|Island Notes: Financial observations in verse and prose|
|Wednesday, 16 May 2012 08:14|
A poverty/rich credo from the early 2000’s:
the have nots
and…the have yachts
In the market don’t fret
to buy, sell, hold or bet
the colour of quiescence is gold
but red for ‘iffy’ equities unsold
That was all happening in the early 2000’s. But, since the 2008 crash more sober epithets are now in vogue. This was an explanation of what was happening from the website Marketwatch:
Two decades of cheap money helped turn Wall Street over to the traders. That led to a very different way of doing business. Wall Street's new culture can be summarized in one powerful quotation:
"With a trader, the goal of every minute of every day is to make money ... so if running the economy off the cliff makes you money, you will do it, and you will do it every day of every week.” Wall Street's culture is without a conscience, reveling in $100 million profit days. Traders act like cocaine addicts. Their brains have warped Wall Street's ethics so badly they can't think of anything but bonuses. They've lost their moral compass.”
Credo for a Gold Bug
“We hold what we hold
out of fear of the future
not out of love for gold"
Buy on the rumour
sell on the news.
Two views, you choose…
Greed and fear - where to steer?
Charge or rear - like opposite pairs
Both are dares - bulls or bears
Beim Geld hört die Freundschaft auf. [Friendship stops with money]
And a final word of advice:
If you want your ill-gotten gains to last
For insider traders: don’t steal too fast!
FREEPORT ECONOMICS 101 (extracted from Freeport Notebook)
In the old days foreign investors applied for and were granted licenses by the Port Authority to open a business when there was no similar business in existence. Unquestionably it was these early investors who provided the bedrock of the Freeport economy. Today the foreign investor has a few more hurdles to jump over, he also to seek government approval and generally has to prove that his business is export-oriented and is in an area that is not in competition with an existing Bahamian business. Having satisfied these conditions and demonstrated the proposed business earns a significant proportion of foreign currency and employs Bahamian workers what has been lost?
The answer quite simply is ‘nothing’. The new investor pays for local goods and services that have a ‘multipler effect’ (meaning that every dollar spent benefits the community several times its original value). Even if the foreign investor were to repatriate all of his profits (which is most unlikely) the business would still benefit the local community and The Bahamas as a whole. And, in the particular case of Freeport, the business may eventually end up in Bahamian hands due to the so-called ‘trickle down’ effect. Many businesses in Freeport were started in this way and were later Bahamianised - the Freeport News among them.
Now let’s take the case of a Bahamian who at the same time as the foreigner in our example is granted a licence to open a small business in a field that already has many similar businesses (a convenience store for example). Which business aids the economy the most? Paradoxically it will almost certainly be the one owned by the foreigner.
The reason is that the foreign investor first pays for work permits (a tax by a different name) that goes directly into the Public Treasury. Then, he brings outside funds into the community whereas the Bahamian business may borrow from a local bank, diminishing the amount of seed capital available to other more productive Bahamian businesses (see note above). Then, the foreigner sells his services or products probably to more foreigners than to Bahamians thus earning much-needed hard currency, the Bahamian on the other hand, may cater primarily to local clientele. Indeed, since the Bahamian is entering a business in which other Bahamian-owned businesses are competing, they are now all taking home a smaller piece of the same pie. No community ever got rich by taking in its own washing.
The moral of the story perhaps is that we still need specialized forms of foreign investment and, if the recent history of Freeport is any guide, the foreign businesses will anyway, in time, devolve to Bahamian ownership.
Adam Smith Jr. / 26 June 2006
© Peter Barratt
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