NEWSWEEK
9/30/08
Exit Olmert: The lessons of Rabin for the next Israeli leader.
John Barry
One morning back in 1975, I sat in the office of Israel's prime minister, Yitzhak Rabin, and listened to him tell stories. I had asked him about Israel's policies on the Palestinian issue. His response was characteristically edged and allusive.
The first story: There was once a Jew who was tutor to the children of a Hungarian nobleman. One day, the nobleman said to him: "Jew, you are such a fine tutor that I give you a great honor. You will teach my horse to read. I am sure you will succeed, but I warn that if you do not, I will have you killed."
The Jew replied calmly: "That is indeed an honor, excellency, but I will need a year."
"Agreed," said the nobleman.
That night, the Jew's wife was distraught. "We are doomed," she cried. "Calm yourself, my dear," said the Jew. "I have a year. And in that year, who knows? The horse may die, the nobleman may die, I may die."
The second story: Two hunters were tracking a deer in thick brush. They shot it, and began to drag it back to their pickup. But its antlers kept catching in the brush. Finally one hunter said: "Why don't we drag it the other way. Then its antlers will part the brush rather than catching in it." So they did. "See," the hunter said after a time, "I told you it would be easier this way."
"Yes," said the other, "but aren't we getting a long way from the pick-up?"
To grasp Israel's response to the challenge of the Palestinians, Rabin said, I needed only to understand those two tales.
News that Israel is shedding yet another government—its eleventh since Rabin's lesson that morning in Jerusalem—brings those stories back to mind. As he departs, Ehud Olmert is yet another Israeli leader who grasped, too late in his career, that a political settlement with the Palestinians is essential to Israel's hopes.
Rabin saw the issue more starkly. A settlement with the Palestinians, he believed, was vital to Israel's survival. Rabin was a great warrior. In 1948 he led the brigade that fought its bloody way up that winding road into Jerusalem. In 1967, he masterminded Israel's epic victory over the Arabs in the Six-Day War—a victory Rabin saw in retrospect as disastrous in its scope. Rabin's credentials as a defender of Israel were unsurpassed. But like Moshe Dayan, that other great warrior of Israel's founding days, Rabin had come to believe that military victories could not secure Israel's future. Only a political settlement with the Palestinians could do that. So in September 1993, Rabin signed the Oslo Accords with the Palestinian leader, Yasser Arafat. Rabin loathed and distrusted Arafat. But he saw Oslo, with its blueprint for an eventual two-state solution to the conflict, as the best hope for Israel. For this Rabin was assassinated by a young zealot who, like many Israelis, regarded the accords as a betrayal of the country's right to the West Bank.
Every Israeli government since then has observed the lessons of Rabin's two stories. They've cast about for some expedient to buy time—time to stave off the agonizing re-think inevitable in any agreement with the Palestinians (a wall; the ghettoes of Gaza and a fragmented West Bank). They've repulsed intermittent American pressure with successive promises, always broken, to halt the spread of Jewish settlements on the West Bank. They've fitfully searched for acceptable Palestinian interlocutors—acceptable being, in practice, defined as Palestinians who would accede to most of Israel's demands. (Israel's covert role in the rise of Islamist Palestinian factions like Hamas—initially seen by Israel as useful counter-weights to the "Marxist" PLO—will someday be a fruitful topic for a brave historian.)
Some Israeli governments, ignoring the battle-won insights of Rabin and Dayan, have put their faith in military might. The strategy that the neocons in Washington pressed upon President Bush had its roots in the notion that Israel (or the United States) could use its military superiority to impose unilateral solutions upon the Arabs. The long hemorrhage of Israel's occupation of Lebanon (1982-2000) and the bloodying of the Israeli army at the hands of Hezbollah in 2006 have discredited that strategy for Israel—much as the debacle of Iraq has exploded the neocons' prescription for American foreign policy.
Now yet another Israeli government departs, having failed in the basic task of any government: to bring security. What awaits Israel now?
Northern Ireland, and its thirty-year civil war (1968-1997), invites gloomy forebodings. Northern Ireland and Israel were twins from birth, both invented by the same man, Winston Churchill, at roughly the same time. Both states featured an immigrant settler population given license to rule indigenous people of a different faith. Both proved adept in beating back insurgencies whose base lay beyond their borders. What doomed the Protestant supremacy in Northern Ireland were the demands of the Catholics within Northern Ireland—a rising middle-class—for civil rights within the society. The Protestants saw this, accurately, as a challenge to the survival of Northern Ireland as an enclave for their faith, and elected to beat down the civil-rights movement as subversive. With the province on the brink of a bloodbath, the British Army had to intervene in 1969. Thirty years of bloodshed followed, until a settlement—always inevitable, still precarious—turned Protestant Northern Ireland into a bi-cultural state.
Israel surely faces the same agony. The real "threat" to Israel is not the insurgencies along its borders. It is the quite inevitable demand of the Arabs living within Israel for full equality in civil and political rights. Arabs, broadly defined, comprise 20 percent of Israel's population. Already they are a majority in Galilee to the north, and in much of the Negev to the south. Multiple surveys attest that their allegiance to the state has been fractured by Israel's suppression of the successive intifadas. Demographic projections are notoriously tricky, but Israel faces the prospect of something close to an Arab majority within Israel by its centenary year, 2048. That is the real challenge to a Jewish state. Everyone in Israel knows this. But Israel's fragmented political structure blocks movement to a settlement. Meanwhile, power in the Palestinian community slides inexorably toward the extremes; and the departing Olmert warns Israelis themselves that "an evil wind of extremism, of hatred, of malice, of violence...threatens Israel's democracy."
Northern Ireland's Protestant rulers—the shrewdest of them, at any rate—saw the gathering storm. But, like Israel's leaders since Rabin, they for the most part chose to temporize. One who didn't was Terence O'Neill, who as prime minister of Northern Ireland in the 1960s tried to push through a new political settlement. His efforts, like Rabin's, were met with violence—by die-hard supporters of Protestant rule forever. But O'Neill was luckier than Rabin: he was overthrown, but lived. I recall a conversation with O'Neill in his retirement. "We all knew what had to be done," he said. "But the politics were always too difficult." This was in 1971—the civil war in Northern Ireland was gathering momentum. "A generation ago, we might have resolved our differences without too much violence," O'Neill said. "Now, I think blood will determine the outcome."
Just so.
Tuesday, September 30, 2008
Olmert says Israel should pull out of West Bank Ethan Bronner
For those who missed this in the New York Times....
INTERNATIONAL HERALD TRIBUNE
9/29/2008
Olmert says Israel should pull out of West Bank
Ethan Bronner
JERUSALEM: Prime Minister Ehud Olmert said in an interview published Monday that Israel must withdraw from nearly all of the West Bank and East Jerusalem to attain peace with the Palestinians and that any occupied land it held onto would have to be exchanged for the same quantity of Israeli territory.
He also dismissed as "megalomania" any thought that Israel should attack Iran on its own to stop it from developing nuclear weapons, saying the international community and not Israel alone was charged with handling the issue.
In an unusually frank and soul-searching interview granted after he resigned to fight corruption charges - he remains interim prime minister until a new government is sworn in - Olmert discarded longstanding Israeli defense doctrine and called for radical new thinking in words that are sure to stir controversy as his expected successor, Foreign Minister Tzipi Livni, tries to build a coalition.
"What I am saying to you now has not been said by any Israeli leader before me," Olmert told the newspaper Yediot Aharonot in an interview to mark the Jewish new year that runs from Monday night until Wednesday night. "The time has come to say these things."
He said traditional Israeli defense strategists had learned nothing from past experiences and seemed stuck in the considerations of the 1948 Independence War.
"With them, it is all about tanks and land and controlling territories and controlled territories and this hilltop and that hilltop," he said. "All these things are worthless."
He added, "Who thinks seriously that if we sit on another hilltop, on another hundred meters, that this is what will make the difference for the state of Israel's basic security?"
Over the last year, Olmert has publicly castigated himself for his earlier rightist views and he did so again in this interview. On Jerusalem, for example, he said, "I am the first who wanted to enforce Israeli sovereignty on the entire city. I admit it. I am not trying to justify retroactively what I did for 35 years. For a large portion of these years, I was unwilling to look at reality in all its depth."
He said that maintaining sovereignty over an undivided Jerusalem, Israel's official policy, would involve bringing 270,000 Palestinians inside Israel's security barrier. It would mean a continuing risk of terrorist attacks against civilians like those carried out this year by Palestinian residents of Jerusalem with a bulldozer and earth mover.
"A decision has to be made," he said. "This decision is difficult, terrible, a decision that contradicts our natural instincts, our innermost desires, our collective memories, the prayers of the Jewish people for 2,000 years."
The government's public stand on Jerusalem until now has been to assert that the status of the city was not under discussion. But Olmert made clear that the eastern, predominantly Arab sector had to be yielded "with special solutions" for the holy sites.
Elsewhere in the interview, when discussing a land swap with the Palestinians, he said the exchange would have to be "more or less one to one."
Olmert also addressed the question of Syria, saying that Israel had to be prepared to give up the Golan Heights but that in turn Damascus knew it had to change the nature of its relationship with Iran and its support for Hezbollah, the Lebanese militia.
On Iran, Olmert said Israel would act within the international system, adding, "Part of our megalomania and our loss of proportions is the things that are said here about Iran. We are a country that has lost a sense of proportion about itself."
Reaction from the Israeli right was swift. Avigdor Lieberman, who heads the Yisrael Beiteinu party, said in a radio interview that Olmert was "endangering the existence of the state of Israel irresponsibly."
As they reacted to Olmert's remarks, Palestinian negotiators said that it was satisfying to hear Olmert's words but that the words did not match what he had offered them so far. Yasser Abed Rabbo, a senior Palestinian official, said on Palestinian Radio that it would have been better if Olmert had taken this position while in office rather than while leaving it and that Olmert had not yet presented a detailed plan for a border between Israel and a Palestinian state.
In theory, Olmert will continue peace negotiations while awaiting the new government. But most analysts believe that, having been forced to resign his post, he will not be able to close a deal.
INTERNATIONAL HERALD TRIBUNE
9/29/2008
Olmert says Israel should pull out of West Bank
Ethan Bronner
JERUSALEM: Prime Minister Ehud Olmert said in an interview published Monday that Israel must withdraw from nearly all of the West Bank and East Jerusalem to attain peace with the Palestinians and that any occupied land it held onto would have to be exchanged for the same quantity of Israeli territory.
He also dismissed as "megalomania" any thought that Israel should attack Iran on its own to stop it from developing nuclear weapons, saying the international community and not Israel alone was charged with handling the issue.
In an unusually frank and soul-searching interview granted after he resigned to fight corruption charges - he remains interim prime minister until a new government is sworn in - Olmert discarded longstanding Israeli defense doctrine and called for radical new thinking in words that are sure to stir controversy as his expected successor, Foreign Minister Tzipi Livni, tries to build a coalition.
"What I am saying to you now has not been said by any Israeli leader before me," Olmert told the newspaper Yediot Aharonot in an interview to mark the Jewish new year that runs from Monday night until Wednesday night. "The time has come to say these things."
He said traditional Israeli defense strategists had learned nothing from past experiences and seemed stuck in the considerations of the 1948 Independence War.
"With them, it is all about tanks and land and controlling territories and controlled territories and this hilltop and that hilltop," he said. "All these things are worthless."
He added, "Who thinks seriously that if we sit on another hilltop, on another hundred meters, that this is what will make the difference for the state of Israel's basic security?"
Over the last year, Olmert has publicly castigated himself for his earlier rightist views and he did so again in this interview. On Jerusalem, for example, he said, "I am the first who wanted to enforce Israeli sovereignty on the entire city. I admit it. I am not trying to justify retroactively what I did for 35 years. For a large portion of these years, I was unwilling to look at reality in all its depth."
He said that maintaining sovereignty over an undivided Jerusalem, Israel's official policy, would involve bringing 270,000 Palestinians inside Israel's security barrier. It would mean a continuing risk of terrorist attacks against civilians like those carried out this year by Palestinian residents of Jerusalem with a bulldozer and earth mover.
"A decision has to be made," he said. "This decision is difficult, terrible, a decision that contradicts our natural instincts, our innermost desires, our collective memories, the prayers of the Jewish people for 2,000 years."
The government's public stand on Jerusalem until now has been to assert that the status of the city was not under discussion. But Olmert made clear that the eastern, predominantly Arab sector had to be yielded "with special solutions" for the holy sites.
Elsewhere in the interview, when discussing a land swap with the Palestinians, he said the exchange would have to be "more or less one to one."
