Above the Law? All Quiet in the U.S.-U.N. Spy Scandal

U.N. Secretary General Ban Ki-Moon and Hillary Clinton

Some time has passed since the disclosure that U.S. Sate department diplomats apparently engaged in illegal spying on U.N. officials. I say 'apparently' because it does not appear that any further investigation or legal charges are forthcoming.

To recap, State Department Secretaries Hillary Clinton (Democrat) and Condoleeza Rice (Republican) both instructed U.S. foreign service personnel and diplomats to obtain a wide variety of information about U.N. officials, including the following:

• DNA
• Fingerprints
• Iris scans
• Computer passwords
• Credit card numbers
• Personal encryption keys

What Precisely Constitutes 'Spying'?

While I'm not a legal expert on what constitutes 'spying' (which is banned from being performed against the U.N. under international treaty and law), the above laundry list (which once collected by State's 'diplomats' was handed over to the CIA's HUMINT department) sounds an awfully lot like 'spying' to me.

The Formers: U.S. and U.N. Secretaries Rice & Annan

Clinton and Rice signed off on orders instructing diplomats to obtain this type on information "on key UN officials, to include undersecretaries, heads of specialised agencies and their chief advisers, top SYG [secretary general] aides, heads of peace operations and political field missions, including force commanders".

Another angle here is that the U.N. human data collection project, rather than having been carried out by CIA clandestine ops, appears to have been performed by State's foreign service officers and other diplomatic personnel. One of the purported goals of U.S. diplomats is to build relations and trust among foreign nations. What impact has the disclosure that these individuals are engaged in the gathering of the DNA samples of foreign diplomats had on this important function?

Where's the Followup?

I've been waiting to hear an announcement of an investigation, or perhaps at least rumors of an internal State department review. But so far there has not been one peep of anything like this.

Is it possible that the reason behind why no further investigation is that international treaty only outlaws spying agains the U.N. and its officials on U.N. premises? In other words, all U.S. State department spying on U.N. officials took place offsite?

Or, in a perhaps somewhat more conspiratorial vein, is the lack of follow-up due to the fact that the source of the spying information is WikiLeaks? One way to limit the credence of all WikiLeaks disclosures and move the leaks out of the headlines is to not pursue any of the potentially illegal activity disclosed by WikiLeaks. This may also serve as a disincentive to future prospective leakers.

One of the most interesting elements of the the recent WikiLeaks disclosures was the near uniform international condemnation of WikiLeaks and, as far as I could tell, almost complete lack of criticism directed at the U.S. by foreign sovereigns. Perhaps this is simply a case of the pot not wanting to call the kettle black; I have little doubt that Putin's Russia, for example, engages in similar espionage.

Walking the Rule of Law Talk

There are many unanswered questions, but the bottom line for me is this: if the U.S. wants to lay claim to the moral high ground or simply preach the importance of the rule of law to countries such as Russia, China, Iran, etc., then the U.S. needs to 'walk the talk'. 

Keeping mum about whether illegal spying on U.N. officials occurred only hurts the U.S.'s international standing and credibility. Instead there should be some type of investigation so that U.S. citizens, and the world at large, can be confident that U.S. leaders and diplomatic staff respect and uphold agreed upon laws.

Wall St. & Obama's $1 Billion Presidential Re-Election Fundraising Goal

News came last month of the unprecedented amount of money President Obama will seek to raise for his 2012 reelection campaign.

And now with Obama's recent appointments of officials drawn from 'Too Big to Fail' institutions like Bill Daley of JP Morgan Chase and Gene Sperling of Goldman Sachs to key posts in his administration, we can see where Obama expects to raise that $1 billion.

Wall Street is home to perhaps the biggest pile of campaign contributions. As Inside Job Director Charles Ferguson explains, while Obama's decision to give in to Wall Street is depressing it's entirely rationale in terms of his re-election fundraising goals.

