The Land of Sorrowful Songs

"Fuck the whole government, only what you can do is tax the people." -Irwin Goodman

In the edge of the upcoming year of Finland's 100th birthday, we shall remember the most spectacular achievements of this modest nation: The Winter War, Simo Häyhä, sauna, salmiakki, Koskenkorva, Salmiakkikoskenkorva, 1995 Men's World Ice Hockey Championships and Saara Aalto. In the field of economics, technology and business, nothing has compared to Nokia, KONE, Rovio and Supercell in the past.

Currently the nation is thrilled about the growing mobile game industry, the production of Mercedes-Benz A-class cars in the car-factory of Uusikaupunki, orders made by Meyer from the dockyard of Turku, investments made by the Chinese to the forest industry and the construction industry, encouraged by the low interest-rates.

Anything that would even remotely seem to contribute the economics growth in Finland is currently a matter of joy and happiness. According to the latest report of the International Monetary Fund, Finland was only 20. most competent country in the world, behind Sweden, Norway and Denmark. The growth-rate of the economy is currently one of the slowest in the Eurozone.

The latest SOS-government, led by the Prime Minister Juha Sipilä, has decided to tackle the issues in the Finnish economy by lowering the corporate-tax rates and introducing some radical cuts in the social welfare. All of these actions are hoped to decrease the budget deficit and to increase the competitiveness of Finland in the global economy.

The labor markets have been considered many times as the problem for Finland. The Unions in Finland have considerable amount of bargaining power when the collective labor agreements are being made. The wages are highly sticky, thus also are the labor markets. This stickiness tends to make Finland relatively undesirable subject for foreign direct investments.

The cuts in the social welfare are done to increase incentives for people to quit enjoying the social welfare benefits and try to employ themselves. The task is relatively hard, when the wages are relatively high and the firms don't have enough resources to employ people anyway, even though their operations would demand more labor. That's why there is currently much fuss going on with the individual firms' ability to negotiate their own terms of labor with a wage-rate, that would increase the labor productivity and possibly even create more employment when combined to the tax-cuts.

But I doubt that this would be the solution for everything.

The recent Nobel Prize-winner Bengt Holmström, in collaboration with economists Sixten Korkman and Vesa Vihriälä, has introduced an interesting cause for the relatively slow growth of the Finnish economy. And that cause is the Finnish culture itself.

We Finns tend to be modest, risk-averse and we tend not to appreciate ourselves enough. We tend not to believe in our own capabilities and we deny ourselves from learning from the others' mistakes.

Could that be the explanation on why the economy of Sweden is doing better at the moment than the economy of Finland? Is that the reason why Sweden has 29 Nobel Prize-winners and Finland has only 5? That's why Sweden has won the Eurovision Song Contest 6 times and Finland only once?

Before you all start judging me as a victim of 17th Century Svecoman movement, let us consider our everyday actions, in the small scale. If you have a decent amount of savings, where are you going to put it? You're probably going to open a savings account to your local bank and keep it there, safe and sound. Because you are a risk-averse and probably afraid of the next WinCapita, you are not going to put your money on risky shares or funds. And that's perfectly alright.

If a competition is organized in your local competition and the winner has to have a highly innovative idea in order to win, would you participate? Would you be interested of putting the effort for the competition, and would you believe that you would have an actual chance of winning? I'm not sure about you, but I wouldn't dare necessarily to participate, since I would consider that there's always someone better than me.

See the case what's been pulled out here? Individual behavior is transformed to the general in economics. Economics presumed that all individuals tend to behave in the same way. The behavior becomes a rule.

Investments for shares, for instance, give the firms and corporations abilities to raise capital, increase their resources and even possibly employ more. In return, if the business is going well, the firms are giving the shareholders dividends and better profits that would be given in a bank account. Vice versa, if the business is going badly, you are going to lose some of your money. In Sweden and USA for example, savings for shares are a way more common than in Finland.

Innovations for new businesses and technologies won't arise by themselves. They require brace people, who believe in themselves and their ideas. Innovations won't arise by a message from the government that states "Go on, start innovating now, please." Innovations come from the countries like USA and Sweden, where people think that they can seriously be the best. Why can't we?

I'm not saying what you, me and everyone else ought to do to make our country a better place to live. I'm just saying that the Finnish problems might locate deeper in our minds and behavior than the politicians think. Maybe the problems our economy is facing can't all be solved by cutting social welfare benefits and by introducing tax reductions and easements to the labor markets.

Maybe the problem requires a whole different mind-set.

Text: SW
Pictures don't belong to me

Il Natale in Italia

Although Christmas up here in Scandinavia is probably going to be white and jolly and happily expected, Christmas 2016 in Italy is going to be grim and dark. The Italian Santa is going to bring nothing more than a bunch of rametti for the Banca Monte dei Paschi di Siena, the oldest bank in the world and the third largest commercial bank in Italy.

Last Sunday voters rejected the pro-EU government’s and the prime minister Matteo Renzi's proposal for political reform. The proposal was about streamlining the law making process by reducing the power of the Senate and giving more power to the central government. This referendum was considered to be crucial for the government in order to save Monte dei Paschi di Siena and protect the country from a banking crisis. Instead, the referendum left Matteo Renzi to resign and left the state in a political dead-end. The voters considered that the proposal would give too much power for the prime minister and would make the taxpayers' burden of the problem too big. Also making the taxpayers pay for the burden is against the EU's rules of conduct.

Here are the numbers: Total non-performing loans at Italian banks at the end of last year were nearly 360 billion euros, according to the International Monetary Fund. 210 billion euros of those loans are considered to be insolvent. That's over 18 % of the total loans in Italy. Also the Banca Monte dei Paschi di Siena has been ordered by the European Central Bank to reduce its holdings of bad debt. However, because of the low-interest rates, the profitability of the Italian banks is very weak.

Italian banks also suffer from poor management and corruption. According to Financial Times Report, the banks have been distributing loans with various conditions to friends and family as well as forcing corporate customers to buy shares in the bank in return for loans. This kind of corruptive behavior isn't quite extraordinary; the hidden-economy of Italy has been estimated to be as much as 13 % from the GDP.

Italian banks need a bail-out of nearly 45 billion euros and Banca Monte dei Paschi di Siena alone needs 5 billion euros by the end of the year in order to survive. But where? The banks may not be able to raise the money through investors, leaving the government as a last resort. A government bail-out, however, may lead to a loss of investor confidence in Italy’s banking sector and the start of a new Eurozone crisis. Clearly you can see what is the problem here?

