Sunday, September 28, 2008

Money as Debt

Here I am trying to explain Fractional Reserve Banking when Paul Grignon's 47-minute animated presentation of "Money as Debt" tells it better than I ever could. So just watch this - it will forever change the way you look at banks and help you understand the situation the US economy is in.

How money is created

If you are like me, trying to understand how the world's financial system works, you need to know about Fractional Reserve Banking. Don't get intimidated by politicians and others who tell you the economy is too hard for you to understand, so just keep your head down, glued to your PC and churn out whatever it is you churn out in order to make money for your company.

What you should remember is that everything in our world evolved. There is an explanation for the way corporations are the way they are now (you can read "The Corporation" by Joel Bakan for that), and there is an explanation for the way banks are the way they are now.

So, how did our banking system come to be?

Long ago, people would deposit their gold or silver with goldsmiths for safekeeping. The goldsmith would then give their clients promissory notes that guarantee their gold. If you'd like your gold back, just show the notes. These notes came to become currency as people traded them instead of their heavy gold. These goldsmiths realised that people did not usually redeem their notes at the same time, which gave them the idea that they could invest that gold, which remember, belongs to other people, to make money. So, while you are out spending your notes for chickens and cows, the goldsmith was spending your gold to buy more gold, or loan your gold for an interest. He would be ok, as long as you do not redeem your note at the same time as all his other clients (he could be spending a fraction of his reserves, say 50% of all the gold on hand, so he'd have backup in case some customers did come back for their gold).

From becoming passive keepers of gold, these goldsmiths now became essentially banks - earning money from investing (depositors' money) and charging interest for loans (again, depositors' money). Banks make money, as we all know, by charging a higher interest for loans than the interest it pays its depositors. Indeed, banks consider deposits to be a liability and loans and reserves to be assets. And so long as not all depositors withdraw their money at the same time, the bank would be safe. However, it has happened, such as in the UK's Northern Rock crisis of 2007, when depositors' took out their money at the same time in what is called a Bank Run, or a Run on a Bank.

"For the economy and the banking system as a whole, the practice of keeping only a fraction of deposits on hand has an important cumulative effect. Referred to as the fractional reserve system, it permits the banking system to "create" money." - US Federal Reserve.

Ok, so now we need to understand the cumulative effect and the way this allows the banking system to "create" money.

This is how it works:
Say you deposit $100 with a bank, which has a fractional reserve rate of 20%. This means the bank keeps 20% of its deposits as reserves. So, it lends $80 and keeps $20. Say the person who borrowed the $80 then spends the whole amount at my shop and I then deposit the $80 into the same bank. The bank keeps 20% of this $80 which is $16, so it now has $16+$20=$36 in its reserves. It then loans out the remaining 80% ($80-$16=$64). You can see already that the bank has been able to lend more money than the original $100 deposit. It has loaned $80+$64=$144. In this way, the bank "creates" money even though no extra money was physically created beyond the $100 that was the first deposit. We call this money created by banks "Commercial Bank Money" or "Chequebook Money". This contrasts with Central Bank Money, which is actual, physical money (coins and notes) that government mints print. And the bulk of the money 'in circulation" in the market is this commercial bank money

Wikipedia has a great chart that shows clearly what happens as the lending process continues and more money is created. Most of what I say here can also be found on the wiki site.

I'll post this first and continue with the problems of this system in another post.

Boeng Kak Lake Forced Evictions

I should have posted this on the blog long ago. This is typical in Cambodia- forced evictions for the profit of powerful individuals. An estimated 3000 to 4000 families will be affected in what Amnesty International
says may be the biggest forced eviction in post-war Cambodia.

I had signed the petition to save Phnom Penh's Boeung Kak lake 3 weeks ago and was recently reminded of it by a friend who read my comment and asked me to be careful because this is a country which does not tolerate dissent. Here is my comment, which I thought rational and based on facts.

