Thiel’s college dropout plan in bubble education

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Thiel’s college dropout plan scrutinized by ‘60 Minutes‘

Investor and entrepreneur tells the CBS news magazine that a college degree is unnecessary for financial success, but critics call his program an elitist ploy.

Billionaire investor Peter Thiel.

Peter Thiel’s plan to pay college students to develop their promising concepts instead of attending to school is attracting students as well as critics.

Best known as a co-founder of PayPal, the Silicon Valley investor and entrepreneur has also made early-stage investments in companies such as Facebook, LinkedIn, and Yelp. Now he’s investing in college students, awarding fellowships of $100,000 each to youth under 20 years old, essentially encouraging them to drop out of college to become entrepreneurs.

In an interview for tonight’s “60 Minutes,” Thiel tells Morley Safer that his program is a viable alternative to what he sees as a largely ineffective university system in which costs far outweigh benefits.

“We have a bubble in education, like we had a bubble in housing…everybody believed you had to have a house, they’d pay whatever it took,” says Thiel. “Today, everybody believes that we need to go to college, and people will pay — whatever it takes.”

He also notes that a college degree is not necessary to land a high-paying job.

“There are all sorts of vocational careers that pay extremely well today, so the average plumber makes as much as the average doctor,” Thiel tells Safer.

Critics call Thiel’s plan an elitist ploy that only encourages others to drop out or not attend college at all.

“Peter Thiel has made so much money that he is out of touch with the real world,” Vivek Wadhwa, an entrepreneur who teaches at Duke and Stanford, told Safer. “He doesn’t understand how important education is for the masses.”

“What I worry about is a message that’s getting out there to America that it’s okay to drop out of school, that you don’t have to get college. Absolutely dead wrong.”

“60 Minutes” airs at 7 p.m. PT/ET on CBS stations. Full segment embedded below.

http://cnettv.cnet.com/av/video/cbsnews/atlantis2/cbsnews_player_embed.swf

Video available in another post: Thiel’s college dropout plan in bubble education

http://www.cbsnews.com/video/watch/?id=7409142n

 

by Steven Musil

Steven Musil is the night news editor at CNET News. Before joining CNET News in 2000, Steven spent 10 years at various Bay Area newspapers.

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American mounting student loans a ‘debt bomb’ waiting to explode! Inside America’s Student Loan Bubble!

American Student Loan Debt: $1 Trillion and Counting

America, a “Generation of Sissies”

Stop the banks from gambling!

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The JPMorgan Chase debacle is ample reminder that banks are dangerously risking money on dubious bets with dire consequences if they are not stopped.

US giant financial services group JPMorgan Chases trading debacle which has already lost US$2bil and which threatens to raise losses to double that, will likely put pressure for greater regulation of the banking industry, not just in the United States but around the world.

That is as it should be for despite the 2008 financial crisis which resulted from bankers structuring complex and questionable credit derivatives which few understood but many bought because they believed the rating assigned them by unknowledgeable credit rating agencies, the lessons dont appear to have been learnt.

With massive US government help, many banks which were on the brink of failure were rescued and the memories of those tempestuous times when the future of not just the banks but the worlds financial system was in jeopardy seems to have faded away from public consciousness.

Until now that is.

JPMorgans debacle is but a stark reminder that little has changed since the 2008 world financial crisis in terms of how banks operate and that the world is still held to ransom by rogue traders and others who risk shareholders funds and depositors money as easily and as nonchalantly as spinning the dice on a gambling table for a few dollars.

The sad truth is that little has been done despite all the rhetoric to ensure that the predatory chase for profits by banks does not involve gambling with shareholders equity and deposits. Players still get away with massive profits and bonuses when they succeed and little more than slap on the wrist when things go wrong.

It is an indication of a financial world that has gone awry as players such as hedge funds effectively search for new games to play in a massive, borderless casino where the uninitiated are quickly gobbled up and the others play high-stakes games in which some must become major losers.

This comment by Mark Williams, a professor of finance at Boston University, who has also served as a Federal Reserve Board examiner quoted in the New York Times aptly sums up JPMorgans mistake:

JPMorgan Chase has a big hedge fund inside a commercial bank. They should be taking in deposits and making loans, not taking large speculative bets.

The trades by JPMorgan are complex to say the least and no one really seems to understand them. The New York Times reported that the complex position built by the bank included a bullish bet on an index of investment-grade corporate debt and was later paired with a bearish bet on high-yield securities.

The report further said that the trading losses suffered by JPMorgan have accelerated in recent days and have surpassed the banks initial estimate of US$2bil by at least US$1bil. Part of the reason for this is that hedge funds already know JPMorgans position is under pressure and are piling in on the opposite trade. That means the US$4bil losses anticipated may materialise sooner rather than later.

While the US$4bil loss wont threaten JP Morgans capital base, the question that must arise is what if the losses were much bigger and they could well have been. JPMorgan would most likely be considered one of those banks that cant fail and would have been rescued by the US government.

