People-trafficking and people-smuggling
Drawing lines in a dark place
Coercing hapless human beings into sex or servitude is obviously evil, but defining the problem (let alone solving it) is very hard
LIVING from the forced labour, or unwillingly provided sexual services, of vulnerable people is a horrific business, and more should be done to punish the perpetrators and succour the victims. That is a sentiment to which almost all governments readily assent, even in the (quite large) slice of the world where links exist between officialdom, the police and the shady types who trade in flesh.
And at least in principle, cross-border trafficking is acknowledged to be so manifestly dreadful that every civilised state must be seen to help correct this wrong. As one sign of this feeling, a Council of Europe convention on trafficking went into force this year; 17 countries have ratified it.
The American government has for the past eight years been mandated by law to wage a many-fronted struggle against human trafficking, at home and around the world. And some hard arguments are now raging in Washington, involving politicians, lobby groups and rival government agencies, about whether the struggle should be escalated.
Why, one might ask, should there be arguments about an issue that, in moral terms, seems so clear-cut? Mainly because the precise definition of trafficking, and hence of trafficking victims, is in reality quite difficult—whether you are a policeman or a moral philosopher.
Among pundits, people-trafficking is distinguished from the lesser evil of people-smuggling—an uncomfortable but almost unavoidable part of social reality in areas that adjoin rich countries with a demand for labour. In Kosovo, it is an open secret that you can be whisked illegally to Vienna by paying €4,000 ($6,000) to a professional smuggler. The Bosnian town of Bijeljina, once a black spot for ethnic cleansing, is now a way-station for south Asians who pay around $16,000 per head to be smuggled into the EU heartland: half on departure and half on arrival.
People-smuggling is done with the consent of those involved; they have no further debt to the gangsters who abet them once they arrive. Trafficking means moving people under duress or false pretences—or in order to use them for forced labour (ranging from domestic work to commercial sex). So the theory goes; but in practice, as the latest State Department report concedes, there is an overlap between the two activities. It often happens, for example, that a poor Indian is hired for menial work in a Gulf state—only to find that his wage is much less than promised, and his passport is seized. This leads to a form of servitude, and that person’s treatment could be called trafficking.
Despite the grey area, public perception of the two problems often diverges. In Australia, for example, public opinion favours a tough line over people-smuggling—but there has been a surge of sympathy for the victims of trafficking (often brought to Australia from Thailand or Indochina) since the release last year of “The Jammed”, a film set in a Melbourne brothel.
And in recent years both the sharper definition of, and the fight against, human-trafficking have become a high priority for the State Department; its grading of other countries’ anti-trafficking efforts is an elaborate and closely-watched business. Countries in “tier 1” (including most of the EU but not Ireland, Greece, Estonia or Latvia) are deemed to comply fully with the minimum standards of American law. Those in “tier 2” don’t yet comply but are trying hard. A lower tier, labelled “Watch List”, consists of countries that are trying, but not hard enough or with good enough results. In the bottom “tier 3” (including American allies like Saudi Arabia) are those that are neither complying nor trying hard enough. Even rickety post-Soviet states (see chart) can improve their scores if they follow what is deemed to be the right advice.
As the State Department has found, it is hard to discuss cross-border trafficking without looking at what occurs inside countries. Its reports have thus broadened into a more general look at the ways in which people are forced to work or have sex against their will. Servitude, it finds, can take many forms: for example, children are mutilated and forced to beg—or else fight in ghastly wars. Slavery, the State Department suggests, happens in many successful emerging economies; it cites bonded labour in Brazil’s plantations, or children working long hours making bricks in China. Indeed, bits of the department’s 2008 report read as though they were penned by a left-of-centre NGO, decrying the dark side of globalisation.
And some of the other ideological issues now coming to a head in Washington are even more contentious. Behind them all is an emotive question: whether there can be such a thing as willing prostitution.
How far can you go?