Diana Saw: Please consider your image in front of the international community with this forced eviction. Who would want to patronise the resort if they knew its history? "Although little known, Shukaku Inc has been linked in the Cambodian press to Pheapimex, a giant land company owned by ruling party senator Lau Meng Khin". (Andrew Nette, IPS)

Still, I know Beong Kak's history will not make a difference to the resort's future patrons. At the risk of giving Pheapmex and others an excuse to continue with their plundering, I should point out--because it would be dishonest not to--entire countries have been built on landgrabbing - such as the USA and Australia which has displaced and replaced the original population. Do people not patronise, work with or holiday in these places? Of course they do. So how do you remain unhypocritical? If you really wanted to boycott places that have a shameful history, there are many places you'd have to rule out.

Anyway, if you'd like to find out more about the Boeung Kak Lake situation, go to Save Boeung Kak.

Saturday, September 27, 2008


Photo Credit

Some New Yorkers are getting fed up with Wall Street bankers. They also planned a day (Thursday, 2 days ago) to dump their crap in front of the Bronze bull scuplture on Wall Street to protest the USD700 billion bailout. Read more on

I remember when 9-11 happened I mentioned at work, "Well, if 3000 people are going to die, they might as well be investment bankers". (of course I do know many of the 3000 were ordinary cleaners etc, but I was talking specifically about the Wall Street bankers). That drew fury from a Christian co-worker who said "Who are you to judge? Only God can judge who should die!"

It now appears I am not the only want who think investment bankers and their ilk are better off dead than profiting from the misery of ordinary folk. They get huge bonuses even as they screw up the companies they run - and these are just the CEOs.

This is proof:
Sept. 26 (Bloomberg) -- Wall Street's five biggest firms paid more than $3 billion in the last five years to their top executives, while they presided over the packaging and sale of loans that helped bring down the investment-banking system.

Merrill Lynch & Co. paid its chief executives the most, with Stanley O'Neal taking in $172 million from 2003 to 2007 and John Thain getting $86 million, including a signing bonus, after beginning work in December. The company agreed to be acquired by Bank of America Corp. for about $50 billion on Sept. 15. Bear Stearns Cos.'s James ``Jimmy'' Cayne made $161 million before the company collapsed and was sold to JPMorgan Chase & Co. in June.

Meanwhile pensioners and the ordinary American citizen have to help fund the proposed USD700 billion payout. Simply disgusting.

Thursday, September 25, 2008

Gore urges civil disobedience to stop coal plants

One way of doing your part...

"If you're a young person looking at the future of this planet and looking at what is being done right now, and not done, I believe we have reached the stage where it is time for civil disobedience to prevent the construction of new coal plants that do not have carbon capture and sequestration," Gore told the Clinton Global Initiative gathering to loud applause....

"Scientists say carbon gases from burning fossil fuel for power and transport are a key factor in global warming.

Polar bears resort to cannibalism as Arctic ice shrinks

This is why we all have to do something, anything, to save our planet. Even compressing your trash in your trash bag will reduce the numbers of trash bags used. Do something good today.

Excerpts from the full article:

"The Arctic sea ice melt is a disaster for the polar bears," according to Kassie Siegel, staff attorney for the Center for Biological Diversity. "They are dependent on the Arctic sea ice for all of their essential behaviors, and as the ice melts and global warming transforms the Arctic, polar bears are starving, drowning, even resorting to cannibalism because they don't have access to their usual food sources."

Scientists have noticed increasing reports of starving Arctic polar bears attacking and feeding on one another in recent years. In one documented 2004 incident in northern Alaska, a male bear broke into a female's den and killed her.

In May, the U.S. Department of Interior listed the polar bear as a "threatened" species under the Endangered Species Act. In a news release, U.S. Interior Secretary Dirk Kempthorne stated, "loss of sea ice threatens and will likely continue to threaten polar bear habitat. This loss of habitat puts polar bears at risk of becoming endangered in the foreseeable future, the standard established by the ESA for designating a threatened species."

What is the future for Arctic sea ice? Some scientists believe that in just five years, the Arctic may be ice-free during the summer.

