Europe’s Job From Hell

Madman Is Wanted to Fill Europe’s Job From Hell

by Matthew Lynn

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Feb. 23 (Bloomberg) — It comes with a nice office and a grand title. You would probably have a pretty generous expense account. And there may well be a lucrative consulting gig with Goldman Sachs Group Inc. when it is all over.

Even so, you would have to be bordering on insanity to accept the role of European Central Bank president when Jean- Claude Trichet steps down in October this year.

It’s the job from hell. The euro crisis is getting worse. You will be asked to achieve the impossible. You will have zero independence. And the chances are that you will wind up being remembered as the person who presided over one of the biggest monetary failures in history. That’s hardly an appealing prospect.

When Axel Weber unexpectedly resigned as Bundesbank president this month, the favorite to take over from the usually calm and confident Trichet was suddenly out of the running.

The field is now wide open. Mario Draghi, the Bank of Italy governor, has been installed by the bookmakers as most likely to get the job. He is followed by Erkki Liikanen, the Finnish central banker, who is now at odds of 2-1, followed by Luxembourg’s Yves Mersch, and Dutchman Nout Wellink. An outsider at 20-1 is another German, Klaus Regling, the head of Europe’s bailout fund. It could even be another Frenchman — Xavier Musca, the economics adviser to French President Nicolas Sarkozy, has been mentioned as a possibility.

Euro Mess

Yet surely any job would be preferable to running the ECB. Greek finance minister, for example. Or running the public relations unit for BP Plc on the Gulf coast. Either would be better than trying to sort out the mess the euro has become.

Here’s why.

First, the crisis ebbs and flows. But the only real fix is for the economies of the 17 members to converge, and there is no sign of that. Germany is booming, and the peripheral countries are slumped in recession. The German economy will expand 2.3 percent this year, according to the government. By contrast, the Greek economy shrank 1.4 percent in the fourth quarter alone. From a year earlier, its economy contracted 6.6 percent.

The difference in growth rates between Germany and the worst performing countries is now close to nine percentage points. In effect, the imbalances are widening — and that means the crisis is becoming more severe.

Inflation Lurks

Second, the new ECB president will be asked to achieve the impossible. The central bank is mandated to keep consumer-price increases at just below 2 percent. In January, the euro area’s inflation rate was already 2.4 percent. Thomas Straubhaar, director of the Hamburg Institute of International Economics, says German inflation will reach 4 percent by the end of 2012. Price pressures are growing everywhere, and at some point the ECB will have to act.

That will plunge the struggling nations into a depression. What happens to an economy that has already contracted more than 6 percent in the past year when you boost interest rates? You create a full-blown depression — 1931 will seem mild by comparison. They will burn your effigy in Athens and Dublin. You can’t maintain price stability and rescue the peripheral nations, but that’s what you will be asked to do.

Three, the bank’s independence is about to be compromised. The euro area’s leaders will struggle to keep the single currency together. They have invested too much capital in this project to let it fail. They will come up with a dozen plans and trillions of euros in rescue packages. The chances of the ECB maintaining its independence during that process are zero.

Let Inflation Rip

If you need to print money to keep the euro intact, you will have to turn on the presses. If you have to prop up bankrupt banks, the euros will have to be made available. If you need to cut interest rates and let inflation rip, you will have to ignore your mandate for price stability. The ECB president will end up having to do what French and German politicians tell him, regardless of whether it makes any economic sense.

Four, you will probably end up presiding over the dismemberment of the euro. This is an eight-year term. Whoever gets the job will still be there in 2019. It is hard to see the single currency surviving that long without one or more countries leaving. The pressures within the system are too great to be contained. Who wants to be remembered as the person who presided over one of the great monetary failures in history?

They will probably find someone to take the job. There’s always someone who wants a promotion.
But Axel Weber was a candidate of stature, just what the ECB needs. He walked away from the gig. The other candidates are now taking a good hard look at the job description.