To stop exactly such situations, the Obama administration had put up the Volcker Rule named after former Federal Reserve chairman Paul Volcker who helped formulate it but the legislation is still being hammered out. The rule basically seeks to prohibit banks from trading for their own account.

But there are exceptions and these allow banks to aggregate their positions and offset their exposures in a single hedge. Some feel that JPMorgans so-called hedge an oxymoron in this instance as it hedged nothing falls into that category but others dont.

For most of us, the solution is quite simple and straightforward if you are a bank and you take depositors money, you got no business speculating using that money, especially since you also have access to low-cost funds from the Fed and elsewhere by virtue of being a bank.

But it is an election year in the US and the silly season of course, much like it is here.

Remember, free enterprise and the capitalist system on which the US is built. You cant restrict free enterprise, the reasoning goes, even if it is your money the bank is using.

Big business has big money and they are using that to try and put Mitt Romney into the White House. If that happens, then it may well be bye-bye to banking sector reform which would be bad for the United States and the world.

New York Times columnist and renowned economist Paul Krugman was very blunt in his analysis of the JPMorgan debacle at the end of which he basically thanked JPMorgan Chases chief executive Jamie Dimon for confirming that the banking sector needs greater regulation.

Krugman, an unashamed and unabashed Democrat, has been one of those opinion makers who has been consistently calling for greater regulation of the US financial sector in the wake of world financial crisis.

JPMorgan, relatively unscathed by the world financial crisis sparked off by the subprime crisis but now in trouble through a trade engineered by a trader in London known as The Whale, is a timely reminder that little has been done to stop the recurrence of another world financial crisis.

Let us take heed before it is too late.

A QUESTION OF BUSINESS By P. GUNASEGARAM starbiz@thestar.com.my

Independent consultant and writer P Gunasegaram sometimes thinks that the financial world is just one whole, big, casino of unimagined proportions. The trouble is no one knows who owns it.

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Lehman Sues JPMorgan for Billions of Dollars in ‘Lost … May 28, 2010

UK bank governor warns of eurozone crisis ‘storm’; Eurozone ‘very close to collapse’! May 17, 2012

How will JPMorgan’s $2 billion loss affect American banking rules? Senior executives to leave!

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A JPMorgan office building is shown, Monday, May 14, 2012, in New York. JPMorgan Chase, the largest bank in the United States, said Thursday that it lost $2 billion in the past six weeks in a trading portfolio designed to hedge against risks the company takes with its own money. (AP Photo/Mark Lennihan)

WASHINGTON—The $2 billion trading loss at JPMorgan Chase has renewed calls for stricter oversight of Wall Street banks. Two years after Congress passed an overhaul of financial rules, many of those changes have yet to be finalized.

JPMorgan’s misstep gives advocates of stronger regulation an opening to argue that regulators should toughen their approach.

The Obama administration has argued that it went as hard on banks as possible without further upsetting global finance. Now Democratic lawmakers and administration officials say JPMorgan case proves that more change is needed.

Still, many in the industry warn against reading too much into one trading loss. They say losing money is an inevitable part of taking risk, as banks must.

Some fear that after JPMorgan’s announcement, regulators will greet industry concerns with more skepticism as they flesh out key parts of the overhaul law.

Here’s a look at four key parts of the financial overhaul and how they might be affected by JPMorgan’s losses:

THE VOLCKER RULE

This provision restricts banks’ ability to trade for their own profit, a practice known as proprietary trading. It is named for former Federal Reserve Chairman Paul Volcker.

– Battle lines: Banks say it disrupts two of their core functions: Creating markets for customers who want to buy financial products and managing their own risk to prevent major losses.

They say proprietary trading was not a cause of the 2008 financial crisis and the rule is a means of political revenge on an unpopular industry. Advocates of stronger regulation argue that the rule would have prevented JPMorgan’s loss. They say the trades were made to boost bank profits, not to protect against market-wide risk.

– State of play: A draft of the rule satisfied neither side. It includes exceptions for hedging against risk and for market-making, but banks say they the exceptions are too narrow and difficult to enforce. It’s nearly impossible to tell whether a bank bought or sold something for itself or for customers.

– JPMorgan effect: Attitudes about the Volcker rule are likely to shift as a result of JPMorgan’s disclosure, experts say. Even if JPMorgan’s trades truly were a failed attempt to protect against risk, the resulting loss strengthens the argument that regulators should err on the side of scrutinizing trades.

ENDING `TOO BIG TO FAIL‘

During the 2008 financial crisis and the bailouts that followed, the government was unwilling to let the biggest banks fail, for fear of upending the financial system. As part of the overhaul, Congress created a process to shut down financial companies whose failure could threaten the system.

– Battle lines: Most players agree that this is a good idea, despite some differences on the details.

– State of play: The Federal Deposit Insurance Corp., the agency responsible for closing smaller banks that falter, has taken the lead on writing rules to shut down big firms. Most observers believe that the FDIC, under acting chairman Martin Gruenberg, is on track toward creating a system that markets would trust to close a big bank.

