December 30, 2003

Six Months and All is Well!

Was it really just six months ago?

The code was yellow in San Francisco and the weather unseasonably hot. A week before the fourth of July celebrations San Francisco was ungirthing its loins for Gay Pride weekend. The main man at the troublingly entitled “Department of Homeland Security” had deigned to inform us that it was safe to “return to shopping at the mall”, thus ending an imaginary and uneventful online shopping boom.

It all seemed curiously alien to me. I made most of my paltry purchases a few streets away on Haight Street. The Haight-Ashbury district is less than conducive to mall shoppers with an abhorrent lack of malls and parking. In place of the much-feared Terrorists and parking lots happily filled with SUV s we had the homeless, the stoned, the drunk, their dealers, the freaks the unemployed ex-dot-commers. Apart from renting an apartment I fitted into many if not all of these categories and thus felt very at home with my neighbors. To avoid the clear and present dangers, I was careful not to step on the tail of an overheated pit-bull while purchasing my burrito, my fair-trade coffee and my Financial Times. My shopping was distinctly "off-line". In the eyes of the paranoid majority it somehow seemed as if their world was going to hell in a hand basket. In my fair neighborhood it was business as usual. Maybe it was a familiarity with the surreal that kept me sane?

In Britain Mr. Tony Blair’s brilliant spin-meister Alistair Campbell had admitted to doctoring his “Dodgy Dossier” to hoodwink Britain's great unwashed to fight a war in Iraq. Appearing before an open court of enquiry he had admitted to changing some crucial wording in what was actually a college thesis ripped from the internet. Among other editorial sleights of hand, the addition of the term ‘terrorist’ was designed to create the impression that Iraq posed an immediate threat to the defenseless West. This doctoring of documents was not only justified but entirely laudable in the opinion of the affable Mr. Campbell. To him, the end justified the means.

Even after the apparent failure to uncover Iraqi Weapons of Mass Destruction, the secondary premise of democracy in Iraq was entirely consistent with doctoring evidence, which in turn was consistent with the democratic process of Great Britain. If the war was now destined to bring ‘democracy’ to the Iraqi masses one could only surmise that the word ‘democracy’ itself was being re-defined. Nowadays democracy has been equated with regime change and freedom but who's counting? Another ex-cabinet member Clare Short, belatedly resignation from her post as British home secretary but, even her self-sacrifice did not make her immune to political double-speak. She used the term “honourable deception” to describe the shenanigans of her colleague Mr. Blair, a new term indeed even to those familiar with the cesspool that is realpolitik.

On my side of the pond, Colin Powell had presented a similar ‘dodgy dossier’ as crucial evidence to a somewhat non-plussed United Nations. Mr. Powell had initially refused to parlay the information placed in front of him but he eventually agreed to present a to the networks as instructed. The ruse had backfired when the holes in his PowerPoint presentation became known but within a few weeks the blame had been firmly placed on the shoulders of George Tenet the then head of the CIA. The UN refused to legitimize the War as directed but the Bush Junta didn’t care less. They went ahead as they had long since agreed with the decision to go to war.

If US domestic polls were to be trusted the only people to swallow the information were the great unwashed themselves. A full 60%+ found it simple to connect the dots. Bin Laden … Al-Qaeda … Saddam Hussein … Terrorist Threat … Twin Towers … Freedom from tyranny … Invasion of Iraq … Demonstrated Military Supremacy … International Fear … cheap gas to drive safely to the mall. If the truth be said most American people were Republicans in the true sense of the word, they really didn’t give a toss what happened outside their great country so long as they were not attacked and their leaders knew this. The war then seemed like a final clear-cut solution to a very complex threat. Now they could at last return to the issues at hand like refinancing their homes and looking for a job.

Meanwhile in Iraq the natives were revolting. It seems the SAS and the US Army was rather lacking in Muslim sensitivity training when conducting house to house searches. Whether the clerics had fanned the flames of indignation or not, the death toll was rising on both sides as were the summertime temperatures in Baghdad and Basra.

Back at home many if not all national economies seemed to be contemplating their fallibility. Interspersed with the occasional sucker’s rally, the aptly named dead-cat bounce, the stock exchanges were continuing to show “negative growth”. Mr. Bush, ever mindful of his father’s failures in the past, decided to give a little more money to his rich friends. The markets greeted Mr. Bush’s tax cuts with jaundiced disdain. In its inimitable way the US Federal Reserve Bank had followed the European Central Bank with another quarter point cut here, another half point there. There were not too many points to go! Was the problem intractable? Were we finally seeing a human flaw in the perfection that is market dominance? Had greed eaten out the underbelly or was it simply a healthy correction? Something to be expected, nay encouraged after the boyish exuberance of the late nineties? Had we finally reached the bottom of the trough or was the rift still deepening. It was all very disconcerting!

