Archive for December, 2014

How the first thing Nazis did after invasion of a country was to rob central banks ..

December 18, 2014

Fascinating history and there is a book on this – Chasing Gold: The Incredible Story of How the Nazis Stole Europe’s Bullion. by George Taber.

This article summarises the main idea behind the book:

To keep Hitler’s war machine going, the Nazis captured bullion from European central banks that today would be worth $19 billion, writes George M. Taber, author of Chasing Gold: The Incredible Story of How the Nazis Stole Europe’s Bullion.

Hjalmar Horace Greeley Schacht was Adolph Hitler’s moneyman, and for six crucial years he formulated the dictator’s economic program. At the time, Schacht was Germany’s most famous and respected financier because he had broken the country’s hyperinflation of 1923, one of history’s worst. At the height of that financial crisis, one American dollar was worth 4,210,500,000,000 marks. Schacht in 1932 threw his immense reputation and economic skills behind Hitler and became both the president of the Nazi central bank and the finance minister.

….The centerpiece of Schacht’s economic policy for Hitler was autarky, or total self-sufficiency. During World War I, the British blockade had starved the German people and eventually defeated them. Nearly a half million Germans died of starvation. That prompted Berlin in 1917 to resume submarine warfare in hopes of defeating the Allies before the Americans got into the war. The strategy failed. That blockade experience left the Germans with the post-war determination never again to depend on other countries for vital imports.

Nature had not blessed Germany with all the vital products needed for the country’s war machine. Without them the Nazi army would be little more than toy soldiers.

There was only one problem. Nature had not blessed Germany with all the vital products needed for the country’s war machine. Without them the Nazi army would be little more than toy soldiers. While Germany had plenty of low-grade iron ore to make weapons, it lacked the high-grade steel used in the manufacture of tanks and bombers. Low-grade iron ore, though, could be turned into a higher quality product with the help of a metal known as tungsten or wolfram. That could be bought from Spain and Portugal.

Germany was also short of oil to fuel tanks and bombers. The Germans began a successful crash program to make synthetic oil, but they could still not produce needed high grade oil. That they bought largely from Romania, which fueled the Nazi tanks that invaded the Soviet Union in June 1941. Chromium was another natural resource needed for warfare that Germany lacked. They bought that from Turkey. Sweden also supplied the Germans with ball bearings, another important material.

These five neutral countries wereok with Gold but not with Marks:

Those five supposedly neutral countries would not accept German Reichsmarks in payment for the war goods, but they would take gold. Part of the world’s bullion resides in private hands, but the vast majority of it is in central banks. Willy Sutton robbed banks because that’s where the money was. The Nazis robbed central banks because that’s where the gold was. Swiss bankers played a crucial role in the transactions by being the financial middlemen.

Austria was the first victim of Nazi aggression in the spring of 1938. Because of his close relations with the Bank for International Settlements, which he had helped start, Schacht knew that the Austrian central bank had about 100 tons of gold. That was almost four times as much as the Germans had at the time. When the Wehrmacht marched into Vienna on Saturday morning March 12, Wilhelm Keppler, a businessman and early Hitler backer, and two armed Nazi commandoes arrived at the Austrian Central Bank and took the Austrian gold to Berlin. The Germans forced the Austrian central bank to transfer an additional 5.7 tons that it had shipped to London for safekeeping.

The Nazis also demanded that Vienna’s large and wealthy Jewish community hand over to Berlin 14.3 tons of their private gold. Schacht immediately departed for Vienna to lead the Nazi takeover of the Austrian central bank. In a festive celebration at its headquarters, he led the staff in a pledge of allegiance to Hitler, asking them to join him in “a triple Sieg Heil to ourFührer.”

The windfall arrived at a crucial time for the Nazis. By mid-1938, Berlin was almost out of foreign currency and gold largely because of its rearmament program and would have been forced to cut back their war buildup. On October 3, 1938, Emil Puhl, who soon became vice-president of the Reichsbank, wrote in a memo, “The rapid implementation of rearmament was only possible because of the use of available gold, foreign exchange from the former Reich, and the immediate recovery of Austrian gold, foreign raw material, and valuable securities reserves.”

