“The great enemy of the truth is very often not the lie, deliberate, contrived and dishonest, but the myth, persistent, persuasive and unrealistic.”
—President John F Kennedy
Assume for a moment you are given the responsibility to decide the sentence for a person found guilty of a crime. Your initial information showed that the convict was very dangerous to society. You are leaning toward a long harsh sentence, consistent with the best practice. During your deliberations, you were given new information that showed very clearly some of your original information was false and the prisoner is not as dangerous as he was first made out to be.
How likely are you to change your mind and give equal weight to the new information and discount the earlier false information?
How much do you think you would reduce the sentence in keeping totally with the new accurate information and discounting totally the initial false information?
Switch your thinking over to the many videos circulating that show the US police being called to confront predominantly African Americans and their disproportionate use of force during their encounters. Often times these calls to the police identify unknown suspects as armed, dangerous, or some other negative characteristic. During the encounter with the police, the accused on the video seems to be acting in compliance with the directions of law enforcement yet the officers are extremely aggressive toward the accused.
At the moment of the encounter, the officer has new and updated information at their disposal. They can see and experience that the suspect is not as dangerous as first assumed, yet it is apparent that this information is discounted in favour of the original reports which suggests a likely encounter of a more dangerous nature. A possible initial bias on the part of the officer was amplified by the description on the 911 call and more accurate first-hand information was not able to change the mindset of the police officers.
The thought experiment you were given at the start prior to introducing the context of police in the US and their encounters with their African American citizens is to probe whether you the reader will react any differently to the police if you were to find yourself in a similar situation.
Based on the research the short answer is that you are unlikely to be influenced by the new information to the extent that you should, even if you were explicitly told it was false. In other words, your actions in context would likely be no different from the police officers you see in those videos and that society has roundly and quite rightly condemned.
The reasons lie in human nature itself, in our tendency to misremember false information as true and to act on that false information even when it was made clear to us that it is false. This is how we end up with conspiracy theories. This is why “fake news” is such a powerful tool. In simple English, if you can fall victim to “fake news” you are very capable of acting out a role as an abusive police officer.
Even in the age of the Internet where information can be fact-checked and corrected just as quickly as it is distributed the reality is that the falsehood travels faster than the truth can ever match. It is transmitted by people who are predisposed to the falsehood in that it is something that they want to believe or by people who have an idea that it is false but prefer to believe the original falsehood. The opening quote by US President John F Kennedy sums up the point.
The issue of how information is presented has a big role to play in politics and democracy, it is probably the most critical element as that is the basis upon which voters are influenced. We had an example of this last week with the issuance of a US$500 million ten-year bond by the Government. This was a relatively simple and routine exercise, yet it was positioned in a way that generated much cross-talk in the political space and the salient issues that are relevant to citizens and the country are submerged because of the innuendo.
The facts are simple and straightforward. On July 1, 2000, the Government issued a 20-year bond at a rate of 9.75 per cent. This bond was in the amount of US$250 million and has at the time of publication matured (July 1). When the bond matured US$250 needed to be repaid. This repayment can either come from our existing resources in which case we are paying down our debts or it comes from a new borrowing to pay off the old debt.
The benchmark ten year US treasury rate in July 2000 was six per cent. At that time the government was able to obtain a rate on a 20-year bond at 375 basis points (3.75 per cent) above the benchmark ten-year rate. Last week Government issued a US$ 500 million bond of which $250 million was used to repay the 2000 bond. This new bond was at a rate of 4.5 per cent. The US ten-year Treasury rate which is the reference point (the benchmark) was 0.7 percent. This means that the new bond for ten years was issued at 380 basis points (3.80 per cent) above the benchmark rate (the spread).
There are a few things to note at this point. In 2000 the base rate was six per cent. Today it is 0.7 per cent. This shows the low interest rate environment that we are currently operating in. Our cost of borrowing is higher today than it was in 2000 despite the lower levels of interest rates. In 2000 we borrowed for 20 years at 375 basis points above the ten year benchmark rate and today we are borrowing at 380 basis points for ten years above the same ten year reference rate.
Further to that, we have not paid down the 2000 borrowing in 2020 but rather we have extended that borrowing by ten more years and have added another US$250 million of borrowing. This is how we ended up with a US$500 million bond in issue last week. Our inability or unwillingness to pay down the debt is important in the context of our current economic challenges and we have added to our US dollar debt burden.
On the face of it, there is little here to boast about. It is as I indicated, a fairly routine transaction in the international capital markets. However, that is not the impression you got from the press releases, and therein lies the problem. Financial systems are based on trust and trust comes from truth, integrity, and cooperation towards a shared outcome. If trust is eroded in finance then the flow of capital stalls. The bond was taken up very quickly so the flow of capital that is of concern is not from the outside but rather from the inside. The issue is one of local investor confidence based on what is put out to the public in T&T.
Local investor confidence seems subservient a narrative geared towards the politics because as shown at the start once given a set of information people are inclined to believe it even if it is not accurate.
When it is reported in the press that the Minister of Finance says “Government has saved the country $890 million” the question of accuracy arises. The 20-year bond issued in 2000 is at an end. Borrowing new money to pay the maturing debt is not a “saving”. The option to refinance is discretionary and the interest cost for the next ten years is the cost of exercising that discretion. That cost falls at the feet of the current decision-maker.
The other factor is the interest rate. I already pointed out the spread over the benchmark for the 2000 borrowing. In 2013 Government borrowed for 10 years at a rate of 4.375 per cent when the US 10-year was at 2.89 per cent so the spread was 148 basis points. In 2016 Government borrowed for 10 years at a rate of 4.5 per cent when the benchmark rate was at 1.6 per cent so the spread was 290 basis points. I have already shown where the spread on the new bond is 380 basis points.
What is evident is that since 2000 to 2013 our borrowing costs declined as our credit rating improved. Since 2013 to now our credit rating has declined and our borrowing costs have gone up by 232 basis points (2.32 per cent) relative to the benchmark. It seems obvious that this would be the case but this is not how the matter was portrayed. The international capital markets is not a Sunday morning market where you can get mispricing if you haggle enough. The new bond was priced where it should be priced based on the state of our economy.
Our rising cost of borrowing is where our concern should be and this is the discussion we should be having. Such a discussion will not happen because a “myth, persistent, persuasive and unrealistic” has already been put into the public domain.
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