To catch new Ponzi schemes like Stanford and Madoff, the SEC needs a geek squad

The recent frauds by Bernie Madoff and Alan Stanford were not caught by the SEC in time to save people’s money. In Madoff’s case, he gave up, as his pyramid was collapsing and confessed (I still wonder why he didn’t fudge the collapse). In the case of Stanford International Bank (SIB), the SEC was investigating the illegal sale of CD’s suspecting that the returns were too juicy.

If Stanford had not tried to sell his CD’s in the US, he would have not been caught, except for the keen eye of Alex Dalmady, who not only saw that there was something funny about the whole set up at SIB (Many of us did), but actually sat down and wrote about it (Which we didn’t).

The question is what can be done about it going forward? How can the SEC monitor for frauds better?

Well, off hand (and on vacation) it occurs to me that given the mathematical tools available these days, something as simple as setting up a geek squad, a bunch of mathematically-oriented whiz kids who would go and devise a bunch of tests to dig out possible Ponzi schemes that the SEC could then investigate further.

I can think of three very simple tests off hand:

1) Benford’s law

I have talked about this in connection to Venezuela’s election, which have been shown to follow the law except for the 2004 recall referendum. Very simply, when you fudge data, you ignore the fact that natural data has certain characteristics. In particular, Benford’s law says that in any list of numbers generated for example, by accountants, the distribution of the first (or second) number (from left to right) follow a distribution which is not uniform. In particular, the distribution for the first number is:

That is, the number “1” has a 30.1% probability of occurring, number “2”, 17.6% and the rest of the numbers declining from there.

Why is that?

Because real world numbers tend to be distributed logarithmically and not uniformly. Consider the following: If a company issues checks between 0 and $100,000 and you look at the first number of the amount for each check, it is likely that the number of checks near $100,000 is low and starts going up as the amount gets lower. Well, if the company prints lots of checks, then you could detect fraud if more than expected show up near $100,000 or if a particular number shows up a lot (a common occurrence). This is actually used in accounting to detect fraud. This also applies to investment returns.

Thus, the geek squad at the SEC could simply look at the daily, weekly or monthly performance data supplied by all regulated mutual and hedge funds and compare it to what Benford predicts. Of course, these tests can be done using more sophisticated algorithms, using statistical measures on the first and second digit to detect discrepancies.

Paul Kredosky has actually looked at Madoff’s data and suggested that Madoff’s data did follow Benford, but his conclusion was only visual. Falkenblog actually concluded that the data did not fit Benford’s law. I would suggest the SEC geek squad could carry out a first and second digit test and calculate statistical measures like chi^2 on the differences between the data and what is expected to see how likely the returns are. (Anyone willing to do it? The data is in Markopolos 2005 document to the SEC denouncing Madoff)

Of course, if the returns of a fund did not follow Benford, there may be an explanation, but detecting it this way would allow for a more detailed study of the funds returns by the SEC.

2) Correlations between returns and markets

One of the red flags raised by Markopolos on Madoff was the fact that Madoff’s strategy was based on the stock market, but there seemed to be little correlation between Madoff’s results and the stock market. Indeed, Madoff showed positive returns on 95.5% of the months, which was not happening in the stock market.

This could all be automated.Each fund would simply define its strategy and set a benchmark for its investments and you could calculate the Correlation Coefficient between the returns of the fund and that of the underlying markets in which it participates. This can be done in an Excel spreadsheet. Basically, it would be very difficult to obtain returns which are uncorrelated to the underlying markets. As an example, last year, it would be suspicious if a fund investing in stocks had a negative correlation with the market unless it invested in gold stocks or a sub-sector of the market that did well last year, but there were very few of those.

Finding anomalies in the correlations does not constitute proof that someone is reporting fraudulent results, but one could automate the process and much as in the case of Benford’s law, it would raise a red flag and the SEC could study it further.

3) A stress test for accountants of funds

One could build two databases, In the first one, one would include the accountants who are active part of the American Association of Certified Public Accountants. A second one would include the top tier auditing firms. Then, for each fund you would ask:

a) How much did you charge to audit the fund?

b) Did you confirm who had custody of securities?

c) Ask who managed and who had custody of securities. Is there any relation between the two?

You could then compile statistics of how much do auditors charge for each size funds. And if b) was No, you would have a big red flag, as well as if in c) the answer was yes. Similarly, if there were anomalies in Benford or the correlations and you used a less known auditor, you could research it further.