Since 2002, the policy of the United States has been to oppose prostitution, and to urge all governments to “reduce the demand” for prostitutes through education and by punishing those who patronise them. But how far can this principle be pressed? As passed by the House of Representatives last year, a new bill on protecting the victims of trafficking could have made it illegal for Americans to consort with prostitutes anywhere in the world (even when the prostitutes are adults, and in countries where buying sex is legal). The House version of the bill would also broaden the obligations of America’s federal (as opposed to state) authorities to curb the trafficking of sex workers inside the country. The Justice Department (amid many other objections) said all this would place a huge burden on federal agencies that are already overstretched.
Supporters of stepping up the fight (who range from feminist groups to the religious right) compare their campaign to that of William Wilberforce, whose efforts to free the British empire’s slaves bore fruit 200 years ago. John Miller, an ex-head of the State Department’s anti-trafficking programme, has deplored the Justice Department’s campaign to modify the proposed legislation; its complaints, he says, imply leniency towards an absolute evil, slavery. But the American Civil Liberties Union, a lobby group, has praised the Senate for deleting language which, in its view, would make prostitution and trafficking virtually identical. Lots more arguments can be expected before the bill reaches the White House.
In fact, says Jorgen Carling, a Norwegian who has studied the trafficking of Nigerian women to Europe, it is rarely possible to draw the absolutely clear line that policymakers want between “innocent victimhood” and “willing participation” in sex work. For example, people may know that they are being taken abroad as sex workers, but have no idea of the harsh conditions, and the absolute loss of control over their lives, that they will face. This may be an area of life where most people can recognise evil when they see the details of one horrifying case—but where it will always be hard to make hard-and-fast rules that suit every country.
America's Obsession
Commentary by Amity Shlaes
Aug. 20 (Bloomberg) -- Everything will be all right if we just fix the housing problem. That was the hope investors clung to as they watched Fannie Mae and Freddie Mac crumble this week.
The presidential campaigns reflect a similar faith in housing's curative power. Senator John McCain recently suggested that not merely mortgage-loan defaults but also anxiety about those mortgages was our worst problem: ``Americans are uncertain about this crisis.''
``Three-Bedroom Ranch,'' a Barack Obama campaign commercial, suggests that America needs a ``plan to build'' for the middle-class rather than subsidize corporate interests. The candidates seem to believe that recovery is something with French doors and a new roof.
But what if houses aren't a haven but a prison? What if even a booming real estate market itself is a problem? That's the theory of a winning Phelps -- not Michael Phelps, the Olympic swimmer, but Nobel Prize economics laureate Edmund Phelps of Columbia University. Phelps deplores the collective energy Americans spend on family housing.
``It used to be said that the business of America was business,'' Phelps says. ``Now the business of America is homeownership.'' To grow optimally, he says, America needs to get beyond its house passion.
Like an apartment building, the Phelps argument works on multiple levels. The first is obvious. The federal government allocates too many resources to housing. Back in 2005, when the troubles of Fannie Mae and Freddie Mac weren't yet commanding the front page so regularly, the government was already spending about $41 billion to subsidize housing directly.
Indirect Support
More than triple that amount, or $147 billion, was foregone on indirect tax subsidies to homeowners. That chunk of change might have been used for any number of government projects that would appeal to everyone from Laura Bush to Dennis Kucinich: pounding percentages into fifth-graders' heads, lowering the capital-gains tax, declaring summer gas holidays -- you name it. There's a certain laziness to the national campaign for homeownership, and it has cost the country a lot.
The real estate obsession is also a private-sector problem. The most important component of U.S. growth is productivity. To put it in schoolbook terms, if Americans find new ways to make more widgets in less time, that translates into higher wages.
Such productivity gains do occur in housing. But larger gains are usually to be had elsewhere: Silicon Valley, for example. Yet those tax incentives suck private funds into the less-efficient housing industry.
Cult of Housing
Our economic forecasters perpetuate the housing cult by emphasizing real estate data. Yesterday's report of lower housing starts might not even be bad news, yet to listen to the commentators, it was a signal of apocalypse.
Phelps points to a final subtle challenge to the American economy -- the psychic weight we put on houses. Houses comfort, but they also stupefy. After Sept. 11, many citizens discarded travel plans and retreated into their homes for comfort. The Bush administration's talk of the ``homeland'' also suggests a premium on security, not risk.