The Italian state as a whole has suffered a lot from the financial crisis of 2008. Since 2008, the GDP of Italy has been decreasing almost 25 %. The economic growth over the past ten years has been the second worst in the Eurozone, right after Greece.

These are the facts on which Matteo Renzi was tackling. Because of his resignation, the European Union fears that the current political crisis would make the existing banking crisis even worse. Italy is the third-largest economy in the Eurozone, which clearly implicates why we should be very very concerned of the possible banking crisis. Political stability is already at risk when the banks can't offer loans and credit for the consumers and firms. This will cause even more suffering among the Italian people.

So is Italy going to be the next Greece? That is something we are going to find out on our Holidays. The biggest risk is the risk of nothing being done. Drifting in the waves of a political crisis, great fears are that nothing is being done soon enough. The Italian government has already delayed actions to solve the problem, and soon it is going to be too late.

Greece, Brexit, Deutsche Bank, Italy and the rising levels of populistic nationalism in different parts of Europe. How many more crisis will the EU take? With crisis after a crisis due to political disputes and differences in the banking systems, the tale of EU is probably starting its ending chapter. Joseph Stiglitz has already said his opinion: This is the end.

Text SW
Picrure's don't belong to me

Environmental Economics

Motivated by this windy picture of me spending some quality time in the nature and my Monday's decision to finally stop buying plastic bags for my groceries, I want to talk about the environment. I have to state, that my first impression of the people talking about the environment are the extreme-activists of Greenpeace and the so called "viherpiipertäjät" always whining about pollution and discriminating the daily choices of other not-so-green-people.

Just recently I started to think that yes, our collective behavior indeed has consequences and it is going to have negative consequences in the long-run if nothing is going to change. Look, I'm not saying that I'm going to save the planet with my choices, and I'm not forcing you all to change your habits. I just started to think about my daily carbon footprint. Whether you want to decrease yours or not, it's just up to you.

The basic theme and question of this text is that if free-market capitalism with its multinational corporations and industries is designed to create welfare, why it is still considered to harm the environment? Is there anything that could be done to make things good for the environment as well?

One explanation can be found from the tragedy of the commons. According to the theory, basically everything that's free, for example water, air or public fish population, is over-consumed. In a shared-resource system where individual users acting independently according to their own self-interest behave against the common good of all users by depleting that resource through their collective action. If the water you use for drinking and showering isn't billed according to the amount of liters used per month, you tend to keep the shower on while you soap yourself.

That offers us one explanation on the growing problem of over-fishing and the decreasing fish population. If fishing in the oceans is considered as free for all, the self-interest drives individuals to consume more the ocean's resources in order to gain profit by selling fish as much as possible, for instance. If it is not considered as free, regulation and monitoring are difficult and costly to maintain and could allow illegal and undocumented fishing.

Also the pollution of the water systems by different factories, for instance has been a problem partly due because of the tragedy of the commons. But could this be avoided?

Let us consider an example. In a place far far away, there's a fishermen's village near to a beautiful lake. Near to a lake is also a large coal plant. The fishermen need the lake in order to get fish, and the plant needs the lake for sewage purposes.

What do you think will happen if the lake is considered as a shared resource? A conflict of course: The plant will keep on using the lake for sewage and pollutes the lake, thus decreasing the fish population. The fishermen would be probably angry and would sabotage the plant or cause some other major damages.

But what if the lake was owned by either of the parties? If the village would own the lake, the plant would be required to provide monetary compensation on the amount of lost catch due to the pollution for the fishermen. Vice versa, if the plant owns the lake, the fishermen would have the incentive to invest to a refinery to be build for the plant, on the amount of gained catch from more clean water.

So should this suggest that everything needs to be owned by someone? It is a radical conclusion, but yes. That's why for example I'm not against communism, IF the ownership and capital are free to move inside the economy. That was not what was going on in the Soviet Union unfortunately. Everything could be privately owned or governmentally owned to offer a solution for the tragedy of the commons. That's why for example the chairman of Nestlé, Peter Brabeck suggested the privatization of water in 2013. That perfectly shows the difference between the economic theory and real life. Some things such as nature and environment are hard and almost impossible to express in monetary terms.

That is actually what is happening at the moment. Oil refineries have been polluting the ecosystem around them because of different kinds of errors and faults, without providing any major compensation. But the production of oil is not going to stop, since the humanity is already extremely dependent on oil. OPEC has continued the production of oil lately without introducing any new cuts to be seen soon.

Some day oil is going to run out. Only what is going to left from John D. Rockefeller's heritage is destroyed ecosystems and questions to be raised in 50 years on why the hell were people sailing around the Baltic Ocean in a can consuming ridiculous amounts of fossil fuels, just to buy cheap liquor. So could there be any alternative for the production itself?

Nuclear power is a hot topic in every part of the world. It is proven to create less emissions than traditional coal plants and to be proven to be more efficiency. Many countries like France have been investing heavily in nuclear power, providing over half of the produced energy in the country from nuclear power. The only downsides however are the existence of extremely toxic nuclear waste, and the anxiety of the people towards Chernobyl-like reactor meltdowns.

Another, more popular alternative are investments on renewable energy. Germany has been a pioneer in green energy in such a way that it has already managed to produce a day-worth of nation-wide energy from renewable energy sources. Especially the investments on biomass and wind power have been popular. Similarly in Finland, Neste Oil and ST1 are constantly developing more environmentally friendly bio-diesel fuels out of ethanol produced from waste, for instance.

In the near of the becoming energy-crisis, everything I just wrote about ownership and type of energy production will become important. The alternatives for production and the solutions to reduce pollution rising from the negative externalities of production and consumption are going to be more rigorously under research and fiercely under lobbying from the oil companies in the following years. During these times, we all can think about the effects of our own individual daily choices for the economy, for the environment and for ourselves. The next time you're going to drink a cup of coffee from a take-away cup, spend a brief moment to explain to yourself, how that coffee and the cup got there.

Test: SW

My Story And Interest On The Dilemmas Of Wealth And Prosperity

While money can't buy happiness, it certainly lets you choose your own form of misery. - Groucho Marx

On this blog I'm going to take an intermission of my usual nonsense, and introduce some facts on why I decided to do all this. Why I became passionately interested in economics, why I decided to apply for business school and finally, why I decided to start writing this humble, but yet so unexpectedly popular blog of mine.