That’s it. With these three points, you would go a long way at uncovering the fraudulent funds.

Using these three questions you would have caught Madoff with a), b) and c). However, only c) would have raised flags on Stanford, because there is not month to month data on Stanford’s returns, only yearly data.

But I am sure others can add some additional forensic tools to the detection of fraud in money management. I do hope the SEC may read this and start a geek squad. It would cost very little and go a long way.

And indeed, funds could learn to fudge the data going forward to fit the criteria, but their previous record is there for the geek squad to find.

And now the conspiracy theory on Stanford: It is all a US plot against Antigua banking

Former Antigua Prime Minister Lester Bird now brings up the US conspiracy theory on the Stanford International Bank story:

“However, the former prime minister contended that the charges against Sir Allen and his Stanford companies were part of a US plot to break Antigua and Barbuda’s offshore financial services sector.

“All these people do not want us to have offshore financial services and Stanford has done such an exponential job in developing money… and these guys decide that he’s giving too much profit,” Bird said.”

The best part is that he even attempts to suggest that supervision may have been lax since he left power in 2004, despite the SEC allegations that Stanford’s investment results were funny since at last 1995-1996. He also says “other banks” are paying even higher interest rates than SIB.

Oh baby!

The wonderful world of TVES, the Chavista “public service television”

There has been a controversy in the last few days surrounding TVES, the “public service” TV station that replaced RCTV when Chavez personally decided to cancel that station’s concession.

The controversy is about corruption and that is what those involved are bickering about, but to me the corruption is not the most significant issue, but once again the ability of Chavismo to destroy in the name of the revolution, only to replace it by something which in the end is more anti-revolutionary than what was there before.

Essentially, recall that RCTV was replaced by TVES under the argument that we needed more “socially responsible” television and that RCTV imported programming. The Supreme Court went as far as confiscationg, yes confisctaing, RCTV’s equipment, because the whole thing was so improvised that the Chavez Government had no way of starting a new TV station without stealing the equipment from its rightful owners in the name of the robolution. To this day, TVES has not even tried to buy its own equipment because it knows that the servile Supreme Court will not reverse the ruling.

A former manager of TVES under the new revolutionary management, made a bunch of accusations of what was happening while he was there under the leadership of Lil Rodriguez from May 2007 to November 2008. According to him, contracts were signed paying huge overcharges, even using official exchange foreign currency rate to pay back PDVSA and the President of the TV station having a permanent hotel room at a fancy hotel in Caracas, despite the fact that she lives in a house in Urbanizacion Miranda at the edge of the East of the city (Of course, she argues it is in Guarenas, further East, to distract attention). This arrangement alone cost some US$ 90,000 for a year and a half.

But what is really incredible is how little “social responsability” there was at TVES while Trapiello was there. He said that while the regulators went after the other private TV stations for violations of all sorts of rues and regulations, at TVES they did what they wanted. This includes the fact that this “sociallly responsible” revolutionary broadcast ony 20% of programs produced in Venezuela with the balance imported from Argetina, Mexico and the US. Among the main shows at TVES was none other than Ally McBeal, a show I like, but has very little to do with the revolution, as far as I know.

Trapiello also said TVES did not fulfill the quota of programs produced by independet producers, as well as censorship and discrimination. As an example he said TVES does not show Venezuelan basketball because one of the teams belongs to a relative of opposition Governor Henrique Capriles, but it does show NBA games. He also noted that he was asked to remove from a documentary on Venezuelan cinema all references to a TV personality, Orlando Urdaneta, who supposedly participated in the 2002 events which led to Chavez briefly leaving the Government.

Incredibly none of the pro-Chavez or Government TV stations carried the press conference or the news of what Trapiello was accusing TVES of, but carried the response by the current President of TVES, who only talked about corruption and ignored the other charges.

Thus, another case of destroying something just to satisfy Chavez’ whims. RCTV used to produce and export soap operas and produce Venezuelan made programs which TVES fails to do. Moreover, almost two years have gone by and TVES is as unprepared as ever to do its job.

BTW TVES ratings are low, below 1%, without a single one of its programs havng a rating larger than 1%

You’ve got to love the revolution!