Hurricane Katrina exacerbated the national homebody tendency -- at the end of the summer of 2006, around the anniversary of the New Orleans disaster, Home Depot Inc. even began marketing a storm-safe room from DuPont Co.
Housebound, Americans are becoming ``less nimble,'' Phelps says. Unsold homes prevent families from moving. The deeper challenge is that they are so attached to their houses that they don't even want to move when they can sell. This stuck-in- the-mud attitude too closely resembles that of Europeans.
Economic Gridlock
Phelps's anti-house argument calls to mind the analysis of one of his Columbia colleagues, Michael Heller. Heller's new book, ``The Gridlock Economy,'' posits that that ``too much ownership wrecks'' the economy.
The air traffic controllers' association says most flight delays would be reduced if we built just 50 miles of new runways. O'Hare Airport in Chicago desperately needs reconfiguration. Yet, as Heller notes, homeowner associations in suburbs such as Elk Grove Village and Bensenville have managed to prevent such work, just as homeowners in Queens have stalled expansion of LaGuardia Airport in New York.
But Phelps's argument is more profound. It is not anti- property. It is pro-property -- just ``pro'' all kinds of property, not merely bricks and mortar. His architecture of reform starts with abolishing the massive housing subsidy, including that sacred home mortgage-interest deduction.
Shifting Subsidies
Phelps also would subsidize innovation instead of agriculture, including innovation by those corporations that the candidates regard as suspect. ``Corporate governance,'' Phelps writes in an e-mail, ``surely requires a major rehaul'' so that more often ``a few talented investors can command decisive stakes at the big companies.''
Concerned about inflation, investors may want to add a demand to Phelps's list: Tighter money so that citizens aren't forced into homes as an inflation hedge.
Phelps would also establish a Contribution Medal from Washington modeled after the Medal of Freedom, rewarding citizens for generating or funding an idea that has proven itself in the commercial world. He suggests classes in high schools that expose teenagers to Miguel Cervantes, whose Don Quixote hero traveled rather than moldered, or philosophers from Aristotle to Henri Bergson.
Philosophy as antidote to subprime foreclosure is a different angle than the usual discourse about housing, but one that reveals the limits of our political imagination. That imagination is worth stretching, for while America's economic salvation does lie somewhere, that place is probably not a house.
Aug. 20 (Bloomberg) -- Fannie Mae and Freddie Mac's success in repaying $223 billion of bonds due by the end of the quarter may determine whether they can avoid a federal bailout.
Fannie, based in Washington, has about $120 billion of debt maturing through Sept. 30, while McLean, Virginia-based Freddie has $103 billion, according to figures provided by the government-chartered companies and data compiled by Bloomberg.
Rising borrowing costs and evidence that demand for their debt was waning last month led Treasury Secretary Henry Paulson to seek the authority to pump unlimited amounts of capital in Fannie and Freddie in an emergency. Freddie paid its highest yields on record in a debt sale yesterday amid concern that credit losses are depleting the capital of the beleaguered mortgage-finance companies. Shares of Fannie and Freddie tumbled to the lowest since at least 1991, a sign that stockholders view a bailout as increasingly likely.
Rolling over the debt ``is the single most important factor to their ability to remain liquid,'' said Moshe Orenbuch, an analyst at Credit Suisse in New York. ``So far, they've been able to do that.''
Investors in Asia, the biggest foreign owner of Fannie's $3 trillion of bonds, are reducing their share of purchases, potentially increasing the need for Paulson to make good on his pledge to backstop the companies.
``This whole backstop mechanism was set up so the actual need for it could be avoided,'' said Mahesh Swaminathan, a mortgage strategist for Credit Suisse in New York. ``The market is testing the Treasury's resolve.''
New Capital
The companies, responsible for 42 percent of the U.S. home loan market, need as much as $15 billion each in fresh capital to reserve against losses on mortgages and related securities that they either own or guarantee, Paul Miller, an analyst with Friedman Billings Ramsey & Co. in Arlington, Virginia, said.
The Treasury will probably be forced to buy as much as $30 billion of preferred shares in both Fannie and Freddie by the end of next month, according to Bill Gross, who manages the world's biggest bond fund at Pacific Investment Management Co.