When the Germans later invaded other European countries, one of their first stops was always the local central bank. After quickly learning what had happened in Austria, foreign central bankers desperately tried to get the gold out of their countries. Usually the bullion was sent an ocean away to Canada and the United States, where it was stored temporarily at the New York Federal Reserve vaults in lower Manhattan but eventually went to Fort Knox. Even the Vatican secretly sent nearly eight tons of gold to New York.

In the darkest days of the Blitz in May 1940, the Bank of England shipped 2,000 tons across the U-boat infested Atlantic. That included not only Britain’s gold but also large stashes held for other countries. Amazingly, not a single ship was sunk. The British nicknamed the secret cargo margarine. After the Nazis invaded the Soviet Union in June 1941, Stalin’s Politburo voted to send by train their three most valuable properties 900 miles to the Eastern side of the Ural Mountains to keep them out of Hitler’s hands. The three: Lenin’s embalmed body, the art works of Leningrad’s Hermitage Museum, and 2,800 tons of gold.

 In the end they had around $600 mn worth of gold:

The Nazis eventually captured some $600 million worth of gold, which today would be worth $19 billion Twitter . That kept Hitler’s war machine going for five years. At the end of World War II in 1945, the Reichsbank still had nearly 300 tons on hand, which was more than it had at the beginning of the conflict. Without the stolen central bank gold, Adolph Hitler would have been an insignificant player in world history.



Dutch Bankers take a religious oath…

December 18, 2014

Well, well, well..What does one say to this news HT: MR Blog).

Dutch bankers are now taking an oath vowing not to engage in unethtical fin practices:


Financial inclusion in Sri Lanka..

December 17, 2014

Nice paper on fin inclusion in SL by Saman Kelegama and Ganga Tilakaratna.

Without much hype, SL has made rapid strides in financial inclusion in South Asian region. About 68% of households have banking accounts highest penetration in the region:


Has Indian PM avoided the Time Magazine curse?

December 17, 2014

Ruchir Sharma has this interesting article.

He says Indian PM has actually won by not being nominated for Time Magazine Person of the Year:


Is giving gifts during Christmas a bad economic idea?

December 17, 2014

Kevin Albertson of Manchester Metropolitan University revisits the idea of gifting during x-mas.

Economists (the mainstream ones) think that gifting leads to dead weight loss.Better to give people cash instead:


How 5,10 paise coins help Mysuru tea vendor track his debtors…

December 16, 2014

Interesting story in Bangalore ToI today. The article shows how a tea vendor in Mysore keeps track of his debtors using 5/10 paisa coins.

Another case whch shows poor are not as stupid as we make it out to be. They design their systems using indigenous ways that are simple yet useful. In particular the systems of accounting and credit management are really worth looking at.

So what is the story here?


Building family businesses in Arab world..

December 16, 2014

Nice interview of Sulaiman Abdulkadir Al-Muhaidib, chairman of Saudi conglomerate Al Muhaidib. Gives you glimpse of the strong tradition of family business in Saudi.

First some bit about the group. It is an investment company:


Rise in options trading from small cities..

December 16, 2014

Interesting article on the topic.

SEBI is seeing trends of rise in option trading in small cities. As expected, it is worried:


Russia raises rates by 6.5% to 17%..

December 16, 2014

The feeling of 1998 is back in Russia.


How bad government makes cool-looking things sometimes…

December 16, 2014

K William Watson of Cato points to this interesting story.

Airbus which has been developed by European governments. There is this thing called – Airbus Beluga – which is another plane developed to transfer the Airbus parts etc. Check the pictures on the link. Looks like a really cool design:

A more modern consequence of big government causing cool things to happen is the existence of the Airbus Beluga Super Transporter. The Beluga exists because Airbus manufactures different parts of its planes in different European countries. Why does it do this? Subsidies! Lots of subsidies.

Airbus is based in France, where most of its planes are assembled. But the company is also subsidized by the United Kingdom, Germany, and Spain, and they each get at least one factory that makes some airplane component. In order to transport giant airplane parts like fuselages and wings from country to country, Airbus has designed a plane for the sole purpose of carrying plane parts between its factories.

I think it’s pretty cool looking. It’s also absurd. When your business model involves flying airplane parts around Europe in an airplane, it’s very possible you are inadequately concerned about efficiency.

To be clear, there’s nothing wrong with international supply chains.  In today’s globalized economy, it is not at all uncommon for manufacturing activity to be spread across multiple countries, particularly for complex or high-tech products. Today’s automobiles, regardless of their brand, contain a varied mix of foreign and domestic-made parts. An iPhone may be assembled in China, but its components were made in Korea and Japan, and its software was designed in California. Lots of factors go into deciding where to source manufacturing components, and when other factors outweigh transportation costs, global supply chains are born.

