LADIES’ TURN

What’s with women all of a sudden? It seems to have started with Libyan women rallying to support their rebel men. Then, Syrian women risked their lives defying the Assad regime, backing their men against the brutal repressions. Saudi women also decided to take charge. Wearing the niqab, they recently defied a ban, grasping the wheels and steering their lives toward more freedom.  A small protest, but a rarity in this country.

Arab women uniting and fighting for freedom no doubt will have major repercussions throughout the MENA regions, if not throughout the world. It might in fact impact the whole world. In fact, it seems to be a sign of times that women are taking a more active role in world leadership. And given the state of many Unions, some say it is about time!

There are comparatively few truly famous women in history. Marie Antoinette is one of the better known, although her fame really came only after she lost her head, something Dominique Strauss-Kahn has rather non-fortuitously emulated.

The IMF being as innovative as any government agency is, Christine Lagarde’s lead in the race for DSK’s succession is noteworthy, especially since she has no background in economics. Her stint as an antitrust lawyer might be significant given the increasingly low level of trust of our elected officials.

Why, economies seem to be in shamble just about everywhere. Budget deficits and high debt levels are crippling most major Western countries. The financial system is on its knees crumbling under bad assets acquired by greedy and fearless management.

That is the problem. Greed and fear. Lots of greed, no fear. Men’s stuff.

A recent study by Barclays Capital and Ledbury Research reveals that

men tend to have a higher risk tolerance, are more likely to label themselves “financial risk takers” and have a greater tolerance to choose high risk investments.

The gender differences on risk taking are significant:

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Women are more likely to make money in the market, mostly because they don’t take as many risks. Women trade this way because they aren’t as confident — or perhaps as overconfident — as men. Women are more likely than men to have a greater desire for self-control.

Risk aversion, self-control, discipline, true words of wisdom that have disappeared from men’s vocabulary but that women fortunately keep using.

Rising debt levels, corporate or sovereign, always entail risk. The leverage that debt provides, faster growth, or more votes, is always appealing to the self-centered and the uncaring. When used judiciously and cautiously, leverage can be positive. Otherwise, it handicaps the future and can severely limit options during harder times.

Corporate and sovereign debt levels are therefore critically determined by the level of risk that leaders are prepared to take. Obviously, our leaders have significantly reduced their risk aversion since the 1980s.

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Why? Because they have succumbed to the illusory attractiveness of lower interest rates which have helped keep interest payments below 2% of GDP. Much like households have allowed their mortgage or credit card debts to swell as long as monthly payments, thanks to falling rates and extended terms, stayed “affordable”. When rates eventually rise, or income declines, the actual level of debt becomes a lot more real.

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In the chart above, it is assumed that the effective interest rate rises from 1.3% in 2011 to 2.7% by 2016. With gross federal public debt rising 35% in the meantime, the result is a near doubling in interest costs relative to GDP to 2.8%. These OMB numbers assume that the federal deficit declines by $1B during the next 5 years. The way the economy and politics are going these days, 16 months before the next elections, this looks more like a prayer than a forecast. Here is what Larry Lindsay wrote in the Weekly Standard of June 13:

Right now, thanks in large part to Federal Reserve policy, Uncle Sam can borrow at an average cost of just 2.5 percent. The average borrowing cost over the last three decades was 5.7 percent. Our debt is now $14 trillion and scheduled to grow to $25 trillion by the end of the decade. If interest rates normalize over that period the added interest costs in 2021 alone will be $800 billion—more than 20 times the mere $37 billion in budget cuts that tore up Congress in March. It would take virtually all of the cuts in the Ryan budget just to cover that added interest, much less to start bringing down the national debt. Unfortunately, the Fed is now in a fiscal box. A normalization of interest rates would break the Treasury. Hence, a normalization of rates really can’t happen—we’re stuck in a world in which the Fed must keep rates artificially low in order to prevent a budget disaster.