Freddie Mac ``continues to have strong access to the debt markets at attractive spreads,'' spokeswoman Sharon McHale said. Fannie spokesman Brian Faith declined to comment.
``Treasury is monitoring market developments vigilantly. We are focused on encouraging market stability, mortgage availability, and protecting the taxpayers' interests,'' Treasury spokeswoman Jennifer Zuccarelli said.
Fed Clash
Richmond Federal Reserve Bank President Jeffrey Lacker became the first Fed official to clash publicly with the Bush administration's strategy yesterday, saying the companies should be ``credibly and demonstrably privatized.''
``I think a path like what Chairman Greenspan suggested is probably the best path,'' Lacker said in a Bloomberg Television interview in Washington. Former Fed chief Alan Greenspan has advocated nationalizing the two largest U.S. mortgage financers, splitting them up and selling them off.
Freddie yesterday sold $3 billion of five-year reference notes at its highest yields over benchmarks in at least 10 years as demand fell from Asian investors and central banks. The debt priced to yield 4.172 percent, or 113 basis points more than U.S. Treasuries of similar maturity. The company sold five-year notes in May at a spread of 69 basis points. A basis point is 0.01 percentage point.
Widening Spreads
In market trading, investors this week demanded an extra 104 basis points in yield to own Freddie's five-year debt rather than Treasuries of similar maturity, the most since reaching a 10-year high of 114 basis points in March. The gap narrowed to 74 basis points after Paulson's announcement.
Fannie spreads approached a 10-year high of 104 basis points on Aug. 18, from 74 basis points on July 28. In the decade before 2008, the spread averaged 43 basis points.
``The fixed-income markets are starting to lose faith,'' Miller said.
Fannie paid a record high yield in a $3.5 billion sale of three-year benchmark notes last week that drew less demand from Asia. Investors in the region bought 22 percent of the offering, almost half the demand of three months ago and about two-thirds of Asia's usual purchases.
``The 22 percent of Asian participation is worrying,'' said Ajay Rajadhyaksha, the head of fixed-income strategy for Barclays Capital in New York.
Reducing Holdings
JPMorgan Asset Management Japan is reducing its holdings of Fannie and Freddie debt, according to Shinji Kunibe, a senior money manager at the firm in Tokyo. And Yuuki Sakurai, the general manager of financial and investment planning in Tokyo at Fukoku Mutual Life Insurance Co., said his firm is also ``a little bit worried about the fate of'' Fannie and Freddie.
``The conditions don't seem to be turning into a good environment,'' Sakurai said.
Fannie rose 12 cents to $6.13 in early New York Stock Exchange trading after falling to a 19-year low yesterday. Freddie advanced 3 cents to $4.20 after closing at the lowest level since January 1991. Both have tumbled more than 90 percent in the past year.
Fannie's market value has shrunk to $6.47 billion as of yesterday and Freddie's declined to $2.7 billion, making it increasingly difficult for the companies to raise equity through public markets, Miller said. The companies have reported a combined $14.9 billion of net losses the past four quarters.
After receiving authority last month to inject unlimited capital into Fannie and Freddie, a Treasury spokeswoman this week said Paulson had no plans to use his new power.
Highlighting Problems
Initial optimism that Paulson's proposal would bolster confidence in the companies has vanished on concern that the deteriorating housing market may force a bailout, a move that would likely wipe out common shareholders and potentially some preferred stockholders, Miller said.
``It hasn't restored any faith, it just highlighted their problems,'' Miller said. ``The market has come to accept the fact that the government has got to do something.''
Freddie's 5.57 percent perpetual preferred shares are trading at $9.37 to yield 15.3 percent, compared with $17.99 and a yield of 7.77 percent on June 30 before the crisis erupted. Fannie's 5.5 percent preferred shares yield 16.4 percent, up from 7.83 percent on June 30.
Fannie was created as part of Franklin D. Roosevelt's New Deal in the 1930s and became a publicly owned company in 1968. Freddie was started in 1970, when the economy was strained by the Vietnam War.
