Archive for March, 2008

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not the Monkees’ Daydream Believers

Monday 31 March, 2008

I attended this event organized by the Chicago Council on Global Affairs Daydream Believers: How a Few Grand Ideas Wrecked American Power  The 2 basic premises of his book are that 1.  the fall of the Berlin Wall changed the world more than US politicians realized, & 2.  9/11 didn’t change the world as much as those same politicians thought.  To #1, it’s not just Bush.  In the times of the cold war, it provided a system of security in which other countries were subsumed to America & wars were political.  When the wall fell, each country went its own way & the US had to focus more on alliances.  Bush took the approach that we don’t need allies because we’re omnipotent, but we’re actually weaker. To #2, deterence doesn’t deter if we’re not deterring states.  We need to create coalitions & haven’t done that.  What Kerry suggested in the last election, police & intelligence, have been adopted.  Rumsfeld claimed the biggest danger was the Pentagon bureaucracy  & that the military needed to be overhauled with new technology & fewer troops.  He seemed to be vindicated by Afghanistan when we needed so few troops, but we didn’t play the game long enough to know what to do after “the war was won.”  The US strategy in Iraq was more misconceived than incompetently implemented.

As a businessperson, my main issue is Kaplan’s take on the economic impact of his assertions.  He claims the budgetary changes the government undertook after 9/11 were miniscule & insignificant.  I maintain that the massive redirection of funds which dismantled whole departments & created the Dept. of Homeland Security have altered the course of our economy.  If taken 1 step further that 9/11 led us to the war in Iraq, I think there’s little doubt that the impact of the war has impacted on our national debt, the value of the US$, & our trade balance.

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european law presentation

Friday 28 March, 2008

I attended a presentation given by Prof. Paul Storm of (Erasmus?) University-Rotterdam @ John Marshall Law School Center for International Business & Trade entitled “Recent Developments on the European Corporate Scene.” Basically it was simply a lecture on European corporate law. He said basically that the European Union granted 4 freedoms, of the movement of goods, persons, capital, & establishment (of a company). Establishment was the focus of his talk. Establishment provides the basis for harmonisation, creates the backbone for mobility, & new legal forms. The EU has issued 14 directives regarding harmonization, which don’t just prescribe mechanics, rather control mechanisms. 3 amendments to existing directives failed.

Labor/employee participation in management (works councils-management & supervisory boards) have limited cross-border takeovers by giving labor a voice in the negotiations. By moving the headquarters location, certain corporate structures disappear. In the Sevic case in 2005, the German trade register refused to acknowledge a Luxembourg acquisition because German law did not permit cross-border mergers.  The rule of reason could be possible justification.

The EU has authorized a few new forms (legal structures) under European Community law-European Economic Interest Grouping in 1985, which aren’t much used; European Company, (with smaller supervisory boards) in 2001 ,which has been adopted by Alliance, BASF, & Porsche; & European Cooperative Societies in 2003, of which the 1st was adopted in 2005.

Prof. Storm also discussed the divestiture of LaSalle Bank from ABN Amro from the Dutch perspective.  The end result was the supreme court ruled that the deal must maximize the share price for shareholders, which seemd alien to Dutch law, but was expanded to include employees & customers interests as well.

He also commented briefly on Yukos Oil, which was assessed enormous tax bills, given 2 days to pay, & declared bankrupt.  When addressing the Dutch holding company Yukos Finance, the issue became “Could the Dutch court overrule this turn of events?”  The end result was no.

Finally in Q&A, he addressed the following issues

-German managers are trying to get rid of mitbestimmung & reform company law so that they are more attractive for foreign direct investment

-It’s legal in the Netherlands for Americans to found companies in Delaware just for the purpose of opening an office in Europe, but not in Germany

-there must be an actual case for the European Court of Justice to offer an opinion

-A European constitution is not in sight for a long time.

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German insurance symposium

Thursday 27 March, 2008

I attended the Panel Discussion: Managing the Complexity of International Insurance Programs from a German American Viewpoint  I requested a copy of the powerpoint presentation to put up here & was told GACCOM keeps its content on its own site.  Last I checked, they haven’t put up the presentation yet.  Here’s what I learned.

Traditional Controlled Master Programs-Germany/Reverse Flow Programs are local policies which sit on top of local policies from other countries with difference in conditions (dic) & difference in limits (dil) coverage in other countries.