Olmert also addressed the question of Syria, saying that Israel had to be prepared to give up the Golan Heights but that in turn Damascus knew it had to change the nature of its relationship with Iran and its support for Hezbollah, the Lebanese militia.
On Iran, Olmert said Israel would act within the international system, adding, "Part of our megalomania and our loss of proportions is the things that are said here about Iran. We are a country that has lost a sense of proportion about itself."
Reaction from the Israeli right was swift. Avigdor Lieberman, who heads the Yisrael Beiteinu party, said in a radio interview that Olmert was "endangering the existence of the state of Israel irresponsibly."
As they reacted to Olmert's remarks, Palestinian negotiators said that it was satisfying to hear Olmert's words but that the words did not match what he had offered them so far. Yasser Abed Rabbo, a senior Palestinian official, said on Palestinian Radio that it would have been better if Olmert had taken this position while in office rather than while leaving it and that Olmert had not yet presented a detailed plan for a border between Israel and a Palestinian state.
In theory, Olmert will continue peace negotiations while awaiting the new government. But most analysts believe that, having been forced to resign his post, he will not be able to close a deal.
Dysfunction in Washington Exacts a Heavy Price By GERALD F. SEIB
WALL STREET JOURNAL
SEPTEMBER 30, 2008
CAPITAL JOURNAL
Dysfunction in Washington Exacts a Heavy Price
By GERALD F. SEIB
The country has learned in recent weeks the price of financial failure. Now it will learn the price of political failure.
The collapse of the financial-rescue package in the House on Monday may well be reversed, at some point. Discouraged House leaders yesterday sounded as if they hoped the Senate could lead Congress back out of the wilderness in the next few days, giving the plan a second crack at passage.
WSJ Executive Washington Editor Jerry Seib gives his take on Monday's House vote on the bailout and its effects on the market, saying "we're now going to learn the consequences of political failure." (Sept. 29)
But even if senators manage to revive the bailout plan, a great deal of damage already has been done:
American voters, who didn't like the plan in the first place, will like even less the discovery that Washington's response to their concerns was to collapse into genuine dysfunction. Three-quarters of Americans already think the country is on the wrong track, and the same share disapproves of the job Congress is doing. Before Monday, it seemed unlikely those numbers could go much higher. They can, and now probably will.
Beyond that, the hope that Washington had gotten the message in this campaign year that Americans were yearning for an end to gridlock and partisan warfare has been shattered. There will be plenty of blame to go around. House Republicans demanded changes in the plan last week, got some of them, and yesterday delivered just 65 votes -- a third of their members -- for a rescue package that their party's president, their party's Treasury Secretary and their party's House and Senate leadership all called vital to the nation.
Then on Monday, it was Democratic House Speaker Nancy Pelosi's turn to hurt the effort. She chimed in with a bizarrely timed and distinctly partisan floor speech blaming Republicans for the market mess, just minutes before her party needed scores of Republican votes to make the bailout work. Whether she turned votes against the plan, or gave Republicans a convenient excuse to vote against it, was being hotly debated in the Capitol late Monday. But either way, the atmosphere is even more sour as a result.
As it happens, Democratic leaders also failed to convince 95 of their own members to back the rescue plan, showing that the splintering of support was widespread in the halls of Congress.
Now, though, the consequences of simultaneous political and economic breakdown ripple well beyond Wall Street and Washington. The effects could well be global.
The U.S. -- meaning both parties and the public and private sectors -- has to worry about what global investors make of the picture of disarray they now see in the U.S. That's a crucial consideration because the U.S. now depends on foreign capital to finance both a trade deficit of more than $700 billion and a $400 billion federal budget deficit. Today, foreign lenders hold about half of America's public debt, and the nation relies on them to finance more than 70% of its new debt, the nonpartisan Peter G. Peterson Foundation estimates.
The reason foreign investors have been willing to pony up this cash has been their basic, longstanding belief that the U.S. system -- financial and political -- makes America the ultimate safe haven.
At what point does that basic belief start to erode? And what are the consequences of that possibly happening? The question is even more acute because of the likelihood that even more foreign capital will be needed, at least in the short term, to help the American government finance the very bailout now being debated.
The more immediate question, of course, is what happens now. In the House, many of the Republicans who voted against the rescue bill actually sounded more eager afterward to get something done than they did beforehand.
But the atmosphere now is somewhere between tense and toxic. House Republican leader John Boehner said Rep. Pelosi's speech, in which she blamed the "right-wing ideology of anything goes" for bringing about the market crisis, had "poisoned" the atmosphere among his troops.
Democratic caucus leader Rahm Emanuel countered that such a charge masked a more basic Republican failure to deliver the votes needed for a measure that failed 228 to 205. Democrats "delivered 140 votes; we were supposed to deliver 125," Rep. Emanuel said. "They were supposed to deliver 100 votes. They delivered 65."
In normal times, the burden of picking up the pieces would fall on the president and his Treasury secretary. But President George W. Bush is mired in lame-duck status and has shown little ability to move House Republicans, except perhaps for the chamber's leaders. And in the aftermath of the House revolt Monday, rank-and-file Republicans didn't voice much more respect for Treasury Secretary Henry Paulson, architect of the rescue plan, than they did for their Democratic foes.
So now the hopes for action shift to the Senate, where support for the Paulson approach is far stronger. The bill the House defeated likely could pass the Senate with some votes to spare. But now that isn't enough; the need is to adjust that plan in a way to attract House Republicans. That might be done by playing up provisions House rebels prefer, such as greater reliance on insurance of bad debt rather than government assumption of such debt, and changes in accounting rules that will limit the severe hit financial firms have to take on their balance sheets if they choose to hang onto shaky debts.
Starting now, though, another highly unusual dynamic comes into play. Both of the major-party presidential nominees -- Barack Obama and John McCain -- are members of the Senate, where the fate of the bailout may well be determined. It isn't unreasonable to expect them to show some presidential-caliber leadership. It's an unusual role for presidential candidates to play, but the times are unusual indeed.
Write to Gerald F. Seib at jerry.seib@wsj.com
Copyright 2008 Dow Jones & Company, Inc.
SEPTEMBER 30, 2008
CAPITAL JOURNAL
Dysfunction in Washington Exacts a Heavy Price
By GERALD F. SEIB
The country has learned in recent weeks the price of financial failure. Now it will learn the price of political failure.
The collapse of the financial-rescue package in the House on Monday may well be reversed, at some point. Discouraged House leaders yesterday sounded as if they hoped the Senate could lead Congress back out of the wilderness in the next few days, giving the plan a second crack at passage.
WSJ Executive Washington Editor Jerry Seib gives his take on Monday's House vote on the bailout and its effects on the market, saying "we're now going to learn the consequences of political failure." (Sept. 29)
But even if senators manage to revive the bailout plan, a great deal of damage already has been done:
American voters, who didn't like the plan in the first place, will like even less the discovery that Washington's response to their concerns was to collapse into genuine dysfunction. Three-quarters of Americans already think the country is on the wrong track, and the same share disapproves of the job Congress is doing. Before Monday, it seemed unlikely those numbers could go much higher. They can, and now probably will.
Beyond that, the hope that Washington had gotten the message in this campaign year that Americans were yearning for an end to gridlock and partisan warfare has been shattered. There will be plenty of blame to go around. House Republicans demanded changes in the plan last week, got some of them, and yesterday delivered just 65 votes -- a third of their members -- for a rescue package that their party's president, their party's Treasury Secretary and their party's House and Senate leadership all called vital to the nation.
Then on Monday, it was Democratic House Speaker Nancy Pelosi's turn to hurt the effort. She chimed in with a bizarrely timed and distinctly partisan floor speech blaming Republicans for the market mess, just minutes before her party needed scores of Republican votes to make the bailout work. Whether she turned votes against the plan, or gave Republicans a convenient excuse to vote against it, was being hotly debated in the Capitol late Monday. But either way, the atmosphere is even more sour as a result.
As it happens, Democratic leaders also failed to convince 95 of their own members to back the rescue plan, showing that the splintering of support was widespread in the halls of Congress.
Now, though, the consequences of simultaneous political and economic breakdown ripple well beyond Wall Street and Washington. The effects could well be global.
The U.S. -- meaning both parties and the public and private sectors -- has to worry about what global investors make of the picture of disarray they now see in the U.S. That's a crucial consideration because the U.S. now depends on foreign capital to finance both a trade deficit of more than $700 billion and a $400 billion federal budget deficit. Today, foreign lenders hold about half of America's public debt, and the nation relies on them to finance more than 70% of its new debt, the nonpartisan Peter G. Peterson Foundation estimates.
The reason foreign investors have been willing to pony up this cash has been their basic, longstanding belief that the U.S. system -- financial and political -- makes America the ultimate safe haven.
At what point does that basic belief start to erode? And what are the consequences of that possibly happening? The question is even more acute because of the likelihood that even more foreign capital will be needed, at least in the short term, to help the American government finance the very bailout now being debated.
The more immediate question, of course, is what happens now. In the House, many of the Republicans who voted against the rescue bill actually sounded more eager afterward to get something done than they did beforehand.
But the atmosphere now is somewhere between tense and toxic. House Republican leader John Boehner said Rep. Pelosi's speech, in which she blamed the "right-wing ideology of anything goes" for bringing about the market crisis, had "poisoned" the atmosphere among his troops.
Democratic caucus leader Rahm Emanuel countered that such a charge masked a more basic Republican failure to deliver the votes needed for a measure that failed 228 to 205. Democrats "delivered 140 votes; we were supposed to deliver 125," Rep. Emanuel said. "They were supposed to deliver 100 votes. They delivered 65."
In normal times, the burden of picking up the pieces would fall on the president and his Treasury secretary. But President George W. Bush is mired in lame-duck status and has shown little ability to move House Republicans, except perhaps for the chamber's leaders. And in the aftermath of the House revolt Monday, rank-and-file Republicans didn't voice much more respect for Treasury Secretary Henry Paulson, architect of the rescue plan, than they did for their Democratic foes.
So now the hopes for action shift to the Senate, where support for the Paulson approach is far stronger. The bill the House defeated likely could pass the Senate with some votes to spare. But now that isn't enough; the need is to adjust that plan in a way to attract House Republicans. That might be done by playing up provisions House rebels prefer, such as greater reliance on insurance of bad debt rather than government assumption of such debt, and changes in accounting rules that will limit the severe hit financial firms have to take on their balance sheets if they choose to hang onto shaky debts.
Starting now, though, another highly unusual dynamic comes into play. Both of the major-party presidential nominees -- Barack Obama and John McCain -- are members of the Senate, where the fate of the bailout may well be determined. It isn't unreasonable to expect them to show some presidential-caliber leadership. It's an unusual role for presidential candidates to play, but the times are unusual indeed.
Write to Gerald F. Seib at jerry.seib@wsj.com
Copyright 2008 Dow Jones & Company, Inc.
Monday, September 29, 2008
Enough talk
Enough talk
By Gideon Levy
http://www.haaretz.com/hasen/images/0.gif
The most unstable country in the Middle East is changing its government again. Soon Israel will have a new government, with "continued peace negotiations with the Palestinians" engraved on its banner. Well, now it's time to end the farce after more than 15 years of futile negotiations that led nowhere and brought no peace. It's time to say enough already to the second most dangerous game after the war game - the "political process" game.
This mainly involves playing with ourselves, an idiom meaning masturbation in some languages, and thus a perfect metaphor for this "peace process" that must now be brought to an end. Snuff out this bonfire of vanities, this process of self-deception that pushes us ever further from any agreement. The time has come for decisions and actions - war or peace, annexation and a state of all its people, or dividing the land into two sovereign states. All this must take place during injury time; the 90th minute has long passed.
After 15 years of talking, nothing has been left unsaid or undiscussed. After endless peace plans, "drawer" and "shelf" plans, road maps and interim agreements, none of which has been carried out, we must scream to the new government: Don't start again with that futile negotiations carousel. Ehud Olmert and Mahmoud Abbas, Tzipi Livni and Ahmed Qureia, Yitzhak Rabin and Shimon Peres and Yasser Arafat, Yossi Beilin and Abu Mazen, Ami Ayalon and Sari Nusseibeh, Ehud Barak and Arafat - they've all said it all. Now's the time to decide - to pull the detailed plans out of Bill Clinton's or Yossi Beilin's or Barak's or Rabin's drawer. The differences between them are minimal.
http://www.haaretz.com/hasen/images/0.gif
Advertisement
There is only one plan on the table: the end of the occupation, the '67 borders and solving the refugee issue in exchange for peace - yes or no. All the rest is insignificant. It cannot take much more time, simply because time has long run out. Take the Clinton plan or Geneva initiative, who knows what the differences are, and start implementing it. There will be no other plans.