Banks have been working with regulators to create “living wills” detailing how they would wind themselves down without disrupting markets. This exercise has forced them to look more deeply at their operations — a defense against the accusation that banks have grown “too big to manage.”

However, U.S. regulators can’t do it alone. A big problem after the failure of Lehman Brothers investment bank in 2008 was what to do with its overseas operations. It wasn’t clear which regulators were in charge, or whose bankruptcy court would control the disposal of Lehman’s assets.

Regulators are negotiating with their European counterparts, but it could take years before they agree on rules that would allow a global company to dismantle itself without spreading confusion through the financial markets.

– JPMorgan effect: Like other banks, JPMorgan supports giving the government the power to dismantle a failing bank. CEO Jamie Dimon said so clearly in an appearance on “Meet the Press” on Sunday.

JPMorgan’s loss probably doesn’t affect the likelihood that regulators will break up a bank in the future. The loss wasn’t nearly big enough to threaten JPMorgan with failure.

REGULATING DERIVATIVES

JPMorgan’s bets involved complex investments known as derivatives whose value is based on the value of another investment. Before 2008, many derivatives were traded as individual contracts between banks and hedge funds, without any transparency for regulators. The financial overhaul sought to bring more derivatives onto regulated exchanges and force derivatives traders to put up more cash in case their bets turned against them.

– Battle lines: Overhauling the rules governing this market, estimated at $650 trillion, has proved as complex as the investments themselves. Banks support many parts of the overhaul but generally argue that forcing too much transparency would make it harder and more expensive for companies to use derivatives as a hedge against risk. They say it is an unnecessary cost that would be spread across all types of companies.

The agency most responsible for implementing these rules, the Commodity Futures Trading Commission, faces the threat of a much smaller budget than it says it needs to write the rules and increase its oversight of the derivatives market.

Advocates for stronger regulation argue that the new rules apply to the sorts of derivatives believed to have magnified the financial crisis — and JPMorgan’s losses — but do not threaten investments like energy futures, for example, which airlines use to control fuel costs. They say banks are just trying to protect a lucrative business that other companies can’t compete in today.

– State of play: About half the rules are done, but many crucial questions have yet to be decided. The rules will be phased in this fall through next spring. Banks are lobbying hard to protect their hold on this profitable business. Banks support pending legislation that would limit U.S. regulators’ control over derivatives trades by their overseas affiliates.

– JPMorgan effect: Fairly or not, JPMorgan’s big loss on derivatives trades is likely to revive scrutiny of that market. That could give advocates of tighter rules some juice in ongoing negotiations with regulators. It also could empower those who believe the budgets of the CFTC and Securities and Exchange Commission should be increased to reflect the need for broader oversight.

BANK OVERSIGHT

The overhaul calls on the Federal Reserve to oversee the biggest and most important financial companies and apply a stricter set of standards for financial fitness. For example, the companies must hold more capital as a buffer against future losses. Before, the biggest banks were overseen by a patchwork of regulations.

– Battle lines: Industry officials say they’re working with regulators to fine-tune how big companies will be overseen. They are concerned, for example, about the extra costs imposed on the big companies to offset the extra risk they create in the financial system.

– State of play: Industry officials say many of these changes were happening behind the scenes even before the financial overhaul was passed in 2010. They say banks already are better capitalized and meet other standards laid out by regulators.

It’s still not known exactly which financial companies will fall into this category. The biggest banks are included automatically. Regulators have more discretion when it comes what are known as non-bank financial companies, such as huge insurance companies. Companies on the margin reportedly are lobbying hard to avoid this designation.

– JPMorgan effect: As the nation’s biggest bank, JPMorgan automatically will face stricter oversight. The trading loss there is unlikely to affect detailed negotiations about how exactly such companies will be overseen.

By Daniel Wagner AP Business Writer

Student Employment Gap in US for the Class of 2012

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My company, Millennial Branding, partnered with Experience, Inc. to release a study  of 225 US employers called the Student Employment Gap. The study reveals information about employer skill requirements and sources of hire for the class of 2012. The findings were released this morning and I spoke to Jennifer Floren, the founder and CEO of Experience, Inc., about her impressions of them. Jennifer is also the author of The Innovation Generation, a speaker, and is on the board of Jobs for the Future. Experience, Inc.’s network consists of 3,800 universities, 100,000 employers, and over 8 million students and alumni.

What is your overall impression of the internship/entry-level job market? 

Generally, I believe the internship and entry-level markets are heating up in many ways.  More and more employers are realizing that they’re about to face a labor shortage as their Baby Boomer workforce retires, and the competition for up-and-coming talent is becoming stronger.  That said, there is still a significant difference between what employers need and what college students are prepared to contribute.  For entry-level talent that can demonstrate a go-getter attitude, strong communication skills, independent thinking and teamwork, there are many exciting options out there.

Based on the study, what skills do employers look for when hiring recent graduates?

