BANKS have proved themselves to be the most hazardous economic institutions known to man. Breakdowns in banking lie at the centre of most financial crises. And banks are unusually effective at spreading financial distress, once it starts, from one place to another. It it tempting to conclude that banks should simply be abolished. Unfortunately, that is unlikely to be possible. Banks seem to be necessary.

To see why, consider the job that any financial system has to do. It has to bring willing lenders and willing borrowers together. One way or another, this involves processing information. Two kinds of problem arise. First, the lender needs to know whether a would-be borrower is a good risk. To complicate matters, the keener the borrower—and the higher the interest rate he is willing to pay on the loan—the more likely he is to be a bad risk. This is called adverse selection: the most eager borrowers will be the least desirable, making lenders less willing to lend. The possibility of adverse selection inhibits productive lending and borrowing.

The other problem that financial systems encounter in processing information is moral hazard. Once a borrower has his loan, he may try to cheat. In investing the money, the most he can lose is the amount of the loan. But he may calculate that the greater the risk he takes with the money, the higher his chances of doing very well. Because his losses are capped, he is encouraged to take a bigger risk with his investment than he otherwise would.

Moral hazard becomes acute if the borrower expects to lose the value of his investment anyway. In that case he has nothing further to lose by taking a much bigger risk in the hope of turning his fortunes around. If this “gamble on redemption” works, he keeps all the proceeds after the loan is repaid, but the lender gets no extra return. If the gamble fails, the borrower is no worse off than if he had acted prudently. Moral hazard also takes more obvious forms: some borrowers will be tempted simply to steal the money, or waste it, or otherwise do things that make it less likely that the lender will be repaid. Lenders deal with moral hazard in the same way they deal with adverse selection—by lending less than if they had all the information they needed.

This is where banks come in. They are specialists in dealing with adverse selection and moral hazard, which is why their role in financial systems everywhere is so central. They develop expertise in knowing what questions to ask borrowers seeking loans; indeed, they will already know a good deal about them if the would-be borrowers are existing customers. This allows them to screen out many of the bad risks. Access to information also makes it possible to curb moral hazard. Banks can monitor what their borrowers are up to; they can set restrictions on what the money is to be used for, and enforce them by threatening to call in loans or withhold new ones.

Could all this not be done by financial markets, at arm's length? Up to a point, but banks do have the edge. They are more likely to know a lot about the borrower to begin with. Moreover, they keep all the benefits of effective appraisal and monitoring to themselves, so they are willing to bear the risk.

Compare this with a loan that takes the form of a bond purchase. Suppose that one investor has managed to gather the information needed to curb adverse selection and moral hazard, and on that basis buys a bond from the would-be borrower. Other lenders will be able to see this public transaction taking place, and will be able to buy bonds too, profiting from the first investor's outlay on appraisal and monitoring at no cost to themselves. Because of this open invitation to free-riding, a market-based investor will not want to spend much on appraisal and monitoring: unlike the bank lender, whose transactions are private, he cannot keep the benefits to himself. Everybody will try to take advantage of everybody else's efforts.

As a result, there will be too little appraisal and monitoring, and the problems of adverse selection and moral hazard will be much less well controlled. The cost of lending is driven up; financial activity, and output and incomes in the wider economy, will all be lower. This is why banks are necessary.

Make that “banks”

Banks may be necessary because of their core financial functions, but just how widely the business of banking ought to be spread is more debatable. Some economies' financial systems rely on bank finance far more than others. And the nature of banking is changing fast almost everywhere. A core of traditional banking—deposit-taking and straightforward commercial lending—may be indispensable, but how much of it does a successful economy need? In many countries, traditional banking represents a diminishing part of what modern banks do.

Economists have long theorised about the relative merits of bank-based finance and market-based finance. For years it was taken for granted that financial systems dominated by banks, such as Germany's and Japan's, were better at mobilising capital and channelling it to the best uses than systems such as the United States' and Britain's, which give financial markets a larger role. This was especially true, it was believed, of economies at an early stage of development, where the information-gathering advantages of banks were crucially important. Believers in market-based systems emphasised the advantages on the other side, including improvements in the governance of companies fostered by an active market in corporate control.