Ever since I was a child, I already noticed that it is the money that unfortunately makes the world go around most of the time. Because of money, my parents were going to work every single day and because of money I was prefered to get a decent education. I reckoned that money is an important matter in the everyday-life, and I consider that our family didn't have much of it. Even when I got the money, I spent days and days of thinking were should I invest my money or should I just save it for the rainy day.

But my story with economics starts from the year 2010, when I decided to apply for the International Diploma Programme of my hometown. I'm still not sure why I did it nor any of my friends are. For those of you who don't know what the so called IB-Programme was, it was basically going through the 3 years of high school in the English language. The biggest differences were that only 6 subjects were studied and the programme consisted of compulsory extra-curriculum activities. The 6 subjects were studied intesively and the students were encouraged to critical thinking.

Of those 6 subjects I decided to choose Economics as one of my subjects. The thing that struck me in the subject was this: it was easy to understand. All the theories and fundamental laws made complete sense in my head. Everything in the world seemed to follow the law of supply and demand and all the people seemed to live to maximize their utility. Although my physics-studies with quantum-mechanics and astrophysics widened my perception of the microworld, economics offered me a chance to understand the macroworld around me better. I magically started to understand how the world works and what exactly is in the news. So for 3 years I studied the basics of microeconomics, macroeconomics, international economics and development economics.

Not to mention how much I enjoyed, and still enjoy applying the Game Theory and the theory of marginal utility, for instance, in a silly way while going through everyday activities. (Battle of the Sexes is one of my favorites)

From that point on it was clear to me as the skies above to apply for business school to continue my studies. I didn't possess much interest in marketing, management or accounting, but nevertheless I was prepared to go through all of them to get the acceptance for the Bachelor's and for the Masters Programmes in Economics.

I got accepted with the first trial and my studies began in a town near to my hometown in 2014. And boy, was I alone. I'm ashamed to admit but the people seemed to fit in all the stereotypes I've heard that the students in business schools are like. It felt so hard for me to adapt and find friends from my new community. During the first year the general atmosphere felt so bad, that I really started to wonder would this really really be my thing. But my passion towards economics was so intense, that I was willing to deal with all the things just for the sake of myself. I was not willing to give up.

I got accepted to the major of economics for my Bachelor's and Master's Programme. However, a reformed degree structure was introduced during 2014 and people were recommended to change to study all the subjects in Economics and Business Administration for 3 years, before specializing for one major for the Master's Programme. And so did I as well.

It was awful. Courses and topics in marketing, management and accounting were pain for me. I felt like I couldn't be any less interested in SWOT or the BCG-matrice. That also lowered my motivation towards my passion, but I still decided not to give up. I would make it for the 3 years and then start deepening my understanding from the field of economics and finance.

During the second year things were different. I started dating, started to find connections and friends from the business school and found all the courses more interesting. Especially the course in Monetary Economics woke the fire inside my towards the school. I again remembered why I was there and the other subjects besides economics seemed to be a bonus, still widening my perspective on the general characteristics of the business environment. Also when I had spent more time in the business school, the people seemed to be all right after all.

During spring of 2016 my world crashed heavily. I got a call that my dad would have approximately one week to live. He was diagnosed with cancer a couple of months before and things were getting worse. I had to live with the fact that I'm going to lose him soon.

My dad used to drive the truck, the bus and the taxi. He was a car-mechanic and his dream was his own shop in my hometown. As you might guess, he didn't even exactly know what I was studying and what my passion was. He just saw that my passion is money-related stuff and I'm hopefully going to make much money out of it. He supported me 100 % although he didn't know anything about the Heckscher-Ohlin-model of international trade or monetarism.

Unfortunately, the cancer was stronger than my dad and I lost him in April 2016.

After that week I spent a lot of time of thinking about life and what were the significant things for me in my life. I decided that the best way to continue is to continue my studies and chase my goals passionately as my dad would have wanted and hoped.

It was exactly then when I wrote my first blog. I felt like I wanted and needed to share my thoughts in my own personal way. I wanted to show what I was interested about and what I had to say..

But I was so uncertain. I thought that people would lynch me on the basis of "Why are you trying to be so smart in the social media?". "Do you really think that someone would care?".

To my great surprise, people cared. Friends and people in the business school were almost daily commenting on my writings and were sincerely asking about the next one and giving ideas. I was astonished. It really felt like the cliche of just being yourself and neglecting what other people think would give you the most happiness and freedom.

The second shock came about a month ago when I was not accepted for the Master's Programme in Economics. I thought that the game would be finally over. I despised and hated the whole application system and judged it as totally unfair for the students. Students were allocated to the majors according to their Grade Point Average. Even though there were 12 positions for economics, and I was one of the 8 who applied for the subject as their first alternative, I didn't get in. I was so angry.

I was desperate at looking all the options I would still have left to keep clinging on the weak branch. My friends seemed to be more shocked than me, which I appreciated a lot. They told me to complain about the matter but I thought it wouldn't help anything. Nevertheless, I decided to relieve my anxiety in a form of complaint for the school.

But for my great surprise my complaint went through. The board considered my complaint as adequate. According to the board, my decision to change my degree structure in 2014 was based more on the suggestion to change than my own personal consideration. And it was true, I didn't considered fully the consequences of the change would affect my later studies. By taking notion of all the circumstances, I was awarded the position in the Master's Programme in Economics.

I was back on track to pursue a career with my passion: economics and finance.

There's also one motive behind this story that I want you all to remember. If I've learned something from these past 6 years, is that if you have a passion, don't give up. Although everything would feel awful and the people and the system would tell you that it is not possible, still don't give up. The goals we set for ourselves and our passions keep us in motion and make us achieve things thought to be unreachable. Whether it's economics, engineering, interior design or cultural anthropology.

And the people around you are the right people if they believe in you more than you believe in yourself.

Text: SW

The Winds of the Winner

Only one presidential candidate in the history of the United States of America has been more unpopular than Hillary Clinton. That candidate is Donald Trump.

In less than a week the next leader of the Western superpower is chosen by the American people. The whole world gathers around their receptors to see the one of the biggest political spectacles. In the world. It's the fight between the Democratic party's long-term politician Hillary Clinton and the Republican party's estate millionaire Donald Trump.