Some parting shots on Chavez, Venezuela and Stanford

Monday and Tuesday are holidays in Venezuela, so tomorrow I will be disappearing for a week and blogging will be lighter than usual, but I am sure I will manage to post something given the barrage of news around. I am going to a Caribbean beach (not Antigua) where I will try to relax and forget about the world for a few days, if possible.

But there are some loose ends I wanted to tie before going, none of which make a single post but they are all somewhat related.

First of all, not a week has gone by after Chavez’ referendum win and his tune has already changed from the country being shielded from the world financial crisis, to we are facing a “tough and difficult” situation. That did not take very long, no? By next week I can imagine it will all be the Empire’s fault.

And meanwhile, Chavez’ Government, after intervening the local Stanford Bank today, issued an order prohibiting the Board of Directors of the bank from leaving the country. Of course, this does not include the man responsible for building up the Stanford operation in Venezuela, Gonzalo Tirado, who told the Miami Herald in 2005 that 40% of the deposits at Stanford International Bank were from Venezuela. If this proportion was sustained since 2005, that implies Venezuelans had around US$ 3.4 billion at the Antigua bank. Note in the article Tirado takes credit for building up Stanford in Venezuela and says Allen Stanford, with whom he had a bitter dispute, managed everything directly.

Curiously, in the same Official Gazette in which the Government published the intervention of the local Stanford Bank on Thursday, the Government also published the approval for Tirado to go ahead and buy a local commercial bank by the name of Inverunion.

And while many have tried to portray Stanford International Bank as the bank of the Venezuelan oligarchy, as only the well to do had money there, I hear that the robolutionaries loved the institution, its high rates, as well as other features. You see, Stanford International used Canadian, not US banks, for its wire transfers and did not have the rigorous compliance procedures of US banks after the Patriots Act. Thus robolutionaries apparently were very faithful clients too. Which makes me wonder if this has anything to do with a report by a radio station in Antigua today that a Venezuelan jet carrying some Government officials, arrived in that island for a meeting with the Prime Minister. If they were after the money, they will find very little, if they were after the data, maybe (or hopefully) someone got there before them, after all, the WSJ last wekend already talked about FBI agents being in the small Caribbean island.

Enjoy the long Carnival holiday!

Losing twice: The Stanford International Double Whammy Special

If you think that some people lost money by being greedy buying CD’s of Stanford International bank, it turns out that others were actually hit twice by setting up what is called a back-to-back, in which someone would ask Stanford in Caracas to lend you Bolívars and that bank would ask you for a guarantee in US$ which, of course, would be placed at the Antigua Bank until you paid the loan.

Thus, your dollars are now trapped in SIB Antigua (and likely lost in the pyramid) and you owe the Bolívars. Apparently this is one of the main reasons why the Venezuelan Government decided to step in and intervene the bank after saying on Wednesday that everything was fine at the local bank. As much as half of Stanford’s Bs. 500 million credit portfolio was tied to such loans.

Thus, if you were involved in such a transaction you lost your US$, or most of them at SIB and you owe the money here in Bs., a true double whammy.

Even worse, I am sure some people actually took out the loan to buy US$ and speculate that the Venezuelan currency would devalue further this year, leaving the US dollars at SIB as a guarantee. Now they owe the money and they don’t have the foreign currency they thought they would make money with.

A true double whammy!

(Some people say if the contract was written correctly and the Venezuelan Banking Superintedency knew about it, the person does not have to pay it back.)

Revisiting and retelling the Stanford International Bank story.

While I have been trying to get away from the Stanford International Bank story, it is not easy. First of all, it was all around me today. From friends to family, I learned today of a few people that I knew who had their money there, who were not able to take it out despite my warnings. I also found out about people I don’t even know who think I am an expert on either how to get SIB to wire their money or estimating how much they will one day recover. The story also provides a break from the sometimes tiring political fights in Venezuela.

I actually know very little about what’s happening, either at SIB or in Antigua, I just tell people not to expect to get their wire out, even if it happened before the SEC stepped into the problem and don’t get your hope up that you will get much back. A pyramid is a pyramid, you pay old investors with new money and keep growing it until it explodes. At most, don’t expect to get back more than 10-20% of what you had, but I am always a optimist, there maybe nothing there in the end for you.

Lot’s of people have asked when I first knew that Stanford was a fraud. The answer is have known for a very long time that something was very fishy. But using Alex Dalmady’s language, I saw the ducky signs one at a time over the years. But let me start at the beginning.