It’s clear based on the data that employers truly value the so-called “soft skills”, such as analytical thinking and communication ability.  I think this speaks to the fact that specific on-the-job skills change, and they change more quickly these days than ever before.  As a result, employers are looking for raw material — talent that they can work with and develop, people who can adapt to changes over time.

Why do you think that employers are still using job boards over social networking sites when recruiting?

Employers use what works.  Although more and more hiring is happening on social networks, employers still want to make sure they are casting a wide net to access talent everywhere possible.  As the world has become more online and social in general, the talent pool has become more fragmented — there are so many sites and channels and platforms and communities being used these days that employers need to publish their opportunities in more venues to make sure they’re seen.

What stood out to you the most in the study?

To me, the most interesting thing about the study was the apparent communication disconnect between employers and entry-level talent.  Employers say they need soft skills… yet entry-level candidates often do not understand which classes are relevant for which career paths, or how to express their soft skills in ways employers understand and appreciate.  Employers say that relevant coursework is highly valuable, yet they rarely communicate their messages to younger students — so how are students supposed to know which courses to take?  If the message of what employers need isn’t getting to a younger audience, then our talent pipeline isn’t going to be well-prepared when it comes time to enter the working world!

What are your top three pieces of advice for college seniors right now?

My top three pieces of advice are simple:  get involved, build relationships, and find inspiration.  Getting involved can include building your resume with internships are — but ANY form of experience is what employers are looking for (it doesn’t have to be an official “internship” per se).  When considering entry-level talent, employers look at your past experiences for demonstration of your ambition, your interests, your skills and aptitudes, etc.  Class projects, student government, volunteering, even being active within your church or family — any experience can showcase how you can contribute to an employer…so get out there and get involved!  Second, build relationships.

All hiring is personal — and whether you meet your future hiring manager or a mentor who can help make introductions that get you in the door, ‘who you know’ can make a big difference.  Introduce yourself and stay connected — relationships make a big difference.  And finally, find inspiration.  Loving what you do will give you the passion to be successful, resilient, persistent and optimistic — and finding what brings you true passion is a process.  So try things out, explore!  Youth is a time of discovery, and no one expects you to have all the answers yet — use your time to sample different organizations, areas of study, types of jobs or projects – you’ll hone in on what really gets you excited, and loving what you do is the ultimate success!

By Dan Schawbel, Forbes Contributor Newscribe : get free news in real time

Dan Schawbel is the managing partner of Millennial Branding, a Gen Y research and management consulting firm.  He is also the #1 international bestselling author of Me 2.0 and was named to the Inc. Magazine 30 Under 30 list in 2010. Subscribe to his updates at Facebook.com/DanSchawbel.

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A “great haircut” for U.S. growth 

Trust deficits – US-China Relations

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The conductor: At the opening ceremony for the U.S.-China Strategic and Economic Dialogue, Secretary of State Hillary Clinton introduces an unnamed U.S. official to China‘s State Councilor Dai Bingguo. Tense circumstances due to the case of Chen Guangcheng have put all her diplomatic skills to the test.

Lack of Mutual Sino-U.S. Military Trust a Major Threat

Is Washington encouraging the Philippines and Vietnam to challenge China’s territorial claims in the South China Sea? In this editorial from the Global Times, which reads like a summary of what the U.S. and China have been discussing since Friday, Beijing warns the U.S. not to try to make up for its economic weakness with what it regards as foolish military adventurism.

The China-U.S. Strategic and Economic Dialogue pertaining to military cooperation and the visit by China Defense Minister Liang Guanglie to America are important events for military exchanges between the countries. These will create a certain degree of relaxation and ease their long-running military confrontation. Such an atmosphere is essential to improving ties, as it reduces the damage and the significance of the friction over specific matters. [reference to controversy over Chen Guangcheng].

Military trust should be amassed by resolving disputes over China’s sea territory [reference to the South China Sea], and through a process of boosting mutual understanding and adapting to circumstances as they arise. This will help build a foundation for the two nations to avoid misinterpreting military maneuvers by the other.

Thus, both nations must have a clear and accurate understanding of one another. It is unwise for the United States to look down on China as a mere land force that can only play a limited regional role. Because China has interests around the world, it is essential for its military to extend its reach further. Neither should China view the presence of the U.S. military in Asia as illegal or ignore America’s special influence over global security. China must accept the truth that the U.S. is an essential power in the region.

The objective of achieving mutual military trust will never be reached if China seeks to squeeze the United States out to lead Asia on its own, nor if the U.S. seeks to constrain the rise in China’s military strength. Luckily, neither Beijing nor Washington has such aims.

Now, as their interests and objectives overlap, each country is in a defensive crouch in relation to the other, giving an opening to brief confrontations. Since the United States has announced its return to Asia, the respective bottom lines of both nations concerning the South China Sea have come close to clashing.

Although analysts still see the possibility of a military conflict in the South China Sea as slim, once the two sides enter into an arms race and making displays of military strength, all efforts to build mutual trust will be ruined.

Competing territorial claims in the South China Sea: China sees

the United States meddling, whereas other nations in the region

regard the U.S. as playing a balancing role.