By the end of the 1990s these supposed advantages of bank-based systems seemed rather less compelling. Japan (especially) and Germany were achieving a less-than-stellar economic performance, in stark contrast to America's remarkable success during the decade. The current economic consensus, underpinned by new research, is not that one system is necessarily better than the other, but that either can work fine so long as certain conditions are met.

The critical factor turns out to be the efficiency of the domestic legal system

The critical factor turns out to be the efficiency of the domestic legal system. If that is working well, a financial system can deliver the necessary array of financial services regardless of whether it is based mainly on banks or mainly on markets. Moreover, the evidence confirms that financial development—measured by the breadth of financial services, again regardless of whether they are delivered by banks or markets—plainly promotes economic growth.

So the modern findings on financial structure, even though they have retreated from the earlier idea that bank-based systems work best, offer no reason to jump to the opposite conclusion. Get the legal fundamentals right, and banks are generally no better or worse than markets in allocating capital and promoting growth.

In any case, financial innovation is eroding the distinction. Over the past 20 years, deregulation, competition and technological progress have transformed banking worldwide. In a sense, banks have become increasingly market-based in the way they conduct their own business. The models are converging. Nowadays banks bundle assets (loans) into securities and trade them; increasingly, they earn income from fees as well as from interest. The once-sharp distinctions between commercial and investment banking, portfolio management and insurance are blurring. And the use of financial derivatives—in yet another new set of financial markets—is altering the way banks manage risk.

These trends are welcome in some respects and worrying in others. Banks can achieve a much finer degree of control over financial risk than before. In principle, this should improve the terms of the trade-off between risk and return across the entire economy, making it possible for an investor to achieve a given return at lower risk, or to earn a higher return for assuming the same risk as before.

But there are two snags. One is the sheer complexity of the positions that modern financial derivatives allow banks to create. Often, according to practitioners themselves, this outruns the ability of the institutions concerned to manage their risks. The other problem is much deeper. Sophisticated derivatives ought to help the economy find a better balance of risk and return, with the risks more accurately allocated to those who are willing and able to bear them. But what if banks are somehow predisposed to take on more risk than they should? Innovations that allow banks to gamble bigger sums would then appear in quite a different light.

This is exactly what modern financial instruments do allow. Leverage—increasing the likely gain or loss from an investment of a given size—is the salient feature of many derivatives. Buying an option to acquire shares in a company, for instance, is equivalent to buying a larger number of actual shares using borrowed money. Selling such an option can expose the seller to potentially unlimited losses. An increasingly bewildering array of complex derivatives make it possible to create enormous leverage. If banks for some reason tend to take on more risk than they should, financial innovation has unquestionably made this easier to arrange—and harder for supervisors, or even the bank's own managers, to monitor.

By trying to make banks safer, governments give banks the means and the motive to behave recklessly

Unfortunately, banks do have a reason to take on more risk than they should. The reason, paradoxically, is the safety net that governments put in place to prevent bank failures. By trying to make banks safer, governments give banks the means and the motive to behave recklessly.

Fond of a flutter

Banks are intrinsically fragile. They borrow from depositors with a promise to repay in full and on demand, and then mostly invest those deposits in longer-term loans. If depositors all suddenly decide to withdraw their money at once, as their contract with the bank entitles them to, the bank cannot meet the demand for funds. It will fail.

Depositors might be induced to withdraw their money by fear that the bank might be in trouble. Once this fear starts, it becomes self-fulfilling, because if there is any doubt about the bank's safety, depositors have every reason to withdraw their cash: they lose nothing by doing so. If one bank is perceived to be in danger, other banks are likely to come under suspicion too. Bank runs, once they start, tend to spread. Note that equity investors who fear a collapse in share prices face different incentives. As concern mounts, equity prices fall immediately, which makes it less attractive to sell. In a stockmarket, therefore, the price decline is somewhat self-limiting. Conversely, once a bank scare begins, there is no fall in price to deter further withdrawals. Deposits remain redeemable at par until the bank locks its doors.

At different points during the course of the 20th century, rich-country governments decided that banks were too vulnerable to this danger. They were also aware that bank failures could cause damage not just to depositors too slow to get their money out, but much more widely across the economy. Banks are needed, after all, not just for intermediation between lenders and borrowers but also to oil the wheels of everyday commerce. If the banking system collapses, the infrastructure for making and receiving payments collapses too, and the rest of the economy will follow close behind.