Traditional Controlled Master Programs-US/Home Foreign Programs  provide master policy dic/dil coverage on top of local policies in other countries aside from US policies.  These are underwritten in the US for foreign clients.

The key to program selection & implementation is effective communication between the insurer, insured, & broker.  Things to consider are global/local expertise, coverage, capacity, price, network, IT capabilities, & claims service.  On an ongoing basis, program maintenance issues to monitor are the changing marketplace & regulations, continued program improvements, loss control & prevention, acquisitions/divestitures, claims.  It’s important to maintain flexibility & adaptability to change in exposure, country, & market conditions.

The panelist from Porsche Business Services has had a Reverse Flow program since y2k & it has been very successful. Their risk management is centralized, so they can now take on greater risks, & their premiums actually went down.

A few other things I picked up:

-The US is 1 of the most feared markets by foreign insurers because of the possibility of product liability claims & it’s highly regulated.   For example, the Germany CEO of a German company setting up in Indiana’s biggest concern was employee liability insurance.

-deductibles vary by country.  They are reputably high in Germany while low in France, but discrepancies are narrowing.

-European underwriters focus on longer term relationships & can be more creative in creating coverages while in the US we’re less so & more litigious.

-cultural differences do come into play in language differences in contracts & levels of risk aversion (the Krauts are conservative risk-avoiders)

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Robert Reich @ ACG world markets conference

Wednesday 26 March, 2008

I attended the Association for Corporate Growth’s “Middle Market Growth in Uncertain World Markets:  Risk & Opportunity” event which featured former Secretary of Labor Robert Reich as keynote speaker. Here’s what I gleaned from his talk:

-Unlike our last recession in y2k-2001, which was an investor-led recession, our current recession is consumer demand led which has been building for years.  Real wages haven’t risen since the 1970’s, but spending & debt has. This is reflected in what RR terms DINS:  double incomes, no sex-couples with 2 incomes & no time for conjugal pleasures.  Despite the fact that we work 450 more hours/year than the Europeans, Europe doesn’t have a demand problem, but we’re now decoupled economically from Europe.  RR predicted the crash in Oct., 1987 & has been making the same prediction for the last 4 1/2 years.  Current fiscal incentives like the tax rebates due in May are worthless-the fate of the economy lies with the Fed.

-Globalization:  there is currently a backlash against trade & immigration, but NAFTA is not the problem because they are not 0 sum games.  Expertise, innovation & skill are still more important than wages in making location decisions, so education is key to economic success.  Technology has displaced more jobs than globalization, so that even China is losing manufacturing jobs.  The problem is not the # of jobs lost, rather the quality of jobs.  Local service jobs are the only shelter.  US demographics/baby boomers retiring dictates that we’ll need immigration, which means we’ll need education & health care.  Social Security will be a much smaller problem than Medicare.

In sum, our budget debt creates problems in global capital markets, but our problems are solvable if we invest wisely.

In Q&A,  here are a few more points

-the Fed is a part of the subprime problem in that there was no oversight for such low interest rates & cheap $

-there will be legislation for alternative energy soon, but timing is key

-low capital gains taxes are not a problem, but unsupervised hedge fund risk/leverage is

-immigration quotas are unnecessary because in 1900 15% of our population was immigrants & now it’s only 12%

-we shouldn’t impose restrictions on incoming foreign capital

-the Clinton budget deficit of 5% puts our current deficit in perspective

-education in a slow crisis is a whipping boy, but is a state/local problem.  We need smaller classes & more authority/accountability for teachers.  No Child Left Behind teaches students to test well, but doesn’t give them a well-rounded education.

Despite what he says, even as an economist, RR has more personality than most any accountant I know.

I was educated as an international economist, so I’m not going to debate him.  I took notes @ the presentations I attended & ACG captured all of the presentations in digital video, but since they’re only available to ACG members, my notes won’t do you any good.  If you have any particular questions, just let me know.

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Romanian trade delegation

Tuesday 25 March, 2008

Gheorghe Gruia, Consul for economic affairs @ the Consulate General of Romania in Chicago, hosted a trade delegation in from Romania for the housewares trade show @ McCormick Place. Gheorghe made a presentation @ a breakfast reception: Romania has a population of 21.7 million people with 2.5 million in Bucharest. GDP has grown 4-8% the last few years in Romania & has received 31 billion Euros of foreign direct investment from the Netherlands, Germany, US, & Italy. Inflation has shrunk from 47% to 5% & unemployment has more than halved from 12% to 5%. Romania should be part of the Euro-zone by 2012. Illinois exported $25.5million of product/services to Romania in 2006. Romania has the lowest tax rates in the area & all sectors have been privatized & are available for investment. Economic advantages include a fast growing economy, low tax rates, & low inflation. Romania offers human resources, technology, IT, & engineering resources. Location is also an advantage with close proximity to the CIS & Middle East.

