On coming back for good

Mais les vrais voyageurs sont ceux-là seuls qui partent
Pour partir, coeurs légers, semblables aux ballons,
De leur fatalité jamais ils ne s’écartent,
Et, sans savoir pourquoi, disent toujours : Allons !
Charles Baudelaire

People sometimes ask me if I’m ever coming back. Like for good. 
Most if not all of them are Lebanese and the question is usually rhetoric. Something you ask to keep the conversation going. To break the ice. And to that I usually have two or three interchangeable answers like “For sure!” or “Nah, don’t think so” or “Dunno man, it’s complicated” depending on the person asking and how much appetite I have for more rhetoric chitchat. 
But sometimes, the question begs for real answers. Reassuring answers actually. Your grandmother needs to hear that she will not remain heartbroken forever. Or your friends contemplating the road you took want to hear that leaving and coming back are two sides of the same coin, or maybe that they are not. And to that I usually come up with a diplomatic one-size-fits-all answer, because there is no point in making people sad or keeping them hanging, especially grandmothers, for the true answer is not a simple yes or no. 
You see, if you have lived in another country for months, a couple of years, or maybe a bit more, you might still be talking about coming back. But once you’ve been there long enough, “coming back” starts to sound like “leaving” to your ears and boy has it already been hard the first time.
Think of it in terms of investment: the time and effort you put into learning a language, calibrating yourself to new social norms, building a career, a network, making friends, getting yourself a home, feeling at home, securing an education for your children. The time you spent learning to like a country and its countrymen, even love them. As the list goes on, you are less eager to let go and besides, you had already done it once when you left what was your home country a long time ago.
Think of it in terms of commitment. Whether out of love or reason, this new country is now yours and you his, for better or worse, till death do you part as they say. And you do not get off a marriage unscathed.
That is my point. There is no leaving and coming back, there is leaving and then leaving once more.
But then again, when you think of it in terms of heartache if such a thing is even possible, you realize how great a deal of your life you left behind when you moved overseas, including parents, friends, memories and even food, and how your heart aches for it, how you crave it more than anything.
Breakfasts outside with thyme mana’ich, labne and thick Lebanese coffee, evenings with friends playing cards, dining or relaxing with a beer watching the world cup from a terrace on the heights of Beirut, while the sun sets on the Mediterranean and the fishermen’s boats start lighting like fireflies in the sea, …” as I put it in a previous post.
The true answer? 
Few people would understand that you can love a country with all your heart and care for it even if you left it long ago in the pursuit of some kind of fulfillment, even if you would not come back for good, especially if you do not come back for good. And that this love is heartbreaking.
That if you do come back to the country of your ancestors, eager and joyful as you are, you are still leaving a part of you behind, in another country you learned to cherish, and that it can be devastating.
That leaving is seldom a reversible process and that there is no such thing as coming back to the way it was before, that this 16 year long stint is not just a bracket in your life you can close at will and that there is no right or wrong answer to the problem.
– So do you ever think of coming back for good? – I do. More than you think.- And will you? 
Well, can I take the wound of another separation? One is not enough already? But for Lebanon, maybe… 
So I always end up saying “God knows Grandma, God knows…” as I walk the thin thread between the love of my life and my life’s true love, my heart silently longing for both. 

For France, 

For Lebanon.

Let the board sound


On heartache and Lebanese summers

Two countries, both dear to my heart. One which chose me and one which I chose. One where I came to life and one where my children were born. One which gave me the words and one the means to speak them out. Lebanon who gave me birth and France who adopted me. 

One I owe to my parents and one I bequeath to my children. 

One which is alive and well. And one which is poor, homeless, sick. And dying. Lebanon is dying people. Not in a bed, not in an intensive care unit. In the street. In general indifference. 

And yet, there are Lebanese facets worth saving. I can name at least one: Lebanese summers. Not just the season but Lebanon in summer as a whole experience. 

Photo by Charles Assaf

Breakfasts outside with thyme mana’ich, labne and thick Lebanese coffee, evenings with friends playing cards, dining or relaxing with a beer watching the world cup from a terrace on the heights of Beirut, while the sun sets on the Mediterranean and the fishermen’s boats start lighting like fireflies in the sea, leaving the city on Friday nights to spend the weekend in the family village but still going back to Beirut on Saturday night for a drink, a diner, a shisha, anything as long as the gang is around and then stopping at 5AM at the Sea Sweet, Douaihi or Hallab pastry shops for a sweet knefeh on the way back to the village for the traditional Sunday family lunch, afternoons at the seaside, after-works at the seaside, evening walks in downtown Beirut, the smell of pinewood, the screeching of grasshoppers, the clear blue skies in the day and the stars shining for you in the evenings. And the sunsets…

I have a secret yet childish wish itching me from time to time: If only I had the financial means of a Jeff or an Elon, I could buy back the country’s debt, tear it away and bring back summer for good… would it not be nice…

But on other times, I feel the country is beyond saving. It has been through too many ordeals. Maybe trying to save it amounts to unreasonable obstinacy…

And when I am sobering up in between, I know there is one thing we Lebanese people can do: thrive to make Lebanon survive through his sons and daughters so that people judge the country not by what they see in the news but by what his children convey to them.

So here I am, Lebanese, French, sharing ideas in English and hoping to make a difference.