I have known about the existence of SIB for maybe eighteen years, roughly beginning right before the time when the SEC suggests in its injunction, Stanford may have been fudging its investment returns. At the beginning, it was simply hearing about this outrageously high returns on CD’s. When rates for CD’s in the US were 8%, Stanford would pay 12-13%. As rates dropped, they also went down, but always remained 4 or 5 percentage points above market rates in the US.

People always fall for this. In Venezuela, prior to the 1994 banking crisis, you could find banks paying interest rates from 25% to 100% per year, guess which ones failed? But this was in our local currency, the Bolivar, at a time of high inflation.

What I initially thought Stanford was doing, was something we had also seen in Venezuela before, offer high interest rates in US dollars by buying Venezuelan sovereign bonds also  in US$ dollars paying  say, 13% per year, and pay 8% to depositors. This may sound fine at first sight, the problem is bonds change in price. Thus, if they drop in price too much, like they have three times over the last 15 years, the value of your bonds may drop below the value of your deposits. If the depositors start demanding the money you are broke.

In fact, this happened to a local broker when the Mexican crisis struck in 1994. Venezuelan dollar bond prices also plummeted from 60-70% to as low as 38% and when depositors began demanding their money, the broker did not have anyway of paying for them. I thought Stanford was replaying that movie, using a US name and an Antigua bank, which would make a run on them much harder .

At some point, a friend showed me some marketing material which was highly unusual for a bank. An expensive leather bound book explained the history of the group, how conservative and financially savy it was. In a separate sheet, it explained that it was capable of paying such high rates because it did not have to pay for FDIC insurance. And further on, it explained that over half the portfolio was invested in stocks and some of the money in hedge funds. Say what? You gave them your money, got paid a low fixed income return, so they could aim for high returns and make the difference for themselves? What if there is a bad year? Who makes up the difference? The terrible stock market of 2001-2002 came and went, and Stanford survived. Most of its clients were Venezuelans who are somewhat greedy and don’t ask too many questions. Financial culture is very low here. People buy products if you have a fancy office, not if you have a healthy balance sheet.

Then at some point after 2002, I don’t remember when, Stanford started its website (from which everything but contact information was removed today) and publishing its financial statements every year.

The whole thing did not make any sense. Half the portfolio was in stocks, and interest income was a quarter of the interest the bank paid its depositors. Stocks were indeed over fifty percent of the portfolio and there were huge fees paid to financial advisers and parent Stanford Group. It was clear Stanford Group provided SIB with services, but you could not figure out the whole thing. But the scariest thing were the growth rates for deposits in the bank. 20-30% per year, which jived with the aggressive nature of their executives in Caracas. I was told that each executive had to gather a certain amount of deposits each quarter (I was told five million US$) and if he missed the target three quarters in a row, he was out.

At this point, I knew I should warn anyone asking me about it to go somewhere else, earn less interest, but sleep well. Few did, most took “some” money out. The typical excuse: “They have never failed paying me in twenty years”. Sure, until they do.

After the sharp drop in stock markets last year, I discussed with a few friends what Stanford would do in its end of the year financial statement. After all, if equity markets drop 40% on average, hedge funds drop 15% and commodities 70%, only gold and silver could help the Stanford portfolio not lose at least 30-35%. And then in mid-December they come out with a letter calming investors, suggesting they did not even lose money!

As Alex would say, what a Duck!

We were thus eagerly waiting for the Stanford 2008 financials which should show up in the webiste somewhere around April, when two things happened almost at the same time. First, I got an email with the link to a new blog called Venepiramides, which had exactly three posts: the first one on Madoff, the second on La Vuelta, a well known pyramid/fraud that got lots of Venezuelans two years ago and a post on SIB, comparing it to Banco Latino, one of the failed local banks of 1994 (The one that would pay over 100% interest rates). Second, I talked to Toby Bottome from Veneconomy, who I collaborate with regularly, and he asked if I wanted to write an article on  a totally different topic, saying Alex Dalmady had written an article on SIB for his monthly that was really good which suggested in the end SIB was a fraud. My interested was piqued and I sent Alex an email telling him I was looking forward to reading it.

The article had printing problems, but Toby emailed it to me the day it was coming out (I get Veneconomy personally) and I loved the way Alex had written it, avoiding the direct accusation. I also liked his very specific prediction about EMAG expecting to receive funding frm SIB. By then I had added to my Google Alerts the three words “Stanford International Bank” (This is an important trade secret). I began exchanging messages with Alex and then on Friday Feb. 6th. Google let me know about the Elandia funding from SIB, which failed to materialize. We had more evidence.