(Matthew Lynn is a Bloomberg News columnist and the author of “Bust,” a book on the Greek debt crisis. The opinions expressed are his own.) 

Cellphone Radiation Increases Brain Activity

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By Dave Mosher

Radiation from a mobile phone call can make brain regions near the device burn more energy, according to a new study.

Cellphones emit ultra-high-frequency radio waves during calls and data transfers, and some researchers have suspected this radiation — albeit inconclusively — of being linked to long-term health risks like brain cancer. The new brain-scan-based work, to be published Feb. 23 in the Journal of the American Medical Association, shows radiation emitted from a cellphone’s antenna during a call makes nearby brain tissue use 7 percent more energy.

“We have no idea what this means yet or how it works,” said neuroscientist Nora Volkow of the National Institutes of Health. “But this is the first reliable study showing the brain is activated by exposure to cellphone radio frequencies.”

More than 5 billion mobile devices may be in use worldwide today. From behavioral quirks to brain cancer, researchers have looked for any health risks associated with cellphone radiation for years. Volkow said, however, that most research has produced conflicting results.

“These studies used only 14 people, at most, and looked at brain activity over brief time spans of about 60 seconds. A cellphone’s effect on the brain is very weak, so you lose statistical power with small sample sizes and durations,” said Volkow. “Our study had 47 usable subjects monitored over a long time to get us significant data.”

Cancer epidemiologist Geoffrey Kabat of the Albert Einstein College of Medicine said the work can’t and doesn’t offer any clinical predictions, but regarded it as the best to date on cellphone radiation’s effects on the brain.

“It’s a really even-handed look at this problem, and it shows a small effect that scales with exposure,” said Kabat, author of the book Hyping Health Risks. “I’m really curious to see where future research leads.”

Cellphones use ultra-high-frequency radio waves to connect with telecommunications networks. Antennas within phones emit the waves and, while the strength tails off quickly as distance from the antenna increases, a sizable chunk of it is beamed through the brain.

As a result, federal agencies require phone manufacturers to post information about how much radiation the body might absorb for each model, called its Specific Absorption Rate or SAR. Measured in watts per kilogram of tissue, it reveals how much radiation parts of the body are exposed to during use of a mobile device.

The simple cellphone used in Volkow’s study, a Samsung Knack phone popular in New York, has a peak SAR in the head of just under 1 watt per kilogram of tissue. The Phone 4 has a peak SAR in the head twice as high, while sun’s average SAR across the body is 4 or 5 times higher.

Some studies have suggested a small yet significant link between long-term cellphone SARs and certain brain cancers, including glioma and meningioma, but most investigations have found no such links. To abolish any uncertainty, the World Health Organization tasked a group of scientists to review all known related research. Their 2010 Interphone report showed no substantial link with mobile phone use and incidence of brain cancers, and in fact found reduced rates for some types.

‘The effect is very small, but it’s still unnatural. Nature didn’t prepare our brains for this.’

Still, Volkow said, understanding close-up and long-term exposure to cellphone radiation is important.

“The state of knowledge is really speculative. No studies have determined mechanisms for what we have seen, or other effects such as increased blood flow in the brain,” Volkow said. “I have spent hours on the phone with my sister every week, and have done it for years, so I would like to know if that’s harmful or not.”

Volkow and a team of researchers scanned the brains of 47 people with a cellphone attached to each side of their head. One phone was turned off, while the other had an active call going for 50 minutes. It was muted to prevent the audio from having effects on brain activity.

Twenty minutes into the call, clinicians injected a radioactive form of sugar into each person, then began imaging their brains with a Positron Emission Topography machine. Over the course of 30 minutes, the sugar pooled in the brain’s most active regions and revealed the energy use to the brain scanner.

Accounting for normal activity, the subjects showed about a 7 percent boost in sugar use on the side of the head where the active cellphone was.