The election is not just going to be extremely interesting, but also insanely tight. Latest polls show the percentages of 46,5 % for Clinton and 45,6 % for Trump. If the election is going to be one of the most interesting ones in the history of the United States, it is going to be also one of the closest ones yet.

Especially the European media has implied Trump as a complete buffoon and unsuitable leader for any nation. The nomination of Donald Trump as the president of the United States is seen as disgraceful, scary and also very unexpected. If we consider the political scandals on which Trump has rode his way through his campaign with unexpected success, how on earth the race is still not going to be an easy win for Hillary Clinton?

One of the biggest reasons is the absence of voters. So many voters still think that neither of the candidates is worth their vote and that's why choose not to vote. That makes the statistics and the percentages biased. But let's take a closer look for our candidates to see what makes them so popular and yet, unpopular.

Hillary Clinton has made a long and a successful career in politics. Starting by as the first lady of the president Bill Clinton in the 1990's, Clinton has managed to advance all the way up to the Secretary of State and now possibly for the first female president of the United States. She has been a keen supporter of gender-equality, family values, human rights, middle-class incomes and education-reforms. She has emphasized the establishment of universal preschool and making college more affordable, for instance.

Still, she has managed to smutch her kind and friendly reputation with the e-mail-scandal, which was about using personal e-mail for State affairs during her years as the Secretary of State, causing a major nationwide information security risk. The FBI is still investigating her actions closely during the campaign and to see what major laws she has maybe violated.

Causing a major nationwide information security risk, breaking several laws of the United States and still running for president? That is the questions what the voters for Trump have been thinking

Wall Street favors Clinton's candidacy and especially Goldman Sachs has been a very keen supporter of Clinton's campaign, probably because of her support towards free-trade agreements and financial liberalism. That has also raised conspiracy theories about Bernie Sanders' retreat from his campaign, although the odds may have been ever in his favor. There exist theories that Hillary is not playing it square. Also the general motivation towards the Democratic party has declined during the Obama administration, after several unsuccessful attempts to create a new health-care system and an employment program.

Donald Trump offers, let us say, an alternative for the people who are absolutely not willing to vote for Clinton. Donald Trump is a successful businessman, TV-producer and an estate millionaire. He has no experience from the field of politics and he has soiled in several scandals during his campaign.Whether it has been about building a "Great Wall" for the border of Mexico or the sexual harassment of young women, Trump has managed to stay in the headlines.

Trump appeals to the anxiety of the Americans towards immigration. He has suggested a temporarily ban of all Muslims entering the United States and to exile all illegal Mexican immigrants to reduce crime-rates and the risk of terrorism. Trump's platform includes renegotiation of U.S.–China trade deals, opposition to particular trade agreements such as NAFTA which Clinton has been supporting, reform of veterans' care, and tax cuts.

Trump has also criticized heavily Clinton's policy on Syria. According to him Hillary Clinton wouldn't ease the situation in Syria but just making it worse by denying not to negotiate with Russia and keep on bombing Syria. As a businessman, Trump has been verified to have good and warm connections to Russia.

This might sound very wonderful but there exists a major problem: How? Trump has plenty of ideas but he has no concrete evidence on how to achieve them. With no relevant experience in political decision making, the nomination of Trump would be a game of chance. Populists like Nigel Farage with "Brexit" and Timo Soini with "Jytky" have left the voters not getting exactly what they were promised. I guarantee that this is eventually going to be the case with Donald Trump. I believe that he can't and doesn't know how to implement half of the things he has promised for the American people. Still the rise of anti-immigration atmosphere and nationalism haven't been ever found peaceful during the course of history.

The nomination of Donald Trump as the president of the United States has been considered as a joke from the start. The nomination caused a petition in the United Kingdom to "Block Donald J. Trump from UK entry". The nomination has been described as a threat for world peace to let a temperament person like Donald Trump to a position of such authority and embracing nationalism by "Making America Great Again", not to mention to let him so close to the nuclear launch codes.

Nevertheless, on 8th of November the whole world takes their breath and takes their popcorn out to see where the world is heading next. The game is getting dirtier and dirtier and anything could happen. I personally do care on the matter of which one is chosen, but I think that neither of them would be suitable for the president of the United States. As an ending statement, I suggest you all to watch the video below showing the best bits of the final debate to get a clue from what probably is going to happen and most of all, what is not.

Test: SW
Picture's and other media don't belong to me.

Dangerous Tides

We have a word in Finnish that perfectly describes the latest actions taken place by the executives of Deutsche Bank. It's called "puuhastelu".

I've been following the situation of Deutsche Bank since spring very closely with my friend from University of Exeter. It's a long way there but he drops by to have a beer a couple times during the year. Thanks for the inspiration for this text!

We start by providing some background. Deutsche Bank AG is a German global banking and financial services group and one of the biggest financial institutions in Europe. More than 100 000 employees work for Deutsche Bank in 70 different countries including Europe, the Americas and Asia-Pacific. In 2009 Deutsche Bank was the world's largest foreign exchange dealer with a market share of 21 %. The amount of assets in 2015 was close to 1,7 trillion euros.

The reason I'm telling you all this, is that currently the bank is in the edge of a crisis. The whole Europe is waiting for the next case of Lehman Brothers in Europe. The stock value decreased almost 20 % in September alone and the whole company has decreased in value over 50 % since January. The bank experienced losses of over 6 billion euros in 2015 and the signs of the next financial crisis seems to be at present.

Before I'm willing to comment on the relevance of the anxiety towards the case, let's us first see what are the reasons behind all this. First of all, due to the actions of Deutsche Bank during the subprime-crisis of 2008, the United States Department of Justice has imposed sanctions of 14 billion US dollars for Deutsche Bank. According to the Department of Justice, Deutsche Bank provided false information for the investors regarding the risks of the estate-derivatives that Deutsche Bank sold at the time. The situation is very concerning, taken into account that the current market-value of Deutsche Bank has been estimated to be somewhere around 15 billion US dollars. Deutsche Bank itself has however commented on the matter and stated that they are not going to settle.

Also during the years of 2012 and 2014, a Russian branch of Deutsche Bank was founded guilty on money laundering and during 2013 the bank was founded guilty with 5 other banks in manipulating Euribor and Libor-rates. From these actions Deutsche Bank had tons of bad publicity, and had to pay 2,5 billion US dollars worth of fines.

