Tag Archives: Bloomberg Businessweek

You’re nothing, but suddenly you’ve got what everyone wants

7 Jul

Venezuelan prostitutes

 

 

Without judging, blaming, or saying I wouldn’t do it, the standard model for business is that those who dominate the financial markets rig them in their favor. That’s really not a shocker. The shocker is that once in a great while something occurs in the market place that benefits those of little means.

 

Right now the beneficiaries of fate’s largess are the prostitutes of Puerto Cabello, Venezuela.

 

Not long ago, Venezuela was flush with petro-cash and acted brashly and boldly on the world scene. Under socialist President Hugo Chavez, Venezuela even helped 400,000 poor Americans pay their winter heating bills. Chavez, however, is dead and gone and the Venezuelan economy has all but collapsed. People can no longer find things like cooking oil and flour in their local stores.

 

Spared from this hardship are the prostitutes of Puerto Cabello. This has not so much to do with the sex trade as it does with the currency trade.

 

An article by Anatoly Kurmanaev in Bloomsberg Businessweek explains the scenario.

 

The Venezuelan currency is the bolivar, and it has taken a nosedive. The official exchange rate is 6.3 bolivars per dollar but the going rate on the street is 71 bolivars and climbing. Either way, dollars are very hard to get. The government restricts their circulation.

 

But foreign sailors, the primary customers of prostitutes in Puerto Cabello, a port town, pay in dollars. This means the prostitutes now possess the most sought-after item in the country. Currency traders seek them out and lavish them with bolivars in exchange for their dollars. This enables them to purchase whatever they want on the black market.

 

By the way, the prostitution is legal but the currency trading is not.

 

Sailors are charged a flat rate of $60 an hour. With the new market conditions, one trick is equal to the monthly wage of some people. But the prostitutes also book hotels and taxis for the visiting sailors. They charge them in dollars and pay for the rooms in bolivars. This increases their salary another 50 percent.

 

So here’s to the horizontalists of Puerto Cabello. I think they deserve this unexpected turn of events. No word yet on anyone rushing in to deny them their windfall. That’s noble. I sense in the United States the good times wouldn’t last long. If something the poor had became valuable it would be taken away. If a commodity as unwanted as, say, rat droppings was needed to make a new cancer drug, rich investors would quickly buy up the dropping rights at all the infested slums of major American cities, leaving the tenants unable to benefit from a sad condition turned bright.

 

On this score, the Venezuelan elite seem much better sports than their American counterparts. The extra money earned by the prostitutes, incidentally, goes for things needed by their families. But as a prostitute named Elena points out in the article, she still has to sell her body.

 

By Lanny Morgnanesi

 

(Photo by Vladimir Marcano /Bloomberg)

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Goldman Sachs: Altruism for a profit

27 May

goldman-sachs,jpg

Investment powerhouse Goldman Sachs has made money with schemes that were ingenious, inventive, complex, arcane, morally vacant and, some might say, criminal. Now it hopes to make money by exploiting the dysfunctions of government.

 

Goldman has long mastered the art of generating cash without actually producing a product. Its techniques include:

 

  • Using influence to rig a trading system in its favor.
  • Finding a market where it can buy low and then finding a second market where it can sell high.
  • Identifying gross inefficiencies that are costing someone or something money and offering to fix them.

 

Goldman’s new plan is along the lines of the third. The firm is financing crime reduction measures in Massachusetts in exchange for a percent of what is saved by not having to incarcerate thugs.

 

Ingenious, inventive, complex.

 

New profit center for investors

New profit center for investors

This type of investment carries an extra dividend: It makes Goldman Sachs – a villain in the eyes of the Occupy movement – look like a Good Guy. Indeed, the investment vehicle designed to reduce crime is called a social impact bond, or in Wall Street parlance, an SIB.

 

Some view these investments as a marriage between capitalism and charity, but capitalism is the strong, dominant partner.

 

Bloomberg Businessweek reported on Goldman and the SIBs in early May. Writer Esme E. Deprez cites a prediction by the Rockefeller Foundation that the market for SIBs is growing and by 2015 will reach $500 million.

 

That’s a lot of social impact, enough to give government the idea that it no longer is responsible for maintaining order and structure in society. Or has it already decided that?

 

According to the Businessweek article, Goldman is investing $9 million and betting that crime will go down – or more accurately that young men will spend fewer days in jail.

 

The bonds help fund a program called the Massachusetts Juvenile Justice Pay for Success Initiative. In that program, a non-profit agency called Roca works with young adult males on probation. The agency provides outreach, therapy and training. After two years, participants are supposed to leave, take a steady job and lead a crime-free life.

 

If a graduate stays out of jail for a year, Massachusetts saves $12,400. If the state is able to reduce crime enough to close a 300-person prison, it saves $47,500 per inmate.

 

This is how the SIBs and Goldman get paid off.

 

In this particular case, Goldman has partnered with other investors who financed an additional $12 million in bonds, making the total $21 million.

 

The bonds earn 5 percent no matter what, but pay nothing else until the men in the program manage to spend 22 percent fewer days in jail. There’s a sliding scale for payment, with a maximum of $27 million being paid to bond holders if jail time is reduced by 70 percent.

 

It’s a risk, like a junk bond, but $27 million for a $21 million investment is pretty good money (28 percent profit) and worthy of the risk.