It's not merely a criminal waste of time, which always acts against peace. That which could have been achieved a decade ago cannot be achieved today, and that which is still attainable today will no longer be possible in a decade. This danger is real: At the end of each negotiating round lurks the next cycle of violence. Nothing is more dangerous in this region than another failed negotiation.
In addition, the very existence of peace negotiations enables Israel to pretend to be doing something about the situation, without actually doing anything. Israel can thus go through the motions with no intention of reaching a peace agreement and feel as if it were doing everything to achieve it.
But while critical time was being wasted, Israel did not stand idly by. Neither did the Palestinian Authority. While they were negotiating, Israel was building more and more homes in West Bank settlements. In fact, it never stopped. Even Barak, the bravest of them all, added 6,000 housing units to the unworthy project. From one negotiation to the next, more and more opportunities dissipated. The occupation became increasingly heartless and brutal, as did Palestinian terrorism.
The only missing ingredient in all the tedious, superfluous negotiations was sincere goodwill to reach peace. Nothing is more critical than this, which has never been on the table, not even in the great illusion era of Oslo. That is why Israel has never offered, even then, to evacuate a single potted plant in the West Bank settlements. All it did was build more and more, dunam after dunam of destroying every chance. There is no other conflict in the world, it seems, where the negotiations to solve it have lasted so many years while the solution moved ever further away, like the horizon.
If the new government is headed for peace - and this is extremely doubtful - it must start with actions, not talks. It is very easy to change the occupation's road map: Just take a few steps like a mass release of prisoners and taking down all internal roadblocks to signal that the government intends to make peace. This would advance the political process more than all the talks, as daring as they may be.
If I were a Palestinian leader, I'd tell the new government: You know what our positions are, as we know yours. Let's not start everything over again. If you are sincere, start acting, even before the first photo-op between Livni and Abbas. This is even more apt when it comes to peace with Syria - we know what the conditions are, there is nothing to talk about, only to decide. Enough talk. It's time to act.
By Gideon Levy
http://www.haaretz.com/hasen/images/0.gif
The most unstable country in the Middle East is changing its government again. Soon Israel will have a new government, with "continued peace negotiations with the Palestinians" engraved on its banner. Well, now it's time to end the farce after more than 15 years of futile negotiations that led nowhere and brought no peace. It's time to say enough already to the second most dangerous game after the war game - the "political process" game.
This mainly involves playing with ourselves, an idiom meaning masturbation in some languages, and thus a perfect metaphor for this "peace process" that must now be brought to an end. Snuff out this bonfire of vanities, this process of self-deception that pushes us ever further from any agreement. The time has come for decisions and actions - war or peace, annexation and a state of all its people, or dividing the land into two sovereign states. All this must take place during injury time; the 90th minute has long passed.
After 15 years of talking, nothing has been left unsaid or undiscussed. After endless peace plans, "drawer" and "shelf" plans, road maps and interim agreements, none of which has been carried out, we must scream to the new government: Don't start again with that futile negotiations carousel. Ehud Olmert and Mahmoud Abbas, Tzipi Livni and Ahmed Qureia, Yitzhak Rabin and Shimon Peres and Yasser Arafat, Yossi Beilin and Abu Mazen, Ami Ayalon and Sari Nusseibeh, Ehud Barak and Arafat - they've all said it all. Now's the time to decide - to pull the detailed plans out of Bill Clinton's or Yossi Beilin's or Barak's or Rabin's drawer. The differences between them are minimal.
http://www.haaretz.com/hasen/images/0.gif
Advertisement
There is only one plan on the table: the end of the occupation, the '67 borders and solving the refugee issue in exchange for peace - yes or no. All the rest is insignificant. It cannot take much more time, simply because time has long run out. Take the Clinton plan or Geneva initiative, who knows what the differences are, and start implementing it. There will be no other plans.
It's not merely a criminal waste of time, which always acts against peace. That which could have been achieved a decade ago cannot be achieved today, and that which is still attainable today will no longer be possible in a decade. This danger is real: At the end of each negotiating round lurks the next cycle of violence. Nothing is more dangerous in this region than another failed negotiation.
In addition, the very existence of peace negotiations enables Israel to pretend to be doing something about the situation, without actually doing anything. Israel can thus go through the motions with no intention of reaching a peace agreement and feel as if it were doing everything to achieve it.
But while critical time was being wasted, Israel did not stand idly by. Neither did the Palestinian Authority. While they were negotiating, Israel was building more and more homes in West Bank settlements. In fact, it never stopped. Even Barak, the bravest of them all, added 6,000 housing units to the unworthy project. From one negotiation to the next, more and more opportunities dissipated. The occupation became increasingly heartless and brutal, as did Palestinian terrorism.
The only missing ingredient in all the tedious, superfluous negotiations was sincere goodwill to reach peace. Nothing is more critical than this, which has never been on the table, not even in the great illusion era of Oslo. That is why Israel has never offered, even then, to evacuate a single potted plant in the West Bank settlements. All it did was build more and more, dunam after dunam of destroying every chance. There is no other conflict in the world, it seems, where the negotiations to solve it have lasted so many years while the solution moved ever further away, like the horizon.
If the new government is headed for peace - and this is extremely doubtful - it must start with actions, not talks. It is very easy to change the occupation's road map: Just take a few steps like a mass release of prisoners and taking down all internal roadblocks to signal that the government intends to make peace. This would advance the political process more than all the talks, as daring as they may be.
If I were a Palestinian leader, I'd tell the new government: You know what our positions are, as we know yours. Let's not start everything over again. If you are sincere, start acting, even before the first photo-op between Livni and Abbas. This is even more apt when it comes to peace with Syria - we know what the conditions are, there is nothing to talk about, only to decide. Enough talk. It's time to act.
It Can Happen Here
27.09.08
It Can Happen Here
THE GERMAN name Sternhell means bright as the stars. The name fits: the positions of Professor Ze'ev Sternhell indeed stand out sharply against the darkness of the sky. He warns against Israeli fascism. This week, Israeli fascists laid a pipe-bomb at the entrance of his apartment and he was lightly injured.
The choice of victim seems surprising at first. But the perpetrators knew what they were doing.
They did not attack the activists who demonstrate every week against the Separation Wall in Bil'in and Na'alin. They did not attack the leftists who mobilize every year - this year, too - to help the Palestinians pick their olives near the most dangerous settlements. They did not attack the "Women in Black" who demonstrate every Friday, or the women of "Machsom Watch", who keep an eye on events at the army checkpoints. They attacked a person whose entire activity is in the academic field.
The struggles on the ground are essential. But their main purpose is to influence public opinion. That is the main battlefield, and there the man of letters has an important part to play.
On this battlefield, two visions confront each other, two visions that are as far apart as the West is from the East. On the one side: An enlightened Israel, modern, secular, liberal and democratic, living in peace and partnership with Palestine as an integral part of the region. On the other side: a fanatical Israel, religious, fascist, cut off from the region and civilized humanity, a people that "dwells alone and shall not be reckoned among the nations" (Numbers, 23:9), where "the sword will devour for ever" (2 Samuel 2:26).
Ze'ev Sternhell is one of the outstanding guides of the enlightened vision. His positions are bright as the stars, resolute and incisive. Not a surprising target for the Neo-Nazi pipe-dreamers and pipe-bombers.
THE FIELD of Sternhell's academic expertise is the origins of Fascism, a subject that has occupied me all my life. The reasons for our interest are similar: Nazism left an indelible stamp on our childhood and fate. As a child, I witnessed the rise of Nazism in Germany. As a child, Sternhell saw it in Poland, when, after the death of his father, he lost his mother and sister in the Holocaust.
"He who has been scalded by boiling water is cautious even with cold water," a Hebrew adage goes. Those who experienced Fascism bursting into their lives in childhood are sensitive to the slightest symptom of the outbreak of this disease. In 1961 I wrote a book called "The Swastika" (which exists only in Hebrew), in which I tried to crack the code of the roots of Nazism. At the end of the book I posed the question: Can it happen here? My unequivocal answer was: Yes, indeed.
Because of this, I am sensitive to every warning sign in our society. As a journalist and magazine editor, I shone the searchlight on all such signs. As a political activist, I fought against them in the Knesset and in the street.
Sternhell, on his part, after a military career, is a pure academic. He uses the instruments of academia: research, teaching and publication. He strives for exact definitions, without seeking popularity or avoiding provocation. In one of his articles years ago he asserted that the violent response of the Palestinians to the settlements is quite natural. By this he attracted the lasting wrath of the settlers and the extreme Right, which made an effort to prevent him from receiving the Israel Prize, Israel's highest distinction.
Now the pipe-bombs are speaking.
WHO LAID the bomb? A lone individual? A group? A new underground? The terrorists from the settlements? That's for the police and the Shin-Bet to find out.
From the public point of view, the matter is much more simple: it is quite clear in which flowerbed these poisonous weeds grow, which ideology serves as fertilizer, and who is spreading it.
Israeli Fascism is alive and kicking. It is growing in the flowerbed that produced the various religious-nationalist underground groups of the past: the group that tried to bomb the Muslim shrines on the Temple Mount, the underground that tried to assassinate the Palestinian mayors, the "Kach" gang, the perpetrator of the Hebron massacre Baruch Goldstein, the murderer of peace activist Emil Gruenzweig, the murderer of Yitzhak Rabin and all the underground groups that were uncovered at an early stage before their deeds could bring them to public notice.
These acts cannot simply be attributed to individuals or "rogue groups". There exists a definite fascist fringe at the margin of Israel's political society. Its ideology is religious-nationalist, and its spiritual leaders are mostly "Rabbis", who formulate its world view and the practical application. These Jewish idolaters do not work in secret. On the contrary, they offer their wares on the open market.
This sector is concentrated in the "ideological" settlements. That does not mean that all settlers are fascists. But most fascists are settlers. They are concentrated in certain well-known settlements. By accident or not by accident, all these settlements are located in the heart of the West Bank, beyond the Separation Wall. The first of these, in the Hebron area, were installed with the help of "leftist" leader Yigal Allon, and in the Nablus area by "leftist" leader Shimon Peres.
DURING THE last months, there has been a marked increase in the number of incidents in which settlers attack Palestinians, soldiers, policemen and "leftists".
These acts are committed openly, in order to terrorize and deter. Settlers riot in the Palestinian villages whose lands they covet, or for revenge. These are "pogroms" in the classical sense of the term: riots by an armed mob intoxicated with hatred against helpless people, while the police and the army look on. The Pogromchiks destroy, injure and kill. These days it is happening more and more frequently.
In the few cases when the army or the police intervene, they do not turn on the settlers, but on the Israeli peace activists who come to help the beleaguered Palestinian farmers. The spokesmen of the Security Establishment and the commentators try to sound balanced and speak about "rioters from the Left and the Right". That is a false even handedness, which itself belongs to the Fascist arsenal of tricks.
The Settlers' pogroms are violent by nature, both in thought and deed, while the peace activists are non-violent on principle. If there is violence, it comes from the army and the border police, the pretext being that local boys have been throwing stones. What is not mentioned is that the well-protected soldiers and border policemen pursue the Palestinian demonstrators into the alleys of their villages.
The "boldness" of the extreme right-wing thugs - or "rightist activists" as the media insist on calling them courteously - is increasing by the day. They do whatever they want, knowing full well that no harm will befall them. The police do not interfere, since anyhow the courts will not mete out meaningful punishment.
ANYBODY WHO knows the history of Nazism is familiar with the shameful role played by the courts and the other law-enforcement agencies in the German republic vis-à-vis the law-breakers whose declared purpose was to put an end to the democratic system. The judges imposed ludicrously light penalties on Nazi rioters, whom they considered "misguided patriots", while treating Communist rioters as foreign agents and traitors.
Now we are experiencing this phenomenon here. The law-breaking settlers get symbolic sentences, while Palestinians who are accused of much lesser offenses get harsh penalties. Nowadays, even a settler who sets his dog on a company commander goes free, as does a settler who breaks the bones of a battalion chief.
The army's internal justice system can only be called monstrous: the commander who held up a bleeding woman in labor at a checkpoint causing the death of the child, was punished with two weeks detention. The commander who told a soldier to shoot a handcuffed Palestinian prisoner in the leg was "transferred", meaning that this war criminal can serve in another unit.
DOES THE increase in the number and severity of such incidents testify to the increasing power of Israeli Fascism? At first sight, one might get this impression.
However, on second thought I think that the opposite is true.
The fanatical settlers know that they have lost the support of public opinion in Israel, and that ordinary people consider them dangerous thugs. Their actions, as seen on television, arouse distaste, even abhorrence. The vision of "All of Eretz-Israel" has not only lost altitude - it has crashed on the ground of reality. The Zealots are acting out of weakness and frustration.