"The Arctic is kind of the early warning system of the climate," Meier said. "It is the canary in the coal mine, and the canary is definitely in trouble

Tuesday, September 23, 2008

Crooked "Customers", Copycats and Culture

So I get a call the other day from a tuk-tuk driver asking me where my house is because his customer wants to know. Obviously there's a miscommunication. He puts me on the phone with his customer, a French bloke who then asks me where the Bloom shop in the Russian Market (in Phnom Penh) is. They're at the market but cannot find it (unsurprising because the market is a maze). So he puts me back on the phone to speak with his tuk-tuk driver cos he can't speak English well or any Khmer and the driver cannot understand him.

Fine, I give the necessary directions (its shop number 808, and near the food market, where the "famous ice-coffee" shops are, in case you are looking too). I even called the tuk-tuk guy back to ensure they did find the shop.

Then when I was down in Phnom Penh 2 weeks ago, our shop assistant tells me about this "French man who talk like girl-girl" who told her he had arrived from Siem Reap where he had also visited the Bloom shop. He went specially to our Phnom Penh shop, not because he was looking for designs not carried in our Siem Reap shop, but for more sinister intentions.

He told Sok Yee he would pay her money and buy two bags (if she gives him a discount of course) if Sok Yee would tell him where the women work (he wants to see more designs, he says) and if she puts him in touch with the women. Turns out he wanted to bypass Bloom and hire the women to copy our bags for him. Sok Yee was on to him, because it is not the first time it has happened. In fact, that was what sacked Bloom manager Sipha did, taking customer orders and instead of letting the Bloom team know, she would sew the bags herself and outsource to other sewers and keep all the money. The reason she was able to was because the previous shopgirl was in cahoots with her and would pass her (instead of me) customer requests.

Thankfully Sok Yee is honest and told him that all the stock is in the shop and with Diana and suggested he speak with me. The effeminate French man then said, "I don't want to buy from Diana. She sells expensive." Damn right I sell "expensive" - the term a selfish git like him would use for our prices - other people use the word "FAIR". Bloom's prices are higher than the typical market stall because as I take pains to explain all the time, Bloom has fixed costs such as good salaries (and holidays and bonuses), rent for the workshop, utilities, etc etc that these market stalls do not have. They pay women sewers piece rate, so are able to price their bags cheaply (their cost is the material cost plus labour, which can range from as little as USD0.10 to USD3 a bag, depending on size). Bloom cannot. (Read "Business Competition in Cambodia" in this blog for more).

I say clearly on the blog if you want a bargain bag, don't come to us. If you feel you cannot afford to pay a fair price, then go elsewhere. Cambodia is full of exploitative shops and factories. You will not have to look hard to find your cheap bag. Honestly, I am not interested in selling to people who have disdain for a person's right to fair wages. If you want to save your money so bloody much, go to China or Indonesia. I guarantee you will be able to buy armloads of cheap bags, all churned out by young people who leave their hometowns in search for jobs to feed themselves and their families and end up working as virtual slaves, earning USD45 for an entire MONTH! How much do you think the French man earns? The same guy who wants to build a business copying other people's products and paying the workers pittance to do the job while maximising profits for himself?

I am furious just typing this. The Bloom team and me have worked hard (for two years!) to build our reputation for quality bags and we work hard to try to survive in a place where we compete head on with dubious NGOs and capitalistic businesses (like this guy imagines he will set up), without compromising our commitment to justice and fairness for workers and our commitment to quality and fair prices for customers. (It should be known that there are shops on Phnom Penh's posh St 240 and elsewhere that charge double what we do for similar, if not identical, bags. The whole point about Bloom is to MAKE TRADE FAIR (apologies to OXFAM)- this means FAIR WAGES to workers and FAIR PRICES to customers).