I was going to write a post for my blog that weekend, but I was really into a post on Central Banks and their balance sheets, showing how the Venezuelan Central Bank kept in its books money that was gone to the tune of US$ 26.3 billion. I wanted to make that post pedagogical and spent most of the weekend on it. I did not get to the SIB post until Monday the 9th. and everything moved very fast after that.

People ask why I did not denounce it earlier. To whom? It is clear that Venezuelan authorities have known about this even before Chavez. Stanford Group bough Banco Galicia in 2004, which I believed was done to give some form of legality to its SIB dollar business. The Government did not object. Military intelligence even raided the SIB “Asesores” office in Caracas in October 2008, so they clearly knew what was being done there. And the person who grew the SIB business in Venezuela bought a commercial bank himself a month ago. Do I have a chance with a Government which condenms an opposition politician for supposedly giving away a car, while multimillion dollar corruption and suitcases full of cash  in the Chavez era is not even news anymore?

In the end, I thought innocently that Duck Tales would blow up locally and not abroad. I even talked to Alex about how surprised I was that his write up had not even made the local news except for Descifrado in its first two weeks. Maybe if I had known how fast the blogs and the mainstream media would catch on to the story I may have posted something. But I didn’t and the credit goes to Alex.

In every post, I think this is the last time I will post on SIB. This time I will not fall  for that. There is now a drug angle to the story, there is the question of how much of the Stanford Group is impaired, where is Allen Stanford, how much money is actualy there, how negligent the Antigua authorities were (As a friend points out,  the Primer Minister said “the fallout threatens to be catastrophic…but there is no need to panic” Huh?) and then there is the local Bolibourgeois angle: will this, like Maletagate, gives us a glimpse into Government corruption?

Stay tuned…

SEC accuses Stanford Group, the Duck implodes (or explodes?)

So, today the day we all thought was coming for a few years happened, as the SEC accused Allen Stanford and James Davis of massive, ongoing fraud and asked the judge to freeze their assets as well as the appointment of a receiver for them.

The announcement ends two whirlwind weeks in which the blogosphere questioned the activities of Stanford International Bank (SIB), the Antigua based affiliate of Houston’s Stanford Group, after Venezuelan analyst Alex Dalmady wrote a piece called Duck Tales in English and El Pato in Spanish.

To me this is not a surprise, for years we have been questioning Stanfords claims and high yields and as the bank revealed more and more of its supposed investment strategy, we would warn our friends about it. Then Alex Dalmady, who we knew well from the time he was the best analyst in the Caracas Stock Exchange through his monthly InvestAnalisis, wrote Duck Tales for Veneconomia Monthly, which is one of a variety of publications Veneconomia publishes regularly on the country. We published a post on it on February 9th. and little did we know the speed that it would gather until the SEC’s announcements today.

And the SEC document has incredibly strong language, charging Stanford, Davies and others with “massive fraud” and its Chief Investment Officer with “helping to preserve the appearance of safety fabricated by Stanford and by training others to mislead investors”.

As in the Madoff case, the SEC charges that only two people, Stanford and Davies, knew the details of the portfolio and that they went out of their way to to block any examination of its record. The SEC also accuses both men of not cooperating with the Commissions efforts to account for the more than US$ 8 billion in assets, the same question Alex Dalmady has been openly asking the media in his own colorful way: “Show me the money!”. In fact, the SEC calls the portfolio a “black box”, shielded from oversight.

In trying to defend itself, Stanford has not addressed the important issues over the last few weeks, hiding behind irreleveant facts, such as not having received any of the aid from the US Government for banks in problems or not having invested with Bernard Madoff. While the first one was true, simply because it was an Antigua-based bank, the SEC actually charges that Stanford didhave money invested with Madoff.

And while Stanford always assured its customers that the bank invested a substantial portion of the banks portfolio in liquid assets, the SEC charges that a large part was invested in “illiquid investments, such as real estate and private equity”. The SEC states that 90% of the portfolio was invested in such assets and 23% in private equity. SIB was in the end a hedge fund that paid improved fixed income rates, but advertised itself as a bank.