Much as the Nazis hated the German republic, these fanatics are starting to hate the State of Israel. And with good reason. They see that they have no place in a national consensus that is solidifying around the concept of "Two States for Two peoples", whether it is being accepted for negative reasons, such as demographic fears or the burdens of occupation, or for positive reasons, such as the hope for peace and prosperity after the withdrawal from the occupied territories.
The discussion about the borders is still going on, but the majority sees the Separation Wall as the future border. (As we made clear right from the beginning, the wall was not really being constructed in order to keep out Palestinian suicide bombers, as was claimed, but as a future border between the two states.)
The Israeli establishment wants to annex the lands between the wall and the Green Line, and is prepared to give the Palestinians Israeli areas in return. What does this tell the settlers?
Most settlers live in settlements near the Green Line, which according to this concept will be joined to Israel. These are, not by accident, the non-ideological "lifestyle" settlers, those who were looking for cheap apartments and "quality of life" at a short distance from Tel-Aviv or Jerusalem. These settlers will, probably, agree in the end to any peace that leaves them in Israel.
The great majority of the extreme settlers, those motivated by a religious-Fascist ideology, live in the small settlements east of the wall, which must be dismantled when peace comes. This is a small minority even among the settlers, supported by a radical minority on the extreme right. That is where violent Israeli Fascism is growing.
ONCE UPON a time it seemed that a Red Line ran parallel to the Green Line - that nationalist-religious terrorism would hurt "only" Palestinians, not Israelis. Even Rabbi Meir Kahane, a born fascist, said so.
That illusion was shattered with the murder of Yitzhak Rabin. Israeli Fascism was found to be like any other classical Fascism, which thunders against the "foreign enemy" but directs its terrorism against the "enemy within". The pipe-bomb at the entrance of Sternhell's home must turn on all the red lights, as it joins the murder of Emil Gruenzweig and the threats on the lives of other conspicuous peace activists.
The decisive battle, the battle for Israel, is entering a new phase - much more violent, much more dangerous. But more serious than any danger to individuals is the danger to Israeli society as a whole. Especially if it does not mobilize all its resources - government, police, Security Service, the law, the courts, the media and the educational system - for an all out battle against this danger.
I do not believe that Fascism will win in our society. I believe in the strength of Israel democracy. But if I am pushed into a corner and asked: "Can it happen here?" I am bound to answer: "Yes, it can."
It Can Happen Here
THE GERMAN name Sternhell means bright as the stars. The name fits: the positions of Professor Ze'ev Sternhell indeed stand out sharply against the darkness of the sky. He warns against Israeli fascism. This week, Israeli fascists laid a pipe-bomb at the entrance of his apartment and he was lightly injured.
The choice of victim seems surprising at first. But the perpetrators knew what they were doing.
They did not attack the activists who demonstrate every week against the Separation Wall in Bil'in and Na'alin. They did not attack the leftists who mobilize every year - this year, too - to help the Palestinians pick their olives near the most dangerous settlements. They did not attack the "Women in Black" who demonstrate every Friday, or the women of "Machsom Watch", who keep an eye on events at the army checkpoints. They attacked a person whose entire activity is in the academic field.
The struggles on the ground are essential. But their main purpose is to influence public opinion. That is the main battlefield, and there the man of letters has an important part to play.
On this battlefield, two visions confront each other, two visions that are as far apart as the West is from the East. On the one side: An enlightened Israel, modern, secular, liberal and democratic, living in peace and partnership with Palestine as an integral part of the region. On the other side: a fanatical Israel, religious, fascist, cut off from the region and civilized humanity, a people that "dwells alone and shall not be reckoned among the nations" (Numbers, 23:9), where "the sword will devour for ever" (2 Samuel 2:26).
Ze'ev Sternhell is one of the outstanding guides of the enlightened vision. His positions are bright as the stars, resolute and incisive. Not a surprising target for the Neo-Nazi pipe-dreamers and pipe-bombers.
THE FIELD of Sternhell's academic expertise is the origins of Fascism, a subject that has occupied me all my life. The reasons for our interest are similar: Nazism left an indelible stamp on our childhood and fate. As a child, I witnessed the rise of Nazism in Germany. As a child, Sternhell saw it in Poland, when, after the death of his father, he lost his mother and sister in the Holocaust.
"He who has been scalded by boiling water is cautious even with cold water," a Hebrew adage goes. Those who experienced Fascism bursting into their lives in childhood are sensitive to the slightest symptom of the outbreak of this disease. In 1961 I wrote a book called "The Swastika" (which exists only in Hebrew), in which I tried to crack the code of the roots of Nazism. At the end of the book I posed the question: Can it happen here? My unequivocal answer was: Yes, indeed.
Because of this, I am sensitive to every warning sign in our society. As a journalist and magazine editor, I shone the searchlight on all such signs. As a political activist, I fought against them in the Knesset and in the street.
Sternhell, on his part, after a military career, is a pure academic. He uses the instruments of academia: research, teaching and publication. He strives for exact definitions, without seeking popularity or avoiding provocation. In one of his articles years ago he asserted that the violent response of the Palestinians to the settlements is quite natural. By this he attracted the lasting wrath of the settlers and the extreme Right, which made an effort to prevent him from receiving the Israel Prize, Israel's highest distinction.
Now the pipe-bombs are speaking.
WHO LAID the bomb? A lone individual? A group? A new underground? The terrorists from the settlements? That's for the police and the Shin-Bet to find out.
From the public point of view, the matter is much more simple: it is quite clear in which flowerbed these poisonous weeds grow, which ideology serves as fertilizer, and who is spreading it.
Israeli Fascism is alive and kicking. It is growing in the flowerbed that produced the various religious-nationalist underground groups of the past: the group that tried to bomb the Muslim shrines on the Temple Mount, the underground that tried to assassinate the Palestinian mayors, the "Kach" gang, the perpetrator of the Hebron massacre Baruch Goldstein, the murderer of peace activist Emil Gruenzweig, the murderer of Yitzhak Rabin and all the underground groups that were uncovered at an early stage before their deeds could bring them to public notice.
These acts cannot simply be attributed to individuals or "rogue groups". There exists a definite fascist fringe at the margin of Israel's political society. Its ideology is religious-nationalist, and its spiritual leaders are mostly "Rabbis", who formulate its world view and the practical application. These Jewish idolaters do not work in secret. On the contrary, they offer their wares on the open market.
This sector is concentrated in the "ideological" settlements. That does not mean that all settlers are fascists. But most fascists are settlers. They are concentrated in certain well-known settlements. By accident or not by accident, all these settlements are located in the heart of the West Bank, beyond the Separation Wall. The first of these, in the Hebron area, were installed with the help of "leftist" leader Yigal Allon, and in the Nablus area by "leftist" leader Shimon Peres.
DURING THE last months, there has been a marked increase in the number of incidents in which settlers attack Palestinians, soldiers, policemen and "leftists".
These acts are committed openly, in order to terrorize and deter. Settlers riot in the Palestinian villages whose lands they covet, or for revenge. These are "pogroms" in the classical sense of the term: riots by an armed mob intoxicated with hatred against helpless people, while the police and the army look on. The Pogromchiks destroy, injure and kill. These days it is happening more and more frequently.
In the few cases when the army or the police intervene, they do not turn on the settlers, but on the Israeli peace activists who come to help the beleaguered Palestinian farmers. The spokesmen of the Security Establishment and the commentators try to sound balanced and speak about "rioters from the Left and the Right". That is a false even handedness, which itself belongs to the Fascist arsenal of tricks.
The Settlers' pogroms are violent by nature, both in thought and deed, while the peace activists are non-violent on principle. If there is violence, it comes from the army and the border police, the pretext being that local boys have been throwing stones. What is not mentioned is that the well-protected soldiers and border policemen pursue the Palestinian demonstrators into the alleys of their villages.
The "boldness" of the extreme right-wing thugs - or "rightist activists" as the media insist on calling them courteously - is increasing by the day. They do whatever they want, knowing full well that no harm will befall them. The police do not interfere, since anyhow the courts will not mete out meaningful punishment.
ANYBODY WHO knows the history of Nazism is familiar with the shameful role played by the courts and the other law-enforcement agencies in the German republic vis-à-vis the law-breakers whose declared purpose was to put an end to the democratic system. The judges imposed ludicrously light penalties on Nazi rioters, whom they considered "misguided patriots", while treating Communist rioters as foreign agents and traitors.
Now we are experiencing this phenomenon here. The law-breaking settlers get symbolic sentences, while Palestinians who are accused of much lesser offenses get harsh penalties. Nowadays, even a settler who sets his dog on a company commander goes free, as does a settler who breaks the bones of a battalion chief.
The army's internal justice system can only be called monstrous: the commander who held up a bleeding woman in labor at a checkpoint causing the death of the child, was punished with two weeks detention. The commander who told a soldier to shoot a handcuffed Palestinian prisoner in the leg was "transferred", meaning that this war criminal can serve in another unit.
DOES THE increase in the number and severity of such incidents testify to the increasing power of Israeli Fascism? At first sight, one might get this impression.
However, on second thought I think that the opposite is true.
The fanatical settlers know that they have lost the support of public opinion in Israel, and that ordinary people consider them dangerous thugs. Their actions, as seen on television, arouse distaste, even abhorrence. The vision of "All of Eretz-Israel" has not only lost altitude - it has crashed on the ground of reality. The Zealots are acting out of weakness and frustration.
Much as the Nazis hated the German republic, these fanatics are starting to hate the State of Israel. And with good reason. They see that they have no place in a national consensus that is solidifying around the concept of "Two States for Two peoples", whether it is being accepted for negative reasons, such as demographic fears or the burdens of occupation, or for positive reasons, such as the hope for peace and prosperity after the withdrawal from the occupied territories.
The discussion about the borders is still going on, but the majority sees the Separation Wall as the future border. (As we made clear right from the beginning, the wall was not really being constructed in order to keep out Palestinian suicide bombers, as was claimed, but as a future border between the two states.)
The Israeli establishment wants to annex the lands between the wall and the Green Line, and is prepared to give the Palestinians Israeli areas in return. What does this tell the settlers?
Most settlers live in settlements near the Green Line, which according to this concept will be joined to Israel. These are, not by accident, the non-ideological "lifestyle" settlers, those who were looking for cheap apartments and "quality of life" at a short distance from Tel-Aviv or Jerusalem. These settlers will, probably, agree in the end to any peace that leaves them in Israel.
The great majority of the extreme settlers, those motivated by a religious-Fascist ideology, live in the small settlements east of the wall, which must be dismantled when peace comes. This is a small minority even among the settlers, supported by a radical minority on the extreme right. That is where violent Israeli Fascism is growing.
ONCE UPON a time it seemed that a Red Line ran parallel to the Green Line - that nationalist-religious terrorism would hurt "only" Palestinians, not Israelis. Even Rabbi Meir Kahane, a born fascist, said so.
That illusion was shattered with the murder of Yitzhak Rabin. Israeli Fascism was found to be like any other classical Fascism, which thunders against the "foreign enemy" but directs its terrorism against the "enemy within". The pipe-bomb at the entrance of Sternhell's home must turn on all the red lights, as it joins the murder of Emil Gruenzweig and the threats on the lives of other conspicuous peace activists.
The decisive battle, the battle for Israel, is entering a new phase - much more violent, much more dangerous. But more serious than any danger to individuals is the danger to Israeli society as a whole. Especially if it does not mobilize all its resources - government, police, Security Service, the law, the courts, the media and the educational system - for an all out battle against this danger.
I do not believe that Fascism will win in our society. I believe in the strength of Israel democracy. But if I am pushed into a corner and asked: "Can it happen here?" I am bound to answer: "Yes, it can."
They Just Don't Get It By Steven Pearlstein
They Just Don't Get It
By Steven Pearlstein
Tuesday, September 30, 2008;
The Washington Post D01
Oy vey.
That is the technical economic term that best sums up a day in which the House of Representatives refuses to pass a $700 billion rescue plan pushed by the White House and congressional leaders from both parties, Wachovia is taken over in a deal that will have the government potentially owning 10 percent of Citigroup, a few European banks fail, the Federal Reserve and other central banks are forced to inject an additional $300 billion into the global banking system, the Dow Jones industrial average plunges 777 points, and investors everywhere rush to the safety of gold and short-term Treasury bills.
The basic problem here is that too many people don't understand the seriousness of the situation.
Americans fail to understand that they are facing the real prospect of a decade of little or no economic growth because of the bursting of a credit bubble that they helped create and that now threatens to bring down the global financial system.