In fact it's a pretty safe bet that both Democrats and Republicans will be aggressively courting Wall Street and the now 'Too Bigger to Fail' banks for massive 2012 presidential campaign contributions.

And I'm sure there will be no strings attached to any such contributions, right Lloyd and Jamie?

Timing the Inevitable Decline of the U.S. Dollar

One of the most heavily debated macro topics is the future of the world's reserve currency, the seemingly almighty U.S. Dollar.

Neither the fact that scores of prognosticators have been predicting its demise for decades, nor that when the financial going gets tough (as it did during the 2008-2009 financial crisis) everyone wants it, has dissuaded today's dollar bears from taking a dim view of the greenback's future.

America's Exorbitant Privilege

Barry Eichengreen

Berkeley Professor Barry Eichengreen’s new book, Exorbitant Privilege, explains the U.S. Dollar's historic rise from international monetary obscurity prior to World War I, to surpassing British pound sterling in importance by 1924-25, to its dominant post-World War II position which it continues to occupy today.

Professor Eichengreen opens with the point that while we now live in a multi-polar economic world the financial system and monetary order still revolve around a single currency (the U.S. Dollar).

Some might be surprised to learn that approximately 75% of all $100 bills circulate outside the United States. The reserve currency holdings of the world's central banks are largely in U.S. Dollars or U.S. Dollar denominated assets (e.g., U.S. Treasuries).

What precisely is the 'Exorbitant Privilege' conferred on the United States by the special role its currency plays in the global financial system?

Professor Eichengreen calculates that the U.S. dollar’s status as the world's reserve currency is worth 3% in U.S. national income per year. In other words, having the world’s dominant reserve currency allows the U.S. to run an annual $500 billion current account deficit.

Some may remember Vice President Cheney's quip that "deficits don't matter", or Nixon Treasury Secretary Connally's response to foreign governments, critical of the U.S.’s profligate Vietnam and Great Society spending, on how the U.S. Dollar was "our currency, your problem". It is this 'Exorbitant Privilege', a term coined by French leaders in the 1960s who railed against the fact that American paper currency could be exchanged for "real stuff", which Professor Eichengreen views as unsustainable.

Are Reserve Currencies Analogous to Computer Operating Systems?

Economists explain the U.S. Dollar's rise and dominance through a principle called 'network externalities' (or 'network effect'). Similar to how significant interoperability advantages in computing can be achieved through the adoption of a single operating system (e.g., Microsoft Windows), the widespread use of a single currency (the U.S. Dollar, and previously British pound sterling) can lead to mutually beneficial economic efficiencies.

However, in a world where 'Currency Converter' is one of the Top 10 most downloaded smartphone apps, determining exchange rates and making currency conversions can now be performed quickly and simply by a vast number of people. Just as the computing world is moving towards multiple operating systems (i.e., Windows, Mac, Linux, Google, iOS, etc.), Eichengreen believes the world will transition to three principal reserve currencies: the U.S. Dollar, the Euro, and the Chinese Renminbi (Yuan).

The Euro and the Renminbi: Assessing the U.S. Dollar Bridesmaids

On the currency topic du jour, Eichengreen believes that "euro gloom and doom is overdone". Just as a default by Los Angeles County won't spell the end of the U.S. Dollar, a default by Greece and/or Ireland won't bring about an end to the euro.

Germany is the one country, in Eichengreen's view, which could afford to abandon the euro without suffering catastrophic economic consequences. However, Eichengreen sees this as unlikely. Germany's next generation of leaders, while not having been around for the birth of the EU, are nevertheless heavily wedded to the European Project. Further, Germany benefits from a weaker euro via more competitive exports. If Germany were to leave the euro then the reintroduced Deutsche Mark would shoot up in value and risk choking off the German export led economic renaissance currently underway.

When it comes to the Chinese renminbi becoming a reserve currency, Eichengreen acknowledges that China needs to make significant changes. For starters, the renminbi will need to become freely convertible. China will also need to develop deep, liquid capital markets and make fundamental changes to its overall development model.