The SEC charges that fraudulent behavior may have been going on as far back as 1995, as the Bank’s portfolio’s returns were claimed to be above the 12% level year after year, paying investors always 5% above those returns (But, of course, the deposit rate was fixed before the returns were achieved). And if this was tough to believe, Stanford claimed to have lost barely 1.3% with its diversified portfolio in 2008, in a year that the S&P 500 dropped 39% and the European Dow Jones Stock Index lost 41%, while claiming to have over half the assets in stocks.

The whole fee structure of SIB was simply impossible to sustain. According to the SEC, SIB would pay Stanford Group in the US a 3% fee for the sale of the CD, financial advisers would be paid a 1% for the sale of the CD’s and would receive an additional 1% per anum in “trail” commission for the CD’s after the first year.

These are all very strong words from the SEC. The defendants are called “reckless’ repeatedly and accused of “misrepresenting” products all the time.

This is indeed a sad and tragic ending to something a lot of people have suspected for many years. In Venezuela, Stanford was extremely aggressive, with fancy offices of their “advisory” service in at least three cities and fourteen other offices through a local bank owned by Stanford Group which was supervised by the local Superintendent of Banks and thus was managed as a bank should be. In fact, many of us have suspected for a long time that this local bank was only acquired in order to give legal presence to SIB’s activities in Venezuela.

It is estimated that Venezuelans had US$ 3 billion at SIB, but today I was told that a US consulting group told a large US bank two years ago that Venezuelans had 80% of the deposits at SIB. This would imply that US$ 5-6 billion were owned by Venezuelans. Sounds large, but given that SIB pioneered its CD’s in Venezuela and began copying the structure and model elsewhere only recently, I would not be surprised if this is true. This is comparable to the size of the assets of two Florida based banks which are owned by Venezuelan financial institutions, which were not as aggressive in gathering assets or in paying high interest rates as SIB was.

And this is the tragic part. This money does not belong to very wealthy Venezuelans. Stanford targeted the middle class, the professional, those that despite the crisis have managed to save some money in hard currency in the last few years. These deposits were looked for aggressively and without registering with local authorities. The sale of such products is simply illegal in Venezuela, but it was carried out openly and visibly. It is hard to believe the authorities did not know about it. (Were they clients?)

Tomorrow, we will begin hearing tragic personal tales of wiped out savings and suffering. Hopefully investors will be able to recover something, but I am not optimistic. The only good news is that the amount held at SIB by my fellow countrymen, or anyone for that matter, will no longer grow at the 20% clip per year that it had been growing, catching even more people.

The duck did indeed implode (or explode?) very fast, I had been expecting it for a long time, but when I first wrote about it a week ago, I cold not imagine the speed at which everything would develop.

Hats off to Alex Dalmady, whose blog is now back live!!!

SEC accuses Stanford of “massive, ongoing fraud”

Bloomberg reports that the SEC is raiding the Houston offices of Stanford and has formally accused two principals of the firm.  Sad, very sad, this could have been avoided

Feb. 17 (Bloomberg) — U.S. regulators accused R. Allen Stanford of running a “massive, ongoing fraud” while selling about $8 billion in certificates of deposit through investment firm Stanford International Bank Ltd. The Securities and Exchange Commission filed legal papers against him and two other people at Dallas federal court today seeking a temporary restraining order, court records show.

A glimpse into our future?: Bachelet’s Visit to Cuba by Yoani Sanchez

If you are coming to the Devil for therapy or catharsis, that is not what you are going to get today. I bring you exactly the opposite, an article by Cuban blogger Yoani Sanchez of Generacion Y. She is quite eloquent in this letter to Chilean President Bachelet. She talks about the real truth and the official one that one that has been sold to the world now for fifty years. She also talks about the fact that Cuba is a prison, you still need a permit to leave the island and Raul Castro seems in no hurry to change it. And then she  asks about civil rights in Cuba, wondering how the Chilean President, herself a victim of Pinochet, will ask about political prisoners in Cuba.

And that is the puzzle and tragedy of modern Latin American Presidents. From Lula to Bachelet, there seems to be a conspiracy of silence. They seemed to have bought the story that the people’s welfare has priority over their rights. That is not what democracy is about.

And I print this article so you can reflect and ask the crude reality: is this what you want your grandchildren to write? Clearly when a Bachelet goes to Cuba and takes her picture with Castro and not with Yoani, for example, she is sending the message that she will ignore the reality of the Cuban people, the same way the reality of Venezuela’s militaristic populism and demagoguery is being ignored by those same leaders. Call it diplomacy, realpolitik or what you want.