Politicians worry less about preventing a financial meltdown than about ideology, partisan posturing and teaching people a lesson. Financiers have yet to own up publicly to their own greed, arrogance and incompetence. And leaders of foreign governments still think that this is an American problem and that they have no need to mount similar rescue efforts in their own countries.
In the coming weeks and months, all of these people will come to understand how deep the hole really is and how we're all in it together.
They'll come to understand that the giant sucking sound they hear is of a massive deleveraging of the global economy and the global financial system as households and governments, businesses and investment funds adjust to living in a world with less debt and more inflation.
And they will come around, reluctantly, to the understanding that the only way to get out of these situations is to have governments all around the world borrow gobs of money and effectively nationalize large swaths of the financial system so it can be restructured, recapitalized, reformed and returned to private ownership once the crisis has passed and the economy has gotten back on its feet.
In the next few weeks, the center of attention here in the United States will shift from the Congress and an exhausted Treasury to the Federal Deposit Insurance Corp., which will now have to rescue any number of failing banks, either by taking them over directly or managing their transfer into stronger hands. It will also shift back to the Federal Reserve and other central banks, which will have to step up their efforts to maintain liquidity in money markets and prevent the credit crunch from taking down hedge funds, businesses, and state and local governments.
These will, alas, be only holding actions. Restoring real stability to financial markets will require the kind of systemic approach and extraordinary government interventions that the public has refused to authorize and finance. In better times, the public might have put aside its reluctance in response to the strong and unified recommendation of political and business leaders. But it is a measure of how little trust remains in both Washington and Wall Street that voters are willing to risk a serious hit to their wealth and income rather than follow their lead.
Steven Pearlstein can be reached atpearlsteins@washpost.com.
By Steven Pearlstein
Tuesday, September 30, 2008;
The Washington Post D01
Oy vey.
That is the technical economic term that best sums up a day in which the House of Representatives refuses to pass a $700 billion rescue plan pushed by the White House and congressional leaders from both parties, Wachovia is taken over in a deal that will have the government potentially owning 10 percent of Citigroup, a few European banks fail, the Federal Reserve and other central banks are forced to inject an additional $300 billion into the global banking system, the Dow Jones industrial average plunges 777 points, and investors everywhere rush to the safety of gold and short-term Treasury bills.
The basic problem here is that too many people don't understand the seriousness of the situation.
Americans fail to understand that they are facing the real prospect of a decade of little or no economic growth because of the bursting of a credit bubble that they helped create and that now threatens to bring down the global financial system.
Politicians worry less about preventing a financial meltdown than about ideology, partisan posturing and teaching people a lesson. Financiers have yet to own up publicly to their own greed, arrogance and incompetence. And leaders of foreign governments still think that this is an American problem and that they have no need to mount similar rescue efforts in their own countries.
In the coming weeks and months, all of these people will come to understand how deep the hole really is and how we're all in it together.
They'll come to understand that the giant sucking sound they hear is of a massive deleveraging of the global economy and the global financial system as households and governments, businesses and investment funds adjust to living in a world with less debt and more inflation.
And they will come around, reluctantly, to the understanding that the only way to get out of these situations is to have governments all around the world borrow gobs of money and effectively nationalize large swaths of the financial system so it can be restructured, recapitalized, reformed and returned to private ownership once the crisis has passed and the economy has gotten back on its feet.
In the next few weeks, the center of attention here in the United States will shift from the Congress and an exhausted Treasury to the Federal Deposit Insurance Corp., which will now have to rescue any number of failing banks, either by taking them over directly or managing their transfer into stronger hands. It will also shift back to the Federal Reserve and other central banks, which will have to step up their efforts to maintain liquidity in money markets and prevent the credit crunch from taking down hedge funds, businesses, and state and local governments.
These will, alas, be only holding actions. Restoring real stability to financial markets will require the kind of systemic approach and extraordinary government interventions that the public has refused to authorize and finance. In better times, the public might have put aside its reluctance in response to the strong and unified recommendation of political and business leaders. But it is a measure of how little trust remains in both Washington and Wall Street that voters are willing to risk a serious hit to their wealth and income rather than follow their lead.
Steven Pearlstein can be reached atpearlsteins@washpost.com.
How the US presidential debate played overseas
CHRISTIAN SCIENCE MONITOR
9/29/08
How the US presidential debate played overseas
Barack Obama's tough talk scared Pakistanis and the Russians. But Afghans applauded. Iranians and Iraqis shrugged.
Mark Sappenfield
NEW DELHI - Pakistani political scientist Hasan Askari Rizvi is of two minds about Friday night's presidential debate in the United States. On one hand, he flinches at Barack Obama's swashbuckling comments about taking out Al Qaeda leaders on Pakistani soil – with or without Pakistan's consent. No policy could make him more unpopular in Pakistan, Mr. Rizvi says.
Then again, Rizvi acknowledges, he cannot rid himself of the idea that, despite his nuanced arguments Friday, Republican John McCain will be "George Bush III."
In the countries for which Friday night's debate perhaps held the most relevance – Pakistan, Afghanistan, Russia, Iran, and Iraq – the clear desire is for fresh ideas from US leaders. While this has generally led to more sympathy for Mr. Obama, Friday's debate did little to project this image in several regions central to US foreign policy.
"The debate [in Pakistan] is how much policy is going to change," say Rizvi. "Many are concerned by Obama's tough talking."
Indeed, the debate in many ways represented a reversal of expectations. "The line John McCain took was quite reasonable," says Rasul Baksh Rais, a political scientist at the Lahore University of Management Sciences, who teaches a class in American politics. "Extending the war into Pakistan has really aroused Pakistanis and made them much more interested in this race," he says.
The same is true in Afghanistan, but for the opposite reasons. Many Afghans see one of the main sources of their problems as being across the border in Pakistan, where Al Qaeda and the Taliban find refuge from the coalition forces in Afghanistan.
"[President] Bush said that after 9/11, he would smoke the terrorists out of their caves. But we know now that the terrorists aren't living in caves, they are living in luxury villas in Pakistan," says Haroun Mir, director of the Afghanistan Center for Research and Policy Studies in Kabul.
Right or wrong, this widespread perception in Afghanistan has led many people to favor Obama's tough talking. His comments Friday played well.
"He said that he will help Afghanistan fight terrorism," says Fazel Qazizada, a former political science student at Kabul University.
But he adds, "In the end, we think that Obama and McCain are not radically different from each other. We see some hope from the election campaigns and debates that they represent a new direction in American policy, but ultimately we will need to wait and see."
This caution is apparent throughout the region. Among Pakistan's highly educated, English-speaking classes – those most aware of the debate – there was an understanding that the event played to Americans, not the world.
"The candidates have to play to the gallery," says Professor Rais.
A sinking feeling in Russia
That was small solace in Russia, which received a bipartisan bludgeoning Friday. The exchange between McCain and Obama about Russia – in which both took a hard line, blaming it for aggression in Georgia – received massive play in the state TV news programs Saturday.
"This new consensus emerging in US politics, reflected by their exchange in the debate, is very worrisome," says Boris Kagarlitsky, director of the independent Institute for Globalization and Social Movements in Moscow. "There is this sinking feeling in Russia, listening to these two men, that the bad relations between us are just going to keep getting worse."
The traditional view is that Democrats talk moderately while Republicans talk tough, but it's the Republicans who end up delivering good things for Russia: détente and the end of the cold war, for example.
But this view is waning. In Russia, Bill Clinton was instrumental in bringing Russia into the G-8, and George W. Bush's relationship with former President Vladimir Putin has soured.
"It looked like a bidding war to see who could bash Russia harder to score points," says Peter Lavelle, a commentator for the English-language, state-run satellite TV station, Russia Today. "Russia is being turned into a whipping boy to hide the fact that the US has overreached itself and is not a positive force for change in the world."
In general, Pakistanis feel the same way. Though the Pakistani government has benefited most during Republican administrations – most notably the Eisenhower and Reagan years, when Pakistan was on the front lines of containing Communism – common Pakistanis resent their country's alliance with the US under Bush, seeing his policies as overbearing. "The [pro US] position Pakistan has taken is not popular in the streets," says Rais.
Iraq and Iran shrug
Yet most of the Muslim world paid little heed to the debate. The holy month of Ramadan ends this week, marking the biggest holiday of the Muslim calendar. In Iraq, for instance, citizens have spent their nights breaking the daily fasts with family and watching soap operas – Ramadan is Iraq's answer to sweeps week in America, featuring all the best shows.
Even when photo technician Zaid Nathem takes a break from watching a new Syrian miniseries, he says he focuses on Iraqi news. "Of course the US elections are important for us, but I don't spend my extra time following them," he says.
Although almost all Iraqis acknowledge that the results of the US election will have a major effect on their situation, they also know it is not their decision. Says Jabar Abu Ali, a restaurant manager in Baghdad: "Maybe [the candidates] will promise to withdraw troops, but after the elections we will find the same policy still in effect."
Though Iran was a key topic in the debate, it got little coverage. "Frankly speaking, the Iranian people don't care about this debate," says Saeed Laylaz, editor of the Sarmayeh or "Capital" economic newspaper in Tehran. "Iranians are suffering from local mismanagement of the economy much, much more than the atomic issue. This talk, and even the new UN Security Council resolution against Iran [passed on Saturday], is not very new."
As a critic of Iran's conservative government, he prefers Barack Obama. "Historically, the Republicans have been better for radicals and conservatives in Iran," says Laylaz. "And when Mr. Obama says that 'We have to talk to the Islamic Republic of Iran,' it is not so good for radicals in the country."
• Reported by Anand Gopal in Kabul, Afghanistan, Tom A. Peter in Baghdad, Mark Sappenfield in New Delhi, Scott Peterson in Istanbul, Turkey, and Fred Weir in Moscow.
9/29/08
How the US presidential debate played overseas
Barack Obama's tough talk scared Pakistanis and the Russians. But Afghans applauded. Iranians and Iraqis shrugged.
Mark Sappenfield
NEW DELHI - Pakistani political scientist Hasan Askari Rizvi is of two minds about Friday night's presidential debate in the United States. On one hand, he flinches at Barack Obama's swashbuckling comments about taking out Al Qaeda leaders on Pakistani soil – with or without Pakistan's consent. No policy could make him more unpopular in Pakistan, Mr. Rizvi says.
Then again, Rizvi acknowledges, he cannot rid himself of the idea that, despite his nuanced arguments Friday, Republican John McCain will be "George Bush III."
In the countries for which Friday night's debate perhaps held the most relevance – Pakistan, Afghanistan, Russia, Iran, and Iraq – the clear desire is for fresh ideas from US leaders. While this has generally led to more sympathy for Mr. Obama, Friday's debate did little to project this image in several regions central to US foreign policy.
"The debate [in Pakistan] is how much policy is going to change," say Rizvi. "Many are concerned by Obama's tough talking."
Indeed, the debate in many ways represented a reversal of expectations. "The line John McCain took was quite reasonable," says Rasul Baksh Rais, a political scientist at the Lahore University of Management Sciences, who teaches a class in American politics. "Extending the war into Pakistan has really aroused Pakistanis and made them much more interested in this race," he says.
The same is true in Afghanistan, but for the opposite reasons. Many Afghans see one of the main sources of their problems as being across the border in Pakistan, where Al Qaeda and the Taliban find refuge from the coalition forces in Afghanistan.
"[President] Bush said that after 9/11, he would smoke the terrorists out of their caves. But we know now that the terrorists aren't living in caves, they are living in luxury villas in Pakistan," says Haroun Mir, director of the Afghanistan Center for Research and Policy Studies in Kabul.
Right or wrong, this widespread perception in Afghanistan has led many people to favor Obama's tough talking. His comments Friday played well.
"He said that he will help Afghanistan fight terrorism," says Fazel Qazizada, a former political science student at Kabul University.
But he adds, "In the end, we think that Obama and McCain are not radically different from each other. We see some hope from the election campaigns and debates that they represent a new direction in American policy, but ultimately we will need to wait and see."
This caution is apparent throughout the region. Among Pakistan's highly educated, English-speaking classes – those most aware of the debate – there was an understanding that the event played to Americans, not the world.
"The candidates have to play to the gallery," says Professor Rais.
A sinking feeling in Russia
That was small solace in Russia, which received a bipartisan bludgeoning Friday. The exchange between McCain and Obama about Russia – in which both took a hard line, blaming it for aggression in Georgia – received massive play in the state TV news programs Saturday.
"This new consensus emerging in US politics, reflected by their exchange in the debate, is very worrisome," says Boris Kagarlitsky, director of the independent Institute for Globalization and Social Movements in Moscow. "There is this sinking feeling in Russia, listening to these two men, that the bad relations between us are just going to keep getting worse."
The traditional view is that Democrats talk moderately while Republicans talk tough, but it's the Republicans who end up delivering good things for Russia: détente and the end of the cold war, for example.
