lawyer’s shockingly negligent handling of the case here. Yet despite her almost non-existent legal representation and compelling evidence that she did not commit the crime (the case hung on the testimony of three career criminals who themselves avoided the death penalty by testifying against her), no appeal or retrial has yet been granted and her options are fast running out.

For more information on Linda’s case and the work of British human rights charity Reprieve visit their website.

The exhibition will be free to view at the Oxo Gallery until Sunday, 5th July. Opening hours are 11-6 daily. It will then be touring the country, showing at:

The Capital Arts Centre, Horsham from 14th August until 9th October
The Lewis Elton Gallery, University of Surrey from 10th until 26th November
Worthing Museum and Art Gallery, from 19th December until 20th March 2010

Nestor Kirchner's reluctance to go on reality TV meant he didn't get the thumbs-up from the Argentinian electorate

As our television screens are swamped with this year’s deluge of vacuous, talentless, fame-hungry nobodies (ie Big Brother contestants), take comfort in the thought that reality TV does not, as yet, decide our national elections. For this, writes William Gill in a free to read web exclusive for Prospect, is the bizarre state of affairs in Argentina,  where the public elected not to give former president Nestor Kirchner another term in Congress thanks to his refusal to appear on reality TV show Gran Cunado (Big Brother-in-law).

The show, which is part of popular comedy programme Showtime, featured doppelgangers of the main candidates for the Congress elections, with the public invited to eject whoever they didn’t want.  The trouble for Kirchner started when the real politicians were invited onto the show. All initially refused, but one—Francisco de Narvaez, whose popularity soared as a result and who then when on to beat Kirchner in the real election.

Should Kirchner, who is notoriously humorless, have set aside his pride and given into the demands of a reality TV-obsessed public? And how long will it before Cameron and Brown are duking it out in the Big Brother house to secure our votes? As ever, leave your thoughts below.

Kraftwerk play the Manchester International Festival this month

The programme at the second Manchester International Festival is so remarkable—Steve Reich, Kraftwerk, Zaha Hadid, and Marina Abramovic on just the first two days—that director Alex Poots has surely made a pact with the devil. The festival has gathered its all-star cast by commissioning only new work (a rarity in this world of artistic regurgitation) and by targeting artists with the power to lend cultural capital to a city still undergoing regeneration. No less than “20 world premieres” are billed, including Neil Bartlett’s theatrical critique of our bingo-loving nation, Everybody Loves A Winner, and conspiracy filmmaker Adam Curtis’s “haunted house walkthrough” which captures the rise of American power during the 1960s to music by Damon Albarn. With so much new work in one place, critical casualties are likely, but risk-taking is central to MIF’s appeal.

The stakes are particularly high for singer-songwriter Rufus Wainwright, whose first opera Prima Donna debuts here after being commissioned in 2006 and then rejected by the Metropolitan Opera. Partly inspired by an archive interview with Maria Callas, it relates an ageing opera singer’s struggle with new love and fading talent. Wainwright has written his score for a large orchestra (provided by Opera North) and penned the libretto in French, promising big romantic themes and “good old tunes.” A self-confessed opera buff, he has spent years on the project, and one can only applaud his ambition and insouciance over the prospect of a flop (tickets are still available). Yet this spirit of experimentation, shared by many of the artists here, will almost certainly rank Manchester among Britain’s most intrepid cultural events.

The Manchester International Festival. Various venues, 2nd-19th July,  tel: 0161 238 7300, www.mif.co.uk. Prospect will be at the opening of the festival and will be reporting on some of the highlights here at First Drafts.

Nick Griffin: part of the western philosophical tradition?

In this month’s Prospect podcast (downloadable, and available on the right of this page) Nigel Warburton considers the links between racism, philosophy and the history of prejudice that underlies much of the western philosophical tradition. As he points out, the belief that racism is  usually the result of stupidity is itself a form of prejudice.  Some the world’s great thinkers have themselves been guilty of surprising bigotry. 