In some sense, I think in the end Yoani may be luckier than we are: We may be facing 50 years of Chavez and his autocracy, while Cuba may be coming out of it. What is clear is that nobody is going to come and save Venezuela, the same way that nobody is going to save Cuba from the outside. Only Cubans and Venezuelans can solve their problem. And we have to start today by organizing and working everyday to get rid of this Government. While our opposition politicians went on Christmas vacation, Chavez and his cronies spent those days plotting how to get those voters back and came up with a perverse and one sided campaign. But they won. Let this be their last victory.

Otherwise, it is my feeling that maybe a freer Cuba may become one day an alternative for emigrating for Venezuelans.

I thought of writing extracts of this article, but it has no waste, I wish I could write like her and I hope she does not mind me reprinting it in full:

Bachelet’s visit to Cuba by Yoani Sanchez of Generacion Y

Another passenger and the same island

The majority of Cubans believe that something’s going on up there, after several Latin American presidents have chosen to visit us in such a short space of time.  However, the complications of daily life don’t permit us to be attentive to what happens in the corridors of the chancelleries or at the state dinners.  Our eyes and ears are focused on several problems, like the high cost of living, the schizophrenic dual monetary system, and the obsession with emigration that consumes so many young people.

To draw conclusions about the sudden interest in these leaders to travel to Cuba is an exercise that would steal too much time, without putting anything on our plates or in our pockets.

The Chilean dignitary, who arrives in a few days, will find a scene divided between the official truth and the reality in our streets.  A nation that has stopped looking out the window for the possible transformations and no longer conjugates the dynamic verb “to change.”

After several months of waiting, Raúl Castro has not been able to push through a package of measures for greater openings, for which the vast majority have been waiting.  The July 31st announcement of the illness of the “invincible” Commander-in-Chief, many thought would finally mark the beginning pragmatic brother’s turn, the one who had waited so many years in second place.  His first speeches delivered phrases like “structural changes,” “a glass of milk for everyone,” and even alluded to extending “an olive branch” to the North American government.  Confident in his words, many waited for his assumption of power on February 24, 2008 for him to put his own personal imprint on this country, molded under the willful mandate of Fidel Castro.

But when the hot summer came, even the most optimistic had begun to doubt the supposed openings that the foreign press trumpeted so much.  Of the great popular demands, they’d only managed to meet a few cosmetic desires.  Cubans could, finally, contract for a cell phone in their own name and stay in a hotel.  The anticipated agrarian reform had sunk into a ridiculous usufruct system of land use, which even today is mired in the inefficient State bureaucracy.  A couple of wicked hurricanes helped to highlight the national disaster and turned people’s eyes hopefully to other lands.  The deteriorating housing stock couldn’t stand up under the fierce winds of Ike and Gustav, leaving hundreds of thousands of houses with collapsed roofs or none at all.  The State had to accept foreign food aid to alleviate the food crisis that came over us.

The last illusions were gone by the end of the year, when Parliament met and extended the retirement age by five years and talked of eliminating certain gratuities.  There was no mention of any need to end the absurd migration system that forces Cubans to get a travel authorization to leave the country.  The eradication of this permit has been one of the desires shared most strongly by Cuban families, trapped in the plight of having children who emigrate.  Nor did they tell us, our disciplined parliamentarians, one word about the possibility of opening small and mid-sized private enterprises, which could alleviate the terrible food services and the poor quality of much of the industrial products.  Legalizing the purchase and sale of cars and homes was glaring in it absence in the National Assembly, which seems more concerned about applauding than addressing problems.

The path of civil rights

Caught between two currencies, the citizens of this island have learned that to survive we must do exactly the opposite of what the political hurdles demand.  The national sport seems to be stealing resources from the State, and among the population illegal work is called by the euphemism of doing something “on the left.”  Many of those exiled who were reviled as “worms” are today those who sustain thousands of households across Cuba.  A young songwriter already described it in one of his refrains, “the eggs that we threw at you when you left with the scum, now I would eat them my china, those who passed through water know the glory.”  Even Pepito, the mischievous character of our jokes, has opted for silence faced with so much despair.  People in the street have come to say that the last great joke told by this timeless boy of stories, was to leave on a raft to cross the Straits of Florida.