Let the board sound


On trust and a leap of faith

Or what it takes to earn trust.

Folks, I will not be a hairsplitter, it will be short this time. Here’s the bottom-line: Trust has a price tag and it does not come cheap. 

Trust is not earned with words, no matter the glitter or the volume. Dipping them in chocolate will not work either. Words are no currency for real durable trust.

Trust is not earned with actions either, although it cannot be earned without them. Displaying the qualities that you ask of your peers, demonstrating the values you preach to them will earn you respect at most. Not trust. Not enough. 

If you want to be trusted you have to bet your chips on people. Taking chances on them, nothing short of that. It means actually having something to loose on them and still face the risk, still trust, otherwise it would be too easy on you, too good for them to be true. You have to put yourself on the line: if you want to be trusted, you have to trust.

Photo by Matheus Viana

Because it takes one to dive first for the rest to follow, for drops to make a river, for a team to emerge. Because you can trust yourself to this leap of faith but cannot trust that others will leap first, be them saying “Trust me”.

For trust is not earned with words.

Let the board sound,


On being cornered and the way out

Or when you think they expect you to be the intergalactic expert.

Many years ago, I found myself in a meeting room somewhere in the middle east, in the middle of summer, surrounded by half the finance department of one of my clients, trying to come up with an elegant design for the accounting schema to configure in the platform we were implementing for them.

They were having trouble projecting themselves in the new system and at some point, a very senior stakeholder asks a very precise and arduous question on the amortization of bond premium and discount and the expected impacts from an accounting perspective if my memory serves me well. I was young. I was foolish. He was an intergalactic expert on the topic. I was not. Here you go. Cornered!

And lesson learnt.

Photo by pixel2013

Fast forward nine years. I found myself in a meeting room somewhere in northern Europe, in the middle of winter, surrounded by half the treasury department of one of my clients, trying to come up with an elegant design for their banking book accrual P&L report to configure in the platform we were implementing for them.

They were having trouble projecting themselves in the system and at some point, a very senior stakeholder asks a very precise and arduous question on the amortization of bond premium and discount and the expected impacts from an accrual P&L perspective if my memory serves me well. I was older. I was wiser. He was an intergalactic expert on the topic. So was I. I had nine years to become one.

The next question nearly got me cornered though. Arbitrage swaps this time … 

Fortunately for me, I had realized by then the vacuity of trying to become an expert on every topic l might encounter some day in my career, especially as an architect. My job is ensuring consistency and sound design of the delivered solution, front end to back end across all the business processes in scope and through to the integration with the IT landscape of the client. Consistency, not expertise. And for that, you need to be knowledgeable on many subjects but it would take many lifetimes to become an expert on all of them. Beyond the reach of mere mortals.

I mean where would you start… The finance industry is an ever changing one and when expertise on funky derivatives and hybrid products was sought after in the 2000s, banks moved back to cash products in the aftermath of the Subprime crisis. Then came new norms and new processes: EMIR, Dodd-Frank, Basel III, MIFID, SFTR, FRTB. Affirmation platforms, LIBOR transition and so on. Even project and development methodologies have drastically changed in recent year, from a waterfall approach to Agile, SaFe and DevOps. Besides, the platforms at hand are huge enterprise wide modular software and expertise on them can only be, well,  modular.

So intergalactic expert? No. But you can become the next best thing by mastering a basic skill: asking the right questions and be honest about your limits.

Broadly speaking, as a FinTech professional, clients do not expect you to come up with answers on the spot, or devise a solution out of thin air as much as they expect you to understand their requirements first and foremost. You can always rely on your subject matter experts when you are out of your comfort zone, expertise is their job and they would be more than happy to oblige. However, not understanding the requirement in the first place makes the point moot. And for this, what better than to ask questions? Try to understand what the clients are talking about, use the board to draw your understanding of it, get their feedback on the result, ask more questions, rephrase to make sure you got it right and do not be afraid to say you are not an expert on a given subject. 

In many cases, you are not expected to be one. 

Or maybe just on asking the right questions…

Let the board sound


On FinTech and people

Or how it looks from the inside.

Every experience is unique and different people can have different accounts on a career in FinTech. Here’s mine.

I got in FinTech by chance. I received a call I was not expecting. Until that moment, finance did not ring a bell. Trading floors seemed like movie stuff. The Wolf of Wall Street was not out yet so none of the people I knew whom had embraced this career could explain it to me with a simple example. But it struck some strings: the job required extensive travel and I would be expected to become autonomous fairly quick. I was in for both.

I had to learn quite a few things in little time, and this was a major motivator. Learning how a financial platform is operated, learning the operating model of investment banks, funds and treasuries. Learning finance. Bonds, foreign exchange, rates, equities, derivatives, valuation models. Learning how an operations department works, how a front office desk operates, how risk is managed and what is risk for a financial institution. I am still learning 15 years later.

I started on support but was soon entrusted with high stakes decisions and started looking after much larger accounts. I worked on delivery projects around the world. I got to manage senior and less senior people and I thrived to give them opportunities to grow and that place in the sun at which everyone deserves a shot. That was probably the most rewarding part of the ride.