However, these and other changes may come quicker than many expect. A short time ago there were basically zero Chinese companies settling international transactions in renminbi; now 70,000 do so. Two U.S. multinational companies, McDonald's and Caterpillar, have issued renminbi-based bonds. Currently most of these changes are occurring in "China's financial petri dish" (Hong Kong), but China has set a target of making Shanghai a preeminent world financial center by 2020.

Timing the Decline of the U.S. Dollar?

Eichengreen assigns a very low probability to a sudden collapse of the U.S. Dollar. But could it happen? In short, the answer is yes.

A spat over Taiwan or rising tensions in the Asia Pacific over China building its first world class navy in 600 years could cause China to suddenly stop funding U.S. deficits. A more confident and assertive China is likely to continue to flex its newfound muscles, a subject I previously covered in more detail here.

However, what Harvard’s Larry Summers termed "The Financial Balance of Terror" is likely to prevent a catastrophic scenario from unfolding. Similar to how President Eisenhower threatened to dump the U.S.'s vast British bond holdings during the 1956 Suez crisis if British forces didn't leave the peninsula immediately (which they did), Eichengreen believes that China and U.S. officials will attempt to work out their differences through diplomatic back channels as opposed to openly fighting it out in financial markets.

A more likely scenario would be a sudden loss in investor confidence, like the one experienced by Greece last spring, in the U.S.'s ability to get a handle on government spending. Eichengreen notes how the ratio of U.S. federal debt (a relatively high 75% of GDP) vis-à-vis tax revenues (a relatively low 19% of GDP) is rapidly approaching the danger zone.

From an investment perspective, investors should continue to expect currency volatility under the current U.S. dollar dominated international monetary system. Further, the U.S. Dollar will continue to be the world's safe haven currency in times of crisis for the foreseeable future. However, according to Eichengreen a change in the international monetary order is all but inevitable within a decade.

China: 2011's Biggest Question Mark

China just shut down Skype, the free/cheap internet phone calling service, by making it illegal.

While attention grabbing, the Skype move is hardly a surprise as Facebook, Twitter and YouTube are already blocked in China, and Google shut down its Chinese servers last year after government pressure.

Its very hard to see how this type of thinking on the part of China's communist party leadership will serve the country's economic interests over the longer run. China economic historians are well aware of how inward turns have worked out for the middle kingdom in the past. During the Ming dynasty, China largely shut itself off from the rest of the world, and the country's subsequent economic development suffered.

While China's technology blocking moves have more to do with the country's longer-term competitive position, two factors are weighing heavily on China's immediate-term prospects:

1. Trade tension between China and the U.S. has been on the rise, leading to talk of a U.S.-China economic war.
   
2. The Chinese real estate market, which according to legendary Enron short-seller Jim Chanos accounts for 60%+ of China's economy, remains in a frenzied bubble even with recent government moves to reduce lending activity through increased interest rates, reserve requirements, etc.

One of the biggest question marks going into 2011 has to be China and whether the country can manage a soft landing, or if in fact the mother of all bubbles will finally burst. If the latter is the case then there will be significant knock-on ramifications for perhaps nearly every investment sector (particularly commodities) around the globe.

Adios iPhone: On Making the Smartphone Switcheroo

The iPhone is unquestionably one of the biggest game changing consumer goods in recent memory. Netscape founder Marc Andreessen has characterized it as a "wormhole product", seemingly delivered unexpectedly to Earth straight from the heavens.

Just how revolutionary was the iPhone? At the time of its dramatic January 2007 introduction in San Francisco by Apple CEO Steve Jobs, Canada-based Research in Motion -- then the world's leading mobile device maker -- dismissed it, believing the iPhone as described by Jobs to be an "impossible" engineering feat.