The solution, governments decided, was to assure depositors that banks were sound, by promising to step in themselves if need be. They promised to supply a safety net, by arranging for deposits to be insured and in other ways. If depositors could be persuaded that their savings were safe, there would be no danger of a bank run and banks would not fail—or would fail only rarely, and would not take the rest of the system down with them when they did. Confidence in the banks would be self-fulfilling, in just the same way as in the absence of a safety net lack of confidence is self-fulfilling. The cost of providing insurance would therefore be modest.

Recall that banks exist because they are an answer to the problem of moral hazard: they can monitor borrowers to make sure that the funds are not stolen or wasted. But who monitors the monitors? Banks are borrowers too: they borrow from depositors. What stops banks from wasting the money they borrow? Partly, the fact that depositors will not trust their money to an institution that they suspect will be reckless with it: they will place deposits only with banks that they judge to be safe.

Once depositors stop caring about the soundness of their banks, bad banking quickly crowds out good

Once governments arrange for deposits to be insured, however, there is no longer any reason for depositors to worry about the safety of their bank. They will get their money back anyway. So banks will be able to take bigger chances with the money they lend. They will be able to lend to bad risks, charging more in interest and therefore earning bigger profits. Higher lending rates will allow them to pay depositors more too, enabling them to bid for a bigger share of the market. So once depositors stop caring about the soundness of their banks, bad banking quickly crowds out good.

Enter the regulator

Governments have long understood this. Their solution is to monitor the banks themselves. The quid pro quo for deposit insurance—itself absolutely necessary, they say, to guard against runs—is careful supervision. Require the banks to keep a certain minimum proportion of their assets in reserve, monitor their lending policies, place restrictions on the businesses they can enter, and so forth. Having lifted the burden of bank supervision from depositors, there is only one possible course: nationalise it.

This all seems logical enough, but the success of the policy has been mixed at best. Banking and financial crises keep happening. And there is good specific evidence that deposit insurance contributes to financial instability, especially in developing countries. A recent study by Edward Kane of Boston College and Asli Demirguc-Kunt of the World Bank shows that where effective bank regulation is lacking (as it is in many developing countries), deposit insurance of the wrong kind does more harm than good. The wrong kind means, in particular, that it is too generous in its coverage; too well-funded, with reserves explicitly set aside for repayment of losses; and run by government officials rather than by the private sector.

This helps to explain why banks have been so deeply implicated in the financial crises of recent years, as the next section will explain. An exaggerated appetite for risk has been part of the problem. And as banks have become more sophisticated, even the best regulators have found it increasingly difficult to keep up.

So if depositors were responsible for supervision instead, would they do better? At first sight, professional, highly-trained regulators seem a more likely bet than ordinary depositors. The trouble is that regulators have allowed and even encouraged the banks to become more “efficient”—lending ever more, against the backing of a diminishing base of capital. Depositors acting on their own behalf would probably have resisted that trend and insisted on a more conservative and less “efficient” style of banking, which nonetheless had the considerable advantage of exposing their deposits to less risk.

Be that as it may, moral hazard, which banks were invented to tame, has now become one of the chief weaknesses in the international financial system. In reponse, governments and regulators have been trying to push more of the burden of supervision back to depositors and other parts of the private sector, without arousing fears of bank failure or otherwise destabilising the existing system. This is an extraordinarily difficult balancing act. The central role of banks in most, if not all, of the recent big financial crises in developing countries underlines just how difficult—and how important.

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6) Car Talk/The Puzzler: London Underground escalators [Un casse-tête. Pourquoi dans le métro londonien y a-t-il toujours deux escalators qui montent et un qui descend ? On ne triche pas !]
http://www.cartalk.com/content/puzzler/transcripts/200505/index.html

In our fair city of London, England, many of the Underground, or subway, stations have three escalators. It's always the case that two of them are up escalators, and one is a down escalator. It doesn't matter which way the rush hour crowds are moving, or if more people are arriving or leaving, or the time of day: There are always two that go up, and one that goes down. The same is true for underground stations out in the suburbs."

Why is this?

Now, Irving's been kind enough to provide some wrong answers to explain this phenomenon.