Although many in the field usually come from engineering, computer science or finance backgrounds, I found out later that many of the fintech professionals I would meet, and not the least impressive ones, came from backgrounds as far from banks and finance as can be. I met business architects who graduated with a BA in geography. Traders who studied history. A project manager who was a commissioned officer in a previous life, honorably discharged after having served his country well and lead battalions on many theaters of operations. Another one who was in the navy and an expert on submarine propulsion. And a legendary developer, trained in chemical engineering and a collector of rare minerals.

I also got to work with people from all around the world. French, Italians, Germans, Spanish, English, Welsh, Scots, Icelanders, Swedes, Americans, Brazilians, Lebanese, Syrians, Emirati, Indians, Iranians, Australians, Romanians, Russians, Pakistani, Egyptians, Jordanians, Iraqi, Algerians, Moroccans, Tunisians, Senegalese, South Africans, Ivorians, Belgians, Chinese, Pilipino, Indonesians, Malaysians, Japanese, Singaporeans, Kazakh, Turkish, Greeks, Canadians, Polish, Irish, Omani, Kuwaiti, Palestinians, Columbians, Czech, Dutch, and Bulgarians, to name a few. I faced cultural challenges at times, but it was an enriching experience every time.

I got to travel a lot. There were years I would spend most of my time on business trips, in between the airplane, the hotel and the trading floor. Projects took me to the UK, Italy, Spain, Germany, Sweden, Poland, Iceland, The Netherlands, The United Arab Emirates, Hong Kong, Russia and Turkey, many times over, and I have more stories of nearly missed planes and last minute miracles, of 2AM naps on a random couch on a trading floor somewhere in the world and all night celebrations when the fight is finally over, of epic fails and even more epic successes than I can count.

I have had Borscht in Moscow, duck tongues in Hong Kong and donkey meat in Milan. I have been challenged to the hottest curries by Indian colleagues and to the most treacherous vodkas by Polish ones. I have laughed my head out countless times cracking jokes around a beer with the same clients who had cornered me in a workshop earlier in the day.

I’ve lost many hours of sleep across the globe but won so many good memories along the way. I also gained a few friends for life. Folks, I hope you are reading this, you will recognize yourselves.

Make no mistake, the job is not for the faint hearted. The pressure is tremendous, the working hours long and the clients very demanding. Nerve wrecking situations are the norm, especially if you work in delivery. You get humbled quite a few times, but on the bright side, you are surrounded by extremely bright people and the rewards are at the level of the challenge.

I hope my colleagues and fellow professionals will recognize themselves in these stories, that it will bring a smile on their faces in these dire times and wish that readers see the job for what it really is, a people job. And no amount of Work from Home will change that.

Let the board sound


On universal income

Or why it is not a question of yes or no but rather when.

Universal income, as in income for all regardless of employment status or activity, has been a recurrent idea in recent years. In France, Benoit Hamon, the Socialist Party candidate for the 2016 elections based his electoral program on the idea of universal income, along with a few other like legalizing cannabis. He gathered only 6.36% of votes in the first round and retired from politics. For a majority of voters, universal income seemed like a utopia at best given that so few of them voted for him. 

But look again.

Since the usher of the industrial age, human held jobs have been replaced through scaling and automation, whether in agriculture, the industry or services. Bank clerks have been replaced by ATMs and ATMs by online transactions and cryptocurrency. Round the corner grocery shops have given way to  supermarkets, where cashiers are now being replaced by automatic checkouts, which are fading out in favor of online stores. As a fintech professional, I am well placed to know that it took 50 or 60 people to run an operations department for a medium sized regional bank, the whole of which can now be replicated, streamlined and automated to a very high level in a software platform operated by less than 10 people including support, and I am being conservative. Even machines are being made redundant by technology evolution. 

You see where I am going with this? 

The human workforce could, and still can for now produce a given value through direct human work and retain part of it as wages. Automation on the other hand, whether through software or robotics can produce tremendously more value on the same tasks through scaling, standardization, speed, reduced error rate and other potentials yet to unravel with the advent of machine learning and artificial intelligence. Some would argue that humans who can no longer compete on the same tasks should benefit from a part of the value produced through automation. Although not specifically aimed at automation, some countries have implemented such safety nets, financed today by tax.

For instance, French workers which are made redundant benefit from a monthly unemployment allocation which amounts to a sizeable percentage of their last wages, and lasts for up to 24 months. If they are still unemployed by that time, they can still benefit from a safety net, the RSA or Revenu de Solidarité Active, which amount to 535 euros for a single person in 2021, plus other benefits on housing, medication, transportation and energy. It does not mean a care free life, far from that, but the mechanism provides shelter, food, warmth, education for kids and sustains parents in search for other means of subsistence. Dignity.

The corner stone of such a mechanism is that people can in most cases find another job or learn a new one. But what will happen when humans can no longer compete with automation on any task? Wat will happen when purely automated corporations will produce tremendous value to their shareholders without any human intervention? When people become redundant in the cycle? The logical solution seems to be that part of this value, equivalent to what would have been a payroll, should be distributed as universal income to the billions of people who are “liberated from the vicissitudes of salaried labor”, or in lay words, made redundant. The safety net of the 21st century would effectively become a universal income for the generations to come. 

If we take the reasoning to its logical conclusion and assume that nearly all economic value and innovation are ultimately created by automation (arguably if artificial intelligence and machine learning technologies hold their promises) then the shareholders become the people. All of them. The universal income will then amount to a universal dividend.