The companies, which own or guarantee about $5 trillion of the $12 trillion of outstanding U.S. home loans, help expand financing to homebuyers by purchasing home loans from lenders and packaging other loans into securities that they then guarantee.
Looking for More
Fannie and Freddie issue new debt to pay off outstanding obligations as they mature and have a combined $1.7 trillion in outstanding unsecured notes and bonds. The companies can also sell securities to raise cash.
Freddie had $70 billion of cash and non-mortgage investments on June 30 and $470 billion of agency mortgage securities that it could pledge for secured borrowing, the company said Aug. 6.
``While the plan was extraordinarily aggressive, it seems that the market is looking for something even more explicit and more guidance about what form that will take,'' said Margaret Kerins, the managing director of agency debt strategy at RBS Greenwich Capital Markets in Greenwich, Connecticut.
BOE Panel Split
Aug. 20 (Bloomberg) -- Bank of England policy makers split three ways in August, with one arguing for higher rates to tame inflation and another voting for a cut to stave off a recession.
Governor Mervyn King and the six other members of the Monetary Policy Committee held sway in the decision to keep the benchmark rate at 5 percent, minutes of the Aug. 7 decision showed today. Timothy Besley voted for a rate increase, saying a ``pre-emptive'' move would help anchor inflation expectations. David Blanchflower called for a cut after the bank cut growth forecasts. It was the second such split in as many months.
``It's unlikely the bank will reach a consensus in the next few months,'' Lena Komileva, an economist at Tullett Prebon in London, said in an interview on Bloomberg Television. ``The Bank of England realizes it will have to act late to avoid wage cost spiral, but this is at the expense of growth.''
King has said the economy faces a ``difficult and painful adjustment'' this year, with slowing growth and rising consumer prices. While Britain is edging closer to its first contraction since the early 1990s, inflation accelerated last month to more than double the central bank's 2 percent target.
The pound fell to $1.8572 as of 11:50 a.m. in London from $1.8658 yesterday. The currency has declined 6 percent against the dollar this month as investors increased bets on rate cuts.
Manufacturing, Money Growth
King said last week that economic growth will be ``broadly flat'' over the next few quarters and declined to rule out a recession. U.K. factories have the lowest expectations for output growth since 2001, a survey by the Confederation of British Industry showed today.
Other reports suggest that the economy may still be holding up. U.K. money supply growth slowed less than economists forecast in July, Bank of England data showed today. M4, measuring currency in circulation and deposits at banks, rose 0.9 percent in July after climbing 1.8 percent in June. Economists expected 0.5 percent, according to the median of 11 forecasts in a Bloomberg News survey.
Gross mortgage lending rose 5 percent in July from June to 24.8 billion pounds ($46 billion), the Council of Mortgage Lenders said today.
``Most members of the Committee judged that the current stance of monetary policy was broadly appropriate,'' minutes of the meeting published today showed. ``The outlook for activity growth had continued to worsen, but some build up in the margin of spare capacity was likely to be necessary to ensure that inflation returned to the target.''
Inflation Rate
King, presenting the bank's quarterly forecasts on Aug. 13, said that inflation will reach about 5 percent in the coming months and may slow to below the central bank's 2 percent target in two years if the benchmark rate remains unchanged. Consumer prices rose 4.4 percent in July from a year earlier.
Slower growth and faster inflation have hurt Prime Minister Gordon Brown's popularity. Britain's government budget surplus shrank in July to the lowest since 2005 as the economic slump sapped tax receipts.
The minutes today suggest the Bank of England isn't yet ready to bolster the economy with lower interest rates. Policy makers considered raising and cutting rates at this month's meeting.
A reduction ``might not send an inflationary signal'' if the economy slowed enough, though it would also create the risk of faster inflation, the minutes showed. A rate increase may have unnecessarily hurt growth.
``We may see a split for a while longer, but it's going to become more and more obvious they will have to cut, and we will move toward a two-way split,'' said George Buckley, an economist at Deutsche Bank AG in London.
Aug. 20 (Bloomberg) -- U.S. stock-index futures climbed after better-than-estimated earnings from Hewlett-Packard Co. drove technology shares higher, while airlines slumped following oil's rally to a two-week high.