I hate cowards like this girly French man. You want to copy our bags and outsource to other sewers? Fine, pay the right price for the Bloom bag and take the bag to your own people. Go find sewers to copy the designs - they are everywhere. You don't have to limit yourself to the Bloom team. In fact, the Bloom manager I sacked, Un Sipha, has set up her own shop and workshop to take on orders from people like this French guy - people who want to pay cheap and get the exact same bags as Bloom. That's right. The sacked manager, whom I taught everything, has started her own copycat business, even housing her shop at our former shop at the Russian Market, stocked with all our designs. (A British friend living in Phnom Penh alerted me to the shop and I laughed when I heard she tells people she was the former designer at Bloom--most of our designs are adapted from bags I own from Singapore, such as the grocery shopper and messenger and gym bags. She was not much of a designer, but hell of a copier).

As I have said before, I don't mind copycats. I find it rather amusing, maybe because I do believe Imitation is the sincerest form of flattery. In fact, some days I think if Sipha who had nothing when I met her 2 years ago is now able to become a businesswomen, then it is a measure of success on my part. From the beginning I had told Sipha about the aim for Bloom to be a workers' cooperative so she and the other women would own, manage and grow the business. I shared with her everything about running Bloom, because I believed she would be one of the team leaders in the cooperative.

Thinking back, there were signs she was not the right one to lead the team, because she was constantly telling me we should not tell the other women how much it costs to make per bag, and especially, how much we sell them for. The women, including Sipha, who all trained at Hagar, had no idea how much the bags they were making were selling for at Hagar--all they knew was theirs (and each others!) wages.

And Sipha thought this was the way it should be - managers should be privy to certain information and workers should be kept in the dark. If they know too much, they will have ambitions or demand more. Turns out, Sipha thought like this because it takes one to know one. If was Sipha who was harbouring ambitions. [But that is not wrong itself. People with initiative think about starting their own business all the time. That was the case for me. Why should Cambodians be any different? What she did wrong was to have stolen money from me. If not for the fact she stole goodness knows how much from me and the Bloom team, Sipha would have my blessings and even assistance. Now I treat her like I never laid eyes on her.]

To me, the more workers know about the business, the better. This means they would feel a sense of ownership and a clear idea of where the business is headed. I have always managed like this, something I had learned from my very first Australian bosses. In Singapore, when I eventually ran the company, we would have monthly meetings where I would share the budget with staff, meaning what we projected for the month and the year, how we did in actual fact and the reasons why, and how we are going to get to what we projected. Staff appreciated this and the more I shared, the more I felt staff wanted to work hard for our common goal.

Sharing business information is even more important at Bloom, because if I intend to hand the business over to the Cambodian team, they need to know as much as possible. That is why I have always told Sipha I do not like secrets and insisted she shared information with the staff. One problem - and this is a lesson for expats - is because I was not so confident with my Khmer, I spoke only to Sipha, expecting her to convey the information to the team. Of course she didn't. The lesson is always talk directly to ALL your staff, don't trust your manager, or indeed, translator, to convey everything for you.

Back then, my conversations with Sipha often left me pondering about the hierarchical nature of Khmer society--why the higher ups would talk down to workers and why they would throw their weight around. Even dressing was used as a tool to establish status. Khmers are always telling me to dress better to show I am the boss, to not ask questions, but just tell staff what to do, to order, not discuss. My style has always been to ask questions and build consensus, because as I always tell the team, everyone has ideas, not just the managers. I often wonder if I'm knocking against a brick wall--how do I expect the team to appreciate what I am trying to do, how can they work in cooperation as a team, with respect for each other, if all they know is to either to order or be ordered around? I also think they do not trust me because they have had lousy bosses who may have promised them the world and then abandoned them. How can I show I mean what I say?

Frankly I am still not sure if the cooperative is a pipe dream. I worry Bloom will fall apart the day I leave the country and leave Bloom in the hands of our Cambodian team. All I know for sure is I will keep trying, to show them by actions, that I believe in them, that they are capable of caring for one another, that they are capable of making Bloom work on their own. One thing I am doing now is to tie the workshop (production) with the Russian Market shop (sales). I have told them that if the shop makes money, they will share all the profits. Hopefully that way they learn more about business, instead of just wanting to complete their sewing, without understanding what sells and what doesn't. I want the women to learn what customers want and listen and come up with ideas for improving the business. Like I said, I don't know if it is a pipe dream, but I want to try to make it work.