Or will it. If humans do not produce economic value, do not produce innovation and only benefit from the value and innovation created by automation, the logical conclusion of the argument is that the world will have become a farm and automation its farmer. Universal income will be a given: feeding the cattle. That is assuming Automation with a capital A is benevolent or whatever is equivalent in the machine readable sense.

But apologies dear reader, I tend to forget myself. This last idea sounded like a T-800 promoting a not so bright future to mankind. Things do not have to be so bleak, and if humans do not produce economic value anymore, they are free to produce other kinds of value, perhaps beyond the reach of automation, and yet to be discovered. 

If you ask me, I would bet on the spiritual. Or music. Something not of interest to Automation (with a capital A). 

And don’t go reading Answer by Fredric Brown. 

Let the board sound


On timepieces and perfection

Or why is perfection twofold.

Photo by Antony DaRosa

The mechanical watch industry was thriving in Switzerland in the first half of the 20th century. Watchmakers would put time and effort in producing timepieces of the utmost precision, called  chronometers, leveraging on more than 200 years of trial and error, dating back to the first tentative at building marine chronometers, or timekeeping devices accurate enough at sea to allow position determination by celestial navigation. These would not gain or loose more than a few seconds a day and were certified by astronomical observatories since the time standard at the time was based on the rotation of earth relative to distant celestial objects and remained so until relatively late in the previous century. 

Clocks kept ticking just fine in Switzerland until the advent of quartz devices in the 50s and 60s which were much cheaper to produce and which precision was an order of magnitude above the performance of mechanical watches, as they gained or lost less than a few second per year on the universal time. Quartz watches became the staple timekeeping device and have remained so ever since. 

The invention of cesium atomic clocks around the same time got the precision many orders of magnitude higher, up to a delay of 1 second per million years, and later on to 1 second per 30 million years, and then to 1 second per 300 million years. Such clocks can keep ticking with perfect precision for way longer than the amount of time life has existed on earth. 

And still, atomic clocks are arguably on the verge of obsolescence since the advent of optical lattice clocks in later years, which are not expected to gain or loose more than a second during a timeframe longer that the age of the universe. Some 15 billion years. And the race to accuracy is still on.

This is as close as it gets to perfection by any standard.

So. The human race having reached perfection in timekeeping, where do mechanical timepieces stand now? They are faring quite well as a matter of fact. A basic Rolex model, the staple of mechanical timepieces, has a price tag in the thousands of dollars. Most mechanical watches with a tourbillon based homemade movement and funky complications like a perpetual calendar can cost ten times that and the famous mechanical watches endorsed by a no less famous tennis player probably cost more than an optical lattice clock. And they got stolen from him a few years ago. Twice.

So how come mechanical timepieces are still around when the quartz singularity should have been enough by itself to obliterate them and the whole industry behind? It is definitely not because they keep track of time. Next generations of timekeeping devices do that much better, and that is an understatement. There are definitely good marketing strategies behind this success and granted, the prices are out of proportion and quite indecent one could argue. But the main reason in my opinion is that such timepieces have become art. A display of human craftsmanship is search of perfection. A different kind of perfection. More human perhaps. A perfection that speak to the inner child. A perfection which tickles our imagination.

When everything can be made cheaper, faster, lighter or stronger with automation and technology, low-tech items made mostly by hand will be even more sough after. Musical instruments. Hand knotted rugs. Mechanical timepieces. Because they have something no technology can provide yet: they retain parts of the human soul who pulled them out of nothingness.

Let the board sound


On FinTech and a bit of fun in a post for once

Or how to explain what you do as a fintech professional to people who have no clue about technology and/or financial institutions, without quoting The Wolf of Wall Street.

Photo by Timisu

The average tentative involves you saying that you work in fintech (that’s financial technology) and having then to explain that your clients are mostly banks which rely on complex technologies and heavy computing power to operate, which will not make sense to most people because, well, why would you want a data center and cutting edge software to track the account balances of your customers and run your accounting, there’s Excel for that, but heeey, nooo, it’s investment banks and funds we’re talking about, not retail banks, you know, the type of banks which trade complex financial products which require heavy math and intensive computation to be valued and processed, and it goes sideways from there on because, well, you find yourself compelled to provide an example, so you try to explain what an option is, a contract which conveys its owner the right to buy or sell an underlying asset or instrument like an Amazon stock at a specified strike price prior to or on a specified date, and that the math to value it was only developed in the 70’s by Black, Scholes and Morton, which sparked a boom in the trading of options which has not waned ever since, and by the time you start explaining the Black-Scholes equation and the fact that it relies on the volatility of the price of the underlying, what underlying? Well the Amazon stock remember? No? That’s exactly my point: they are either completely lost or completely bored. At this point, you can always try to rely on your wingman, the Wolf of Wall Street, because that’s the closest most people will ever get to a trading floor and I do not blame them for not trying harder, it is an acquired taste.

If this long explanation still sounds obscure to you dear reader and possibly fintech professional, just know that a retail bank is the one you go to to open a bank account and get a credit card and it caters mostly for individuals whereas an investment bank is the place where options and other financial instruments are traded, on a trading floor. 