But wait that was six months ago!

Then came Christmas and a Happy New Year for San Francisco: G.W. Bush, Arnold Schwartzenegger, Gavin Newsom and acceptably low mortgage rates. Maybe gas seems a little expensive but hey, you can always buy bigger better 2004 models and take advantage of the new tax incentives on company SUV's! As to Iraq? Well the temperatures are cooler and a bearded Saddam is in jail, hell he even looks like a terrorist now! And the democracy thing? Well, the President meant freedom, who ever said you had to vote to be free? Dammit anyway were glad we loaded our portfolios on defense stocks, the markets are up and all's well that ends well. Pass the champagne!

Posted by Tony Phillips at 08:00 PM | Comments (0)

December 07, 2003

Neo-Colonialism in Colonial Mexico

The central highlands (or altiplano) form the backbone of Mexico. In southern Mexico the isthmus is very narrow; from its peaks one can sometimes see both the Pacific and Atlantic oceans. The further north one travels, the drier and wider the altiplano becomes till it opens out into the deserts of Chihuahua, New Mexico and Arizona. Between these two extremes, nearly three thousand meters above the coastal jungle, lies central Mexico with its colonial towns, some founded by the Spanish, many more recycled from previous owners.

This central altiplano is the ancestral powerhouse of Mesoamerica. The current Mexican government, its Spanish, Aztec, and other predecessors all established their capitals here.

At first glance this might seem like an incongruous list. Surely the Spanish are a special case as they ruled ‘New Spain’ as a European colony? But is the modern-day republic really so different? How much is it possible for a modern nation to control its own destiny? When colonial powers cede control does contact cease? Who steps into the power vacuum? Central Mexico seems like an appropriate place to explore the legacies of colonial power and to delve into their neo-colonial counterparts.

Many European colonial powers when faced with the prospect of governing their colonies in the tropics preferred to live at altitude. The Spanish also liked to stay cool and gladly inherited the Aztec seats of dominance. Mexico City, the Aztec capital became the capital of New Spain; the word ‘Mexico’ is derived from the Aztec word for umbilical centre. Little has changed, Mexico City is now referred to as El Districto Federal, or DF for short in the same way as the US capital is referred to as DC. The Spanish tried to obliterate the Aztec city when they conquered it in the 1500’s but in their haste they failed to complete the job. 1970’s construction workers discovered Montezuma’s main temple buried a block from the civic plaza (Zocalo). It has become a tourist attraction.

The really impressive colonial architecture is not only found in Mexico City but also in the other altiplano cities: Zacatecas, Guanajato, Puebla, Querétaro and, perhaps the most famous; San Miguel de Allende.

San Miguel de Allende is a city frozen in time by an architectural heritage law enacted in the nineteen twenties. Her city districts are called ‘Colonias’ and much of the architecture is from the more splendid periods of colonial opulence. A thriving real estate industry offers palatial mansions to a global market. Affluent visitors are tantalized by monthly bus tours conducted in English that take curious tourists to some of the prettier mansions in the city (many of which are for sale). Many of the buyers are from the US; in recent decades there were more Canadians but the downwardly fluctuating exchange rate in the 90’s thinned their numbers. While geographical factors do play a part in determining who occupies these beautiful properties, the buying power of a nation’s currency is also a factor; you’ll find more British owned property in San Miguel than Guatemalan.

As an Irish citizen of British descent I have always been somewhat conflicted about the notion of ‘colony’. In this beautiful and hospitable place I do not recognize a traditional colony. One could argue that traditional colonies were largely eradicated in the 1900’s with the self-destruction of the western empires about the time of World War One. Absent a foreign army can a colony exist and, if so, how would we recognize it? What exactly is neo-colonialism anyway?

Historically colonization was so much more than property rights. Any successful colonial power understands that a precursor to property ownership is ownership of the mind. What is a paper land title, or paper currency for that matter if it is no longer negotiable? Religion, language, and cultural assimilation played a great part, some might argue greater than military power, in maintaining New Spain for three hundred years.

Mexico is a sovereign nation state born in the traditional manner of anti-colonial rebellion and constitutionally governed by the Mexicans in a federal manner or so it seems. As a nation state, Mexico’s founders learned the value of property the hard way and took some measures to protect their land from becoming the property of an external power. Non-Mexican citizens are not allowed to buy property in Mexico but they can buy and sell a ninety-nine year lease and, recently, Mexican President Fox has made it easier for US citizens to apply for Mexican citizenship.

There are many parallels to this protectionism, take London for example! The Duke of Westminster owns some of the most lucrative leases in the City of London, in fact it is more precise to say the Duke of Westminster owns the City of London. You can’t buy land in certain parts of central London because it isn’t for sale! Why sell when you can lease? This way, the Duke of Westminster has income in perpetuity and the land will always belong to the crown. The title passes down through the British Royal family to the next Duke.