For example, it's easier to go down than to go up. Or, people going down can also take the stairs. But, he adds parenthetically, most of the Underground stations don't have stairs.

He also provides a hint: When the station with the escalators is elevated above ground, the opposite situation holds. That is, there are two escalators going down, and one going up.

Think you know why the Brits have designed their subway this way?

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8) USA Today: French say, vive la difference! [On refait la promotion de la France aux USA, et la promotrice en chef, c'est notre désormais célèbre Clara Gaymard nationale !]
http://www.usatoday.com/money/world/2004-12-02-france-usat_x.htm

At a recent salmon-and-Burgundy lunch at the sumptuous French consulate on Fifth Avenue in New York, Jean-David Levitte, ambassador to the United States, made it clear his country is open for business. "More and more the old Europe is becoming the new France," Levitte says with a wide grin. "Since the days of Washington and Lafayette, our countries have been partners. We wish to build on that."

France has earmarked $12 million over three years to "The New France" campaign in recognition that the country needs to upgrade its anti-business, low-tech image. Target audiences include the USA, United Kingdom, Germany, Japan and China.

Driving France's effort to become the primary destination for foreign capital is Clara Gaymard, France's ambassador for international investment. A rollerblading 44-year-old mother of eight, Gaymard, wife of the French agriculture minister, stresses the USA is "our biggest market, our first market."

Despite icy relations between Washington and Paris over Iraq and other issues, the French government says the USA is the leading investor in France, supporting almost 550,000 French jobs, while France is the No. 2 investor in the USA, where its companies account for nearly 600,000 American jobs. About $1 billion in commercial transactions take place between France and the USA every business day.

Battling its reputation

The French, congenitally anti-British, desperately want to displace the dominant Anglo-American business axis. "American companies always go to the U.K.," Gaymard says. "But the U.K. is not in Europe, not in the Eurozone."

Euro-skeptics such as author P.J. O'Rourke wonder aloud whether a country that rhymes with underpants can really persuade U.S. CEOs to open their pocketbooks. Indeed, U.S. investment in France last year was cut by more than half to a paltry $1.5 billion. Even Gaymard admits France suffers from a reputation of meddling tax-and-spend politicians, militant labor unions and arrogant workers, enamored of European Union rules that ensure more pay for less work. Edward Prescott, the 2004 Nobel memorial prize winner in economics, points out that lower-taxed Americans, on a per-person basis, work 50% more than the French. Based on the same labor market statistics from the Organization for Economic Cooperation and Development, German and Italian workers do not fare much better.

"I understand the misperception of France," Gaymard says. "We have not been as business orientated as we are now. But we have changed a lot in the last two years." Gaymard claims France enjoys fewer days lost to strikes than the U.K. or the USA and that France ranks second in the world in hourly productivity, ahead of the USA. She also cites 50 recent reforms designed to attract more investment. Among them, a wide array of tax benefits, faster visa approvals, work permits for spouses, elimination of the minimum capital requirement for small start-ups and easier procedures for sacking employees.

The timing of the campaign appears fortuitous. With U.S. presidential elections out of the way and new efforts to bridge the trans-Atlantic divisions, the political climate seems to be improving. French President Jacques Chirac still champions a "multipolar" (translation: anti-American) world. But Champagne shipments to the USA, an influential barometer, are up 4% after disappointing last year.

"I guess they bet on an ebb tide of French-bashing after the election," says Emmanuel Saint-Martin, a correspondent with French newsweekly Le Point. "But I don't see that the political dissension between France and USA had any consequences on business."

Targeting excellence

A number of top American companies praise the French government for making the country more business-friendly. "The French government over the last three or four years has identified key industries where they want the country to excel, and biotechnology is clearly one of them," says James Geraghty, Genzyme's senior vice president of international development. The Cambridge, Mass.-based biotech firm has 150 employees, or about 3% of its workforce, in France. "France is often the first country in Europe to get important new medicines to patients," Geraghty adds, citing as an example its new drug Myozyme for a rare and often-fatal muscle disorder called Pompe disease.