The road where there has been the least progress seems to be, however, that of the rights of citizens.  The third millennium has found us with the same limitations in association, expressing political ideas and influencing decision making.  The crime of “illicit association” paralyzes those who would like to found a party or an innocent association for the preservation of the environment.  On its part, the legal figure of speech of “enemy propaganda” stigmatizes every form of expression—print, radio or television—attempted contrary to the government.  State control over the media remains intact, even though technological developments have helped people find parallel paths to keep themselves informed.  Illegal satellite dishes, the controlled internet, and books and manuals brought in by tourists, have shaken the government’s monopoly on providing the news.

These are times of worry for the present, and screams of panic for the future, given the low birthrate and the aging population.  The official version is that in Cuba women are better prepared professionally and this has resulted in a drop in births.  However, everyone knows that the lack of housing, the prolonged economic crisis and the desire to emigrate function as more efficient contraceptives than any studies undertaken.  A “country of old people” is predicted by those who note the low number of new babies and the constantly increasing exodus of the young and daring.  A popular sarcastic phrase warns “the last one to turn off El Morro,” a reference to the old lighthouse that illuminates the exit of Havana Bay.  None of this could have been seen or felt by the leaders who have dropped in these last weeks, because for them there are only smiles, the low figures for infant mortality, or the shiny laboratories where they fabricate sophisticated vaccines.

President Bachelet may not sense any change in motion, either, but the hands clinging to the helm are those of a generation that is now passing its seventies.  She will hear the full report of conquests and little or nothing of the dark statistics that place us ahead in Latin America in abortions, suicides and divorces.

If she manages to distinguish any spot in the triumphalist picture they paint only in their own eyes, someone will be in charge of pointing out that it’s the fault of the blockade of the neighbor to the north.  Her heavy official program will be loaded with scientific centers, remodeled hospitals and no lack of little Pioneer groups reciting some poem.  Everything around her will have the objective of showing her the beautiful face of a country that needs a lot of make-up to hide the wrinkles and scars.

Why Bachelet’s visit

One question on the minds of many citizens is whether the Chilean dignitary has come to the island to give a boost to the government, or because she’s worried about our fate.  The analysts and political scientists have a hard time understanding that in Cuba there are two agendas: that which comes from power and that shown by the people.  If she takes away only the first, we can expect that Ms. Bachelet will issue strong statements calling for the release of the five Cuban spies imprisoned in the U.S. and the extradition of Posada Carriles, accused of blowing up a plane in 1976.  If she follows the official agenda exactly, she will declare that it’s not enough for Mr. Obama to close the prison at the Guantánamo base, but that he must also return the territory to Cuba and, obviously, declare an immediate end of the U.S. blockade.

If we run down the list of the people’s desires, she could be an excellent partner to ask for those “structural reforms” that they’ve been talking about for two years.  It would be a lot to ask her to mention the point about the political prisoners, but coming from her, with her record in the time of Pinochet, it would be a natural.

Let’s suppose she doesn’t come alone and that one of her companions can skip the official protocol and do that which her high position makes difficult.  Something so bold as to meet with people from the opposition and the emerging civil society.  Let’s go further and conjecture that some small portion of the Chilean delegation could talk with the Ladies in White, with independent journalists or with someone who could offer a different version of the State explanations.  They might then feel they have their feet on firm ground and are not in the country of wonders, through which various Alices have made an illusory journey.  To not do it, would make us, the Cubans, feel that she hadn’t come to visit us, but rather a group of septuagenarians who hold the power.

Nevertheless, the brief visit of the Chilean president could not stretch far enough to manage to reconstruct the fragmented mirror that is Cuba today.  She can only look at the golden charm that has been prepared for visitors, while the dark mercury of everyday life will be forbidden.   She will not see us standing in the long lines for bread, waiting for the late bus, or preparing the improvised crafts on which so many launch themselves on the sea.   They will show her none of that, but I have the impression that she will sense it and feel it.  She knows, in advance, that beyond the tinted windows of her car, there is a country with little resemblance to what they will show her.

This article appeared in El Mercurio, on Saturday, February 7, 2009

Under God and Che

Yesterday I posted a picture of a guy voting under a cross at a local Catholic School. From today’s El Nacional the Chavista version of that, with a guy voting under the image of Che. When a local school has that symbol in a class room, there is a lot for all of us to understand about what is going on here in Venezuela.