Acknowledging that prejudice can co-exist with intelligence is important in other ways. It could be argued that the BNP’s recent electoral success is partly the result of complacency on the part of mainstream political parties: far-right groups were assumed to be too politically incompetent to ever pose a genuine political threat. The British government’s failure to take Islamist radicalism seriously in the 1990s stemmed from a similar complacency: militant groups were simply not seen as a genuine threat. 

Perhaps the only way to confront prejudice effectively is to acknowledge that it sometimes goes hand in hand with intelligence, cunning and even philosophy.

As ever, let us know your  thoughts below-

Steven Wells RIP

As you may or may not have noticed, a Famous Person Has Died. Which leads, of course, to any number of questions for media-type folks. What priority should we give to the news of the Famous Person’s death? How long should we carry on, before the bulletins become, in effect, Famous Person: Still Dead? At what point might it be OK to mention the, y’know, icky stuff about the Famous Person? At what point do we unleash Uri Geller? Oh yeah, and what do we do about the economy and Iran and all that boring stuff?

Moreover, if a Famous Person Has Died, should that mean that other, slightly less famous people who die around the same time should get the same treatment. I know, you’re thinking of Farrah Fawcett. But I’m thinking of Steven Wells.

Steven Wells, aka Swells, Susan Williams and a few things less pleasant, was probably only truly Famous (that’s Jackson Famous, Farrah Famous) to those of us born between about 1960 and 1975, with a fondness for noisy music in which attitude trumped ability every time. He was a poet, novelist, film-maker, sports writer and political activist, but his Famousness derives from his long association with the New Musical Express, in which he lauded Napalm Death and Kylie Minogue, while pouring scorn on Morrissey, Radiohead and Belle & Sebastian (you know, the kind of acts that NME readers really like). To read his views was like voluntarily submitting oneself for re-education.

But his true genius was expressed not in his reviews or interviews, glorious as they could be, but on those magnificent occasions (once every six weeks or so, I reckon, although my memory could be playing silly buggers) when he was allowed to edit the NME letters page, known since forever was a toddler as ANGST. That was when the caps lock was taped down; that was when the adjectives and expletives and exclamation marks exploded around the page; that was when perfectly sensible letters from people who bought the paper and were entitled to their views were eviscerated in public for liking, I dunno, Aztec Camera or something. It was childish, it was cruel, and for a few thousand of us, it was the funniest thing we’d read until the next time.

But not funny enough it seems. Steven Wells died last week, and as the news trickled in, occasionally poking its nose out from behind Farrah’s hair and Jackson’s… well, Jackson’s nose, I suppose, it turned out that he really wasn’t even famous enough for a Wikipedia page.

This has now been rectified; but the Wikiprefect (or whatever they dub themselves) had a point that the people howling against the decision couldn’t be arsed to find citations to support the inclusion. And this does raise an issue, specifically about journalists, but also about anyone who achieved notability in his or her field before about 2000. The pinnacle of Swells’s achievement lies in his belligerent marshalling of those letters pages. And that’s what they were; pages, which survive in attics and garages and people’s memories. They were physical, tactile things where layout and artwork and smudgy ink came together with the readers’ earnestness and Swells’s nihilism in a dialectic of verbal violence that made them bloody near essential. Because of the physical size of the old-style NME, scanning them and reproducing them on a computer screen would necessarily diminish their impact. Yes, you could cite the references from your old, mouldy copies, but the mice ate them some time in the last century. Doesn’t mean they weren’t great. Swells could twist the conventions of Web 2.0 to his own Satanic purposes with coruscating wit, but his glory days were analogue. As were many hacks who have been tagged for deletion on the basis of notability and lack of citations.

So here’s the question: in Wikiworld, and the culture that shares its values, is it notability that’s the issue, or Googlability?

A campaign slogan in Berkeley, California

Writing in the Guardian today, Cath Elliot trumpets the unanimously warm reception for a new attempt to lock men up for buying sex, in the form of a campaign called Demand Change. She’s proud of her own contribution to the debate, she says, though the hyperlink she gives for that contribution simply takes us to a remark about the International Union of Sex Workers which hovers between the blatantly inaccurate and the slanderous.