Brain imaging physicist Dardo Tomasi of Brookhaven National Laboratory, who co-authored the study, said that’s several times less activity than visual brain regions show during an engaging movie.

“The effect is very small, but it’s still unnatural. Nature didn’t prepare our brains for this,” Tomasi said.
Although the mechanism for the effect and its long-term consequences aren’t known, Volkow said it’s cheap and worthwhile to take matters into your own hands.

“You don’t have to wait around on us for the answers. Just use a wired headset or the speakerphone function,” she said. “That keeps the phone far enough away to make it an insignificant risk.”

Image: A bottom-of-the-brain view showing average use of radioactive glucose in the brains of 47 subjects exposed to a 50-minute phone call on the right side of their head. (Nora Volkow/JAMA)
See Also:

• Why Cellphone Talkers Are So Grating
• Driving Distracts Cellphone Users
• Cheaper, Better Satellites Made From Cellphones and Toys
• Research Links Herpes Virus and Brain Tumors
• Allergies Linked to Brain Tumor Protection

Dave is an infinitely curious Wired Science contributor who's obsessed with space, physics, biology and technology. He lives in New York City.
Follow @davemosher and @wiredscience on Twitter.

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Is this the start of the second dotcom bubble?

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Loss-making Twitter has been valued at $10bn. Facebook is said to be worth more than Ford. Now, for some investors, the alarm bells are starting to ring