The back of the US Dollar states “In God We Trust” but surely the inverse is true. Since currencies broke with the gold standard their value floats. The gods of international economics determine the relative value of the pieces of paper we carry in our wallets. Whether I get 10.9 or 11.2 pesos to my US dollar or 13 or 14 to my Euro is a decision made in the currency markets of New York, London and Zurich.

Currency markets base their complex decisions on economic precepts as dogmatic and obscure as those of any religion. Certain indicators instantly affect currency markets. They include regularly published statistics such as unemployment figures and stock market indices and government policy changes such as the privatization or nationalization of industries or changes in taxation policies. But how to react to the statistics? Which bible do they use?

These days the tenets of neo-liberalism reign supreme; the bible of the times is the brainchild of the ‘Washington Consensus’. Few religions are run on a consensus basis, the Washington consensus is a consensus in name only. It is written into every unilateral trade agreement the US offers.

Why is a rule book required at all? Couldn’t traders in Zürich and those in New York base their decisions on different tenets? Not really! Traders are continuously making split second decisions in a global currency market, networked by computers with after hours trading. Traders trade for profit. A delayed or bad decision can cost hundreds of millions so a rigid rule system is essential.

For instance, US employment up by 0.2% in November means cheaper legal labor. It could be argued that this has both a positive and a negative affect on the US economy; positive because higher unemployment means cheaper labor, negative because higher unemployment means a higher cost to the government in social security, lowered government tax income and a weaker domestic demand. But how should the markets interpret this statistic in Mexico? What of the effect on legal and illegal immigrants from Mexico? Repatriated earnings is the second largest income source for the Mexican economy? The Mexican central bank may be forced to buy or sell international currencies in an attempt to react to these changes.

There are many aspects to colonial power. Cultural precepts such as architecture, religion and language take centuries to inculcate into the minds of the local population, a process essential to colonial expansion. If you want to move quickly only two kinds of power create change in a short period of time; military might and economic power. Absent a military invasion of Mexico only economic power can result in significant transfer of ownership in a short period of time.

Let’s explore the money relationship taking a practical example. In my pocket I carry Mexican pesos drawn from a US account from a ‘Banamex’ ATM in San Miguel’s town square. In Spanish times, I would be carrying silver or golden coinage the metals that were mined in the Antiplano. Now I get is Mexican paper currency at a daily adjusted rate.

In an attempt to protect their national assets the founders of this state wrote rules into the constitution designed to protect the nascent state. But constitutions are pliant things, especially in Mexico, with more than 400 current amendments and counting. Among those national assets explicitly protected from foreign exploitation and ownership are national resources such as oil and gas and the banks. After all banks are charged with the care of the people’s money and have been rescued in the past by public funds. But wait, that’s old news!

Among other changes in Mexican laws on Foreign Direct Investment, (FDI), restrictions on foreign ownership of Mexican banks were relaxed. The results were swift. All ten Mexican banks were rapidly bought up by Western Banks, mainly based in the US and Spain. Radical but not unusual; at the same time a wave of banking consolidation swept the Western world as well.

For instance, ten years ago, my local bank, San Francisco Federal was bought by First Nationwide. First Nationwide was in turn acquired by California Federal Bank which was snapped up last year to become CitiBank (West). I now draw Pesos from it at Banamex, (also 65% owned by CitiBank). I guess that makes me a loyal Citibank customer? Not one by choice.

Technically I’m a CitiBank West customer using a Banamex teller machine but both entities are owned by the largest bank in the world. A bank whose current leaders include Robert Rubin, once Secretary of the US Treasury, former head of the US National Economic Council, who hailed from Goldman Sachs, then the largest investment bank in the world. Rubin is also credited in his own biography with acting to stem Mexico's financial crisis and "opening trade policy to further globalization". If he is not an architect of this ‘consensus’ then who is?

Certain weakened US Federal regulations persist, for now, to keep CitiBank subsidiaries separate in name at least. The rules, designed to restrict the size of any one bank, are a legacy of the horrors of the 1930’s depression in which Citibank was indicted. But CitiBank was also implicated in the loss of confidence that precipitated the crash of 2000? It recently paid a massive fine to New York State for illegal trading practices to settle that case. US rules do not, however, restrict international acquisitions where these are permitted by foreign governments. Cultural barriers exist which prevent renaming the national Bank of Mexico to CitiBank but the logo color scheme, the computing systems, the accounts and the retirement sales are all related and CitiBank’s currency trading operations are still centered in New York.

Is FDI the new colonialism?

Posted by Tony Phillips at 03:45 PM | Comments (1)