Not only the internal control seemed to fail in Russia during 2012 and 2014, but also the whole management of the bank seemed to fail. The executives were given tremendous bonuses and dividends in the cost of weakened capital structure. Partly because of the large bonuses, the capital structure of the bank hasn't been in a sufficient level in case of a crisis.

The question you're all probably wondering is that why should we care. Why should we care about the scandals, bad management and the decreased stock-value of Deutsche Bank? The answer lies in the derivatives. Deutsche Bank is the world's largest bank in trading derivatives such as options, warrants and futures. According to some estimations, Deutsche Bank possesses 46 000 000 000 000 US dollars worth of derivatives. That's more than ten times the gross domestic product of Germany.

When a bank trading derivatives gets into trouble, there exist a concern that the effects will spread quickly to other participating banks possessing and trading the same derivatives. When a bank trading huge amounts of derivatives, well, you can guess the concern facing the global banking system. Derivatives are generally concerned as more risky investments than traditional debt or equity instruments, partly because of the lack of transparency.

Latest actions of the bank have been more or less devastating. Due to the great amount of possessed derivatives of Deutsche Bank, the bank is considered too big and too critical to fail. This means that when the bank gets into trouble, either the European Central Bank or the International Monetary Fund will aim to rescue the bank from the crisis, and the bill will be sent most likely again for the tax-payers.

As a conclusion I want to state my personal concern towards Deutsche Bank and the situation of the current financial sector. Stock-values have been setting constantly new records throughout the years, the S&P500-index is in all time high and the amount of debt is constantly rising. It is clear that this kind of growth cannot continue in this way much longer. It defies against world history. 8 years has passed from the previous crisis and situation of Deutsche Bank is probably giving us the prologue of the next potential financial crisis.

And as a final note if you are more interested about financial crisis's, I recommend you to watch the movie Big Short. One of my absolute favorite movies based on the world of finance. Right after The Wolf of Wall Street.

Text: SW

Picture's don't belong to me

We Bless The Rains Down In Africa

It’s been a while since my last entry. I’ve been busy changing my job, studying, taking care of my relationship, repairing my car and doing other economics-related activities.

For this entry I want to talk about the continent that isn’t in the news. The continent which contains high potential for rapid economic growth but also many obstacles for this growth. The world's second-largest and second-most-populous continent. The continent on which the mankind was born. The continent on which Toto and Shakira have sung beautiful ballads. Africa.

Africa has been one of the biggest centers of economic activity since the golden days of industrialization. The United Kingdom, France, Spain, Portugal, Belgium, Italy and Germany started to invade the African countries in the hope for cheap labor and raw materials during colonialization in the 19^th Century. Even today Africa still remains one of the biggest exporters of raw materials such as diamonds, oil, coffee, gold and copper.

Like the all developing countries, the countries in Africa have been in the interest of modern foreign direct investments and multinational corporations for a long time. Yet to be developed markets and economies of Africa offer multinational corporations high potential to growth and to gain revenue and influence on their business.

Already few years back during my economics-classes I wrote a commentary on how many multinational corporations such as Google, for instance, have been investing heavily in Nairobi, the capital of Kenya. These reasons include development of infrastructure, strong internal market, accessibility to better natural resources, better macroeconomic policies and the increased quality of labor. All the factors mentioned attract FDI and multinational corporations into Nairobi. MNC’s would have better accessibilities to growing markets such as Nairobi, where the middle class has been estimated as 30 million consumers.

Let’s us first consider what this kind of an increase in investments means for a country like Kenya. Figure 1.0 shows us the situation, where the interventionist supply-side policies of the government of Kenya have shifted the long-run aggregate supply curve to the right. These policies can be for example the provision and maintenance of infrastructure and investment in human capital to increase the quality and quantity of labor.

As we can see, the economy’s real output has grown from Y1 to Y2 and thus economic growth has occurred. The economy produces now in the output of Y2 and in the average price level of P2. In the diagram we use the new classical long-run average supply curve and suppose that the economy is working at full employment in its level of output. That’s why the LRAS-curve is presented as perfectly inelastic.

Let us see what happens next. The improvements in the aggregate supply have also decreased the average price level from P1 to P2 and thus the inflation decreases. The lower price level, lower rate of inflation and the improvements in the aggregate supply attract now more foreign direct investment into Nairobi. Since investment is one component of the aggregate demand, the total number of goods and services demanded in an economy will increase and AD will thus shift from AD1 to AD2 as we can see from Figure 2. It seems that this kind of a situation is a win for the multinational corporations and for the developing country.

However, to attain these kinds of supply-side policies and economic growth require peaceful and stable circumstances. There exist several argued pitfalls for the economic growth and stability in Africa.

The first problem is the current political instability in the African states. We all have read from the news about the revolutions, mutinies and wars across Libya and Egypt and not to mention the horrors of Boko Haram in the central Africa. Also in the Republic of South Africa, the remains of Apartheid are still remembered. All these kinds of actions and pressures coming from the western world are causing political instability currently in Africa. Achieving the conditions for economic development will demand political stability to the African states. How to achieve that, is a whole different story.

The second common problem is transfer pricing. Transfer pricing happens when a subsidiary of the firm is selling goods and processes within the enterprise, for example for the parent company. In practice, this means tax-avoidance and profit shifting in a hope to attribute the net profit before tax in the country where the corporation is operating. This is currently a major issue in Africa and OECD has been setting regulations for years to stop this kind of transfer pricing.

The third and highly argued matter is the development aid. Several research suggests that there appears to be no significant correlation between the level of aid given to Africa and the growth of GDP. Also long-term provision of food aid may force down domestic prices in the agricultural sector, which harms the economic growth even more. The nature of the aid given for Africa should be assessed very carefully to support the conditions for economic growth, although the humanitarian aid is considered very important in the countries with critical conditions.

Even though the conditions mentioned would be achieved, there would still be no guarantee that the foreign direct investment would increase employment and economic growth in Africa. Although FDI may provide more employment to the economy, the MNC’s might still outsource their own educated staff to the country to work for the company.

If the governments in Africa wish to avoid possible negative effects of the FDI, they must ensure the provision of domestic employment in the multinational corporations and to ensure that the taxation system is efficient enough to prevent the transfer pricing. Also the nature and the amount of development aid should be assessed very carefully to not to harm the domestic production. With these conditions, Africa could be the next big engine of rapid, global economic growth.