 

Roca had been working with 375 men. With the SIB money, it can handle 550.

 

A skeptic might look at all this and ask:

 

  • Why doesn’t Massachusetts put up the $21 million itself and forego the $6 million payout to investors?

 

  • Why doesn’t society as a whole recognize that employed people from stable families commit fewer crimes?

 

  • Why does the nation exclude million of people from an otherwise viable system of commerce, education and opportunity and allow the existence of acres and acres of urban decay that breed crime and insanity?

 

There are clear answers to these questions. I won’t go into them because our preference is to ignore them, deny them and maintain a monstrous blind spot in spite of religious teachings, well-intended laws and glorious, inclusive rhetoric.

 

But as a culture, we have reached an all-time low when we allow things to get so bad

that Goldman Sachs can make money off our failures. The promise of money, more so than altruism or mere brotherhood, does seem to get things done. Perhaps we can turn the VA hospitals over to Goldman. With all those returning vets, there’s got to be a profit in there somewhere.

 

By Lanny Morgnanesi

 

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How lazy people can save the world

21 Apr
From Bloomberg Businessweek

From Bloomberg Businessweek

We laughed when “Seinfeld” described itself as a show about nothing because we knew it was about everything. Now there is some thought that the way to solve the environmental crisis is to do nothing.

Let’s not laugh. It could fix everything.

This process, that involves nothing, was discussed in a Bloomberg Businessweek article called, “It’s Easy Being Green.” The key to it is something called default rules. The default rules take hold only when people do nothing. But first, governments, corporations or groups larger than the individual must act to set those pro-green defaults.

Each day we live with defaults, often not knowing they are there.

If you haven’t changed things on your cell phone or computer, they look and operate the way they do because of default settings – a ring tone or a screen saver or a folder icon. Your printer probably defaults to print on one side of a page.

Suppose each printer came with a default setting that printed to both side of the page?

According to Businessweek, Rutgers University imposed a double-sided default on all printers at that institution. After four years, it reduced paper consumption by more than 55 million sheets, which saved 4,650 trees.

That was one university.

Book-SimplerShould we choose to make it so, the default system could be extensive. In two towns in Germany, 90 percent of the people use clean energy (wind, solar, etc.) because that is the default. If you want the less-expensive, less-clean power, you have to do something. You have to tell them to change it for you.

As shown, most don’t.

This natural tendency toward laziness, procrastination and acceptance can be exploited for good. It doesn’t restrict freedom. It just points everyone in the right direction. If they choose, they can turn around and go the other way.

Learn more about doing nothing to save the world by reading “Simpler: The Future of Government,” by Cass R. Sunstein.

By Lanny Morgnanesi

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The lucrative tunnels of Gaza

18 Feb

gaza-tunnels

 

For those without it, money always seems to end up in the wrong hands.

A fool and his money are soon parted because there never will be a shortage of disreputable types willing to fleece the weak and unknowing. Writer Dorothy Parker said if you want to know what God thinks of money, just look at the people he gave it to. And the Bible itself, in Matthew 19-24, plainly and poetically states that heaven is not for the rich.

But while money has caused great misery in the world, it also has the remarkable, almost magical power of solving problems. It can literally break down barriers.

In the Middle East, in Gaza, there is a wall. On one side are people who need things they can’t get. One the other side are those things.

Due to the force and power of money, the wall and all its associated political obstructions have been circumvented.

They’ve been circumvented by tunnels, which in Gaza can make millions for their owners.

These outlaw entrepreneurs find the means to acquire the wood, concrete and excavation equipment needed to create 700-meter corridors of commerce. Some might even dig a tunnel by hand, even though it could be destroyed by Israeli bombs.

These tunnels are in the town of Rafah, which is split down the middle. Egypt controls one side; Israel the other. According to Bloomberg Businessweek, Gaza has 1.6 million people, with 40 percent living below the United Nations poverty line. Unemployment is at 31 percent.

Yet the tunnels can cause the economy to boom. Businessweek says that the tunnel system employs almost 15,000 and carries 75 percent of the good sold in the area.

One successful tunnel owner, Emad Shaaer, has family members on both side of the barrier, which greatly facilitates his business. Payment for his services vary. “Sometimes you got $200,000, and sometimes you got nothing,” he said.

Tunnel construction can cost about $200,000, but you only need $50,000 to get started. You don’t have to pay the labors and tunnel experts until the flow of goods starts.

Things became really good for the smugglers in 2007 when Hamas took control of Gaza from the Palestinian Authority. To punish Hamas and Gaza residents for taking a more radical stance, Israel closed the borders even tighter. If anything can make a smuggler rich it’s a tight border. But as success and profits grew, they attracted attention.

When Hamas realized how much money the tunnel owners were making, it began to tax the operations, raising an estimated $188 million annually. (Hamas denies this.) The local Gaza government also regulates the good that can be transported, outlawing all the things that make the most money. (Further outlawing what is already outlawed.)

Even so, it is doubtful the tunnels will go away. Taxes and regulations can be skirted. Or, maybe there is enough for both the tunnel owners and Hamas.

The only thing that can truly destroy the tunnel system is peace, a highly unlikely prospect. Still, it is possible that the day may come when there will be enough profit in peace that the power and force of money will have succeeded in making us civil.

In such a case, I would argue that the time has finally arrived to allow the rich into heaven.

By Lanny Morgnanesi

 

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