I’m unable to assess her contribution to the debate, because I was turned away from the Demand Change launch meeting at which Cath spoke last Wednesday. I got through parliamentary security with a bottle of wine and a cheese knife (!) but couldn’t get past the bouncers who were turning away anyone who is interested in actually debating the future of prostitution in this country. Also turned away: colleagues from the World Bank, staff from the offices of MPs supportive of rules that will make sex work safer, and (needless to say) anyone who actually chooses to sell sex for a living—the people the organisers don’t believe exist.

“As everyone in the room agreed, it’s time to bring an end to the selling of women and girls: who could possibly disagree with that?” concludes Ms Elliot. The organisers didn’t exactly need to police the crowd to get everyone to agree on that point. I don’t know anyone who doesn’t believe that selling people is wrong. Not anyone outside the Premier League, anyway. Selling sex, on the hand, is not wrong, in the eyes of the hundreds of thousands of women and men who choose it as a profession. Oh but wait, they don’t exist….

As I wrote in my article for Prospect this month, the truth is that they do exist, just as the ex-Nevada hooker who left the profession with debts because she hadn’t managed to save any of the $2000 + a week she earned while on the game does exist. Some women who sell sex do it because they are forced to. They are trafficked, and we already have laws against that. Some do it for the same reason people work in McDonald’s—because it is the best job they can get for the skills that they have (though you tend to earn more selling sex than burgers, and the hours are more flexible). Helping people who hate their jobs (in prostitution or McDonalds) to “exit” is surely a worthwhile thing to do. But some women (and men, of course) sell sex because they want to. Forcing them to stop by criminalising punters would be like promoting welfare in the restaurant industry by outlawing fast food. The distinction between the voluntary and involuntary sale of sex is an important one, and one that the draft policing and crime bill is inching its way towards recognising. Trying to keep willing sex workers out of the room is both undemocratic and unhelpful.

Greenspan: one of the rentier class

According to Alan Greenspan in Friday’s Financial Times, the biggest threat to the world economy is a resurgence of inflation. That’s right. While the rest of us worry about ever-increasing unemployment, shrinking global GDP, declining trade, collapsing demand, Greenspan tells us the real nightmare is none of these, but instead the potential prospect of inflation—even though this year it will probably be under 2 per cent.

This should not surprise us. Throughout his career, it has been the interests of the financial sector that have most concerned the former Fed Chairman. And it is the rentier class that suffers most from inflation.

Indeed, it is a sign of their dominance that the rest of us, for whom inflation can actually be beneficial, have been conditioned to fear it. If you lend money, like banks and financiers, inflation means you are being paid in depreciated cash. But if you borrow money, as do most households and entrepreneurs, inflation is a subsidy that stimulates investment and demand. Inflation penalises lenders and benefits borrowers—and most of us, by the way, are net borrowers.

Perhaps this is why Paul Krugman, Brad DeLong and Ken Rogoff all suggest that higher inflation may be the only medicine that will cure the financial crisis. By increasing the value of real assets and reducing the cost of debt, inflation cleans up corporate and household balance sheets and so stimulates spending. But if money is squirreled away, as it is today, neither consumed nor invested, aggregate demand is inadequate and the economy shrinks. By letting real interest rates go negative, inflation stimulates investment, increases demand and thus allows the real economy to grow. Right now, then, inflation should not be feared, but rather encouraged.

John Maynard Keynes tells us that there are two kinds of businessmen: entrepreneurs who provide real goods and services and the financiers who lend them money. Most neoclassical economists ignore this vital distinction but Keynes knew that the interests of these two classes are often opposed. Inflation damages the rentier but aids the entrepreneur.

As long as wages rise as fast as prices, inflation does not have to penalise workers. The long-criticised 1970s saw real wages rise faster than they ever have since. Inflation fundamentally is a tax on wealth: holders of liquid assets and lenders of capital get repaid in depreciated currency. They lose. But inflation also creates winners. As money looses value, the price of real assets inevitably rise. While deflation makes investment more expensive (you have to pay your debts in ever more valuable money), inflation creates an incentive to turn cash into real productive capital goods.