Here are the companies which paid a visit:

Acormed-environmental protection, water administration

Aquarius Exim-imports yarns, exports fabrics

Astra-security vaults

CIAC-building, construction

Cozia Forest-wood processing

Elpidex-wood garden furniture, log houses

Hobby House-forwarders & movers

Lumetal-recyclable scrap recovery

Prodin-natural fiber textile producer

Sigstrat-moulded plywood processing

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banking on Israeli IT

Thursday 20 March, 2008

The Israeli Economic Mission to the Midwest hosted an event last week entitled “Banking on Israel IT” sponsored by Grant Thornton, The Israel Export & International Cooperation Institute, AeA, America-Israel Chamber of Commerce, Bird Foundation, Illinois Dept of Commerce & Economic Opportunity, & Katten Muchin Rosenman LLP.

Michael Strauss of the Chicago Federal Reserve Bank made the Keynote presentation on an economic assessment of the US economy which is attached:  strauss israel presentation  It didn’t contain any interesting new international information, so there’s not much I can add.

Mark Schittig, Director of the Division of Risk Management @ the Fed in Chicago, made a presentation on Regulation & IT solution management but since much of the focus was on security, I guess they didn’t want to give hackers any fodder for thought.

Israel Tenenbaum, Director of the ICT Dept of the Israel Export & International Cooperation Institute made a short presentation which essentially introduced the visiting Israeli firms  tenenbaum ieici presentation Although it’s somewhat repetitive, here’s some additional information on the visiting companies  israeli IT co. details  He pretty much just read through the presentation, so there’s not much for me to add to what he presented.

Illinois exported electrical & non-electrical machinery & transportation equipment & other things worth over $148 million in 2005, down 4.68% from 2004. Other products exported to Israel include optic, photo, medical surgical instruments, organic chemicals, precious stones, plastics, non-railway vehicles, pharmaceuticals, articles of iron or steel, & aircraft.  About 200 Illinois companies have subsidiaries in Israel, such as American National Can Co.,  A.Epstein & Sons International, Motorola, Bi-Logic Systems, & Sara Lee.

Israel lists 100 NASDAQ companies & exports $3.6 billion worth of software.   It appeared as if Grant Thornton had arranged all the meetings for the visiting firms & held them in their offices.

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Samantha Power’s post monster mash

Wednesday 19 March, 2008

Samantha Power, Barak Obama’s former foreign policy adviser, spoke recently @ this Chicago Council on Global Affairs event International Institutions: New Roles for the Global Age to promote her new book  “Chasing the Flame:  Sergio Vieira de Mello & the fight to save the world.”   Here are a few things I gleaned from her talk:

-after noting the Rwandan genocide, we need an endangered peoples movement as well as an endangered species movement.

-contrary to how it appears in the media, the U.S. is the biggest helper in Darfur & Burma, which results in 2 lessons  1.  there is a void with insufficient international commitment to these causes, & 2.  US moral commitment is contradictory when we endorse waterboarding.

Sergio:

-reasoned with unreasonable people in nation-building  for the UN

-found killers interspersed with refugees, a difficult task

-found common ground with Bush by mentioning his shoot to kill order in E. Timor.

Lessons learned:  we need to;

– extend 20th century means to address 21st century problems

-change from Roosevelt’s freedom from fear (“fear is a bad adviser”)

-talk to our adversaries so that we can think outside of our black boxes

-promote dignity within democracy

-be humble while being clear-eyed in examining problems

Pardon the pun, but Samantha is a very Powerful & persuasive speaker.  She obviously knows her stuff very well & presents it in a compelling fashion.  However, as intelligent as she is, I question placing her in a foreign policy role.  She stands up for many laudable causes, but I’m not sure they always deal with more practical & economic matters which would be required in a foreign policy position.  I think it’s a shame she was forced to resign from Obama’s campaign, but it might not have made sense for her to take on a role after the campaign anyway.