And most of all, if we want to bless the rains down in Africa, Africa requires political stability. And we shouldn't force it down everyone's throats with 9K720 Iskander missiles.

Text: SW
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The Masterplan

Tesla. The laudable name that stands for innovation, reputation and legend. A company named after the great and praised scientist Nikola Tesla automatically creates enormous expectations towards itself. Since its establishment in 2003, Tesla has been on a way to reclaim its expectations and to create innovations that could change the lives of the mankind for good. Just like its paragon Nikola Tesla did on the 20th Century.

The vision of Tesla Motors is to accelerate the advent of sustainable transport by bringing mass-produced, stylish and desirable electric cars to the market. Not only the firm aims to produce electric cars but also accelerate the research on the use of sustainable energy sources from example through solar panels. In July 2016, Tesla Motors announced buying american provider of solar energy services in a hope to create a symbiosis with solar energy and sustainable transportation.

The founder of PayPal and SpaceX, American billionaire entrepreneur Elon Musk currently stands as the CEO, the Chairman of the Board and the front-image of Tesla Motors. Musk as a highly-innovative, and a enthusiastic supervillian has a vision of changing the world: This comes clear from his so-called "Master Plans" with Tesla Motors.

I warmly recommend you all to read Elon Musk's first Master Plan from 2006, The Secret Tesla Motors Master Plan (just between you and me) from the corporate website. But since you all probably aren't that particularly interested in the details, I'm glad to refer: The first Master Plan mostly introduced the idea of producing stylish, desirable and efficient electric performance-cars for the market. The kind of models that people can afford and want to buy. As far as I'm concerned, the plan has gone so far so good. Just take a look at for example the Tesla Model S. With a design and performance like that, who wouldn't like to cruise around with a car like that without creating any emissions.

The price for a Model S stands currently somewhere on 100,00€. So yeah, it's pretty expensive.

However, on March 2016 Tesla introduced a new, cheaper model called Model 3 that would cost only 50,000€. The car would in that case challenge the BMW 3-series and Audi A4-series as the automotive of the middle-class and would bring the stylish electric cars available for a bigger margin of consumers. Just like the first Master Plan stated. The car will be available on 2017 and so far the car has already 400 000 pre-orders.

The ambition of Tesla Motors is building up on Musk's Master Plan, Part Deux. The second Master Plan introduces the integration of solar energy generation and storage through personal transportation, the creation of more efficient power-plants, broadening of Tesla models to heavy-duty trucks and high passenger-density urban transport, the autonomy of transportation (self-driving cars) and car-sharing between consumers when the car is not being used.

This all sounds very wonderful sci-fi-stuff so is it too good to become reality? Can one company through research and development find ease to the looming energy crisis and break down the dominance of fossil-fuels as a means of production and fuel? The Master Plans themselves don't give much information or data concerning the implementation of these ideas. One could of course crunch the numbers behind these theories and calculate some physics in order to find out the realities, but I will leave that on everyone's personal consideration, since this blog focuses more on the economics than physics. If someone has performed some calculations, feel free to post a comment.

So should you really invest in Tesla? That is actually the question I've been thinking about the past weeks. Tesla Motors is a company of the future and the sales could boom in a way like never before on 2017 when the Model 3 becomes available, so the decision would seem to be an easy one. However, the biggest question is that can Tesla really answer to the enormous and yet increasing demand for its product? Can Tesla provide enough cars to prevent long waiting periods of the product and to maintain its customer satisfaction? Can Tesla produce this great amount of products with enough quality to avoid massive recall-maintenance and common faults?

Nevertheless, Tesla has already proved being a massive competitor in the car-market. It's interesting to see if Musk's Master Plans become reality and if Tesla becomes a great influence on the energy-market as well.

One Tesla changed the world 130 years ago. I really hope that another one does it again.

Text: SW

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Cash Is King

The financial sector and especially the banking sector are experiencing huge transformations in the need to keep up with the modern digitalization. During the past week, the biggest financial service group in Scandinavia, Nordea, announced to charge from extra withdrawals and to abandon the usage of its classic cardboard code cards used in its netbank in Finland. Instead, people are forced to use an app or a free device for those who don't own a smartphone to log in.

In Finland, especially Nordea has fell behind from the technological innovations in the financial sector: OP has developed a highly popular app called Pivo, on which a consumer can examine his/her account actions and Danske Bank developed a MobilePay-app, which makes transactions possible through mobile. Even though its motto states "We will make it happen", Nordea still is waiting for its next big innovation.

It is clear that these kinds of reforms concerning the charges on withdrawals and the usage of netbank will cause anxiety. But what we are missing from these reforms, is that banking is experiencing a huge change caused by the digitalization. The banks must adapt to the changing environment to service their customers in the most efficient way. Concerning the adaptation to the digitalized future of banking, Nordea is one step ahead from its competitors.

Not only digitalization makes the banking sector experiencing reforms, but also the current world we live in. The world we live in, is the world with negative interest rates.

I've had many questions on could there exist negative deposit rates of interest. The answer is yes. I can almost guarantee that in a couple years or so, you have to pay to keep your money on your bank account. That's how negative interest rates work. When the interest rates are negative, the bank encourages you to invest and consume more and save less. What would be more convenient way to increase investments and consumption that charge from saving.

Not only the idea is radical, odd and questionable, but there exists one major concern for this scenario: cash. If cash is available, people will of course withdraw their money and save it on their mattress so they don't have to pay for their savings. This will of course cause a bank run and easily a new financial crisis.

However, since the 1990's, economists and experts have been waiting for the disappearance of cash. With the current pace of developing technological innovations, it is a question of time when cash disappears. But would the effects of the disappearance be severe? And could it be even possible? What potential problems would rise?

Let us first consider, how cash would disappear. One possible scenario is that the central bank stops printing money and the banks will buy all the notes from the economy by giving the amount of the notes to bank accounts. This will of course cause the collection of cash. But the bank could buy these notes of course with a slight premium (like bonds) and thus the market prices of the notes will go up and thus the deposit property would replace the notes as means of payment, So in the end, the removal of cash would not in theory would cause severe damage.

Business-to-consumer payments can be easily dealt with account transfers and payment terminals and mostly are done in the Nordic countries, where the usage of debit and credit cards has passed the usage of cash years ago. In Sweden, you can even buy a newspaper from a hobo with a debit card!