"Some (criticisms) are real, some are clichés about the way the French do business," says Frenchman Herve Gallaire, chief technology officer of Xerox worldwide. "But France today is much more open to the outside world." The Stamford, Conn.-based copy machine maker has 2,700 employees or about 5% of its total workforce in France, including 100 engaged in cutting-edge document content analysis and image classification work at Xerox's research center outside of Grenoble. "When I look at the excellent output of our research center," Gallaire says, "I don't feel everyone is always on holiday.

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9) Business 2.0: The Dumbest Moments in Business in 2004 [Les dix plus grosses bêtises dans les affaires aux Etats Unis en 2004]

http://www.business2.com/b2/web/dumbest/2005/1/0,22933,,00.html

2005 Dumbest Moments in Business

1 Defrauding investors is sooooooo 2002. These days it's all about hosing your customers.
When you're a bike-lock maker whose slogan is "Tough World, Tough Locks," it doesn't get much tougher than finding out that most of the locks you've been making for the last 30 years can be picked with a Bic pen. That, sadly, is what happens to Ingersoll-Rand subsidiary Kryptonite in September, after bloggers begin posting videos showing just how easy it is to pop open the company's ubiquitous U-shaped locks. Still in denial four days after the hullabaloo begins, spokeswoman Donna Tocci says that the locks nonetheless provide "an effective deterrent against theft" and that Kryptonite will speed up deliveries of new, Bic-proof locks to stores. Unsatisfied, bloggers continue to rail at the company until it finally agrees to exchange the old locks for new ones, at an estimated cost of $10 million. Um ... make that at least $10 million: In December the company explains that the process of manufacturing and shipping the 100,000 replacement locks is taking longer than expected. In the meantime, many dealers receive no shipments of new locks, costing Kryptonite as much as $6 million in sales.

2 Now that's pain relief.
Withdrawing arthritis medication Vioxx from the market because of concerns that it raises the risk of heart attacks, Merck sees its stock drop 39 percent, shaving $38 billion off the company's market cap. Responding to the crisis, Merck management executes a bold, daring plan—a "change in control separation benefits plan" for 230 of its top executives. The plan gives them up to three years of guaranteed salary and benefits if they lose their jobs as the result of a merger or takeover.

3 What's the problem? We love a guy who stands behind his product.
James Joseph Minder, chairman of gunmaker Smith & Wesson, is forced to resign when newspaper reporters discover that, before becoming a corporate exec, he'd spent 15 years behind bars for a string of armed robberies and an attempted prison escape.

4 Do as I say, not as I...hey, get a load of those!
After joining the Bank of Ireland as CEO, Michael Soden issues a dictate: No porn surfing on the job. His next dictate: The IT department is to be outsourced to Hewlett-Packard. Shortly after the outsourcing deal goes through, IT staffers, now employed by HP, discover porn on Soden's computer. Soden resigns, leaving the bank and HP scrapping over who should pay his severance, estimated at $5 million.

5 For more nostalgia, you can always check out your legal bills from the DOJ antitrust lawsuit.
"Microsoft has had competitors in the past. It's a good thing we have museums to document this stuff."—Bill Gates, in a talk at the Computer History Museum in Mountain View, Calif.

6 The family that colludes together, stays together.
New York State attorney general Eliot Spitzer files a lawsuit in October against insurance broker Marsh & McLennan, charging that the firm rigged bids by having insurers give artificially high quotes, thus deceiving customers into thinking their insurance policies received competitive prices. Marsh also allegedly received payments above and beyond the normal commissions for steering business to certain insurers. CEO Jeffrey Greenberg resigns, and the company vows to stop the practices, costing it $800 million in "commission" revenue. Finally, Spitzer also reveals that insurance giant AIG, headed by Greenberg's father, Hank, and Bermuda-based insurer ACE, headed by brother Evan, were among the firms that participated in the bid rigging.

7-9 If you can't beat 'em, join 'em.
In April, RealNetworks CEO Rob Glaser—seeing his online music store struggling to compete with Apple's iTunes because it's not compatible with the iPod—e-mails Steve Jobs suggesting that he open the iPod to other purveyors of digital music. The e-mail is immediately leaked to the New York Times, which interviews a surprised Glaser. "Steve is showing a high level of fear," he says.

If you can't beat 'em, and you can't join 'em, encourage people to whine about 'em.Still peeved that Apple won't allow the iPod to play downloads from his online music store, Glaser launches an online petition urging Apple to open up. He quickly pulls the petition offline when he discovers that most of the signers have left strident pro-Apple comments.

