WORLD BANK

Bono, the lead singer of U2, may make the shortlist of candidates to run the World Bank, U.S. Treasury Secretary John Snow suggested on Sunday: "He's in a way a rock star of the development world too." What does the president of the World Bank actually do?

He travels the world, manages an army of 10,000 employees, and shakes lots and lots of hands. When outgoing president James Wolfensohn steps down at the end of May, he will have traveled to more than 120 countries over his two five-year terms. The World Bank, founded in 1944, lends money and makes grants to developing countries around the world. On trips to both member nations and developing nations, the president meets with government officials and nongovernmental groups, holds press conferences, and surveys the impact of the bank's aid projects.

When he's not on the road, the president works from Washington, D.C., and presides over semiweekly meetings of the bank's board of executive directors, 24 political appointees representing the 184 countries that control the organization. Board meetings take place on Tuesdays and Thursdays and typically run all day. If the president can't be there, his managing director fills in.

According to the bank's organization chart, the president reports to the board, which retains all authority to make decisions. But in practice, the bank's vague mandate and wide range of activities allow the president a degree of autonomy.

He reviews grant and loan decisions, sets priorities for the bank, and manages its international staff (of which one-third is stationed overseas). He's also responsible for keeping the development committee-which oversees both the World Bank and the International Monetary Fund-happy. He works seven days a week for most of the year, with five weeks of vacation. For his efforts, the president gets paid about $300,000 per year plus travel, and his income is not taxed.

How does the president get selected? There are no formal rules about who can become World Bank president or how that person should be selected. But by tradition, the president of the United States makes the choice. He selects an American citizen and submits the name to the executive board for its rubber-stamp approval. (A European always serves as the managing director of the IMF.) In theory, Bush could nominate a non-American like Bono for the job, but when the Australian-born Wolfensohn was in the running, he felt he needed to obtain American citizenship in order to compete.

WILCO

Watched an excellent documentary on Wilco ("I am trying to break your heart") last night. Jeff Tweedy has one of those voices...

Review:

Near the beginning of “I Am Trying to Break Your Heart,” Sam Jones’ engrossing documentary on the acclaimed band Wilco, manager Tony Margherita proclaims: “This is the moment. This is the record; if not, it’s a tragic missed opportunity.” This, rock fans, is what’s called foreshadowing.

If you read any mainstream or alternative music press at all, you know that the aforementioned record is Yankee Hotel Foxtrot. During the year covered by Jones’ film, the most difficult of the band’s career, this record is anticipated as Wilco’s critical and commercial peak, where all their hard work and personal travails will pay off. As it turned out, the record would be exactly that. But getting there was a hell of a traumatic journey, and Jones admirably pares it down to 94 tastily tuneful, occasionally dissonant minutes. Wilco fans will feast; others might go hungry. But who cares about them? They’ll always have Total Request Live.

At this point, of course, one thing is established about Yankee Hotel Foxtrot: “Dude, that album is amaaazing.” But in fairness to the bean-counting corporate androids at Reprise Records - whose response to the record was utter bewilderment, and worse - it must be said that Yankee Hotel Foxtrot is a bit of a strange one. It’s certainly nobody’s idea of a commercially viable product in these debased days of Britney, Puffy and the dreaded Creed. (A moment’s digression: What is it that’s so epically vomitous about Creed? Leaving aside their generic religiosity, one is tempted to dismiss them as our era’s answer to Styx, Kansas and/or Journey - except Creed hasn’t come up with a song half as memorable as “Fooling Yourself,” “Point of Know Return” and/or “Lovin’ Touchin’ Squeezin’.” A question for another documentary, or perhaps for God himself: Do we really need Creed?) Anyway, the guys in Wilco certainly ain’t getting by on their looks - it’s truly all about the music.

In gorgeous, high-contrast black and white imagery, Jones shoots the band - led by singer-songwriter/frontman/genius Jeff Tweedy and multi-instrumental cohort Jay Bennett - jamming, rehearsing and recording in the relaxed intimacy of their Chicago loft. Tweedy, a prickly but generally agreeable presence, explains that his intent with the new record is to deconstruct his own songs to the point of abstraction, thus liberating...something. “We made it, so it’s ours to destroy,” he insists. In the early going, however, it’s nice to hear the songs in unplugged, undeconstructed folk arrangements, before all the “experimental” studio processing. (Actually, the album isn’t all that weird, not with the catchy one-two punch of “Heavy Metal Drummer” and “I’m the Man Who Loves You,” and the ear-pleasing Beatleisms of “Poor Places.”)