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South China Sea Islands Dispute; US won’t take sides 

How American Consumers Handle an Ever-Growing Heap of Personal Debt?

Source: Cornell University,Newswise — ITHACA, N.Y. – Got debt?

Probably. Most Americans do. Bombarded by home mortgages, college loans, credit card payments and car loans, the typical American consumer faces a mountain of financial obligations. Louis Hyman, Cornell assistant professor in the College of Industrial and Labor Relations, will speak to journalists about debt in his new book, “Borrow: The American Way of Debt,” on Friday, Feb. 10, 2012 at 10 a.m. at Cornell’s ILR Conference Center, sixth floor, 16 E. 34th St., Manhattan.

“Borrow: The American Way of Debt” is a lively, historical account of consumer debt in America, published by Vintage/Random House on Jan. 24, 2012.

In this society, debt is pervasive. Hyman says the average American owes more than $15,000 in credit card debt alone, and he provides a fresh look at the financial mess in which millions of Americans wallow. “Today’s problems are not as new as we think,” Hyman says.

“Borrow” examines how the rise of consumer credit – virtually unknown before the twentieth century – and how it has altered our culture and economy.

“My book puts today’s economy in context and helps explain how we got here, and then offers some novel solutions for today’s troubles,” Hyman says

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Obama and Bernanke: Cooking Up Another Market Bubble?

BY James Marshall Crotty, Forbes Contributor

“Ben, look. You have to keep interest rates low or I am toast, dude.”

The two most important leaders on planet earth each delivered major public speeches in the last 24 hours. Last night U.S. President Barack Obama, in what might be the last State of the Union address of his political career, suggested that the economy is improving, unemployment is heading down, the world is safer, and America’s standing in the world vastly improved all because of his administration’s policies. In a press conference this afternoon, Federal Reserve Chairman Ben Bernanke (by far, the most powerful non-elected person on the planet) delivered a more cautious assessment, suggesting that improved economic conditions, including decreased unemployment and steadily low inflation, will be affected by what happens in Europe and in the broader non-U.S. global economy (hint: China). Today’s upward rise in the U.S. stock market suggests that investors believe both men might be right. That is, there will be economic headwinds, but the U.S. will manage those headwinds well.

Just to make sure, Bernanke signaled that the Fed would keep interest rates low at least through 2014. This is unhappy news to America’s savers and the rabidly anti-Fed Ron Paul (who believes Fed money printing is the root cause of our economic malaise), but music to the ears of investors, new homebuyers, and for what Obama terms those “responsible homeowers” seeking home refinancing (who will now pay a 30-year mortgage rate of just 3.88%). Who knows, maybe housing principal forgiveness is on the way too (ah, heck, throw in a toaster while’s you’re at it).

But, with such initiatives, are Obama and Bernanke just cooking up another housing and market bubble to go along with the current student loan bubble?

What are your thoughts on Obama’s State of the Union and the Fed Chairman’s news conference today? Are things slowly getting better? Will we be able to manage the turmoil in Europe and a slower growth China? Will their remedies make the U.S. economy stronger long-term?

Or are these two men missing some elephant in the living room?

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US Military Strategy to Asia: Poke a Stick In China’s Eye

A military pivot to Asia

By TANG SIEW MUN

‘Pivoting to Asia’ is fast becoming the centrepiece of US strategic and diplomatic objectives.

IF there were doubts about America’s “return” to Asia, all were dissipated with the release of the new strategic guidance report by the Pentagon on Jan 5.

Washington’s grand objective can be gleaned from the title of the report, “Sustaining US Global Leadership: Priorities for 21st Century Defence”.

While the report affirms US interests worldwide and renews its pledge to uphold its commitments to its allies and friends, it unambiguously stresses the importance of Asia. It states that the US “will of necessity rebalance towards the Asia-Pacific region”.

The report follows through the grand strategic vision enunciated by Secretary of State Hillary Clinton in an article published in Foreign Policy where she declared that “the future of politics will be decided in Asia, not Afghanistan or Iraq, and the United States will be right at the centre of the action”.

“Pivoting to Asia” is fast becoming the centrepiece of US strategic and diplomatic objectives.

Before “pivoting” became the cornerstone of the US-Asia policy, the region was abuzz with the US “return” to Asia. China, understandably, was especially agitated.

Indeed, there are segments in China who view the US “return” to Asia with a sense of foreboding, as US initiatives are seen as stratagems to contain China’s growing influence and power in the region.

If hitherto there were concerns about the US return to Asia, then Washington’s “pivot movement” to Asia will certainly generate more discussion and potentially countervailing measures.

To be sure, “pivoting” is different from “returning”. In general, a US return would be marked by its heightened diplomatic engagement, especially with its newfound interest and support for multilateral initiatives such as the East Asia Summit.

A US “return” to Asia would be largely viewed by South-East Asia as a positive development, especially in an uncertain strategic environment punctuated by China’s expanding economic and military power.

In this regard, the US is seen as a reliable and indispensable power to balance and, if necessary, to check Chinese aggressive designs.