In these circumstances, Dan Abrams’ new book, “Man Down: Proof Beyond a Reasonable Doubt That Women Are Better Cops, Drivers, Gamblers, Spies, World Leaders, Beer Tasters, Hedge Fund Managers, and Just About Everything Else”, may be just what the world doctors order.

For, with the possible exception of Eleanor Roosevelt, no woman has ever truly lead the US government or had top economic and financial responsibilities at the federal government level.

In fact, few women have been major world leaders although most have left their mark. Cleopatra, Catherine of Russia and Catherine the Great, Queen Victoria, Indira Gandhi and Margaret Thatcher led their country to greatness while maintaining sound finances.

Other than Cleopatra, who let herself get involved in “politically correct” sexual affairs, women’s high risk aversion helps them avoid the self-destructing behavior so prevalent among men. Self-control again and, above all, good judgment.

For doubters, Sarah Palin is arguably not the Marie Curie of our times, yet over 24,000 of her emails have been scrutinized and there is nothing yet to show in the National Enquirer nor the Washington Post!

Chinese women have also not been at the forefront of their society. However, their success in private business is noteworthy as six of the world’s 19 self-made women billionaires as of last year were Chinese according to Forbes.

What the world needs now is more Merkel and fewer Berlusconis. Countries like Brazil, Slovakia, Australia, Finland, Costa Rica are showing the way. Iceland got out of its misery after electing a woman Prime Minister in 2009. France is nearly there as well, rumors being that Carla is pretty powerful in her own ways. In any case, Mrs. Lagarde has been in charge of France’s economic policy since 2007.

The US presidential elections are approaching rapidly. American voters showed their willingness to make bolder choices in 2008. So far, Michele Bachmann, the Republican Congresswoman from Minnesota, is the only woman to have officially entered the fray. A former lawyer, she has already shown that she possesses some economist blood by changing allegiance from Democrats to Republicans.

In recent years, unsurprisingly, the economic profession has fallen in disrespect. Already, the World Bank had elected Robert Zoellick, a lawyer, as its president in 2007. Now, the IMF seems to want a lawyer. Barrack Obama, himself a lawyer, has named Gene Sperling, a lawyer, as director of the National Economic Council and, just recently, Greece Prime Minister replaced its Finance Minister with a lawyer. FT’s Alan Beattie has more:

(…) the current German and Italian finance ministers are lawyers; Nicolas Sarkozy is the first practicing lawyer to ascend to the French presidency in modern times. China, traditionally run by engineers, is about to appoint its first premier with a law degree.

We must recognize a trend when we see one. This is clearly a trend. One must wonder why so many lawyers, a generally well remunerated activity, are seeking other occupations, particularly those of economists. Second, why do important organizations and debt laden governments replace economists, seemingly naturals for such jobs, with lawyers? Third, is the financial world run by lawyers so much better?

Attorneys are no strangers to politics as Alan Beattie reminds us:

Not only does it evidently help to practice law before trying to write it, but experience in verbal obscurantism and taking sides for money is also excellent preparation for a career in public office.

And Beattie, himself an economist, takes obvious pleasure answering the second question:

Maybe here is what’s going on: economists have always enjoyed being regarded as sages imparting scientific wisdom to untutored civilians but their claim to be dispassionate dispensers of settled knowledge was always undermined by half the profession despising the other half almost as much as they despised non-economists. And though the global financial crisis suggested much of the economists’ advice was wrong, they disagree ever more virulently about which part.

Since it is very hard for civilians to judge these debates, it is tempting to dispense altogether with the idea of being right and instead just get in someone who argues cases for a living. Lawyers may try to make you offers you can’t refuse but at least they don’t take pride in showing you models you don’t understand.

So here we are: on the one hand, as economists always formulate, we are being spared of economists in our leadership; on the other hand, as pessimists go, we are being inundated with lawyers.

To temper, elect more women. And, for good measure, female lawyers whenever possible. Now, here’s a pretty risk. Could it be that Americans voted for the wrong Obama in 2008?

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