Perhaps, then, the Airbus Beluga would still exist in a free market, but I doubt it. The curious part of Airbus’s operations is not the fact of transportation, but the method. You may think it’s only natural that an airplane maker, when devising a logistical scheme for its supply chain, would gravitate toward air shipments. However, despite all the subsidies at home, Airbus has also set up factories in China and Alabama, where they somehow manage to send parts the same unexciting way all profit-maximizing global companies do—by sea.


Michael Lewis’s wishlist for Wall Street

December 15, 2014

The guy never gives up. But given how the street has behaved in the last 5-6 years there is no reason why he should give up.

He has eight wishes for Wall Street. Some of them include never allow someone below 35 to be in Wall Street, all intelligent guys should be shunned from taking finance jobs, women should handle finance jobs and so on.

Fun to read as always…

Economic consequences of drug resistance..

December 15, 2014

Jim O Neill of Goldman Sachs has this important piece on the topic.

The bacteria and parasites in future are likely to develop resistance to these existing drugs and medicines. This will have serious economic consequences:


Obesity becoming a global economic issue..

December 15, 2014

So far the attention has mostly been on underweight/undernourishment of large number of people in the world. There has been some progress on this front but still a long way to go.

Health econs meanwhile are staring at an opposite issue of obesity where too much weight has become a huge problem.

Richard Dobbs and Corinne Sawers look at the problem:


Book Review: The World’s First Stock Exchange

December 15, 2014

Imagine going out in 1600s and getting a glimpse of a world of finance in a country like Netherlands. Even more so, the world is not very different from the world today in the area of finance. One critical difference between the two times is role of technology and ready availability of information (too much now a days perhaps).

This book (Amazon India link here) by Dutch scholar Lodewijk Petram is a must read for finance scholars and followers. It is encouraging (for someone like me) that this book emerged as the scholar’s thesis. This is just amazing as getting such a readable book and that too out of a finance thesis of all things. In times, when most finance thesis are just algebraic representations of some fancy idea, such work is like a breath of fresh air. The book is highly lucid and accessible as well.


Boom and bust of Indian political economy cycle

December 15, 2014

Nice paper by Kunal Sen of University of Manchester and Sabyasachi Kar of Institute of Economic Growth.

Instead of looking at the standard gdp growth, inflation etc, the authors look at the political economy of India’s growth in period 1993-2013. They say one has to look at the role of industry as well in the space. The deals between govt and industry were clean in period 1993-02 leading to high growth phase. This was followed by corruption in 2003-10 sowing the seeds of destruction. From 2011 onwards with spotlight on corruption, one is not sure of the path going ahead:


Was Milton Freidman a true libertarian?

December 12, 2014

One serious misgiving of ignoring history of economic thought is inability of students to argue against the other side of an econ debate. This lacunae becomes deeper if we try and argue against the mainstream thinking and that too on a topic as suggested by the title of the blogpost.

Murray Rothbard of Austrian school had written this article  in 1971 arguing that Friedman is not the libertarian as idolized by free market believers:


Where are the economists’ yachts?

December 12, 2014 poses this question based on the famous book – where are the customers’ yachts?


Fight between an econ and restaurant over inflated bill

December 12, 2014  had covered this interesting fight between a harvard econ professor and owner of a Chinese fast food restaurant. Apparently, the restaurant had overbilled the professor by $4.


Why rapid growth is a strong predictor of future slowdowns?

December 11, 2014

An interesting piece by Larry Summers and Lant Pritchett (detailed paper here).

They say low growth after high growth is just a mean reversion. There is no reason why high growth shall continue forever. This is a harsh reality countries have to face and accept:


Jack Bogle – Active Investor in Passive Clothing

December 11, 2014

Cullin Roche reflects on a recent article by Passive investment guru – Jack Bogle. Bogle says that he will only invest in US markets and ignore others. As per Roche, this decision is itself an active one and likely to harm his investors.

A finance professor once told me that passive investing is far more active than it is made out to be. The amount of work needed to ensure your portfolio mirrors that of an index and so on is not an easy job. It requires continuous rebalancing and reallocating of portfolio..

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