OT: shortage of investment bankers

On 1 May, 11:27, snipped-for-privacy@cucumber.demon.co.uk (Andrew Gabriel) wrote:

Well if there is a large turnover of employees thats one reason why the market for IBs is so small. Simon.
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On Fri, 30 Apr 2010 02:14:17 -0700 (PDT), sm_jamieson

I believe the problem is not that good bankers have rare skills but that the banking sector is creaming off far too much of national wealth in the first place and therefore able to pay very high salaries in competition with other banks in the same position. So the question to be asked is possibly "why don't other players move in to provide these financial services at a lower price?" or possibly "why would we expect a system called "capitalism" to behave otherwise - the bankers are at the heart of capital, after all, they trade it". We have seen cheaper suppliers move in in airlines, why not finance? Maybe nobody outside understands it enough? After all its fairly clear that the insiders themselves do not. Look at NRSROs, whose original job was to do credit ratings in the US but now seek to control and influence even foreign governments through ratings, lets invent a fictitious one, lets call it "Standard and Piss Poor". These firms gave AAA+ rating to bundles of US sub prime mortgages which included debts of "junk" status, this error initiated the banking crisis. They now tell Spain (whose PSBR is lower than most countries in Europe) that its *sovereign* long term debt is no longer AAA+ because it has high *private* sector borrowings and high current account deficits *this year*. Logical? I think not.
Wiki:- http://en.wikipedia.org/wiki/Nationally_Recognized_Statistical_Rating_Or ganization "The larger NRSROs have also been criticized for their reliance on an "issuer-pays" business model, in which the bulk of their revenue comes from the issuers of the bonds being rated. While this is recognized by regulators as a potential conflict of interest (since the bond issuer paying for the rating has an incentive to seek out the CRA most likely to give it a high rating, possibly creating a "race-to-the-bottom" in terms of rating quality), "
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Mike

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I'm told (knowing next to nothing about that myself), that these bundles included some junk, but some good stuff. Each bundle was rated on the best items within it. Daft or what.
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Tim

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Not really. The whole point of a CDO (Collaterialised Debt Obligation) was that it had a mixture of risks in it. A bit like a job lot at an auction - a mixture of junk and treasure. The point was that the treasure made the whole thing saleable, enabling the banks to sell the junk, which they had been encouraged to produce by politicians, especially Clinton in the US, who wanted poor people to be able to buy homes. The idea was that the premium debt would put a shine on the junk. What actually happened was that the junk poisoned the premium debt.
Of course, it all went wrong, for a number of reasons;
- The banks repeatedly resold the CDOs to one another, at steadily higher prices, steadily increasing the leverage beyond a sustainable point. Worse yet, the banks bundled CDOs into other CDOs, making them impossible to price.
- The people selling the sub-prime mortgages discovered that they didn't lose anything when (if) the mortgagee defaulted, so they shifted them out of the door as fast as they could print the mortgage agreements. And they sold them to people who genuinely couldn't afford to repay them, again because the vendors got their commission whether the mortgagee defaulted or not. And the mortgagees were dumb enough to buy them.
- Far more of the sub-prime mortgagees defaulted than was expected, partly because of the prior point and partly because the economy turned down.
- As a result of the prior points, the junk debt poisoned the premium debt and the CDOs ended up worth nothing. The Banks wittered about them being "unpriceable", but what they really meant was that they were unsaleable, meaning they were valueless.
None of this has anything to do with the National Debt, which is purely due to the Government having spent more than it collects in taxes for some 10 years. The State will almost certainly make a profit on the Bank rescues...
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and the recession

eventually but not yet
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Mike

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yes yet: "The taxpayer is sitting on a profit of close to 10bn on its stakes in Royal Bank of Scotland and Lloyds Banking Group after a surprise surge in their share prices."
http://www.guardian.co.uk/politics/2010/apr/26/profit-taxpayers-bailed-out-bank-shares
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On Fri, 30 Apr 2010 06:45:55 -0700 (PDT), pcb1962

no, not yet. Paper share price increases do not fund current account deficits.
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Also bear in mind that the Treasury will inevitably fuck up the sale of the shares and end up losing money.
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Remember the sale of our gold reserves? Gordon Brown couldn't have times that better, could he?
He sold in a falling market and obtained the lowest possible price.
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Bruce wrote:

When there was no need to do so!
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wrote:

Exactly. No doubt he thought he needed the money to enrich a few thousand more single mothers.
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Bruce wrote:

I do apologise, I had forgotten the urgence of that need.
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On Fri, 30 Apr 2010 15:02:22 +0100 Bruce wrote :

I get seriously bored of this one being trotted out repeatedly. Of course with hindsight he chose the wrong time, but if the Conservatives were so clever they could have sold off the UK gold reserves in 1987, collected 12 years interest on the money (at much higher interest rates than now) then bought the gold back at half the price they sold it for.
http://www.the-privateer.com/chart/gold-pf.html
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You may, but it was an example of GBs arrogance.
#1 - he dumped the gold off at min bid #2 - he believe boom-bust were over #3 - he failed to retain multi-asset class reserves
China-India-Brazil are building gold & commodity reserves. #1 - Commodities are priced in USD & rise as USD falls (hedge) #2 - Bonds may well have hit max-price, min-yield; next is falling price (last bond bear saw 77%+ loss in principal) #3 - USD as reserve currency gets difficult, China wants a new reserve
It is unlikely China will achieve a new reserve currency. For one thing, USD may have a vast deficit - but since it is denominated in the reserve currency the 1,000B$ that China has (and we have a fair bit too) becomes China's problem in terms of collecting on it.
Whilst UK is #2 re debt and Ireland is #1 it is the USA which has the long term problem re debt, Lehman Bros short silver positions were a real problem, JPM is heavily short gold. The reason is not to stop "gold bugs" but to stop a run from fiat currency to precious metals by the public, because it becomes a contagious diahorrea in terms of runs on banks.
McKinsey list real UK debt as hitting 460% of GDP with Japan only higher - mostly because of undeclared pension obligations re public sector, not just bank bailouts. We have a "naval problem", we need future generations to bail us out - but at the same time we need to lock future generations below decks into higher debt, lower living standards. Therein is one particular reason why brainwashing schoolchildren to general media in "green as the cause" is so important.
GB wasted the gold, some say Thatcher wasted the oil, nothing new :-)
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wrote:

It was a massive error of judgment to sell the gold at all. There was no need to sell it, and every reason to keep it. The massive error was made even worse by selling the gold in a falling market.
You don't need hindsight to detect a falling market.
After the decision was made to sell, the gold price dropped substantially and the sale should have been called off, but Brown still went ahead. After the first tranche of gold sales, the gold price dropped still further and the second sale should have been called off, but Brown still went ahead. After the second sale, the price dropped still further but Brown still went ahead and sold more.
The Bank of England was never consulted on the sale.
The price of gold was at a 20-year low at the time of sale, and no hindsight was needed to know that. Brown drove the sale through.
No justification has ever been provided by Brown, who lost Britain 5 billion. China, who bought about half of the gold, profited by about 2.5 billion.
In contrast, "Black Wednesday", when the Tories tried to keep the pound in the ERM, lost 3.3 billion. That was said to be Britain's greatest economic misjudgment but Brown's was clearly far worse.
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"bored of" ?? Off to the Punishment Planet with you!
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Tim