Two years ago, anthropologist Sekai Farai was awarded a grant by Columbia University to study the technology startup community. Her timing couldn't have been better: a new goldrush is under way as twentysomethings from New York, London and San Francisco dream of making their fortunes from a new generation of internet companies. Sitting in the lobby of Manhattan's Ace Hotel, one of new-school tech's favourite hangouts, Farai predicts the boom has just begun. "People who not long ago started startups because they couldn't get a job are turning down jobs now," she says. "There's so much money about. The idea that your idea could be the next big idea is very real. There's a real air of excitement." Could it all end in tears? "It always does. Right now, though, who wouldn't be excited? Every week, one of the new generation of internet firms seems to attract a sky-high valuation. Zynga, the social-network games company that has tempted millions to grow virtual vegetables in its FarmVille game, has been valued at $9bn (£5.54bn). Profitless Twitter is said to be worth $10bn. Groupon, vendor of online discounts, rejected a $6bn offer from Google and is considering a flotation with a potential valuation of $15bn. Tech-watchers say this is just the start: the real boom will come when Facebook, the head boy of the new dotcom frenzy, goes public, probably next year. This month it emerged that Facebook staff are planning to sell $1bn of private shares at a price that values the private company at $60bn – that's $10bn more than January's valuation and close to 10 times the price Russian investor Digital Sky Technologies paid employees who sold shares in 2009. The leaps in valuation are dizzying. At its current on-paper price, Facebook's value is somewhere between that of Ford ($55bn) and Visa ($63bn). But that's still less than a third of Google's value, Facebook's arch-rival in the battle for domination on the internet. Alan Patrick, co-founder of technology consultancy Broadsight, says we are at the beginning of another bubble and that the first breaths have been blown: "A bubble is defined by too much money chasing assets, greater production of those assets, then the need to find a greater fool to buy them." So far, money is chasing a small group of companies – Facebook, Groupon et al – that could prove to be good investments, says Patrick, who also writes the Broadstuff blog. That was true of other bubbles too: at the start of the US property boom, for example, it was the best houses in the best locations that took off first. Only later did people start speculating on grotty flats in Florida. New Thing According to Patrick, there are 10 tell-tale signs that a bubble is being blown: ■ 1. The arrival of a "New Thing" that cannot be valued in the old way. Dumb-money companies start paying over the odds for New Thing acquisitions. ■ 2. Smart people identify the start of a bubble; New Thing apostles make ever more glowing claims. ■ 3. Startups with founders deemed to have "pedigree" (for example, former employees of New Thing companies) get funded at eye-watering valuations for next to no reason. ■ 4. There is a flurry of new investment funds catering for startups. ■ 5. Companies start getting funded "off the slide deck" (that is, purely on the basis of their PowerPoint presentations) without actually having a product. ■ 6. MBAs leave banks to start up firms. ■ 7. The "big flotation" happens. ■ 8. Banks make a market in the New Thing, investing pension money. ■ 9. Taxi drivers start giving you advice on what stock to buy. ■ 10. A New Thing darling buys an old-world company for stupid money. The end is nigh. This time social media is the New Thing. Its most earnest acolytes claim that the likes of Twitter and Facebook are a revolution in human communications unseen since Gutenberg started printing the Bible. They aren't making money, but they are worth a fortune. Two smart cookies – Arianna Huffington, founder of the Huffington Post, and Michael Arrington, creator of the influential technology blog TechCrunch – have sold their publications to AOL, a company not noted for the astuteness of its recent decisions. Tick off stage 1. The second stage looks tickable, too. Fred Wilson, investor at Union Square Ventures and a veteran of the 1999/2000 dotcom bubble, has been sounding the alarm for some time. In a recent interview with TechCrunch, Wilson said he was worried that a two- or three-person startup could get a $50m-$100m valuation. "To me that's not in the realm of reasonable," Wilson said. He even went as far as to name names – in particular Quora, a questions-and-answers site set up by Facebook alumni Adam D'Angelo and Charlie Cheever that raised $11m in funding last year at a price that valued the company at $86m. Now it is reportedly fending off offers for $330m. See stage 3 above. Mark Cuban, the investor who made a fortune in the first dotcom boom, has compared the current funding frenzy to a pyramid scheme. In another recent interview, David Cohen, managing director of the well-known Silicon Valley start-up fund TechStars, says there is a bubble in the number of companies financing startups. Cross off stage 4. The last dotcom boom really took off after the flotation of the internet software company Netscape in 1995. Patrick says this time it's likely to be Facebook that lights the fuse. So far, private investors have been locked out of the New Thing. But JP Morgan is setting up a fund, and Goldman Sachs recently tried to get its clients' money into Facebook. That would take us all the way to stage 8, in which case we're just waiting for stages 9 and 10 – where cabbies get in on the act and the game goes into reverse.  New Bubble Not everybody agrees. Sumon Sadhu, director of intelligence at Quid, a Silicon Valley consultancy, sees a lot of money but no bubble. He calculates that in the fourth quarter of 2010 consumer internet firms attracted $2.5bn in new investments, up from $949m for the previous quarter. But the number of companies getting the cash rose from 226 in the third quarter to just 252 in the fourth. "The money is following the money," says Sadhu. Something new is happening, he argues: social media has created a vast new source of information about the people using the web. Sites such as Not everybody agrees. Sumon Sadhu, director of intelligence at Quid, a Silicon Valley consultancy, sees a lot of money but no bubble. He calculates that in the fourth quarter of 2010 consumer internet firms attracted $2.5bn in new investments, up from $949m for the previous quarter. But the number of companies getting the cash rose from 226 in the third quarter to just 252 in the fourth. " The money is following the money," says Sadhu. Something new is happening, he argues: social media has created a vast new source of information about the people using the web. Sites such as Facebook are building a far more rounded picture of a person's identity – and that is worth a fortune. "The first wave of internet firms gave us an explosion of information. Now we need filters – we need to trust where that information is coming from," says Sadhu. "That's what's being monetised now. With any business cycle it's going to be evolutionary, but there is seldom excess with a total lack of fundamentals." From an anthropologist's perspective, Farai is not so sure. "There are elements out there that are pyramid-esque, Ponzi-esque, maybe even Kafkaesque," she says. "There's a sense that this isn't real money. In the long run, that can't be good." Maybe, maybe not. The sad truth is, we'll only really know that this was a bubble if it bursts. -Guardian