However, pivoting in the context of the Pentagon report may see an increased US military presence in the region.

South-East Asia is no stranger to the US military. Up until November 1991 when the Clark Air Base was returned to the Philippines, the US had maintained a large military footprint in the region.

The US has close relations with its treaty partners Thailand and the Philippines. In November 1990, the US negotiated an arrangement with Singapore that gave it access to and use of facilities in the city state.

Singapore is also home to the US Navy’s Logistics Group Western Pacific that provides logistics support for the US Seventh Fleet.

For many decades, the US had consistently maintained a high strategic profile through bilateral and multilateral military exercises and other military-to-military cooperation.

The hubs-and-spokes system of bilateral security treaties, which includes South Korea, Japan and Australia, has long been regarded as the backbone of the region’s security.

The strategic presence of the US in, and its engagement with, the region is often quoted as one of the primary reasons for South-East Asia’s stability and growth.

The argument goes that the US provided the security umbrella which allowed South-East Asian states to limit their defence outlays.

This argument was certainly valid during the Cold War era when the Asean states were undoubtedly pro-American and cooperated to varying degrees with the US.

In fact, when the US Air Force pulled out of the Clark Air Base, there was a sense of trepidation and the perception that the US was withdrawing from the region.

There was genuine fear about a power vacuum which would “invite” other major powers to supplant the US’ dominant role in regional security.

Fortunately, these fears were unfounded as the expected jostling for primacy in Asia and the feared US retreat did not materialise.

While the US’ diplomatic and political “return” to the region is applauded and welcomed, reception for its “pivot to Asia” may be less enthusiastic.

There are several reasons for such pessimism. Granted that the pivot strategy will be multifaceted and not uni-dimensionally focusing on military power.

However, it is the latter component of the pivot strategy that may prove to be most controversial.

To the extent that pivoting entails an enlarged and more visible military footprint, it will be destabilising and anathema to regional security.

An increased US military profile will generate what academics understand as a “security dilemma” and make China feel uncomfortable, to put it mildly.

A case in point is the recent announcement of the deployment up to 2,500 US Marines on a “rotational” basis in Darwin, Australia.

Washington and Canberra were quick to emphasise the transient nature of the deployment, but whichever way one attempts to slice and dice “Darwin”, in the eyes of the Chinese and the rest of South-East Asia, this move puts hundreds of well-trained and highly mobile US military personnel at the edge of the region.

It is a potential “beach head” for the US to organise and launch military expeditions into South-East Asia and the Indian Ocean.

We can also expect to see more of the Stars and Stripes in the region.

Last month, Chief of Naval Operations Admiral Jonathan Greenert wrote in the US Naval Institute’s Proceedings that the US is contemplating deploying littoral combat ships in Singapore and “other places” in South-East Asia.

We must ask ourselves whether there is an imminent threat in the region that necessitates increased fire power from the US.

There is a point beyond which an increased military presence provides a negative marginal return. More is not always necessarily better.

There may be quarters in South-East Asia that embrace a larger US military role and profile. Notable among these are the “hedgers” who no doubt see the US as the ultimate “insurance policy” to guard against strategic uncertainty.

When it is diplomatically untenable and militarily impractical to balance against China’s expanding military might, then the growing presence of the US is reassuring, to say the least.

It cannot be denied that the People’s Liberation Army’s (PLA) growing muscle is being closely monitored and analysed.

While there is no unified response to this phenomenon, it is accepted that South-East Asia cannot match the PLA gun for gun.

A military response is destructive and ultimately futile. The preferred modality is to embed China in a web of regional and multilateral cooperation mechanisms.

The Asean China Free Trade Area (ACFTA) and the Asean Plus Three (APT) are but two examples.

South-East Asia should stay the course and continue its ongoing successful engagement of China. However, the military component of “pivoting” may serve to amplify the strategic divide and suspicions between China and South-East Asia.

The implications of “pivoting” are multiple. For a start, the US will seek a larger voice and role in the region.

Secretary Clinton spoke for many Ameri­cans when she asserted that Asia is the future and correspondingly the US must be in Asia.

The substantive question that needs to be asked is, “When the US leads, should Asia fall in line and accept US leadership?”

It would be unrealistic for Washington to assume that Asia will do this. Acceptance of US leadership is not universal, nor is it automatic.

Support for the US in Indonesia, South-East Asia’s largest country, is slipping. The Pew Global Attitudes Survey showed it has declined from 56% in 2009 to 49% in 2010.

Asia does not dance to the tune of Washing­ton, nor does it march to the beat of the Chinese.

While Washington sees its future in Asia, it needs to be mindful that the success of its “pivot” strategy is contingent on the concurrence and support of Asia.

The operative words are cooperation and collaboration.

The region’s strategic uncertainty – read as fear of China – cannot be resolved by the placement of more US troops in the region or through military grandstanding.

It is not about being pro-US or anti-China but how to build a stable, secure and prosperous future. The US pivot to Asia should be welcomed to the extent that it contributes constructively to a better and brighter future for Asia.