I've been a very happy iPhone user ever since the original went on sale 3.5 years ago. Each successive iPhone iteration has delivered significant enhancements. And I've even stood in a relatively short iPhone purchase wait line (but a line nevertheless), anxious to upgrade as soon as the latest version became available. That was until the announcement of the underwhelming iPhone 4.

iPhone Alternatives

The failure of the iPhone 4 to impress, combined with the changing smartphone competitive landscape, led me to take a hard look at two emerging iPhone alternatives: Google's Android and Microsoft's Windows Phone.

Microsoft's smartphone efforts the past few years have been nothing short of a complete failure. But Redmond's new Windows Phone software shows real promise. I was particularly impressed with the creativity that went into the elegant and innovative new Windows Phone user interface, called Metro. It's intuitive and refreshing, and the whole scheme is particularly pleasing to the eye on one of Samsung's Super AMOLED screens.

With the new user interface and other encouraging signs across various Microsoft product lines (i.e.,  ZunePass, SkyDrive, Xbox Kinect), I have growing confidence that the Washington-based software behemoth is recovering its form. In short, Microsoft has a potential winner on its hands. However, at this point in time there are just too few apps available for Windows Phone. Further, many features widely available on the iPhone are missing (e.g., copy/paste, multitasking, etc.).

What about Android?

Smartphone Wars: Android vs. iPhone

Google and its hardware partners, such as Motorola, Samsung, and HTC, have made big strides in 2010.  The iPhone/Android app gap has largely closed, and Android's market share is about to (or already has) overtaken the iPhone.

In contrast with the two versions of the iPhone currently available for sale (iPhone 4 and 3GS), there are some 80+ different Android devices. This greater selection -- and the increased freedom of choice Android offers over the iPhone in general -- is considered to be both Android's greatest strength and biggest weakness.

Many find the array of Android choices somewhat dizzying, while others want features like a Blackberry style keyboard, or a removable battery, or a larger 4" screen for browsing the internet -- all things you can find on an Android device, but not on an iPhone.

Ladies and Gentlemen, We Have a Race!

Let's be clear up front: the idea that there is an "iPhone killer" lurking out there somewhere over a not so distant hill is a myth. The iPhone has established critical market share mass, and it will likely remain a solid smartphone for the foreseeable future. Barring a major snafu millions of iPhones will continue to ship.

While 'power' smartphone users have had some great Android options to choose from for awhile now, the more typical smartphone owner basically just wants their technology to be simple and work. I suspect many of these folks who are familiar with Android have probably heard that Google's software is simply not as polished (in terms of ease of use) as Apple's.

However, Google just came out with a new smartphone, the Nexus S; it has been thoroughly reviewed and the verdict is in: it's a winner.

The Nexus S is the "official Google smartphone". It is manufactured by the same South Korean tech powerhouse which provides many of the iPhone's core components (Samsung). In my opinion, it is perhaps the first true mainstream alternative to the iPhone. 

Not only does the Nexus S possess hardware which can compete head-to-head with Apple's flagship iPhone 4, but the latest Android software (called 'Gingerbread') is intuitive and easy enough for the average iPhone user to switch to without having to spend much time getting up to speed on a new system.

Google's Nexus S

Long story made short -- the Nexus S not only delivers, but it also delights. The total experience is not just comparable to the iPhone, but in many ways superior. This is particularly true if you use Google services such as Search, Maps, Gmail, and especially Google Voice (which I reviewed here).

The Myth of the One Size Fits All Smartphone

The Nexus S, like all smartphones, has shortcomings because, like the iPhone, it simply can't be all things to all people.

For example, the Nexus S is perhaps the ideal international smartphone for a bevy of reasons; however, if you're based in the U.S. and you need a 3G carrier other than T-Mobile (the Nexus S can't utilize AT&T's 3G network, just AT&T's 2G service) then this iteration of the Nexus S (new versions of the Nexus S may be launched on the other carriers) may not be right for you.

The Nexus S also can't take advantage of the even higher speed 3.5G / 4G data networks which are starting to roll out in the U.S. Last, some Android apps are not as fully fleshed out as they are on the iPhone. For example, the Android Bloomberg app doesn't allow you to reorder your news preferences like you can on the iPhone.