Also consumer-to-consumer transactions might not be as hard to organize. Could you imagine to buy a used car from a stranger without cash? It can be arranged either through account transfer or even MobilePay-kind of technology that allows the transactions of big amounts. Other option would be to develop more personal iZettle-type of technologies, that would allow card payments through personal payment terminals.

The action mentioned above and other transactions as well however demand trust from the partners of the transaction. That is one of the reasons that cash maintains its popularity: it is common, familiar, traceable and trustworthy.

Also the other problem arising from the disappearance of cash are the groups who cant afford or cant have a bank account nor a card. In this case one possible solution would be that the banks would establish bank accounts and give bank cards to everyone free of charge. That sounds pretty far-fetched but not completely impossible.

As stated above, innovations like Pivo, MobilePay and iZettle are already transforming the banking sector. The disappearance of cash is most certainly to come one day, but when, I don't know. But what I know, is that account transfers are already more popular forms of payment than cash in parts of Europe. As a closing statement, some statistics are illustrated below.

As we can see, during 2015, only 29 % of all payments were made with cash in Finland. In countries like Greece, Italy and Bulgaria where the existence of the black market is considerable, the cash maintains its strength. This also arises the question of the disappearance of cash as a way to fight against the black markets. But I might handle the black market more thoroughly probably in some other blog.

We are not far away to abandon cash. The abandonment might not cause any major concerns or anxiety and can even cause benefits for the economy. But as for now, when the technology still doesn't completely justify the disappearance of cash, cash is king.

Text: SW
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The Firm of The Rising Sun

Yes. First of all, that is indeed one of the greatest Finnish hockey players of all-time.

Anyway, by the time of the release of this text, the Pokemon Go app has made itself a worldwide phenomena in just 1 week from its release. With a little help from camera and GPS, the game is about catching Pokémon-creatures in a real-world environment. The game was instantly a major hit from Niantic: It offers especially for the nostalgy-craving Millenials the chance of a lifetime to make their childhood dreams come true in the form of becoming a REAL Pokémon trainer.

The success that followed the release has been a total jackpot for the owners of The Pokémon Company, mostly for the Japanese video game company Nintendo. The figure below illustrates the Nintendo's stock development during the past 3 months and the stock sky-rocketing right after the release causing the equity valuation going up by over 90%.

Although already being the world's biggest video game company by revenue, the release of the Pokémon Go and the year 2016 might give the firm a new boost that it needs after releasing the Nintendo Wii back in 2006. In 2006 Nintendo couldn't compete in the market with Sony's Playstation 3 nor Microsoft's Xbox 360 game consoles. But now 10 years after, Nintendo is soon going to take the Iron throne of the game industry back with the boost of the Pokémon brand. And what would be a more of appropriate time than the 30th anniversary of the firm's most known brand, the Mario.

The triumph of the Nintendo began during the 1980's with the game Donkey Kong. The game was a huge success and made the company a known player in the industry. And after the release of the company's own game console, the NES (Nintendo Entertainment System) the system was the best-selling console of its time. Also when Nintendo introduced a now-standard business model of licensing third-party developers, authorizing them to produce and distribute titles for Nintendo's platform, Nintendo could almost state its being the greatest video game company in the world.

After the competition became more fierce in the 1990's with Microsoft's PC's, the Xbox and Sony's Playstation, Nintendo made a strategic choice to stick focus on hand-held consoles and during 2009 Nintendo had 70% of the handheld gaming market with its 3DS product. However, after the letdowns of the GameCube and Wii and disappearance of the hand-held-console market due to smartphones, Nintendo suffered major blows and was in a need to innovate something new to keep up with the modern technology. 

With help from a small San Francisco-based software development company Niantic, Nintendo might have got its keys for the "next best thing", gaming that could be done in real life in real-life environment.

The virtual reality has always been a concept that closely relates to gaming. If already people spend hours, days and even months escaping the reality in the worlds of World of Warcraft, Minecraft, Runescape or, god forbid, Habbo Hotel, why not combining the two realities into one. Gaming that creates real-world connections and communities with other players wandering around city parks looking for Pokémons. A real group phenomena that is happening now in my backyard.

Also Nintendo and Niantic found the market of nostalgy-craving Millenials who are probably at the moment the most eager consumers of the Pokémon Go app. Nintendo also announced yesterday to release a new game console, Nintendo Classic Mini on which you can play the old Nintendo classics such as Donkey Kong, The Legend of Zelda and Super Mario Bros. The console is clearly aimed for the same focus group of Millenials.

Developing new products, tailored for the right focus-group with couple of new groundbreaking gaming-innovations, Nintendo starts rising like a 100 HP Moltres. It is interesting to see, what is going to happen in the industry during the next years. These kind of modern technological innovations have a considerable effect on peoples lives also in general, and I'm keen to see what kind of reforms will the Nintendo's latest actions cause in the world.

Text: SW

Picture's don't belong to me.

A New Divide

"It's even more serious than economics because if you rob people of their identity, if you rob them of their democracy, then all they are left with is nationalism and violence. I can only hope and pray that the Euro project is destroyed by the markets before that"

With these words back in 2010 Nigel Farage described his opinion on the current situation of the European Union. These words and many other speeches of Mr. Farage and the UK Independence Party left the European Union and the United Kingdom in a very unstable situation.

The European Union has always been the symbol of political and economical integration and co-operation. The Union is founded on the values of respect for human dignity, liberty, democracy, equality, the rule of law and respect for human rights, including the rights of persons belonging to minorities. The Union with the Schengen agreement has allowed the free movement of people and goods and services across Europe.

Nevertheless, during a warm midsummer night in Finland, the United Kingdom decided to vote for leaving the European Union in a referendum. The stock markets all over the world crashed and the dollar strenghed against the euro as suspected. The signs of danger are floating in the air. Currently I'm waiting for the reaction in the Helsinki Stock Exchange on Monday when it opens its doors for the first time after the referendum because of the Midsummer.

51,9% of the Brits voted for leaving the European union in a referendum and 48,1% voted against leaving. The referendum was unbelievable close, and the regional totals are illustrated in the figure below. The blue regions represents the votes for the membership and the red regions against the membership.

One of the major concerns of the referendum is that there have been lots of votes from people who actually don't know about the dilemma. As far as I have heard from my friends who currently study in Great-Britain, students and young people in the cities were definitely for the EU and the against votes have mostly come from older people from the countryside. Noticable is also that immediatly after the vote a lot of people in the UK started to google to "what is EU". After they had already voted.