And for those who have never seen one, a trading floor can look and sound like a high-tech fish market, a bit toned down maybe, no fish smell, less decibels, but a fish market still. People selling stuff to other people, trying to agree on a price, managing their stock while keeping an eye on the market and the competition. There you go. It might not be entirely accurate, but it has the merit of demystifying the place. 

At this point of the reading, you might want to realize that we have still not explained what it is that a fintech professional actually does. I personally work in delivery, that’s implementing complex financial software solutions at investment banks and hedge or mutual funds. But it is not about me, it is about you dear reader/possibly fintech professional.

So the next time they ask you about your job, and unless it is alright because you like the way it hurts, swallow your pride, give The Wolf of Wall Street a break and say you work in IT, full stop. 

And point them to this post.

Let the board sound


On the Ivy League and success

According to a study done in 2014, the University of Pennsylvania produced more billionaires than any other university in the world.  Numbers 2, 3 and 5 on the list were Ivy League institutions as well.

Photo by McElspeth

The Ivy League refers to 8 universities among the most prestigious higher education institutions in the Unites States and in the world: Brown University, Columbia University, Cornell University, Dartmouth College, Harvard University, the University of Pennsylvania, Princeton University, and Yale University. 

Across the ocean, the Grandes Ecoles in France are the pinnacle of higher education. Presidents Sadi Carnot and Albert Lebrun attended the Ecole Polytechnique, arguably the top engineering Grande Ecole in France. Other presidents like François Hollande or Jacques Chirac attended  the Ecole Nationale d’Administration or ENA, one of the most selective and prestigious school, the Route 66 to high (actually very high) positions in the public sector.  President Valery Giscard d’Estaing attended both.

Getting into any of these venerable institutions is like reaching a straight 15 lane highway leading to success it would seem, and the statistics vouch for this statement. It is true that Ivy League or Grandes Ecoles alumni, to take the United States and France as examples, are disproportionately represented in fortune 500 or CAC 40 CEOs, Supreme Court judges, governors, Nobel price laureates, presidents and billionaires. Students at these institutions will have already found a dream job before graduating, on which they will pass, to aim for higher and get there thanks to the powers conferred to them by the word Yale. Or ENA if you are reading from France. Or Bocconi for our Italian friends.

We must however not forget that admission rates into these temples of knowledge are so narrow that only the most prepared, the most clever, the most versatile people will make it through the cut. The tuition fees at many of these institutions are through the roof, which tips the statistics in favor of the rich at universities like Harvard. Rich and clever. Are these not already markers of success in the world we live in? 

Besides, the practice of legacy preference at many of these schools favors the offspring of alumni, and if your daddy’s rich and your ma is good looking, then it is summertime all year long and the living is as easy as it gets.

So where do we stand… If you are very clever, very rich and well prepared, and your parents have preceded you on the path you plan to walk, then… will the education you get at Harvard, as excellent as it is, get you significantly closer to being a CEO or a billionaire? Or is it rather the network of alumni who look and dress and talk like you and the titles these institutions confer to you?

The question I ask is this: what part of success do you owe to the school name and what part to your hard work? What part do you owe to prestige and what part to your intellect? What part do you own to your choices and what part to the path on which your parents preceded you?

I do not have answers and God knows if anyone has, but I can sure make a case for less elitism: the Ivy League is not the only league. If God or Fate or the Cosmic Dice bestowed gifts upon our youth, intelligence be it or wealth, then why on earth would we want those gifts sealed behind a gate with a Yale lock? And why would we keep otherwise gifted people locked outside?

Why a Lock at all?

But also, why the rant could you ask? I don’t mind, I can hear that too…

Let the board sound


On political courage and ideas

“La France ne peut être la France sans la grandeur”

Le Général always held the greatness of France in high esteem. He was driven by the idea that “France cannot be France without the greatness”.  LA grandeur. THE greatness, not just greatness. A very defined and specific greatness, one without which his France would not be.

Photo by Nicolas

It was so central to the character that it gave him the means and will to transform an improbable gathering of French men and women of good will fighting the Axis into the sole legal representative of France in the eyes of the free world and the governments of the Allied Forces. All this despite the fact that the French government had capitulated to Nazi Germany and had stripped the General from his possessions, his military ranks, his citizenship and sentenced him to death for treason. 

He had the courage to stand by his idea of what France should be and his courage led France to victory against all odds. France emerged in the aftermath of World War 2 as a permanent member of the UN security council and would enter the very select club of military nuclear powers fifteen years later. 

In 1958, the General was called back into the political arena, was elected president in  December 1958, and again in 1965. He called in two referendums during his time as president and linked his political fate to their outcome. He took decisions which could (and would) alienate him the support of powerful allies and key voters. He withdrew France from the NATO military command and initiated the independence of the French nuclear program much to the dislike of the United States, ended the French colonization in Algeria to the great anger of the pied-noirs and the military and vetoed the entry of the United Kingdom into the European Economic Community. Twice. All for the greatness of France. 

The General was a cunning politician who knew all the trick in the hat and then some and despite that, some of the decisions he took proved later to have been less than effective. But he had the courage to do what he believed had to be done for the sake of his country and countrymen, even if the decisions came at a great personal and political cost. A school case of political courage.