Sunday, September 21, 2008

Dengue Second Time around can be fatal

If you are like me and had dengue once, you should really cover up. Don't listen to people who know nothing about the disease telling you you would be immune cos you got it once. Dengue is unusual that way--it gets more serious the second time around. The reason is that there are 4 strains of dengue and if you contract any one of the 3 strains different from the one you got the first time round, your body will use all its resources to fight what it thinks is the first strain, leaving it defenceless against the new virus. You may then get Dengue Hemorrhagic Fever - which effectively destroys the platelets that cause blood to clot, meaning you can bleed to death.

It's rainy season now and I got dengue in Oct 2006 in Phnom Penh. Now, Chhun Hy, the young Cambodian man who lives with us here in Siem Reap has it. Which means if a mozzie bites him and then me, I will get it. Alan contracted dengue in Singapore, and the chances that he'll get a new variant here in Cambodia is higher for him. Very worrying.

You can read more about dengue here:

Scientists crack dengue fever puzzle

Experts may have solved the mystery of why dengue fever, unlike other infections, is usually more severe the second time around. Dengue is a debilitating, sometimes fatal illness endemic to much of the tropics. Caused by a virus, it is characterized by high fever, bone and muscle pain and -- in the most serious cases -- hemorrhage and fatal shock.
Dengue is also unusual in that //symptoms are more severe during a second or third infection compared to first-time infection. Experts estimate that over 50 million people are affected by dengue each year, with about five percent of patients dying of the illness.

The findings may complicate the search for a vaccine against the deadly mosquito-borne illness, according to British and Thai scientists. Now scientists believe they have solved the dengue paradox. The key to the puzzle, say researchers is the fact that the dengue virus falls into four distinct subtypes. Initial infection with one subtype causes the immune system to direct its response to that specific variant. But if an individual later contracts any of the three other variants, he or she is left virtually defenseless against the virus.

The scientists evaluated the immune cell response of 73 Thai children hospitalized with dengue fever and found that all but two had been infected at least once before.

What's more, these children had relatively low levels of infection-fighting T cells specific for the new virus. Normally infection with viruses such as hepatitis C or Epstein-Barr result in high levels of such T cells. The researchers think a second infection triggers the immune system to frantically hunt for the wrong subtype of the virus, causing painful inflammatory symptoms such as aching and fever.

However, this second immune response generates immune cells that only react weakly to the new virus. And the duration of the disease is also much longer because the body fails to clear the infection quickly.

There is no vaccine for dengue, so you just have to use repellent and cover up.

Saturday, September 20, 2008

Capitalism in convulsion

Capitalism in convulsion: Toxic assets head towards the public balance sheet
By John Plender
Published: September 19 2008 19:25 | Last updated: September 19 2008 19:25

"In the space of just two momentous weeks, the landscape of global finance has been dramatically transformed. President George W. Bush’s administration has mounted a multi-billion-dollar rescue of the financial system at the cost of inflicting severe damage on the US model of free-market capitalism.

"Heavy costs will be inflicted on the American taxpayer, who is now subsidising Wall Street – and indeed financial institutions around the world – in a bail-out of unprecedented size....

"The reality is that the financial system has been operating as if it were an off-balance-sheet vehicle of the government. Private-sector companies and individual bankers have been making huge profits in the bubble. Their risk appetite has been enhanced by previous bail-outs and, in the case of Fannie and Freddie, by the government’s implicit guarantee. Yet their market pricing does not reflect the potential cost to the system of their own collapse....

"Having implicitly guaranteed Fannie and Freddie and underpinned the operations of irresponsible bankers at AIG and elsewhere, the US government is putting bankrupt institutions back on to the public sector balance sheet via nationalisation."

Read the complete article here: Financial Times


Blog Widget by LinkWithin