It’s the experimentation, the deconstruction, that gets the band into trouble with their label. The storm clouds start gathering at a Tweedy solo show, when the bandleader is cornered backstage by a couple of weaselly WEA executives who ask him “what the record is like.” Tweedy’s response, essentially, is that it doesn’t sound like any other Wilco album; when he starts expounding on odd drum sounds and “holes in the songs, open spaces between what’s supposed to be the music part,” the silence is quite deafening. Finally Tweedy can’t explain himself anymore, and walks out.

Reprise Records, see, was embroiled in some sort of AOL-related corporate nightmare at the time, and in no mood for what critic Gregg Kot calls “a masterful, dense, artistic statement.” After presenting the label with the tapes, the Wilco camp hears nothing for two weeks. When they finally do get a call, they learn that Reprise wants “changes,” they have “ideas.” Tweedy is adamant - the album is finished, take it or leave it. Reprise not only leaves it, they also drop the band from their roster, on the very same day head honcho Howie Klein exits the label.

Things look bleak for Wilco; no doubt Jones was thanking the Documentary Gods for all the unforeseen drama the situation brought. The plot thickens even more when, before our very eyes, the relationship between Tweedy and Bennett falls apart. The breakup begins with a technical disagreement in the studio in which neither man will relent, but both try to keep it under control; it’s fascinating to watch Bennett cook his own goose because he simply can’t be quiet. He ends up explicating himself to death. Jones’ access extends to peering over the bathroom stall as Tweedy pukes after this argument, not-so-subtly depicting Tweedy’s decision to fire his musical partner.

At a tour rehearsal - in which the band plays a terrific version of “I’m Always in Love” from 1999’s pop-friendly Summerteeth - the tension won’t dissipate, and worsens when Tweedy pointedly tells Bennett he likes the song better with only one guitar. Guess whose? “I thought it felt great,” Bennett shrugs, and we the listeners agree. But when Tweedy replies “I think the two-guitar thing may be obsolete”...well, it will be in this particular group.

With Bennett gone, the band dynamics naturally change. Tweedy is now in complete control. Bennett comes off as a bit bitter, of course - but that may be because the overall perspective here is clearly Tweedy’s. “Jeff was threatened, he wanted the band back,” Bennett asserts, and he’s probably right. But Bennett is certainly talented enough to front his own band, so he should be alright.

As a “year-in-the-life” portrait, Jones’ film works beautifully. Ultimately, though, it’s limited by being little more than a very in-depth look at the making of...a piece of entertainment. Wilco’s greatest triumph may be that, in finally signing with avant-garde mainstay Nonesuch - another WEA label - they corner AOL Time Warner into paying for the same album twice. (The music-press publicity didn’t hurt; Yankee Hotel Foxtrot debuted in the Top 15 and has been Wilco’s bestselling, not to mention most critically beloved, album to date.)

Sure, “I Am Trying to Break Your Heart” may not have much to offer non-fans of the band. But then again, in 30 years’ time it might seem as incisive a document of its time as, say, “Don’t Look Back” or “Gimme Shelter.” As a study of how the current corporate idiocy impacts one man’s art, it’s priceless.



Among my favourite Wilco songs:

California stars
Ashes of American Flags
Misunderstood
Sunken treasure
Muzzle of bees
Jesus, etc.
Remember the mountain bed
At my window sad and lonely
How to fight loneliness
Far, far away
The Lonely 1
Outta mind, outta sight

HOUSING

When The Economist launched its global house-price indicators in 2002, residential-property markets were merely warming up. Today they are red hot in many of the 20 countries we cover: in half of them, prices have risen by around 10% or more in the past year (see table). But for the first time since we started to track them, housing markets in several countries have slowed sharply.

The most dramatic slowdown has been in Australia where, according to official figures, the 12-month rate of increase in house prices fell to only 2.7% in the fourth quarter of last year, down from nearly 19% at the end of 2003. Another index, calculated by the Commonwealth Bank of Australia, which is based on prices when contracts are signed rather than at settlement, shows that average house prices fell by 7% in the year to December; prices in Sydney plunged by 16%. The Reserve Bank of Australia's quarter-point increase in interest rates this week is likely to give prices another downward nudge.

Britain's housing market has also cooled since last summer. The Nationwide index, which we use, was still up by 10% in the year to February, down from 20% growth in July. Other anecdotal evidence suggests that prices have fallen since last summer in many parts of the country.

In contrast, America's housing bubble continues to inflate. Although the rate of increase slowed in the fourth quarter, prices were still up by 11.2% over the year. In California and Washington, DC, housing prices rose by more than 20%. Alan Greenspan, the Fed's chairman, recently admitted in congressional testimony that there may be property bubbles in “certain areas” and a risk that prices could decline. There is certainly evidence that prices are being driven by speculative demand: a new study by the National Association of Realtors shows that one-quarter of all houses bought in 2004 were for investment, not owner-occupation.