But this view is waning. In Russia, Bill Clinton was instrumental in bringing Russia into the G-8, and George W. Bush's relationship with former President Vladimir Putin has soured.
"It looked like a bidding war to see who could bash Russia harder to score points," says Peter Lavelle, a commentator for the English-language, state-run satellite TV station, Russia Today. "Russia is being turned into a whipping boy to hide the fact that the US has overreached itself and is not a positive force for change in the world."
In general, Pakistanis feel the same way. Though the Pakistani government has benefited most during Republican administrations – most notably the Eisenhower and Reagan years, when Pakistan was on the front lines of containing Communism – common Pakistanis resent their country's alliance with the US under Bush, seeing his policies as overbearing. "The [pro US] position Pakistan has taken is not popular in the streets," says Rais.
Iraq and Iran shrug
Yet most of the Muslim world paid little heed to the debate. The holy month of Ramadan ends this week, marking the biggest holiday of the Muslim calendar. In Iraq, for instance, citizens have spent their nights breaking the daily fasts with family and watching soap operas – Ramadan is Iraq's answer to sweeps week in America, featuring all the best shows.
Even when photo technician Zaid Nathem takes a break from watching a new Syrian miniseries, he says he focuses on Iraqi news. "Of course the US elections are important for us, but I don't spend my extra time following them," he says.
Although almost all Iraqis acknowledge that the results of the US election will have a major effect on their situation, they also know it is not their decision. Says Jabar Abu Ali, a restaurant manager in Baghdad: "Maybe [the candidates] will promise to withdraw troops, but after the elections we will find the same policy still in effect."
Though Iran was a key topic in the debate, it got little coverage. "Frankly speaking, the Iranian people don't care about this debate," says Saeed Laylaz, editor of the Sarmayeh or "Capital" economic newspaper in Tehran. "Iranians are suffering from local mismanagement of the economy much, much more than the atomic issue. This talk, and even the new UN Security Council resolution against Iran [passed on Saturday], is not very new."
As a critic of Iran's conservative government, he prefers Barack Obama. "Historically, the Republicans have been better for radicals and conservatives in Iran," says Laylaz. "And when Mr. Obama says that 'We have to talk to the Islamic Republic of Iran,' it is not so good for radicals in the country."
• Reported by Anand Gopal in Kabul, Afghanistan, Tom A. Peter in Baghdad, Mark Sappenfield in New Delhi, Scott Peterson in Istanbul, Turkey, and Fred Weir in Moscow.
Sunday, September 28, 2008
A Better Bailout, Joseph Stiglitz
A Better Bailout
Friday 26 September 2008
by: Joseph E. Stiglitz, The Nation
photo
Joseph E. Stiglitz is a renowned American economist and the winner of the Nobel Prize in economics. (Photo: AFP/ Getty Images)
The champagne bottle corks were popping as Treasury Secretary Henry Paulson announced his trillion-dollar bailout for the banks, buying up their toxic mortgages. To a skeptic, Paulson's proposal looks like another of those shell games that Wall Street has honed to a fine art. Wall Street has always made money by slicing, dicing and recombining risk. This "cure" is another one of these rearrangements: somehow, by stripping out the bad assets from the banks and paying fair market value for them, the value of the banks will soar.
There is, however, an alternative explanation for Wall Street's celebration: the banks realized that they were about to get a free ride at taxpayers' expense. No private firm was willing to buy these toxic mortgages at what the seller thought was a reasonable price; they finally had found a sucker who would take them off their hands - called the American taxpayer.
The administration attempts to assure us that they will protect the American people by insisting on buying the mortgages at the lowest price at auction. Evidently, Paulson didn't learn the lessons of the information asymmetry that played such a large role in getting us into this mess. The banks will pass on their lousiest mortgages. Paulson may try to assure us that we will hire the best and brightest of Wall Street to make sure that this doesn't happen. (Wall Street firms are already licking their lips at the prospect of a new source of revenues: fees from the US Treasury.) But even Wall Street's best and brightest do not exactly have a credible record in asset valuation; if they had done better, we wouldn't be where we are. And that assumes that they are really working for the American people, not their long-term employers in financial markets. Even if they do use some fancy mathematical model to value different mortgages, those in Wall Street have long made money by gaming against these models. We will then wind up not with the absolutely lousiest mortgages, but with those in which Treasury's models most underpriced risk. Either way, we the taxpayers lose, and Wall Street gains.
And for what? In the S&L bailout, taxpayers were already on the hook, with their deposit guarantee. Part of the question then was how to minimize taxpayers' exposure. But not so this time. The objective of the bailout should not be to protect the banks' shareholders, or even their creditors, who facilitated this bad lending. The objective should be to maintain the flow of credit, especially to mortgages. But wasn't that what the Fannie Mae/Freddie Mac bailout was supposed to assure us?
There are four fundamental problems with our financial system, and the Paulson proposal addresses only one. The first is that the financial institutions have all these toxic products - which they created - and since no one trusts anyone about their value, no one is willing to lend to anyone else. The Paulson approach solves this by passing the risk to us, the taxpayer - and for no return. The second problem is that there is a big and increasing hole in bank balance sheets - banks lent money to people beyond their ability to repay - and no financial alchemy will fix that. If, as Paulson claims, banks get paid fairly for their lousy mortgages and the complex products in which they are embedded, the hole in their balance sheet will remain. What is needed is a transparent equity injection, not the non-transparent ruse that the administration is proposing.
The third problem is that our economy has been supercharged by a housing bubble which has now burst. The best experts believe that prices still have a way to fall before the return to normal, and that means there will be more foreclosures. No amount of talking up the market is going to change that. The hidden agenda here may be taking large amounts of real estate off the market - and letting it deteriorate at taxpayers' expense.
The fourth problem is a lack of trust, a credibility gap. Regrettably, the way the entire financial crisis has been handled has only made that gap larger.
Paulson and others in Wall Street are claiming that the bailout is necessary and that we are in deep trouble. Not long ago, they were telling us that we had turned a corner. The administration even turned down an effective stimulus package last February - one that would have included increased unemployment benefits and aid to states and localities - and they still say we don't need another stimulus. To be frank, the administration has a credibility and trust gap as big as that of Wall Street. If the crisis was as severe as they claim, why didn't they propose a more credible plan? With lack of oversight and transparency the cause of the current problem, how could they make a proposal so short in both? If a quick consensus is required, why not include provisions to stop the source of bleeding, to aid the millions of Americans that are losing their homes? Why not spend as much on them as on Wall Street? Do they still believe in trickle-down economics, when for the past eight years money has been trickling up to the wizards of Wall Street? Why not enact bankruptcy reform, to help Americans write down the value of the mortgage on their overvalued home? No one benefits from these costly foreclosures.
The administration is once again holding a gun at our head, saying, "My way or the highway." We have been bamboozled before by this tactic. We should not let it happen to us again. There are alternatives. Warren Buffet showed the way, in providing equity to Goldman Sachs. The Scandinavian countries showed the way, almost two decades ago. By issuing preferred shares with warrants (options), one reduces the public's downside risk and insures that they participate in some of the upside potential. This approach is not only proven, it provides both incentives and wherewithal to resume lending. It furthermore avoids the hopeless task of trying to value millions of complex mortgages and even more complex products in which they are embedded, and it deals with the "lemons" problem - the government getting stuck with the worst or most overpriced assets.
Finally, we need to impose a special financial sector tax to pay for the bailouts conducted so far. We also need to create a reserve fund so that poor taxpayers won't have to be called upon again to finance Wall Street's foolishness.
If we design the right bailout, it won't lead to an increase in our long-term debt - we might even make a profit. But if we implement the wrong strategy, there is a serious risk that our national debt - already overburdened from a failed war and eight years of fiscal profligacy - will soar, and future living standards will be compromised. The president seemed to think that his new shell game will arrest the decline in house prices, and we won't be faced holding a lot of bad mortgages. I hope he's right, but I wouldn't count on it: it's not what most housing experts say. The president's economic credentials are hardly stellar. Our national debt has already climbed from $5.7 trillion to over $9 trillion in eight years, and the deficits for 2008 and 2009 - not including the bailouts - are expected to reach new heights. There is no such thing as a free war - and no such thing as a free bailout. The bill will be paid, in one way or another.
Perhaps by the time this article is published, the administration and Congress will have reached an agreement. No politician wants to be accused of being responsible for the next Great Depression by blocking key legislation. By all accounts, the compromise will be far better than the bill originally proposed by Paulson but still far short of what I have outlined should be done. No one expects them to address the underlying causes of the problem: the spirit of excessive deregulation that the Bush Administration so promoted. Almost surely, there will be plenty of work to be done by the next president and the next Congress. It would be better if we got it right the first time, but that is expecting too much of this president and his administration.
-------
Joseph E. Stiglitz is University Professor at Columbia University. He received the Nobel Prize in Economics in 2001 for research on the economics of information. Most recently, he is the co-author, with Linda Bilmes, of The Three Trillion Dollar War: The True Costs of the Iraq Conflict. more...< http://www.thenation.com/directory/bios/joseph_e_stiglitz>
Friday 26 September 2008
by: Joseph E. Stiglitz, The Nation
photo
Joseph E. Stiglitz is a renowned American economist and the winner of the Nobel Prize in economics. (Photo: AFP/ Getty Images)
The champagne bottle corks were popping as Treasury Secretary Henry Paulson announced his trillion-dollar bailout for the banks, buying up their toxic mortgages. To a skeptic, Paulson's proposal looks like another of those shell games that Wall Street has honed to a fine art. Wall Street has always made money by slicing, dicing and recombining risk. This "cure" is another one of these rearrangements: somehow, by stripping out the bad assets from the banks and paying fair market value for them, the value of the banks will soar.
There is, however, an alternative explanation for Wall Street's celebration: the banks realized that they were about to get a free ride at taxpayers' expense. No private firm was willing to buy these toxic mortgages at what the seller thought was a reasonable price; they finally had found a sucker who would take them off their hands - called the American taxpayer.
The administration attempts to assure us that they will protect the American people by insisting on buying the mortgages at the lowest price at auction. Evidently, Paulson didn't learn the lessons of the information asymmetry that played such a large role in getting us into this mess. The banks will pass on their lousiest mortgages. Paulson may try to assure us that we will hire the best and brightest of Wall Street to make sure that this doesn't happen. (Wall Street firms are already licking their lips at the prospect of a new source of revenues: fees from the US Treasury.) But even Wall Street's best and brightest do not exactly have a credible record in asset valuation; if they had done better, we wouldn't be where we are. And that assumes that they are really working for the American people, not their long-term employers in financial markets. Even if they do use some fancy mathematical model to value different mortgages, those in Wall Street have long made money by gaming against these models. We will then wind up not with the absolutely lousiest mortgages, but with those in which Treasury's models most underpriced risk. Either way, we the taxpayers lose, and Wall Street gains.
And for what? In the S&L bailout, taxpayers were already on the hook, with their deposit guarantee. Part of the question then was how to minimize taxpayers' exposure. But not so this time. The objective of the bailout should not be to protect the banks' shareholders, or even their creditors, who facilitated this bad lending. The objective should be to maintain the flow of credit, especially to mortgages. But wasn't that what the Fannie Mae/Freddie Mac bailout was supposed to assure us?
There are four fundamental problems with our financial system, and the Paulson proposal addresses only one. The first is that the financial institutions have all these toxic products - which they created - and since no one trusts anyone about their value, no one is willing to lend to anyone else. The Paulson approach solves this by passing the risk to us, the taxpayer - and for no return. The second problem is that there is a big and increasing hole in bank balance sheets - banks lent money to people beyond their ability to repay - and no financial alchemy will fix that. If, as Paulson claims, banks get paid fairly for their lousy mortgages and the complex products in which they are embedded, the hole in their balance sheet will remain. What is needed is a transparent equity injection, not the non-transparent ruse that the administration is proposing.
The third problem is that our economy has been supercharged by a housing bubble which has now burst. The best experts believe that prices still have a way to fall before the return to normal, and that means there will be more foreclosures. No amount of talking up the market is going to change that. The hidden agenda here may be taking large amounts of real estate off the market - and letting it deteriorate at taxpayers' expense.
The fourth problem is a lack of trust, a credibility gap. Regrettably, the way the entire financial crisis has been handled has only made that gap larger.