But political courage alone is not enough, and I like to think that the General would have not disagreed. Remember, the man was driven by a certain idea of France.

You need an idea. One you have thought inside out, upside down and backward, for long enough to possess it. To be inhabited by it. You need to write it down over and over again, proof read it against the opposing tide, criticize it and let your peers take a stab at it, fight it with everything you have until the day where in your mind, it provides an answer to any question, a solution to any problem and only then can it be put to trial in the political arena. Your idea will be challenged, tested further than it has ever been and part of the political courage is to stand by it even when everything seems lost.

Political courage and an idea, that is what it takes. And this is where most leaders fall short, and even the very few who happen to take courageous decisions beyond electoral concerns often lack an Idea to drive them.

In the end, I would like to make a case. Not for politics with courage neither for politicians with ideas but for citizens who have ideas. 

Embrace your ideas, test them, throw them a thousand times at the sounding board and refine them with every echo you get back. Listen to people who share your ideas and even more to those who don’t. 

And when you are ready, face the world and lead with courage. Political courage.

Let the board sound


On Lebanon reaching an all-time low and a pinch of hope. Or not…

Or how on earth has Lebanon managed to fall short of the podium on the Misery Index.

Yes dear readers, there is a misery index which classifies countries based on a misery score. Without getting into the details of how the score is computed, top of the list is the most miserable country in the world. Lebanon made it to number 4 in 2020, out of 156 nations covered by the index. Only Venezuela, Zimbabwe and Sudan are faring better as numbers 1, 2 and 3. 

Photo by djedj

It must sound surreal to most Lebanese people who are still trying to fathom what hit them: The first default on Lebanese sovereign debt in history, the mass destruction and losses stemming from the sixth largest artificial non-nuclear explosion in history, the COVID-19 pandemic, the ongoing Syrian conflict and its ramifications taking their toll on the country, all on top of the structural weaknesses of the Lebanese economy and political system. It takes less than that to bring a country to its knees.
From all the causes above, there is one which could explain at least two others: the structural weaknesses of the Lebanese economy and political system. And the corruption within.

The solution on paper seems straightforward. And very unattainable, like only a straightforward solution can be: a new political system and social contract to restore confidence in the Lebanese economy and currency, which would encourage foreign investment, unblock international aid and allow some leverage in the debt restructuring negotiations with creditors. Although this statement is true in essence, it does not sound like a plan. It sounds more like a slogan. A Manifest at best. I mean, where would you even start… 

We could spend countless hours debating on the abysmal trade deficit, the record debt to GDP ratio and the huge toll that debt servicing is taking on the country revenue, the artificial peg of the Lebanese Pound to the US Dollar and the opaque policies of the central bank, or the decline of the remittance share in the GDP as Lebanese expatriates are struggling  with the COVID-19 pandemic and other crisis.

We could also debate on the political system in Lebanon which consists roughly of two sides, each backed by different international players with conflicting interests and how this will not change in the near future, or the far one for that matters, because the people who can make it change are too busy surviving to vote a majority of the 128 MPs out of parliament. 

Hope as far as I am concerned, lies in some of the economic forces at large and with the Lebanese diaspora. The latter is obvious. Lebanese living abroad have always sent remittance back to Lebanon, either to invest in real estate, benefit from artificially attractive interest rates on deposits or to support their families, and they will keep sending remittance. Not for the same reasons perhaps but it will still amount to something.

Economic forces at large are successful companies with ties to Lebanon or which could have a presence in the country, and which make most of their revenue abroad and hence are less sensitive, if at all, to the Lebanese economic situation. If such companies operated part of their processes from Lebanon, they would provide great benefits to the local economy by creating jobs and value and still benefit from an offshore legal status provided by law, which offers tremendous flexibility from a legal standpoint and many tax incentives. They would also benefit from a less expensive and highly skilled workforce. They will obviously have to put up with the unstable political situation, the run-down economy and the challenges which come with them but I still believe a business case can be made, especially if the company has ties to Lebanon: a Lebanese founder or shareholder, a historic presence in the country, etc.
Some examples I can think of:

  • A software editor which operates its quality department from Lebanon, with minimal requirements to run production: A bit of electricity and an internet link. Servers can be hosted anywhere in the world, revenue is made abroad for the most part and there are no stocks to worry about.
  • IT consultancies which operate on IT projects in the Gulf region, Turkey, Greece, etc. and which can base their client support activities in Lebanon. Similar business case, all they needs is electricity, internet connections and brains.
  • Companies in any field externalizing their call centers to Lebanon. They need people who speak foreign languages and Lebanon is in no shortage of them. So far.

All the examples above are real and are still operating in Lebanon. The software editor has been assessing the quality of its software in Lebanon for 25 years and has since put in place a consultancy department in the country serving the region and moved part of its production chain there. It still makes the bulk of its revenue abroad but caters for around 600 Lebanese families. The IT consultancies have been around for about 10 years now and still make the bulk of their revenues abroad. The externalized call center was set up in January 2021 and this last example brings a lot of hope to me: companies with no specific ties to Lebanon still choose to invest in the country and sees value in it and its workforce even after its economy has fell apart.

In conclusion, the idea here is to call out on men and women (and companies) of good will who can still see value in Lebanon, who can identify win-win business cases in operating part of their cost centers from Lebanon and who are willing to take a chance on this country, knowing they have a cheat code to enhance their chances of success in the game: they are part of the solution.