> The writer is Director (Foreign Policy and Security Studies) at the Institute of Strategic and International Studies (ISIS) Malaysia. The views are his own.

Obama’s New Defense Strategy: Poke a Stick In China’s Eye And See What Happens

This new “Defense Strategy” of President Obama’s is a deliberate provocation of the Chinese, as was his trip to Asia last month when he made his none too cute “We’re Back” declaration.

Last Month in Australia Obama was quoted as saying, “Let there be no doubt: in the Asia-Pacific in the 21st century, the United States of America is all in.”

If there was doubt in anyone’s mind in Beijing, about American intentions Obama dispelled that doubt and any room for reasoned diplomacy by elaborating that this is a “deliberate and strategic decision” America is “here to stay”.    What an affront to the Chinese!  We were hoping the State Department would let this new offensive go quietly away.   Unfortunately, that is not to be.  Obama’s “Strategy” is a dangerous road to take.  If it is intended to assist him in his re election efforts it will seriously backfire.  Unfortunately, the consequence won’t be just Obama’s and the Democrat Party.  The outcome of this foreign policy fiasco  will fall squarely on the shoulders of America and it’s allies.  This new policy is literal insanity. It would appear Obama is playing right into the hands of Hu Jintao and the Chinese military leaders who are just chomping at the bit for a fight.    An Article in the Economist in a much more nuanced and cautious fashion discusses the concerns many other’s have about the manner in which Obama is flexing his muscles and apparently bullying for a fight with the Chinese.

China hasn’t issued a stamp with this ferocious a dragon since 1878 (Photo Xinhua)

This is the year of the dragon and they must be deft dumb and blind over in foggy bottom to have missed the significance the Chinese attribute to this auspicious event.  The dragon was a symbol of  China’s Imperial Power and today it is a not too subtle symbol of China’s Military, Political and Economic power.  That China chose to reissue such a ferocious stamp this year is no coincidence.

We have to ask ourselves why has Obama picked this time to insult and bully a world power that is vastly superior to our own, certainly in it’s own backyard.  Does anyone think the Chinese are going to stand idly by as Obama in his arrogance, asserts his “right” to “ensure China’s peaceful rise to power”.    The implied threat in that statement from Obama and the Clinton State Department is palpable.  The US, in the person of Obama, is saying, “We’re going to come into China’s sphere of influence and arbitrate and adjudicate any and all issues we decide have a national security interest to us.”  Certainly, the United States should not cede it’s position as a world power and it’s interests but to do so in such an ignorant and arrogant fashion is inexcusable.

A bizarre thought occurs to us that given Obama’s own love of Socialism and Marxism maybe his provocation of China is intended to give Hu and General Lin Yuan, (A possible successor to Hu) an excuse and license to go to war with America.

Posted by FarmerRicky

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The natural evolution of markets

THINK ASIAN By ANDREW SHANG

Man is a social animal. The 19th century sociologist and philosopher Georg Simmel argued that trade and exchange is “one of the purest and most primitive forms of human socialisation.” Last month, while travelling through remote parts of West Timor, in Indonesia, I was able to study first-hand how rural markets operate. I could not help wondering why so-called primitive markets such as these work so well when complex financial markets can be so dysfunctional?

Rural markets in East Timor are wonders of trade. Men and women in tribal costume converge on different villages on different days of the week. Everyone knows when to go to which village for these markets, which typically start at dawn when produce is fresh and often finish by 11am. Economists would surely call this scene of bustling rural commerce a “concentration of liquidity.”

As the late Stanford economist John McMillan argued, the market is a human construction- a tool. The market has features to make it work smoothly: mechanisms to organise buying and selling; channels for information flow; laws that define property rights, and self-regulating rules that govern behaviour.

Most rural markets are much more complex than they appear. They sell everything needed for daily life and have their own hierarchies. The stalls of wealthier, established traders are sheltered and in the best locations, while poorer traders just spread their wares on the ground. Specialisation is evident even in this basic setting there are designated places to buy textiles, fresh meat or fish, vegetables or household goods. These markets also function efficiently as information exchanges. Prices differ depending on who you are and what you know. Tourists pay more because they do not know the local language or rules, while locals bargain vigorously.

Market change: A general view of ebay headquarters in San Jose, California. Websites like ebay and Alibaba has eliminated geographical space by allowing transactions in rural markets to be done online. —Reuters

In these basic markets, you can observe the entire range of business evolution, from simple production, to wholesaling to final sale. Everything is designed for convenience and to reduce transaction costs. For instance, there are no roadside petrol pumps. Instead, petrol is sold in small bottles because the most common transport are motorbike taxis that carry as many as three passengers plus the occasional chicken or bag of rice.

The permeation of technologies like mobile phones and the internet even into these remote rural areas has accelerated the speed at which information travels through these markets. This means even lower transaction costs between business, between consumers, and from businesses to consumers. In some instances, use of websites like eBay and Alibaba have eliminated geographical space by allowing transactions in such markets to be done online.