Keynes aspired to “the euthanasia of the rentier.” In the postwar decades, his dream came true. Banks were like utilities, their profits not outlandish, the financial sector rewarded in line with the rest of the economy. This policy regime was spectacularly successful. Reinvested profits modernised the economy. Growth was massive. Real wages more than doubled in less than a generation.

But for the past 30 years, policymakers have put the interests of finance first, before the interests of entrepreneurs and certainly before the interests of workers. And compared to the golden postwar age that preceded it, our era has seen anaemic growth, increased inequality, repeated bubbles and busts. Despite the increasing financialisation of the economy, despite interest payment rising from 1 per cent to 16 per cent of GDP, real investment has declined. And it is real investment that is the ultimate engine of growth.

Greenspan’s obsession with inflation reflects his conviction that what is good for the banks is good for the rest of us. But financialisation has hurt the economy, making huge profits for a handful of bankers while doing little to promote real investment and make us more productive. Our policymakers need to focus on the needs of the real economy, not on the desires of the financial sector. And perhaps the first step is to stop fearing inflation.

Murray: yet to be tested

I am writing this late on Saturday, after Andy Murray’s third-round match against Viktor Troiki of Serbia. (It was almost embarrassingly easy for Murray.) The first week of the tournament is over. Are things heading inexorably towards the Federer-Murray final that seems to be the predetermined climax of Wimbledon ‘09? My answer would be probably. But I am not as confident as many commentators seem to be.

First of all, I am not completely convinced by Murray so far. In the second round against Ernests Gulbis, and now again against Troiki, he has dispatched mediocre opponents with enormous, almost frightening efficiency. (He played much less authoritatively in his first match, against Robert Kendrick.) But he hasn’t played anyone especially good, and I wonder if it will be the same story when he comes up against someone who can really throw some shots at him. Murray’s essentially defensive, aggression-absorbing game works brilliantly against opponents who don’t have the weapons to get the ball past him; he simply rallies with them, teasingly, until they start to crack. But will it work against a Djokovic, a Verdasco or even a Hewitt on top form? Murray didn’t face any especially tough opponents at Queen’s either, which again makes his serene progress through that tournament look more significant than it is. I just have a feeling that Murray could be surprised, and be found wanting, if he suddenly comes up against a top player, or a not quite top player playing out of his skin. In those situations the shortcomings of his game—his tendency to be too passive, and to suddenly drift off—could become apparent, and I wonder if he’ll have the skill and mental strength to adapt.

Having said that, Murray is lucky to be in the Nadal-vacated side of the draw, which looks by a huge margin to be the weaker side. I don’t see Andy Roddick posing a problem for Murray. Hewitt could do, especially if he manages to draw Murray into a five-setter. But there’s no one else there who looks especially scary.

The other side of the draw, by contrast, is pretty scary—and that’s my second reason for having some doubts about a Federer-Murray final coming to pass. Federer, if he is to get to the final, will have to make it through what could be some extremely difficult matches. He has Robin Soderling in the next round—and although he beat him easily enough in the final of the French Open, Soderling is an immensely dangerous player who is playing the tennis of his life and, this time, has little to lose. Federer then has the prospect of a quarter-final against either the six foot ten ace machine Ivo Karlovic or the Spanish left hander Fernando Verdasco; and then, most probably, a semifinal against Novak Djokovic. All those matches could be extremely tough.

Assuming Federer does make it through (and his form so far has been ominously good: more on this in my next post), the difficulty of the matches he’ll have played could cut both ways. Beating the likes of Verdasco and Djokovic may force him to raise his game to its highest level, and he may be in such a groove, and playing with such confidence, by the time he comes up against Murray that he simply blows the Scot away, much as he did in the final of last year’s US Open. On the other hand, if Federer has to make it through some tough, five-set matches on the way to the final that could sap both his confidence and strength, and give Murray the upper hand.

Either way, a Federer-Murray final would be some prospect; I very much hope it’s what we’ll see.