Change is Hard

Ignoring network considerations, my best guess is that the majority of users would find the Nexus S comparable to the iPhone 4 in terms of overall pluses and minuses, and superior to the 3GS. Equal, however, is hardly a good enough reason to switch, so I don't expect the Nexus S to generate blockbuster iPhone-like sales.

Many users are understandably reluctant to switch to a different smartphone platform, particularly those who have made a significant investment in iPhone apps and accessories. If you are in this camp then you may be better off sticking with your iPhone.

But if you're new to smartphones, or ready to make a switch, then you should definitely give Android phones like the Nexus S a serious look. And for those worried about having to learn a whole new smartphone I think you'll be pleasantly surprised with how familiar Android seems compared to the iPhone.

And for those making the switch to Android, here are some things you can look forward to: I believe 2011 could very well be shaping up to be the Year of Android. What do I mean by that? We already discussed Android's rapid market share growth. With that growth we should see what remains of the the app gap disappear in 2011. And Android's next operating system, called Honeycomb, is generating significant positive buzz and is set for a Q2 2011 launch -- just before Apple typically launches its latest iPhone. Other hardware advances, such as battery sipping dual-core processors, are slated for Q1 release in Android devices. Overall, it's clear that Google and its partners are innovating at a faster clip than Apple.

In the battle of the smartphones, it certainly feels like Google has captured the momentum. For a variety of reasons, Google may also have the medium-term upper hand over Apple.

How Much Does Your Phone Say About You?

There has been a lot made of what your phone, like your car, says about you.

One emerging area where your choice of smartphone may be saying something important about you is the price you are charged when shopping online.

Recently the growing use by online retailers of 'dynamic pricing' has come to light. Reports have emerged that Google Chrome users are offered lower prices than Firefox users (apparently Chrome users are considered to be more savvy online shoppers). It's somewhat unclear how widespread the practice of dynamic pricing has become.

Perhaps the takeaway here should be that regardless of whether you feel your phone choice reflects the deeper you, our minds are naturally drawn to outward symbols such as cars, clothes and now smartphones. Like it or not, your consumer choices do say something about you, and perhaps there's a good reason why.

The Politics of Technology

While the Nexus S is the smartphone that led me to abandon the iPhone, the question of "which smartphone?" actually carries larger implications for even non-geeks.

Google and Apple take markedly different approaches to technology. Whether one approach is "better" depends on your perspective, which end product or service we're talking about, and above all else generates heated debate. What is not up for debate, however, is which platform is more open to individual expression and choice -- values which the western democratic world has generally held in high regard.

Why the difference? Whether or not Google fully walks the "don't be evil" talk is open to question, in my opinion. However, when it comes to Apple's approach to technology I think Rich Karlgaard's assessment of Steve Jobs psyche pretty much nailed it.

Closing Thoughts

As discussed previously, the Nexus S and Gingerbread now offer a near iPhone like experience in terms of intuitiveness, simplicity and ease of use. I concur with those who claim the iPhone still has the overall edge in these categories. For now. The gap has closed (and in my opinion will continue to do so) to such a degree that it is no longer credible to claim that if you want a simple, trouble free, and premium smarthphone experience then your only choice is the iPhone.

The bottom line: while it's certainly not black and white, if you prefer Google's approach to technology over Apple's then it's now safe to make the switch away from the iPhone without much risk of regret.

Note: for more Nexus S reviews see also CNET's video review, or from the slightly-to-more progressively geeky writeups respectively by Wired, Engadget, and AnandTech.

Further note: if you read the often entertaining comments sections of the above reviews you'll find remarks from a number of existing Android smartphone owners stating how "disappointed" they are in the Nexus S, often because it's too 'evolutionary' rather than 'revolutionary'. As someone who is brand new to Android, I understand but don't share this point of view. The Nexus S has some bleeding edge tech (i.e., NFC chip, integrated SIP calling). However, the Nexus S is not solely targeted at early adopters. Rather Google has focussed on small details to refine the Android experience for broad consumer adoption.