Let the board sound


On basic economic education

I am not an economist by any stretch of the word. And for a long time, I had no clue about basic economic subjects, everyday stuff really. Like where do banks get the money to remunerate my saving account. Or what is backing up the currency I use everyday, what is it that gives it value. Gold in a vault somewhere at the central bank would it seem. Or would it? I actually had no clue that I had no clue, things were working the way they were and there was no need to ask questions. Until I started asking myself questions. And I found out that understanding these concepts is important. I should have been taught that at school, very early on. Would you not agree?

So where do banks get the money to remunerate saving account? If you deposit money at the bank and the bank pays you interest on it, it must be getting the money somewhere else to pay you. It is in fact lending the money you deposited to people or institutions who need financing and making them pay interest on the loan. Car loan, housing loan, personal loan, you name it. The difference between the rate at which the bank remunerate your deposit and the rate it charges on the loans makes out its profit. Pretty simple right?
Here’s a mind twister then. Where does the bank store its money? In a vault you could argue, and you would be right to a certain extent. After all, automatic teller machines at any given branch of the bank dispense cash out of a secure mini vault. But the bulk of money at the bank disposal at any given time is digital. A number on an account in a given currency, and treated exactly as you would treat your money: most of it is sitting on an account at the bank, and very little in your pockets. Realizing this opens up a whole new dimension of questions you could ask yourself. If the accounts under your name are sitting at your local bank, then where are the accounts holding your local bank’s money? “At your local bank” sounds like a reasonable enough answer, but think again. If you want to check your balance, you would log into your bank online page, enter a username and password and access your account. It is not in an Excel file on your laptop. It is quite similar for a bank, its accounts are held at another bank, the correspondent bank. For instance, a European bank which domestic currency is the Euro has Euro accounts opened at the central bank, which are remunerated just like any other interest baring account. It may also have US Dollars accounts held at US correspondent banks or Pound Sterling accounts at a UK correspondent bank. 
At this point, you might start to suspect how the United States can enforce fiscal policies like the Foreign Account Tax Compliance Act (FATCA) to actors who do not fall under US authority. Given that any bank in the world accesses US Dollars through a US correspondent bank, barring US financial institutions from engaging in business with a European bank for instance practically prevents the European bank from engaging in any economic activity which basis is the US Dollar. It cannot initiate payment instructions in USD to its US correspondent bank and cannot receive USD amounts on its account. Given the prominence of the US Dollar on international markets, such a bank is essentially prevented from operating all along.
But then, why do banks want access to foreign currencies like the US Dollar or the Euro in the first place? Another way of putting it is why do central banks keep foreign currencies reserves? One of the main reasons is to allow themselves the means to protect the local domestic currency. Here’s an example: the central bank of Lebanon was keeping the Lebanese Pound in a strict peg to the US Dollar since 1997, maintaining an FX rate of 1507.5 LBP per USD. To achieve this, whenever the FX rate moved out of the peg target rate in favor of the USD, the bank would pump US Dollars in the markets, providing a higher supply of this currency, thus reducing its price and bringing the FX rate back to the target peg value. A pure supply versus demand mechanism to make it simple.
If foreign currency reserves get scarce, the central bank can always try to scrub Lebanese Pounds out of the market in an effort to decrease supply of LBP, since it cannot increase the USD supply anymore. It does so by increasing the remuneration rate on LBP accounts it is holding. This incentivizes commercial banks operating in the Lebanese markets to put more Lebanese Pounds in their accounts at the central bank, and to trickle this policy down to their individual customers by increasing the rates at which they remunerate customer accounts in LBP. The difference between this rate and the rate at which the central bank remunerates the banks accounts in LBP makes the operation very profitable to commercial banks at the expense of minimal risk it would seem.
The downside of such a policy is that it does not provide incentives for commercial banks to finance the real economy. Instead of lending money deposited with them to entrepreneurs, potential house owners, or students in need of financing, they deposit it at the central bank and gets “free” remuneration on it.What actually happened in Lebanon was that commercial banks started offering remuneration rates of  up to 18% on Lebanese Pound denominated accounts. This means that the central bank of Lebanon was offering commercial banks an even higher remuneration on their accounts. Obviously, no company or business yields net margins of 18%, and no individual can sustain a loan with such high interest rates, which meant that the banks did not have any incentive to finance businesses or sell mortgages, freezing the Lebanese economy in effect. 
The Lebanese economy of the 2020s is a large topic which I will probably tackle in a separate post. One last question though: How is money created? Some say it is “printed”, which is also true to a certain extent. We do use bank notes and they have to be printed somewhere. But the bulk of created money is actually digital: the central bank being the sole actor in a country’s economy to have the privilege to create money, it does so by buying financial assets like sovereign bonds from commercial banks, and crediting their accounts with an amount of money coming out of thin air. As simple as that.
The takeaway of this story is to run whenever someone offers you interest rates which are too good to be true: they are not. Had Lebanese people learnt the mechanisms behind some of the facts above as kids and understood a bit better how an economy works, they would have probably avoided stacking all their net worth in LBP saving accounts to get 18% returns. Too good to be true. 
In conclusion, I would like to make a case for basic economic education at schools, starting at a relatively young age because it would seem that many if not most people do not understand many of the economic concepts behind many aspects of every day life. Like the nature of money and interest rates or the basic operating model of a bank. And knowing that is of paramount importance, there’s just too much at stake. 