Paulson and others in Wall Street are claiming that the bailout is necessary and that we are in deep trouble. Not long ago, they were telling us that we had turned a corner. The administration even turned down an effective stimulus package last February - one that would have included increased unemployment benefits and aid to states and localities - and they still say we don't need another stimulus. To be frank, the administration has a credibility and trust gap as big as that of Wall Street. If the crisis was as severe as they claim, why didn't they propose a more credible plan? With lack of oversight and transparency the cause of the current problem, how could they make a proposal so short in both? If a quick consensus is required, why not include provisions to stop the source of bleeding, to aid the millions of Americans that are losing their homes? Why not spend as much on them as on Wall Street? Do they still believe in trickle-down economics, when for the past eight years money has been trickling up to the wizards of Wall Street? Why not enact bankruptcy reform, to help Americans write down the value of the mortgage on their overvalued home? No one benefits from these costly foreclosures.
The administration is once again holding a gun at our head, saying, "My way or the highway." We have been bamboozled before by this tactic. We should not let it happen to us again. There are alternatives. Warren Buffet showed the way, in providing equity to Goldman Sachs. The Scandinavian countries showed the way, almost two decades ago. By issuing preferred shares with warrants (options), one reduces the public's downside risk and insures that they participate in some of the upside potential. This approach is not only proven, it provides both incentives and wherewithal to resume lending. It furthermore avoids the hopeless task of trying to value millions of complex mortgages and even more complex products in which they are embedded, and it deals with the "lemons" problem - the government getting stuck with the worst or most overpriced assets.
Finally, we need to impose a special financial sector tax to pay for the bailouts conducted so far. We also need to create a reserve fund so that poor taxpayers won't have to be called upon again to finance Wall Street's foolishness.
If we design the right bailout, it won't lead to an increase in our long-term debt - we might even make a profit. But if we implement the wrong strategy, there is a serious risk that our national debt - already overburdened from a failed war and eight years of fiscal profligacy - will soar, and future living standards will be compromised. The president seemed to think that his new shell game will arrest the decline in house prices, and we won't be faced holding a lot of bad mortgages. I hope he's right, but I wouldn't count on it: it's not what most housing experts say. The president's economic credentials are hardly stellar. Our national debt has already climbed from $5.7 trillion to over $9 trillion in eight years, and the deficits for 2008 and 2009 - not including the bailouts - are expected to reach new heights. There is no such thing as a free war - and no such thing as a free bailout. The bill will be paid, in one way or another.
Perhaps by the time this article is published, the administration and Congress will have reached an agreement. No politician wants to be accused of being responsible for the next Great Depression by blocking key legislation. By all accounts, the compromise will be far better than the bill originally proposed by Paulson but still far short of what I have outlined should be done. No one expects them to address the underlying causes of the problem: the spirit of excessive deregulation that the Bush Administration so promoted. Almost surely, there will be plenty of work to be done by the next president and the next Congress. It would be better if we got it right the first time, but that is expecting too much of this president and his administration.
-------
Joseph E. Stiglitz is University Professor at Columbia University. He received the Nobel Prize in Economics in 2001 for research on the economics of information. Most recently, he is the co-author, with Linda Bilmes, of The Three Trillion Dollar War: The True Costs of the Iraq Conflict. more...< http://www.thenation.com/directory/bios/joseph_e_stiglitz>
Saturday, September 27, 2008
Israel asked US for green light to bomb nuclear sites in Iran
guardian.co.uk logo
Israel asked US for green light to bomb nuclear sites in Iran
US president told Israeli prime minister he would not back attack on Iran, senior European diplomatic sources tell Guardian
Jonathan Steele
guardian.co.uk,
Friday September 26 2008
http://www.guardian.co.uk/world/2008/sep/25/iran.israelandthepalestinians1
nuclear enrichment plant of Natanz in central Iran
A view of the nuclear enrichment plant of Natanz in central Iran. Photograph: EPA
Israel gave serious thought this spring to launching a military strike on Iran's nuclear sites but was told by President George W Bush that he would not support it and did not expect to revise that view for the rest of his presidency, senior European diplomatic sources have told the Guardian.
The then prime minister, Ehud Olmert, used the occasion of Bush's trip to Israel for the 60th anniversary of the state's founding to raise the issue in a one-on-one meeting on May 14, the sources said. "He took it [the refusal of a US green light] as where they were at the moment, and that the US position was unlikely to change as long as Bush was in office", they added.
The sources work for a European head of government who met the Israeli leader some time after the Bush visit. Their talks were so sensitive that no note-takers attended, but the European leader subsequently divulged to his officials the highly sensitive contents of what Olmert had told him of Bush's position.
Bush's decision to refuse to offer any support for a strike on Iran appeared to be based on two factors, the sources said. One was US concern over Iran's likely retaliation, which would probably include a wave of attacks on US military and other personnel in Iraq and Afghanistan, as well as on shipping in the Persian Gulf.
The other was US anxiety that Israel would not succeed in disabling Iran's nuclear facilities in a single assault even with the use of dozens of aircraft. It could not mount a series of attacks over several days without risking full-scale war. So the benefits would not outweigh the costs.
Iran has repeatedly said it would react with force to any attack. Some western government analysts believe this could include asking Lebanon's Shia movement Hizbollah to strike at the US.
"It's over ten years since Hizbollah's last terror strike outside Israel, when it hit an Argentine-Israel association building in Buenos Aires [killing 85 people]", said one official. "There is a large Lebanese diaspora in Canada which must include some Hizbollah supporters. They could slip into the United States and take action".
Even if Israel were to launch an attack on Iran without US approval its planes could not reach their targets without the US becoming aware of their flightpath and having time to ask them to abandon their mission.
"The shortest route to Natanz lies across Iraq and the US has total control of Iraqi airspace", the official said. Natanz, about 100 miles north of Isfahan, is the site of an uranium enrichment plant.
In this context Iran would be bound to assume Bush had approved it, even if the White House denied foreknowledge, raising the prospect of an attack against the US.
Several high-level Israeli officials have hinted over the last two years that Israel might strike Iran's nuclear facilities to prevent them being developed to provide sufficient weapons-grade uranium to make a nuclear bomb. Iran has always denied having such plans.
Olmert himself raised the possibility of an attack at a press conference during a visit to London last November, when he said sanctions were not enough to block Iran's nuclear programme.
"Economic sanctions are effective. They have an important impact already, but they are not sufficient. So there should be more. Up to where? Up until Iran will stop its nuclear programme," he said.
The revelation that Olmert was not merely sabre-rattling to try to frighten Iran but considered the option seriously enough to discuss it with Bush shows how concerned Israeli officials had become.
Bush's refusal to support an attack, and the strong suggestion he would not change his mind, is likely to end speculation that Washington might be preparing an "October surprise" before the US presidential election. Some analysts have argued that Bush would back an Israeli attack in an effort to help John McCain's campaign by creating an eve-of-poll security crisis.
Others have said that in the case of an Obama victory, the vice-president, Dick Cheney, the main White House hawk, would want to cripple Iran's nuclear programme in the dying weeks of Bush's term.
During Saddam Hussein's rule in 1981, Israeli aircraft successfully destroyed Iraq's nuclear reactor at Osirak shortly before it was due to start operating.
Last September they knocked out a buildings complex in northern Syria, which US officials later said had been a partly constructed nuclear reactor based on a North Korean design. Syria said the building was a military complex but had no links to a nuclear programme.
In contrast, Iran's nuclear facilities, which are officially described as intended only for civilian purposes, are dispersed around the country and some are in fortified bunkers underground.
In public, Bush gave no hint of his view that the military option had to be excluded. In a speech to the Knesset the following day he confined himself to telling Israel's parliament: "America stands with you in firmly opposing Iran's nuclear weapons ambitions. Permitting the world's leading sponsor of terror to possess the world's deadliest weapon would be an unforgivable betrayal of future generations. For the sake of peace, the world must not allow Iran to have a nuclear weapon.''
Mark Regev, Olmert's spokesman, tonight reacted to the Guardian's story saying: "The need to prevent Iran from obtaining nuclear weapons is raised at every meeting between the prime minister and foreign leaders. Israel prefers a diplomatic solution to this issue but all options must remain on the table. Your unnamed European source attributed words to the prime minister that were not spoken in any working meeting with foreign guests".
Three weeks after Bush's red light, on June 2, Israel mounted a massive air exercise covering several hundred miles in the eastern Mediterranean. It involved dozens of warplanes, including F-15s, F-16s and aerial refueling tankers.
The size and scope of the exercise ensured that the US and other nations in the region saw it, said a US official, who estimated the distance was about the same as from Israel to Natanz.
A few days later, Israel's deputy prime minister, Shaul Mofaz, told the paper Yediot Ahronot: "If Iran continues its programme to develop nuclear weapons, we will attack it. The window of opportunity has closed. The sanctions are not effective. There will be no alternative but to attack Iran in order to stop the Iranian nuclear programme."
The exercise and Mofaz's comments may have been designed to boost the Israeli government and military's own morale as well, perhaps, to persuade Bush to reconsider his veto. Last week Mofaz narrowly lost a primary within the ruling Kadima party to become Israel's next prime minister. Tzipi Livni, who won the contest, takes a less hawkish position.
The US announced two weeks ago that it would sell Israel 1,000 bunker-busting bombs. The move was interpreted by some analysts as a consolation prize for Israel after Bush told Olmert of his opposition to an attack on Iran. But it could also enhance Israel's attack options in case the next US president revives the military option.
The guided bomb unit-39 (GBU-39) has a penetration capacity equivalent to a one-tonne bomb. Israel already has some bunker-busters.
Iran nuclear map
Map showing nuclear activity in Iran
Israel asked US for green light to bomb nuclear sites in Iran
US president told Israeli prime minister he would not back attack on Iran, senior European diplomatic sources tell Guardian
Jonathan Steele
guardian.co.uk,
Friday September 26 2008
http://www.guardian.co.uk/world/2008/sep/25/iran.israelandthepalestinians1
nuclear enrichment plant of Natanz in central Iran
A view of the nuclear enrichment plant of Natanz in central Iran. Photograph: EPA
Israel gave serious thought this spring to launching a military strike on Iran's nuclear sites but was told by President George W Bush that he would not support it and did not expect to revise that view for the rest of his presidency, senior European diplomatic sources have told the Guardian.
The then prime minister, Ehud Olmert, used the occasion of Bush's trip to Israel for the 60th anniversary of the state's founding to raise the issue in a one-on-one meeting on May 14, the sources said. "He took it [the refusal of a US green light] as where they were at the moment, and that the US position was unlikely to change as long as Bush was in office", they added.
The sources work for a European head of government who met the Israeli leader some time after the Bush visit. Their talks were so sensitive that no note-takers attended, but the European leader subsequently divulged to his officials the highly sensitive contents of what Olmert had told him of Bush's position.
Bush's decision to refuse to offer any support for a strike on Iran appeared to be based on two factors, the sources said. One was US concern over Iran's likely retaliation, which would probably include a wave of attacks on US military and other personnel in Iraq and Afghanistan, as well as on shipping in the Persian Gulf.
The other was US anxiety that Israel would not succeed in disabling Iran's nuclear facilities in a single assault even with the use of dozens of aircraft. It could not mount a series of attacks over several days without risking full-scale war. So the benefits would not outweigh the costs.
Iran has repeatedly said it would react with force to any attack. Some western government analysts believe this could include asking Lebanon's Shia movement Hizbollah to strike at the US.
"It's over ten years since Hizbollah's last terror strike outside Israel, when it hit an Argentine-Israel association building in Buenos Aires [killing 85 people]", said one official. "There is a large Lebanese diaspora in Canada which must include some Hizbollah supporters. They could slip into the United States and take action".
Even if Israel were to launch an attack on Iran without US approval its planes could not reach their targets without the US becoming aware of their flightpath and having time to ask them to abandon their mission.
"The shortest route to Natanz lies across Iraq and the US has total control of Iraqi airspace", the official said. Natanz, about 100 miles north of Isfahan, is the site of an uranium enrichment plant.
In this context Iran would be bound to assume Bush had approved it, even if the White House denied foreknowledge, raising the prospect of an attack against the US.
Several high-level Israeli officials have hinted over the last two years that Israel might strike Iran's nuclear facilities to prevent them being developed to provide sufficient weapons-grade uranium to make a nuclear bomb. Iran has always denied having such plans.
Olmert himself raised the possibility of an attack at a press conference during a visit to London last November, when he said sanctions were not enough to block Iran's nuclear programme.
"Economic sanctions are effective. They have an important impact already, but they are not sufficient. So there should be more. Up to where? Up until Iran will stop its nuclear programme," he said.
The revelation that Olmert was not merely sabre-rattling to try to frighten Iran but considered the option seriously enough to discuss it with Bush shows how concerned Israeli officials had become.
Bush's refusal to support an attack, and the strong suggestion he would not change his mind, is likely to end speculation that Washington might be preparing an "October surprise" before the US presidential election. Some analysts have argued that Bush would back an Israeli attack in an effort to help John McCain's campaign by creating an eve-of-poll security crisis.
