- The Washington Times - Friday, May 12, 2006

The U.N. investment initiative

We wish to correct significant inaccuracies and misrepresentations contained in your article “U.N. initiative pushes morality in investments” (Page 1, Wednesday). First, the headline is a complete distortion of the spirit and intent of the Principles for Responsible Investment.

The principles, endorsed by investors from every continent and representing a staggering $4 trillion in assets, recognize, first and foremost, that environmental, social and corporate governance issues can be material to corporate performance, and, therefore, investment returns.

Second, and contrary to the major thrust of your article, the principles are not a negative screen, but rather represent an engagement approach — working with companies to improve their performance with respect to key issues, be they related to labor conditions, environmental stewardship or corruption. This, in fact, is consistent with the corporate responsibility movement, of which General Electric and many other major U.S. companies are clear leaders.

Finally, to say that the United Nations has “quietly adopted” a code completely misunderstands the principles, which were developed by the institutional investors themselves and announced publicly at the launch on April 27 at the New York Stock Exchange.

GAVIN POWER

Senior advisor and

head of financial markets

U.N. Global Compact

Office of the Secretary-General

New York

Let Iraqis take more control

How many times do allied forces need to lose Fallujah to give up on the idea and totally turn the city over to Iraqi forces? As Michael Fumento asks in “Second battle for Fallujah” (Commentary, yesterday), “After the hard-fought Battle of Fallujah in November 2004, is the enemy slowly taking back the area?”

Fallujah is a metaphor for all of Iraq. We consolidate areas, turn them over to Iraqi forces, and they lose them once again. It may be time to seriously consider getting on with more important chores for the U.S. military, e.g., what role our military should play in the current confrontation with Iran.

If we significantly draw down our forces in Iraq, perhaps moving many to the border with Iran, the Iraqi forces may take their role more seriously; that is, they would have to stand up and fight for their own country and not rely on outside forces to bail them out.

Moreover, the Iraqi government, with stops and starts but on an upward trajectory of power sharing, is mostly onboard. The Iraqis need the chance to control their own country, without any more U.S. “baby-sitting.”

If we acknowledge by drawdown that Iraq is for the Iraqis, they may seize the moment and stand up.

ONA BUNCE

Bethesda

Schumer on port security

I was grateful to have your editorial page’s support during the controversy over DP World taking over some operations at U.S. ports, but the statements made in the Thursday editorial “Schumer’s Dubai deal” misrepresent my work on port security and the amendment I offered to vastly improve it here and abroad.

First, my amendment would not “outsource” anything or hand “much of the country’s foreign-cargo screening records to Dubai Ports World.” We want the Department of Homeland Security to review container images and records created by the system, not private companies or outsourced workers abroad.

Second, we want to ensure that customs agents, not any private company, oversee the screening of cargo at these ports,.

The Container Security Initiative, which your editorial deems “successful,” has been panned as a disaster by the Government Accountability Office and port security experts around the world. I am a supporter of the Ted Stevens-Daniel Inouye bipartisan measure, which would dramatically improve port security and the Container Security Initiative, not “blow up” the initiative as you incorrectly editorialize.

Finally, the Hong Kong screening system to which you refer has broad bipartisan support as one of the many ways to overhaul long-neglected port security in this country.

We agreed on the absurdity of putting U.S. ports in the hands of a country that had previous ties with terrorism. I think we also can agree that to date, the administration has not done nearly enough to secure our ports and we are doing everything we can to make that a reality.

SEN. CHUCK SCHUMER

Washington

Dean dispenses wrong medicine

Democratic National Committee Chairman Howard Dean said: “The truth is, [the Democrats] have an enormous amount in common with the Christian community, and particularly with the evangelical Christian community” (“Dean’s ideals,” Inside Politics, Thursday).

This is the same Howard Dean who said the Republican Party is “pretty much a white, Christian party.”

Practicing “chameleon politics,” Mr. Dean has metamorphosed from “I’d rather fight than switch,” to “I’d rather switch.”

I’m a centrist Democrat who would like to see Mr. Dean ousted as DNC chairman because he dispenses the wrong medicine.

NATHAN DODELL

Rockville

Taxing capital gains and dividends

In response to “Tax relief now” (Editorial, Thursday): I used to think it was unfair to tax unearned income (capital gains, dividends) differently from earned income. However, after 30 years of accumulating retirement savings in the capital markets, I no longer see it that way. The risk is real, severe and unrelenting, and anyone who can stay the course deserves to be compensated for it. In Congress’ world, all gains are the same, undeserved and obtained without pain, and losses are never acknowledged. This is bunk, of course.

In the past 50 years, economists have made minimal strides toward understanding the capital markets. Modern portfolio theory (MPT), the capital asset pricing model (CAPM) and even the Black-Scholes option valuation model, although widely taught and sold, are also widely acknowledged to be inaccurate in the extreme. Sometimes this even has humorous consequences. Congress mandates that stock options should be valued for tax purposes, but there is no way to value the options. Employing the CAPM to set utility rates has about the same validity, and anyone who thinks he or she is riding the efficient frontier of MPT is more likely to be riding a financial bucking bronco in a Western rodeo. This does not mean that diversification is not important. It is more important than ever, but saying that it is “efficient” in some sense amounts to an abuse of language.

The risk in the capital markets comes from exogenous sources, not the least of which is the government. The risk-free state was created and tested extensively in the last century and is on the ash heap of history. However, Congress should be very careful when taxing risky assets — capital gains, dividends. They are not the same as earned income, and the effects on the economy could be profound. People know the difference, even if most economists have yet to understand it.

SAMUEL BURKEEN

Reston


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