You know how a car works, so why would you not know how a bank works?

Let the board sound


A proxy to the rather opaque USD/LBP unofficial rate

In the aftermath of the default of the Lebanese government on its debt on March 19th in 2020, the Lebanese pound reached abysmal lows versus the US dollar. Up to that point, the Lebanese government, or more precisely the Banque du Liban, had always followed a policy of strict pegging of the local currency to the US dollar, at a rate of 1507.5 LBP for a Dollar, to instill confidence that investments, typically in bonds, will retain their purchasing power in US dollars when they mature. This rate had been constant since 1997. The Lebanese pound intrinsic weaknesses started to unravel around October 2019 and the peg to the US dollar started to fall apart.

The unofficial FX rates on the local market have surged in the past months, reaching values as high as 15000 LBP per USD according to sources. These sources rely on polls from exchange houses and currency changers on the local market. Given the relatively small size of the Lebanese money market and its opacity, the local unofficial FX rate could benefit from a proxy on international marketplaces with a high enough correlation to allow a coarse evaluation of the fairness of the unofficial FX rate, and identify under or over valuations of the Lebanese Pound.

Lebanese sovereign Eurobonds (Bonds issued by the Lebanese government in a foreign currency, in this case USD instead of LBP) might be a good proxy for the specific case at hand with the following assumptions:

  •      The currency had been successfully pegged to the US dollar for decades  before a first default and an economic downturn.
  •      The country has successfully issued Eurobonds in the past decades, until a first default

When investors buy such a Eurobond at par (at 100% of the face value of the bond, quoted as 100 on fixed income markets), they are expecting full repayment of the principal amount at maturity. In the case of the Lebanese Eurobonds, the investors are expecting full repayment of the principal in USD from an issuer whose domestic currency is the LBP. In other words, they trust the central bank to keep the Lebanese Pound pegged to the US Dollar on a rate close or equal to the current peg rate, allowing the Lebanese government to easily finance itself in USD to repay the principal at maturity.

If the Eurobond is bought at a heavy discount, for example 20% or 30% of the bond face value, it means that the investors foresee a higher risk of default, which in the case of sovereign Eurobonds is due in part to the weakness of the domestic currency. In other words, the investor does not expect the central bank to have the means of enforcing a peg of the Lebanese pound to the USD and hence, the Lebanese government of easily financing itself in USD to repay the principal.

At the time these lines are being written, the Lebanese Eurobonds being considered are quoting at around 12 or 13. One could argue that this price can be seen as a “recovery rate”: the investor accepts to pay 12% of the face value of a Eurobond because it does not expect a scenario worse than a 12% repayment of the principal. The value of every dollar of principal must be reduced by 88% for the investor to incur a loss, having bought the Eurobond at 12% of its face value.  For an issuer like Lebanon which had successfully pegged the domestic currency to USD for decades at 1507.5 LBP per USD, it can be said that the value of every 1507.5 LBP of principal (one US dollar at the time the bond was issued) must be reduced by 88% for the investor to incur a loss, or that the central bank has to sustain an 88% downturn of the USD/LBP rate for the investor to incur a loss, at which point 1507.5 LBP is worth 0.12 USD.

Hence the proxy: USD/LBP black market = USD/LBP peg * 1/Eurobond price = 1507.5 * 1/0.12 = 12562.5. This value is very close to the unofficial FX rate quoted by different sources on the local Lebanese market.

To ensure the soundness of the idea, I have back tested the values of the black-market FX rate for the past year against the price of a Lebanese Eurobond, ISIN XS0250882478, as quoted on the Luxembourg exchange. It is an eight-year Eurobond maturing on April 12, 2021, which makes it old enough to have been issued at a time when the USD/LBP peg was effective and maturing around a year after the first bond default following the economic downturn of the Lebanese republic. This ISIN was suspended on the Luxembourg exchange where the values were taken shortly before its maturity.

USD/LBP rate computed from Eurobond prices versus USD/LBP unofficial rates

In the figure above, on the day of the bond default in March 2020, the bond price used as a proxy gives a USD/LBP rate much higher than the black-market value. This is probably due to the fact that an economy has a given inertia due in part to capital restrictions and other measures imposed by commercial banks and the central bank of Lebanon on depositors to avoid a bank rush and to try to control the FX rate to a certain extent.

Starting July 2020, the curves seem to be much more correlated. In fact, the correlation (Pearson) is computed as 0.771 on the values of both curves between July 29 and March 31. The gap towards the end of October 2020 could be explained by rumors on the formation of a new government by the nominated prime minister, which drove the local unofficial rate down through a relative increase of the confidence in the Lebanese Pound. This gap has persisted until right before the bond maturity, where we see a correction. It could also be due to other biases linked of the exchange where the Eurobond prices were sourced.

Further steps are planned, to refine the findings on this proposed proxy. They include running a back testing exercise on another Lebanese Eurobond and using quotes from a different exchange, for example, USD/LBP rate based on Eurobond XS0471737444 maturing in 2024 and quoted on the Frankfurt exchange.

Let the board sound