House prices are still rising rapidly in continental Europe. French house-price inflation has accelerated to 16%, its fastest on record in real terms and only a whisker behind Spain's 17%. Prices in Italy, Sweden and Belgium are also rising at close to 10%. Excluding Germany, where prices fell again in 2004, average home prices in the euro area have risen by 12.5% over the past year, causing some concern at the European Central Bank.

Punishing prices, puny yields
The main reason why housing markets have cooled in Australia and Britain is that first-time buyers have been priced out and demand from buy-to-let investors has slumped. While house prices have soared, rents have risen modestly or even fallen in some cities. In America, Britain, Spain New Zealand and Australia, average net rental yields (allowing for management fees, maintenance and empty periods) have fallen to 3.5% or less, well below mortgage rates. Shane Oliver, the chief economist at AMP Capital Investors, estimates that net rental yields on houses in Sydney are only 1%. Landlords are nowhere near covering their true costs, but many still hope to make their profit from capital gains. That sounds ominously similar to the days of the dotcom bubble, when it was argued that the link between share prices and profits no longer mattered.

According to calculations by The Economist (with the help of Julian Callow of Barclays Capital), house prices are at record levels in relation to rents (ie, yields are at record lows) in America, Britain, Australia, New Zealand, France, Spain, the Netherlands, Ireland and Belgium. America's ratio of prices to rents is 32% above its average level during 1975-2000. By the same gauge, property is “overvalued” by 60% or more in Britain, Australia and Spain, and by 46% in France.



The ratio of prices to rents is a sort of price/earnings ratio for the housing market. Just as the price of a share should equal the discounted present value of future dividends, so the price of a house should reflect the future benefits of ownership, either as rental income for an investor or the rent saved by an owner-occupier. To bring the ratio of prices to rents back to equilibrium, either rents must rise sharply or prices must fall. Yet central banks cannot allow rents to surge as this would feed into inflation. Rents directly or indirectly account for 29% of America's consumer-price index, so rising inflation would force the Fed to raise interest rates more swiftly, which could trigger a fall in house prices. Alternatively, if rents continue to rise at their current annual pace of 2.5%, house prices would need to remain flat for over ten years to bring America's ratio of house prices to rents back to its long-term norm. There is a clear risk prices might fall.

Lower real interest rates might justify a higher p/e ratio. For example, real interest rates in Ireland and Spain were reduced significantly when these countries joined Europe's single currency—though not by enough to explain the whole rise in house prices. In Britain, where tax relief on interest payments has been scrapped, real after-tax rates are close to their average over the past 30 years, and so do not justify a higher price/rent ratio. In America, too, real post-tax interest rates are not historically low, in part because mortgage-interest tax relief is worth less at lower rates of inflation. For instance, if interest rates are 10%, tax relief is 30% and inflation is 7%, the real after-tax interest rate is 0%. If interest rates are 6% and inflation is 3% (ie, the same gap as before), and tax rates stays the same, the real interest rate is 1.2%.

The unusual divergence between house prices and rents does not just affect investors; it also undermines the conventional wisdom that it is always better to buy a house, because “rent is money down the drain”. Today in many countries it is much cheaper to rent than to buy.

Rent asunder
Take a two-bedroom flat in London, which you could buy for £450,000 ($865,000). To rent the same flat would currently cost £1,700 a month. In addition to a 6% mortgage rate, a buyer would face annual maintenance and insurance costs of, say, 1.25%. In the first year, the rent of £20,400 compares with total mortgage interest and maintenance payments of £33,000, a saving of £12,600. Interest payments would be less if a large deposit were paid, but in that case the income lost from not investing that money elsewhere has to be taken into account.

Assume that rents rise by 3% a year, in line with wages, while house prices from now on rise in line with inflation of 2%. At the end of seven years (the average time before the typical homeowner moves), you would be almost £35,000 better off renting, taking account of the capital appreciation and buying and selling costs. In other words, even without a fall in real house prices—which many believe to be likely—buying a house in Britain today seems a poor investment.

The figures look even more striking in the San Francisco Bay Area, where it is possible to rent an $800,000 house for $2,000 a month. Making the same assumptions about rents and house prices, but also deducting tax relief on a fixed-rate mortgage and adding property taxes, a buyer would pay $120,000 more over seven years than if he had rented. House prices in San Francisco would need to rise by at least 4% a year (2% in real terms) for it to prove cheaper to buy a house. Since 1950 American house prices in real terms have risen by an annual average of just over 1%. To expect them to rise faster from their current dizzy heights smacks of irrational exuberance, to say the least.