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Yep!!
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The number of true graduate places in the UK is about 25,000/yr. Of those about 30% will be shed year 1, a further 20% year 2. Graduates were recruited from universities purely because they were ONCE the top 5% of society, that was the structure of graduate training & investment BECAUSE they were the next senior management re ability. They wanted the top 5% in a broad section of abilities.
Post 1986 saw a collapse in educational standards in O & A-Level, particularly the 1990-1991 transition as a "means to hide unemployment" to quote IBM. IBM recruited 0 in 1993, 0 in 1994 and 1 in 1995. BP to Mobil bankrupted all but 1 of the graduates they recruited in that time as "no good" and kicked out.
1993 94 95 - top engineering graduates did not apply to UK companies, those that did were told "to reduce their expectations". Young Engineer of the Year for 3 years all emigrated (USA USA Germany) and never returned.
The expectation amongst UK companies by 1995 was that the top graduates will emigrate since there was "no financial future for them in the UK". As Cambridge PPE put it, "the young will give up their lives for us, so why not their futures?" which pretty much became economic policy.
Other engineers do make the mistake of going to largely crap engineering firms in the UK, and are given the choice of a) Engineering or b) General Management which is an oxymoron. Others go to consultancies where they read scripts, but fortunately Arthur Andersen is gone now - but not its legacy. The basic problem is UK industry is obsessed with marketing, aiming to sell 1000 not 1,000,000 and most of all not selecting people early enough based on strengths AND allowing them to develop along those strengths as a "portfolio". Quite unlike Germany & Japan.
The personnel department rule for graduates is thus 1) you recruit them for something they have little aptitude for, pay them accordingly them let them transfer to their area of aptitude for the same pay or never let them 2) you do not recruit anyone who is a threat as it will merely reduce jobs and undermine the carefully crafted hierarchy 3) no- one is special such that they can achieve pricing power - this last point destroyed ICI to ICL pretty much, everyone must be substitutable 4) analyse the top management based on every psychometric test, then select people based on same, then wonder why it didn't work (BT IBM etc). Efficacy of psychometric testing is actually poor, but do not tell the Independent School ISIS that - it has been a wonderful boon for turning out people most like them who end up teaching in schools most like them rather badly.
Financial Services recruit then underemploy - the top computer science graduates end up writing junk Javascript, IT companies such as HPQ recruit "someone cheap" who "needs training to provide backend job stability in the company" and "not a threat to existing staff". Hence the disastrous "summer graduate wrote drivers for consumer IT products which never worked" throughout much of the 1990s. A lot of companies will not recruit people whose work is "threatening" because it displaces jobs, pointless because in the end the WHOLE department gets Outsourced, Rightsized or Dumped.
Recruitment agencies work on 2 principles, 1) delete everything the company "does not want to see" 2) price based on that remaining, 3) keep sufficient people on the books but with employment gaps so they can be kept cheap. I always recall a major London recruiter at a conference stating "the only reason to recruit graduates is to replace those you already have with those cheaper". Hence 2005 v 2000 v 1995 v 1990 graduates after 5yrs have lower earnings than their previous group. Inevitable, the average degree is a 2i which actually implies an IQ of 125 (1st is 140) but the numbers have exploded. When challenged the Vested Interest Body known as universities simply state "if they are not given 1sts they will not get a job". When challenged about graduate earnings they simply "well that is the salary they would be earning eventually". It has become a hilarious work of fiction.