With technology ending the isolation of rural markets and linking them to global markets, the production and marketing game is changing beyond recognition. A similar phenomenon occurred in the airline industry. Budget airlines use the internet to sell forward excess capacity at below average cost, thus filling their planes to capacity and maximising profits. This created a new market because before, many people could not afford to fly.

You see the effect of high transportation costs clearly in rural markets. Here, locally produced goods are ludicrously cheap, but imported good are very expensive.

The study of modern, sophisticated supply chains enables us to appreciate the fact that producers do not necessarily make most of their money in the product-to-consumer chain. The rule of thumb is that if a product costs US$1 to make, the distribution and transportation costs may account for US$3 of the US$4 final sale price to the consumer. Common conceptions of innovation still focus largely on creating new products, whereas services or process innovation are probably much more profitable and add more value than is generally understood.

To illustrate, the global trade regime still has a “hardware” focus, concentrating on physical trade rather than the more complex and less measured services trade. Apple innovated not in manufacturing, but in design and lifestyle. This means that it can sell a product at much higher prices than its competitors. Once it has captured a market, value creation comes from downloading new apps for the iPhone and iPad.

Financial services have emerged as one of the most profitable businesses, certainly until the last financial crisis. For a time before the 2007 crisis, the turn on capital in the financial sector was 20% per annum, significantly higher than for manufacturing and other real sector businesses.

With the benefit of hindsight, we now know there were two major reasons for the large profits in finance. The first is that the physical cost of creation of a financial derivative is almost zero, as it is an abstract product of its creator’s imagination. For many, the reason to buy a derivative is to hedge and reduce risk. If a buyer believes that the hedge is useful, which it can be under specific circumstances then he or she will be willing to pay a premium for that hedge. A second reason is leverage. The greater the leverage, the larger the profits are for both lender and borrower. But there is a catch it adds systemic risk to the entire market and can be fatal to the over-leveraged borrower.

The FX Accummulator is a good example. It is a financial product that looks and feels like a wonderful foreign exchange hedge that yields good profits for the speculator. However, many were not aware that at certain price levels, the amount of margin called by the lender could be greater than the total assets held by the speculator. Thus, what appears to be a “safe” hedge can turn out to be toxic, particularly when markets are volatile.

This raises the question whether financial markets have evolved beyond the limits of social safety. University of Southampton Professor Richard Werner is one of the first to point out that there are two aspects of credit creation one that contributes to real value creation and one that does not. Financial markets have evolved into highly complex systems that consumers, financial experts or regulators do not fully understand. Increasingly, they contribute less to social utility and become systemically fragile.

As McMillan presciently pointed out, “markets are not miraculous. There are problems they cannot address. Left to themselves, markets can fail. Viewed as tools, markets need be neither revered nor reviled just allowed to operate where they are useful.”

Rural markets arise from communities that have organised their commerce in such a way that reinforces social utility and stability. The Holy Grail of financial theory and practice in the world’s advanced economies is to identify at what level of complexity financial markets exceed the limits of social stability.

Andrew Sheng is President of Fung Global Institute.

China slams Asia-focused US defense strategy

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BEIJING (AP) — China on Monday slammed the United States’ new Asian-focused defense strategy, saying its accusations of a lack of openness in Beijing’s military policy were “groundless and untrustworthy.”

China’s ministry spokesman Geng Yansheng, pictured said the U.S.’s new military strategy would be ‘beneficial’ for both countries

President Obama speaking during a media briefing at the Pentagon where he vowed to strengthen military presence in the Asia-Paci

The strategy unveiled Thursday shifts the U.S. military focus away from Iraq and Afghanistan and makes a renewed commitment to assert America’s position in the Asia-Pacific region.

The document says the growth of China’s military power must be accompanied by greater clarity in its strategic intentions to avoid causing friction in the region.

In response, China said it was committed to peaceful development and a “defensive” policy.

“China’s strategic intent is clear, open and transparent,” Foreign Ministry spokesman Liu Weimin told reporters at a regular briefing.

“Our national defense modernization serves the objective requirements of national security and development and also plays an active role in maintaining regional peace and stability.

It will not pose any threat to any country,” Liu said. “The charges against China in this document are groundless and untrustworthy.”

He added that maintaining peace, stability and prosperity in the region serve the common interests of all Asia-Pacific countries “and we hope the U.S. will play a more constructive role to this end.”

U.S. Defense Secretary Leon Panetta said the U.S. is not anticipating military conflict in Asia, but that it became so bogged down in Iraq and Afghanistan after the Sept. 11, 2001, attacks that it missed chances to improve its strategic position elsewhere.

Panetta said the Asia-Pacific region is growing in importance for the U.S. economy and national security, so the nation needed to maintain “our military’s technological edge and freedom of action.”

The new strategy also identified India as a long-term strategic partner that can serve as a regional economic anchor and provider of security in the Indian Ocean region. It said the U.S. will try to maintain peace on the Korean peninsula by working with allies and others in Asia to defend against North Korean provocations.

Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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