The results of the referendum are disturbing and will cause a lot of uncertainty and instability. The first source of instability is that Northern-Ireland and Scotland were "for the EU" where Wales and England were against the EU. As we already know from history, Northern-Ireland with IRA has been for years against the United Kingdom and Scotland just recently voted for its independence. The EU-referendum doesn't just pose threat to the European Union, but also for the United Kingdom.

The European Union is facing a crisis like never before. The Greek debt crisis has been going on for years, Italy is in the edge of a similar debt crisis and the immigrant crisis is causing the rising levels of nationalism and extreme right governments in Europe. If one state wants to leave the Union, that tells from significant faults in the Union. The European Union now has a tough job to maintain its position as the ultimate representative of peace, co-operation and liberty.

Brexit is an example to other countries as well who might not be satisfied for the current politics of the EU. The Greek debt crisis has been one of the major sources of EU-criticism in Finland for example. The common man wants Finland's own currency back and wants the money to stay within the borders of the state which is currently in a economic slowdown. The countries in Europe have been almost demanding the resignation of Greece from the Union. Could Greece be next? Or someone else? Only time will show.

One of the major advantages for the UK is the pound. The pound has been strong against the euro and the dollar and the country has maintained its own independent monetary policy with its own central bank. It's one of the rare countries inside the EU that has still its own currency. In case of abandoning the EU, the economic situation in UK might remain relatively stable because of this. But if a country with euro as its currency, for example Greece, the costs of resignation will be much, much more devastating. The country would have to create its own currency from scratch and would face even bigger problems trying to resolve their debt for the Union. United Kingdom has the financial strength to survive in this case.

My personal belief is that the abandoning wont happen in a 2 years or so. The problem most likely will be pushed for the next government to handle. Because the vote was so close, there is no guarantee that the Brexit would 100 % still happen. However, the results of the referendum still tell from the current state of the European Union; the Union is facing significant problems and the members are very unsatisfied. Something needs to be done and needs to be done fast.

Back in my economics-lessons in 2010, I stated that the European Union will face dissolution within 10 years. We will see if I turned out to be right, but I really wish I was wrong.

Text: SW
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Der Betrug

If there’s one thing you should know about me, is that I’m 100% petrol head. Ever since I was a child I always liked to play around cars and motors. So as you might think, if someone's so passionate about something for 20 years or so, some kind of a knowledge of the matter is starting to develop. That’s why for me personally, the great hoax from Volkswagen AG didn’t come as a surprise.

Last autumn Volkswagen AG got caught from installing devices that trick emissions testing into its cars. Getting caught from the hoax has had its huge effects on the company: United States’ Department of Justice is planning to sue Volkswagen for claiming falsely that the cars are environmentally friendly, the sales of Volkswagens around the world have declined, the revenue of VAG has decreased, the value of the stock has decreased over 30 % and the reputation of the reliable and humble car brand is now gone.

For the past century, Volkswagen AG has been one of the most prestigious and biggest car manufactures on the world. Audi, Skoda, Porsche, Bentley, Volkswagen, Seat and Lamborghini are all part of the massive group, for instance. In 2007, VAG produced over 6 million cars, over 10 % of the global car production. Volkswagen also held a 19,9% non-controlling shareholding in Suzuki, but the shares were bought back by Suzuki just a couple hours after the emission-hoax was revealed.

The image of the company has always represented quality, integrity, fairness and simplicity. After all, the word “Volkswagen” stands for “people’s car” which indicates the down-to-earth brand that Volkswagen represents. But the most crucial values of Volkswagen have always been responsibility and sustainability. Those values are closely linked into the current rising trends in consumption: The modern consumer tends to be more environmentally aware than before and wants to make an effort towards sustainable development.

The car industry is a type of industry which tends not to suffer from the lack of demand. Cars and personal mobility have been important to people ever since the combustion engine was put on wheels, but the modern consumer also has more options than before and it is even harder to make a choice between different cars. This is the fact that causes the fierce competition in the industry; the manufacturers must find the correct market-segment that would serve their purpose in the most effective way.

Where BMW focuses on dynamicity and Mercedes-Benz to luxury, Volkswagen realized in a very early stage the rising trends of environmental awareness among the consumers and chose to focus on responsibility and sustainability. Volkswagen took a conscious risk by desperately trying to cut the emissions lower than the levels of its competitors. Installing the debated devices into its cars in a fierce competition, this was the competitive advantage of Volkswagen and it worked perfectly. Until it caused a major disaster.

As illustrated in the figure above, you can clearly see the development of the Volkswagen preferred shares from 10 years in the Frankfurt stock exchange. From 2005 the value of the firm has boomed apart from the depression of 2008. The fall during the autumn 2015 is considerable: from almost 250€ to 94,02€ in just a couple of days. It is reasonable to state however, that the share price and the net profit of are still above the level of 2005 for example so the firm isn’t as screwed as everyone thinks. But the fact is, that after the allegations and the upcoming bill from the angry consumers and from the U.S government, the next crash is just around the corner.

To get themselves out of this mess, Volkswagen AG needs to assess some serious actions. If the company survives from its fines, it still has a lot to do to gain its image, customers, revenue and reputation back if it’s considered even as possible. The truth is, that the scandal will rumble the firm for years to come. This scandal can be the end of the tale of Volkswagen in the worst-case scenario.

The scandal will also rumble the whole car industry for years to come. In an industry where all the manufactures take great pressure from environmentalists and try to make their cars as environmentally friendly as possible to gain revenue through good reputation, there always exists a danger for the existence of similar kinds of hoaxes. Already BMW, Mercedes-Benz and Renault have been alleged to cheat in their emissions as well. The whole industry is standing on its toes and trying not to make a wrong move.

Environmental awareness is truly a significant trend and the effects of sustainable development in an economy should not be underestimated. The whole economy will value environmentally friendly products and services even more in the future when the raw-materials and other resources become more and more scarce. That’s why also the car industry needs to make its effort as a considerable source of emissions.

I’d like to end this blog to a question: When was the last time you saw a TV-commercial from Volkswagen? Was it different than the ad with a bee in the Golf you could saw before? I personally haven’t seen a single Volkswagen ad in TV for the past 6 months. The next time you see a new Volkswagen-commercial, try to see the deeper meaning and smell the ugly desperation that could clearly drip from the words and images of the ad.

Volkswagen. Der Betrug.

Text: SW
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