Hence 1 in 2 graduate jobs go to non British graduates - so the number of graduate jobs is actually no better, and most probably worse than in 1990. Realise Universities define a graduate job as that which a large number of graduates are doing... which is a bit like Alan Greenspan reclassifying USA Burger Flipping from Service to Manufacturing.
The problem with IB is it really requires multiple qualifications AND business ability, the person would be equally good as a lawyer, an accountant, an actuary, a tax consultant AND a business. You may find all the former in a single person but a good business person is actually hard to find and very often they are not via the graduate route.
So overall the top graduates no longer even GO to British universities despite what many may think, never mind not apply to British companies. In 1995 major companies across several UK universities had desperate telephone calls from companies stating the following "we have not had applications from the section of people we should have, the numbers are too low". They went into panic when they found some had emigrated before collecting their degrees, Logica offered 12-16k (and still offers about 16k now some 15yrs later) and can not retain people unsurprisingly. It is joked the whole output of Lotus Elise went to "once graduate companies" as they drove away at top speed to brighter shores.
What engineer is going to work for 12-14k, rising to 28k after 10yrs (North) or 32k after 10yrs (South) with 32k in debt plus probably another 10k for a decent masters to even GET an interview whereupon they are told "we do not like your degree/this university/your school" (the standard line) when police sargeants get 35k & refuse collectors seem to get some ungodly amount? Many graduate recruiters in revenge at the quality of graduates deliberately hold them off the graduate scheme for 8am-8pm six days a week, once that feeds back they amusingly "demand" graduates apply to them yet "can not seem to find the people they should have". On the contrary when you offer peanuts you get monkeys. Who is going to touch engineering firms when financial services offer far better? The "graduate pay soon rises" vanished in 1990 and only returned for a very few who in the end simply escalate to the international jetstream kicking off a ball n chain tax, living cost & property cost culture.
Engineering degree + GOOD Management degree = 100k in India. No point in staying. Japan is rumoured to be starting the biggest societal change in history - selecting people globally at "ground zeo" and creating a portfolio of them within Japan. In return it's jobs for life will give parks, hard work, sky high pay and the best people to work with. Treat people like human garbage and they just walk. The best EE & MBA from Imp runs a hire shop, the best EE from QMC owns 3 restaurants. If you want to do engineering do Mech E, but realise Honda will not take the top people "as we have nothing to offer", they went into IT, then Cisco, then India, now "bounce around S.E.Asia for 5 times what the UK would pay them even in the M4 corridor".
The UK created the biggest miss-allocation of cost in history by expanding the universities, it was merely a means to engineer people into debt for life and hide unemployment (which it is very good at). The 400k "return" on a degree collapsed to 150k overnight and is actually zero or negative for many occupations. Marketing manager 21k, admin 13k, public sector 18k with security. Sadly we have turned our public sector into an "expectation" with the result that UK society is effectively Greek in that We Should Have. Sadly many are about to find out we can not afford it. Private sector pension levels, plus loss of widow's pensions are transferring vast future liability back to the state. Graduates retire at 70 is actually not a joke, the figures do not add up.
If BIS re 2040 deficit is 300% of GDP, we will need more than the IMF, we will need an oil well the size of Ireland to pay for it. Falklands thus far does not seem likely to be that big.
The big stink to next hit the UK will be insider trading which is rife from business, civil service, politicians to financial services. It is out of control with front running really quite ridiculous - if you think politicians stunk over expenses, you should see their financial front running. Obama has finally woken up to most of the crooked systems being derived from The City, unfortunately the UK is still the counerparty to vast sovereign debt exposure along with France.