Dell Inc., International Business Machines Corp. and Apple Inc. gained about 1 percent after Hewlett-Packard, the largest personal-computer maker, said demand for notebooks and orders in Europe and Asia spurred profit and sales. Standard & Poor's 500 Index futures pared their gain after crude's rise sent UAL Corp. and US Airways Group Inc. down more than 5 percent.
S&P 500 futures expiring in September increased 0.50 point to 1,268.90 at 9:12 a.m. in New York, erasing a rally of as much as 0.5 percent. Dow Jones Industrial Average futures climbed 13 to 11,369. Nasdaq-100 Index futures rose 4.25 to 1,923.50. Stocks in Europe and Asia gained.
``There's not a lot of news to grasp onto in these last two weeks of August, so what news does come out and is positive, investors are flocking to that,'' Leo Grohowski, who helps oversee $162 billion as chief investment officer at Bank of New York Mellon Wealth Management, told Bloomberg Television.
About 70 percent of technology companies in the S&P 500 including EMC Corp. and Intel Corp. reported better-than- estimated earnings for the previous quarter. Industry earnings are forecast to climb 17 percent this year, compared with the analyst estimate of a 0.2 percent profit decline for all S&P 500 companies, data compiled by Bloomberg show.
Oil, Federal Reserve
The S&P 500, the U.S. stocks benchmark that's down 14 percent in 2008, has clawed back 4.3 percent from its July 15 low as crude oil's retreat from a record and the Federal Reserve's decision to keep interest rates on hold eased inflation concerns.
Hewlett-Packard added $1.61 to $45.30. Excluding acquisition costs, third-quarter profit was 86 cents a share, exceeding the 84 cents anticipated by analysts on average in a Bloomberg survey. Its earnings forecast for this quarter topped estimates.
Dell, the second-largest personal-computer maker, advanced 27 cents to $24.71. IBM, the world's second-largest software maker, rose 62 cents to $123.18. Apple, the maker of iPhones and Macintosh computers, gained 79 cents to $174.32.
UAL, parent of United Airlines, lost 67 cents to $12.90. US Airways slipped 48 cents to $7.16. Crude oil rose 1.2 percent to $115.91 a barrel before a weekly U.S. government report on stockpiles that may show gasoline supplies shrank for a fourth week in the world's largest energy user.
Buy Morgan Stanley
Morgan Stanley added 20 cents to $38.28. Citigroup Inc. lost 4 cents to $17.15. Goldman Sachs Group Inc. analysts led by William Tanona slashed earnings estimates for banks and brokerage firms and recommended that investors buy shares in Morgan Stanley while selling Citigroup.
Separately, Sanford Bernstein & Co.'s Brad Hintz reduced his earnings estimates for Goldman, Morgan Stanley and Lehman Brothers Holdings Inc. on further declines in the value of fixed- income assets.
Goldman slipped 45 cents to $157.55, and Lehman slumped 9 cents to $12.98.
Freeport-McMoRan Copper & Gold Inc. and Monsanto Co. increased to one-week highs as commodities rallied. Freeport- McMoRan rose 68 cents to $85.38. Monsanto, the world's biggest seed producer, increased 89 cents to $113.75.
Copper gained for a second day on speculation production may fall short of demand in the fourth quarter. Corn advanced for a third day as the dollar dropped, boosting demand for the crop from importers, and on speculation dry weather in Ohio and Illinois may curb yields in the U.S.
Payment Equipment
VeriFone Holdings Inc., the biggest maker of electronic- payment equipment, surged 28 percent on a better-than-projected annual forecast. Earnings will be $1.35 to $1.55 a share, excluding some costs, in the year ending Oct. 31, 2009, the company said. Sales will rise 10 percent to 15 percent from the previous year. Analysts in a Bloomberg survey estimated profit of $1.28 a share and sales of $1.05 billion.
VeriFone rallied $4.12 to $18.85.
The S&P 500 completed its steepest two-day slump since June yesterday after wholesale prices rose faster than economists estimated, housing starts decreased and concern grew that the nation's biggest financial firms will report more losses.
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