On the Ethics of the Banks' War Against WikiLeaks

Should the financial industry, which manages and controls the payments system (which can be viewed as a public good), be able to bar a legal entity like Wikileaks (which has yet to be charged with any crime) from the payments system?

From today's NY Times:

Visa, MasterCard and PayPal announced in the past few weeks that they would not process any transaction intended for WikiLeaks. Earlier this month, Bank of America decided to join the group...the Federal Reserve, the banking regulator, allows this.

But a bank’s ability to block payments to a legal entity raises a troubling prospect. A handful of big banks could potentially bar any organization they disliked from the payments system, essentially cutting them off from the world economy.

Like other companies, banks can choose whom they do business with. Refusing to open an account for some undesirable entity is seen as reasonable risk management. The government even requires banks to keep an eye out for some shady businesses — like drug dealing and money laundering — and refuse to do business with those who engage in them.

But a bank’s ability to block payments to a legal entity raises a troubling prospect. A handful of big banks could potentially bar any organization they disliked from the payments system, essentially cutting them off from the world economy. 

The fact of the matter is that banks are not like any other business. They run the payments system. That is one of the main reasons that governments protect them from failure with explicit and implicit guarantees. This makes them look not too unlike other public utilities. A telecommunications company, for example, may not refuse phone or broadband service to an organization it dislikes, arguing that it amounts to risky business.

Video: Interview with Director of 'Inside Job' on Corruption in Academic Economics

The below video begins with the trailer for the documentary film Inside Job and then moves to an interview where Director Charles Ferguson discusses the film, the current political situation, and the state of the academic economic world, which he also previously wrote about here in the Chronicle of Higher Education.



Here also is a link to Ferguson's now infamous interview with former Federal Reserve Governor Fred Mishkin and his "Financial Stability of Iceland" report.

Is Singapore-Hong Kong Financial Regulation Superior?

Howard Davies

Writing on the subject of banker bonuses and financial regulation, Howard Davies, the Director of the London School of Economics (LSE) and former head of Britain's financial regulatory body, sings the praises of both Hong Kong's and Singapore's higher compensation for financial regulators.

Could simply paying regulators more be the key to solving the problem of regulatory capture?

Davies also highlights the research of LSE's Ahmed Tahoun, who found unsurprising evidence that "US congressmen systematically invest more in firms that favor their own party, and that when they sell stock, firms stop contributing to their campaigns. Moreover, firms with more stock ownership by politicians tend to win more and bigger government contracts...the results...suggest a less-than-healthy relationship between lawmakers’ political and pecuniary interests."

Video: David Einhorn on Bloomberg TV

The David Einhorn December media tour continues.

Topics in the below Bloomberg interviews include: European debt crisis, Too Big to Fail, Apple's stock price and importance of Steve Jobs, when David first got an iPhone, and the unemployment problem. Much of this will be familiar to anyone who has seen some of David's other recent media appearances  (which have also been posted on this site).

Graphic: Timeline Tracking the Global Recession (with British emphasis)

Description from Money.co.uk:

The worst economic crisis in decades played out like a soap opera of epic proportions – the bad guys were vilified, speculation ran wild and drama unfolded on an almost daily basis.

We’ve tracked the credit crunch in the UK and beyond, from the very first rumblings of trouble to the official end point, and present it here in what may be the most detailed timeline of the recession online.

By using the links alongside each headline, you can find more detail about that particular event – however, rather than use traditional news sources, we’ve linked to quality blogs that reported on the news as it broke in an effort to accurately reflect the sentiments at ground level.

Needless to say, money.co.uk is not responsible for the quality of outside content, nor are we affiliated with any of the opinions expressed therein. That said, it is interesting to note how accurate many of the predictions made by the bloggers below came to be.