If you can't beat 'em, and you can't join 'em, and you can't get people to whine about 'em...put out some half-baked software that forever alienates potential customers?Not backing down, Glaser offers a software hack that allows iPods to play songs purchased from Real. Apple blasts its rival for exhibiting "the ethics of a hacker" and warns iPod users that future updates to its software will render the Real songs unplayable. But it turns out that if Real is acting like a hacker, it's not a particularly talented one: Several Real customers report that the software fills their screens with ads and crashes their computers. In November an Apple software update blocks the hack.

10 In fairness, though, they did turn away the $300 with Dennis Kucinich.
A clerk at the Fashion Bug store in Greensburg, Pa., accepts a $200 bill—and gives the customer $100.58 in change—even though the bill is festooned with clues that it might not be legal tender, including a picture of President George W. Bush and the serial number DUBYA4U2001.

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10) The Miami Herald/Dave Barry: I slalomly swear [HUMOUR : Dave Barry va faire du ski !]
http://www.miami.com/mld/miamiherald/living/columnists/dave_barry/10590809.htm

I slalomly swear

DAVE BARRY

While Dave Barry joins Dolphins running back Ricky Williams on a spiritual journey to find himself, Herald.com will run one of his classic columns each Sunday. This column was originally published on Feb. 5, 1989.

If you're looking for a vacation concept that combines the element of outdoor fun with the element of potentially knocking down a tree with your face, you can't do better than skiing. My family just got back from a ski trip to Vermont ("The Wind Chill Factor State"), and it was an adventure that I'm sure we will remember fondly for many years while our various body parts heal.

The key to a successful ski trip, of course, is planning, by which I mean: money. For openers, you have to buy a special outfit that meets the strict requirements of the Ski Fashion Institute, namely: (1) It must cost as much as a medium wedding reception; (2) it must make you look like the Giant Radioactive Easter Bunny From Space; and (3) it must be made of a mutant fiber with a name that sounds like the villain on a Saturday- morning cartoon show, such as "Gore-Tex," so as to provide the necessary resistance to moisture, which trust me, will be gushing violently from all of your major armpits once you start lunging down the mountain.

You also have to buy ski goggles costing upwards of $50 per eyeball that are specially designed not to not fog up under any circumstances except when you put them on, at which time they become approximately as transparent as the Los Angeles telephone directory, which is why veteran skiers recommend that you do not pull them down over your eyes until just before you make contact with the tree. And you'll need ski boots, which are made from melted bowling balls and which protect your feet by preventing your blood, which could contain dangerous germs, from traveling below your shins.

As for the actual skis, you should rent them because of the feeling of confidence you get from reading the fine print on the lengthy legal document that the rental personnel make you sign, which states:

"The undersigned agrees that skiing is an INSANELY DANGEROUS ACTIVITY, and that the rental personnel were just sitting around minding their OWN BUSINESS when the undersigned, who agrees that he or she is a RAVING LOON, came BARGING IN UNINVITED, waving a LOADED REVOLVER and demanding that he or she be given some rental skis for the express purpose of suffering SERIOUS INJURY OR DEATH, leaving the rental personnel with NO CHOICE but to . . . , " etc.

OK! Now you're ready to "hit the slopes." Ski experts recommend that you start by taking a group lesson because otherwise they would have to get real jobs. To start the lesson your instructor, who is always a smiling 19-year-old named "Chip," will take you to the top of the mountain and explain basic ski safety procedures until he feels that the cold has killed enough of your brain cells that you will cheerfully follow whatever lunatic command he gives you. Then he'll ski a short distance down the mountain, just to the point where it gets very steep, and swoosh to a graceful stop, making it look absurdly easy. It IS absurdly easy for Chip, because underneath his outfit he's wearing an antigravity device. All the expert skiers wear them. You don't actually believe that "ski jumpers" can leap off those ridiculously high ramps and just float to the ground unassisted without breaking into walnut-sized pieces, do you? Like Tinkerbell or something? Don't be a cretin.