In 1990 from Imperial to QMC it was stated openly by lecturers that everyone in this room should expect to emigrate. Flat out, blunt, they were told they were wasting their time. What is not so well known is that many OTHER universities acted as "recruitment consultants" for companies to "get people cheap". Private schools would strip CVs, trust status so can not be sued and keep databases likewise. Universities would award marks based on whether X had a job and Y should do research - if they wanted you for research you were given a 2i but poor refs re company contacts so not picked up, when you refused research you were told about the marking move. If one person already had a job they were given a 2ii despite higher marks than another person who had not who was given a 2i. If a Director parent leant on the department they could publish a letter in a journal editorial section claiming they came top on the course when in reality they were bottom of the top third. The slave trade is not dead, it's just a case of more financially engineered.
Anyone choosing a degree today, ask yourself a) what do you do with that b) how do you pay for that c) which country do you go to with that. Southampton Engineering shovelled the bulk of their engineers into the financial services or foreign engineering jobs (M.E.) with engineering firms simply ignored on campus offering "min wage plus 10p". 150,000 graduates emigrate a year excluding dental assistants and similar "light/sub degree", unfortunately it is not the worst ones :-)
Dumbing down of degrees has been barely masked. Psychiatrist once required very little - but with degree quality dilution so it required ever more academic qualifications and debt to get the exact same job. Nursing must now be a degree. Paxman could barely contain himself on several occasions from surfing to second hand car dealing, the securitisation of toilet paper credentialism. This is a global problem, but it is missing the point. The top 10% of UK is 6M people, the top 10% of Asia is 600M people - that stuffing more into dumber university courses is going to solve this is non- sequitor, it merely hides unemployment and pacifies a nation via covering them in debt and letting them grow through it. You have to treat human capital as a portfolio and grow it, not shit all over it and hope it grows through.
Arthur Andersen for one had conferences in 1993 "how to get a 1st for 3 an hour", companies actually only picked people up if they were going to a competitor - otherwise they would let them rot for a few years then pick them up cheap. The university "keeping tabs" on a portfolio of people it could trade for "consultancy fees". The system is rotten and for the most part always has been, the boast of academics became "whatever happens to you people, we still get paid".
Bank of England is busy researching why they young aren't exploding at the dismal financial future, the reason I'm afraid is because they know the State in the end gets the bill. About 5M on IB and similar is the growing toll of the mess we are in. Sadly no political party has the answer, it requires a culture change and educational system shred & rebuild. Unfortunately market forces vs "human capital portfolio" do not work too well, so we thankfully build plenty of airports. Last one out turn off the light.
A lot of IB have jumped out of the UK, any financial services is a risky job - it is "high-pay one day or 20k the next" since the qualifications and experiences are rarely accepted by personnel depts outside the City. So that reinforces the quick-buck mentality which merely accelerates the property desperation and so in turn fuelling it. A reinforcing systems loop that Peter Senge would perhaps not be too proud of.
Still, all socialist roads lead to inflation, whether or not the garbage graduates of ONS can add up. Sov Debt holders hate inflation, and therein lies the problem for USA UK - perhaps the Princeton Banking & Economist crowd are still fighting "preventing Japan deflation happening here". Housing gets very expensive to hold up when you are driving economic generations out of the country.
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js.b1 wrote:

I must jump on that particular statement. You are implying that a 2(i) from any university requires the same intelligence as one from any other.
Remembering that several won't even look at you without straight As at A-level, and others will happily take you on with a couple of Es and a fail - that's simply bullshit.
Andy
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Up until 1986 a 2(i) was comparable across the top universities and as such formed a usable selection system for upper management candidates.

Exactly.
The basis of a 2(i) degree from the top universities used to be indicative of an IQ 125, that was the academic basis. The numbers claiming 2(i) now make that fundamentally impossible.
CSE v GCE were replaced by GCSE. A levels in 1990-91 alone saw 1) 40% syllabus stripped 2) coursework a significant component 3) recall alone sufficient to achieve a moderate grade whereas in the past it was application to unique problems that got the grades. Degree in 1990 saw substantive stripping out, every year became a virtual riot of staff refusing to strip anymore out - and 1994 saw a considerable migration of top academic staff away from universities more interested in quantity than quality.
This is why the backlash in 1993-94 was so severe by business, it saw the somewhat cosy selection system they had relied upon vanish - and people they recruited kicked out. There was considerable revenge at universities & private schools, trashing the graduates was "the only way to get back at the university" or "the only way to get back at the school". BP Mobil bankrupted chem-eng after chem-eng, they were picking the "ok, cheap" on the course rather than the top people who actually emigrated. Business wanted a free ride and instead found itself shafted. America broadly put it quite simply, what Thatcher did to the Miners Major (and then Blair) had done to the graduates.
By 1993-94 the backlash at the universities was severe, convocation ceremonies had parents booing the vice chancellors. I recall a 7ft+ tall head of IB (Schroders) blowing one VC off the face of the earth at 1) the standard of people applying and 2) the top people who had found out about those being bankrupted and not only not applying but walking away from the UK. The City for one got very brutal on who it would take from and not take from re blacklisting, until in the end it basically ripped up the "take X Y Z".
The university response in 1995 was in some instances to give everyone a 1st despite none having been awarded in the previous 10 years. That resulted in some better 2(i) from previous years being kicked out only to them requested to come back but already sodded off to Aus, Can, US & HK. A very very large number of IB, consultants, accounts, tax specialists, Quants & clients have quite bluntly "sodded off" to HK from 2008. Sadly IB is a case of "recruitment lotto" for the employee, retention of key employees on reduced pay during bad periods is not possible - there is always a bull market somewhere or freelance work with clients/contacts.
In 1993 the professional bodies such as I.Mech.E. wrote articles "what value these shiny new degrees" - as they tried to maintain standards, but within a couple of years rolled over for the fees I guess. It has achieved little, except put a 1st behind every shop counter and a PhD behind every repairer (PC World stuffed) - not just psychology but Chem, Chem Eng, Civ Eng. Companies shut the door on many UK universities and turned to Europe where Delft still meant Delft and could be had somewhat less with a) speaking EU languages AND b) living there. Too many learn a language but no company will take them over someone who has (say) actually LIVED in Germany and knows full technical german etc.
So the result is Assessment Centre usage. Sadly I would rather universities be forced to use them than the existing system.
The problem we have is universities only have to convince "virtually a child" that the degree is worth doing, but the child is then left to the task of persuading an *employer* which they will find considerably more difficult! Frankly at 32k a time it is a ridiculous miss- allocation of capital, but brilliant way of hiding unemployed academics, assistants, infra, staff, students for years at a time. The argument was "well it is better than doing nothing and they pay for their own Benefit rather than claim one", no it is miss-allocation.
Asia has 400M people at the "top 10% of society", shovelling the top 50% of western society into university isn't going to achieve much apart from add a lifelong cost to already disadvantageous earnings, disadvantageous living & property costs. You instead have to identify strengths and strip away social immobility (which has become chronic in UK *and* USA) and treat the human capital as a portfolio. The problem of course is The City Does Not Do R&D or Manufacturing :-) The plan was that City Profits would provide social spending - except of course the removal of so much profit rendered returns so miserable (1990-2009) that The City has merely left the children of tomorrow a bigger bill on smaller earnings.
Standard of living is declining per generation now, it peaked 2000 in USA and probably 1988 in UK, debt can only replace earnings for a time. Once debt exceeds 90% GDP you lose 1% GDP - Western countries are peaked and it is going to get very stodgy going forward.
One other point about dumbing down degrees - it left the top people no- further-educated and thus whilst of similar IQ to their pre-1986 counterparts somewhat less competent in the workplace which meant they could be obtained cheaper. That was a fundamental argument by Arthur Andersen at the time (1993). It made a lot of very top people utterly pissed off, the number of people so bored they did everyone else's course - and then just went binge drinking. By 1993 the people exiting university were shocked by the standard of those entering, even major universities - amusingly the 1986 graduates were shocked by the standard of those 1993 graduates, and so it continued. One reason why job specs can be hilarious, by 1996 a simple lab technician required a MSc, 2(i) BSc and minimum wage was a payrise.
The only course that had its top people paid sufficient to retain was Civ Eng, however within 2yrs a vast number of those emigrated. International student quality equally declined 1993+ with europe bluntly on the offensive.
It will go down in history as the biggest screwup except for "average academic 55k, average graduate product 12k". The top CFD people in 1994 were on 14k in central london until 2 of the 3 ran left simply because parents could no longer afford to subsidise the long chain of graduate job costs. They now work at LMT, same goes for hellfire and other missile developers, stacks of people just walked out fed up having abuse hurled down the phone and called bluntly "trash".
UK made a lot of enemies, many went into financial services for revenge and most certainly achieved it. The gov't wanted debt expansion and virtual abolition of credit rules in return for votes, the market gave them what they wanted. The gov't is as much responsible as the IBs - both in UK & USA.
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