After Chip stops he turns to the group, his skis hovering as much as three inches above the snow, and orders the first student to copy what he did. This is the fun part. Woodland creatures often wake up from hibernation just to watch this part
because even they understand that the laws of physics, which are strictly enforced on ski slopes, do not permit a person to simply stop on the side of a snow-covered mountain if his feet are encased in bowling balls attached to what are essentially large pieces of Teflon. So they greatly enjoy watching as the first student cautiously pushes himself forward and almost instantly achieves Warp Speed, becoming an almost-invisible blur as he passes Chip and proceeds on into the woods, flailing his arms like a volunteer in a nerve-gas experiment.

"That was good!" shouts Chip, grateful that he is wearing waterproof fibers inasmuch as he will be wetting his pants repeatedly during the course of the lesson. Then he turns to the rest of the group and says: "Next!"

The group's only rational response, of course, would be to lie down in the snow and demand a rescue helicopter. But these are not rational beings; these are ski students. And so one by one they, too, ski into the woods, then stagger out, sometimes with branches sticking out, antlerlike, from their foreheads, and do it again. "Bend your knees this time!" advises Chip, knowing that this will actually make them go faster. He loves his work.

Eventually, of course, you get better at it. If you stick with your lessons, you'll become an "intermediate" skier, meaning you'll learn to fall before you reach the woods. That's the level I'm on now, in stark contrast to my 8-year-old son, who has not yet studied gravity in school and therefore became an expert in a matter of hours. Watching him flash effortlessly down the slope, I found myself experiencing both pride and hope; pride in his accomplishment, and hope that someday, somehow, he'll ski near enough to where I'm lying that I'll be able to trip him with my poles.

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Thursday, February 24, 2005 Posted: 1524 GMT (2324 HKT)

PARIS, France (Reuters) -- Declaring himself "clean as a new penny," French Finance Minister Herve Gaymard fought off calls for his resignation Thursday as new details about his state-paid luxury apartment emerged to boost pressure on him.

Gaymard told the daily Le Figaro in a feisty counter-attack that he would not let himself be "pinned down like a butterfly while ... we're working like crazy for the republic." He claimed full support from President Jacques Chirac and Prime Minister Jean-Pierre Raffarin in the crisis, which broke out last week when it emerged that he was living in a huge apartment in the chic heart of Paris at state expense.

Critics were hardly convinced and editorial writers stressed the issue was undermining the government as it prepared for a difficult referendum on the European constitution. Gaymard "shot himself in the foot," wrote the business daily Les Echos. "It would be best if he quit," the left-wing Liberation said. "The finance minister has no credibility anymore," LCI television declared. La Tribune, another business daily, noted that Raffarin's support for Gaymard "was not the most fervent" and added: "The question of his staying on at the ministry is clearly open."

Even though official flats are a normal perk in France and he and his wife have eight children, the 600-square-meter (6,500-square-foot) duplex seemed far too much for a minister tasked with convincing the French their state should spend less.

Clumsy defense

The latest embarrassment came Thursday when the daily Le Parisien reported the Gaymards, after converting two apartments into a duplex at extra cost to the state, had arranged to have the extra kitchen converted into a home fitness room. The flat's real cost was far higher than the 14,000 euro ($18,470) monthly rent, it said, listing charges for remodelling (31,800 euros), three parking places (15,000 euros), the gym (10,000 euros) and estate agent fees (12,100 euros).

Gaymard, 44, has promised to move out of the apartment and pay all costs for remodelling the flat and breaking its lease.

His clumsy attempts to defend himself have wrapped him in further contradictions, especially concerning a large flat he owns in central Paris and rents out to a friend and his family. He first said the friend stayed there for free, according to the satirical weekly Le Canard Enchaine that broke the news, and then admitted to earning a hefty rent from him.

Commentators hooted when, in the weekly Paris-Match, Gaymard complained that the scandal would never have occurred if he had been the rich son of the bourgeoisie with his own flat rather than the son of a poor shoemaker from the French Alps.

"Gaymard caught in a lie," France-Info radio announced.

The scandal is embarrassing for a government trying to cut state spending to bring the public deficit under a European Union ceiling and preparing for a controversial referendum in mid-year on the European constitution. It is also embarrassing for Chirac, who came to power vowing to crack down on perks for public officials, and Raffarin, a provincial politician who likes to talk about his close contacts with "grass-roots France."