Others have said that in the case of an Obama victory, the vice-president, Dick Cheney, the main White House hawk, would want to cripple Iran's nuclear programme in the dying weeks of Bush's term.
During Saddam Hussein's rule in 1981, Israeli aircraft successfully destroyed Iraq's nuclear reactor at Osirak shortly before it was due to start operating.
Last September they knocked out a buildings complex in northern Syria, which US officials later said had been a partly constructed nuclear reactor based on a North Korean design. Syria said the building was a military complex but had no links to a nuclear programme.
In contrast, Iran's nuclear facilities, which are officially described as intended only for civilian purposes, are dispersed around the country and some are in fortified bunkers underground.
In public, Bush gave no hint of his view that the military option had to be excluded. In a speech to the Knesset the following day he confined himself to telling Israel's parliament: "America stands with you in firmly opposing Iran's nuclear weapons ambitions. Permitting the world's leading sponsor of terror to possess the world's deadliest weapon would be an unforgivable betrayal of future generations. For the sake of peace, the world must not allow Iran to have a nuclear weapon.''
Mark Regev, Olmert's spokesman, tonight reacted to the Guardian's story saying: "The need to prevent Iran from obtaining nuclear weapons is raised at every meeting between the prime minister and foreign leaders. Israel prefers a diplomatic solution to this issue but all options must remain on the table. Your unnamed European source attributed words to the prime minister that were not spoken in any working meeting with foreign guests".
Three weeks after Bush's red light, on June 2, Israel mounted a massive air exercise covering several hundred miles in the eastern Mediterranean. It involved dozens of warplanes, including F-15s, F-16s and aerial refueling tankers.
The size and scope of the exercise ensured that the US and other nations in the region saw it, said a US official, who estimated the distance was about the same as from Israel to Natanz.
A few days later, Israel's deputy prime minister, Shaul Mofaz, told the paper Yediot Ahronot: "If Iran continues its programme to develop nuclear weapons, we will attack it. The window of opportunity has closed. The sanctions are not effective. There will be no alternative but to attack Iran in order to stop the Iranian nuclear programme."
The exercise and Mofaz's comments may have been designed to boost the Israeli government and military's own morale as well, perhaps, to persuade Bush to reconsider his veto. Last week Mofaz narrowly lost a primary within the ruling Kadima party to become Israel's next prime minister. Tzipi Livni, who won the contest, takes a less hawkish position.
The US announced two weeks ago that it would sell Israel 1,000 bunker-busting bombs. The move was interpreted by some analysts as a consolation prize for Israel after Bush told Olmert of his opposition to an attack on Iran. But it could also enhance Israel's attack options in case the next US president revives the military option.
The guided bomb unit-39 (GBU-39) has a penetration capacity equivalent to a one-tonne bomb. Israel already has some bunker-busters.
Iran nuclear map
Map showing nuclear activity in Iran
Friday, September 26, 2008
Six Years Inside Gitmo: A Journalist's Tale
TIME
9/26/08
Six Years Inside Gitmo: A Journalist's Tale
Vivienne Walt
Both John McCain and Barack Obama have said they would shut the U.S. military detention facility at Guantanamo Bay, where about 250 men remain behind bars — some in their eighth year of captivity. But neither presidential candidate has outlined when and how they plan to do it. One man ready to offer them some free advice on the problem of Guantánamo is Sami Al-Hajj, an al-Jazeera TV cameraman recently freed, without facing charges, after six and a half years at Guantánamo. "It's worse than the fire of Hell," he wrote two years ago from his cell to his British attorney, Clive Stafford Smith. "It makes people lose their senses. Death may come at any time."
Al-Hajj survived Guantánamo, although he wrote his son a farewell letter from the prison camp and says he nearly went insane. Like almost all of the approximately 770 detainees who have been held there, Al-Hajj — the only journalist known to have been detained at Guantánamo — never had the opportunity to answer charges against him in any legal proceeding. With no explanation, U.S. military officials last May flew him to his native Khartoum, and handed him over to Sudanese authorities. In footage that is still being watched on YouTube, Al-Hajj is shown collapsing into the arms of his eight-year-old son Mohamed — who was a 14-month-old baby when Al-Hajj was arrested — weeping and squeezing him silently after his release.
Although Al-Hajj is still trying to comprehend how his life was so drastically transformed, he says he believes he was targeted simply because he worked for Al Jazeera. "Ninety percent of my interrogations were about Al Jazeera," he told TIME earlier this month. "I was interrogated more than 200 times, even a few hours before my release. I kept telling them I was just a cameraman." Al-Hajj believes his arrest in Afghanistan was largely a result of bad timing. As the Taliban's control over Kandahar evaporated in December 2001, the Jazeera man joined dozens of other journalists attempting to enter Afghanistan from Pakistan. Pakistani border officials singled him out, he says, telling him there was a problem with his passport. But even when an intelligence officer arrived to take him away, the cameraman had little sense of danger — he felt sure his arrest was a mistake. He believes that U.S. officials had ordered the arrest of the al-Jazeera cameraman who had recorded the network's October 2001 interview with Osama Bin Laden. Al-Hajj's passport showed that he had been at home in Qatar that month, but he still disappeared into U.S. captivity. Seven months passed before Red Cross officials were able to deliver a letter to Al-Hajj's wife in Qatar — the first proof that her husband was alive. "I am in Guantánamo," the letter read. "I don't know why."
Al-Hajj penned thousands more words during years as Prisoner 345 —including accounts of being force-fed through a tube during months of a hunger strike; of being locked in a cage for two weeks with no toothbrush or soap, after guards found an iron nail outside his cell window; and of being placed in a single cell with no blanket or bed, after refusing to submit to vaccinations he had already received in Qatar. Asked to comment on these claims, U.S. Navy Commander Jeffrey D. Gordon on Wednesday told TIME that Al-Hajj had "routinely made baseless assertions that are simply not supported by the facts". Stafford-Smith, his attorney, says Al-Hajj's written communications were submitted to military censors before they were taken out of Guantánamo. They include testimony he claims to have collected from scores of other detainees. "I decided to benefit from the experience," Al-Hajj says. "I was a journalist. So I practiced journalism."
At one point Al-Hajj compiled a list of 64 detainees younger than 18, challenging U.S. claims that no juveniles were in Guantánamo. "Sami was remarkable; the guards liked him and would tell him all sorts of stuff," says Stafford-Smith, legal director of the British prisoner-rights organization Reprieve, and who still represents about 35 detainees in Guantánamo.
When the Supreme Court ruled 5-4 last June that Guantánamo's remaining prisoners are entitled to habeas corpus hearings to justify their detention, Guantánamo became an election issue. McCain called the ruling "one of the worst decisions in the history of this country", although he later said it was not as bad as he had first described. Obama, who has called for terror suspects to face trial in the U.S. justice system rather than in military tribunals, welcomed the ruling. Since then government attorneys have presented few habeas corpus documents to justify holding the suspects, saying more time was needed to assemble and vet the evidence. "That is quite unbelievable in my mind," says Emi MacLean, staff attorney for the Center for Constitutional Rights in New York, which coordinates most of the Guantánamo cases. "These are men they have held for more than six years." Most, says MacLean, are either citizens of countries with little standing in Washington, or refugees with nowhere else to go.
Months after his release, Al-Hajj still walks with a limp and the aid of a cane, because of injuries he says were incurred when he was pushed from a military helicopter blindfolded after his arrest in 2001. U.S. military officials say that claim has never been substantiated. Unable to work as a cameraman, he was recently assigned to a new human-rights department in Al-Jazeera's Qatar newsroom, which is to launch a weekly human-rights show in Arabic next month. Despite his years in captivity for, he believes, no good reason, Al-Hajj insists he holds no animus towards Americans. "So many Americans wrote to me in Guantánamo. And I have many American friends."
9/26/08
Six Years Inside Gitmo: A Journalist's Tale
Vivienne Walt
Both John McCain and Barack Obama have said they would shut the U.S. military detention facility at Guantanamo Bay, where about 250 men remain behind bars — some in their eighth year of captivity. But neither presidential candidate has outlined when and how they plan to do it. One man ready to offer them some free advice on the problem of Guantánamo is Sami Al-Hajj, an al-Jazeera TV cameraman recently freed, without facing charges, after six and a half years at Guantánamo. "It's worse than the fire of Hell," he wrote two years ago from his cell to his British attorney, Clive Stafford Smith. "It makes people lose their senses. Death may come at any time."
Al-Hajj survived Guantánamo, although he wrote his son a farewell letter from the prison camp and says he nearly went insane. Like almost all of the approximately 770 detainees who have been held there, Al-Hajj — the only journalist known to have been detained at Guantánamo — never had the opportunity to answer charges against him in any legal proceeding. With no explanation, U.S. military officials last May flew him to his native Khartoum, and handed him over to Sudanese authorities. In footage that is still being watched on YouTube, Al-Hajj is shown collapsing into the arms of his eight-year-old son Mohamed — who was a 14-month-old baby when Al-Hajj was arrested — weeping and squeezing him silently after his release.
Although Al-Hajj is still trying to comprehend how his life was so drastically transformed, he says he believes he was targeted simply because he worked for Al Jazeera. "Ninety percent of my interrogations were about Al Jazeera," he told TIME earlier this month. "I was interrogated more than 200 times, even a few hours before my release. I kept telling them I was just a cameraman." Al-Hajj believes his arrest in Afghanistan was largely a result of bad timing. As the Taliban's control over Kandahar evaporated in December 2001, the Jazeera man joined dozens of other journalists attempting to enter Afghanistan from Pakistan. Pakistani border officials singled him out, he says, telling him there was a problem with his passport. But even when an intelligence officer arrived to take him away, the cameraman had little sense of danger — he felt sure his arrest was a mistake. He believes that U.S. officials had ordered the arrest of the al-Jazeera cameraman who had recorded the network's October 2001 interview with Osama Bin Laden. Al-Hajj's passport showed that he had been at home in Qatar that month, but he still disappeared into U.S. captivity. Seven months passed before Red Cross officials were able to deliver a letter to Al-Hajj's wife in Qatar — the first proof that her husband was alive. "I am in Guantánamo," the letter read. "I don't know why."
Al-Hajj penned thousands more words during years as Prisoner 345 —including accounts of being force-fed through a tube during months of a hunger strike; of being locked in a cage for two weeks with no toothbrush or soap, after guards found an iron nail outside his cell window; and of being placed in a single cell with no blanket or bed, after refusing to submit to vaccinations he had already received in Qatar. Asked to comment on these claims, U.S. Navy Commander Jeffrey D. Gordon on Wednesday told TIME that Al-Hajj had "routinely made baseless assertions that are simply not supported by the facts". Stafford-Smith, his attorney, says Al-Hajj's written communications were submitted to military censors before they were taken out of Guantánamo. They include testimony he claims to have collected from scores of other detainees. "I decided to benefit from the experience," Al-Hajj says. "I was a journalist. So I practiced journalism."
At one point Al-Hajj compiled a list of 64 detainees younger than 18, challenging U.S. claims that no juveniles were in Guantánamo. "Sami was remarkable; the guards liked him and would tell him all sorts of stuff," says Stafford-Smith, legal director of the British prisoner-rights organization Reprieve, and who still represents about 35 detainees in Guantánamo.
When the Supreme Court ruled 5-4 last June that Guantánamo's remaining prisoners are entitled to habeas corpus hearings to justify their detention, Guantánamo became an election issue. McCain called the ruling "one of the worst decisions in the history of this country", although he later said it was not as bad as he had first described. Obama, who has called for terror suspects to face trial in the U.S. justice system rather than in military tribunals, welcomed the ruling. Since then government attorneys have presented few habeas corpus documents to justify holding the suspects, saying more time was needed to assemble and vet the evidence. "That is quite unbelievable in my mind," says Emi MacLean, staff attorney for the Center for Constitutional Rights in New York, which coordinates most of the Guantánamo cases. "These are men they have held for more than six years." Most, says MacLean, are either citizens of countries with little standing in Washington, or refugees with nowhere else to go.
Months after his release, Al-Hajj still walks with a limp and the aid of a cane, because of injuries he says were incurred when he was pushed from a military helicopter blindfolded after his arrest in 2001. U.S. military officials say that claim has never been substantiated. Unable to work as a cameraman, he was recently assigned to a new human-rights department in Al-Jazeera's Qatar newsroom, which is to launch a weekly human-rights show in Arabic next month. Despite his years in captivity for, he believes, no good reason, Al-Hajj insists he holds no animus towards Americans. "So many Americans wrote to me in Guantánamo. And I have many American friends."
The Islamization of East Jerusalem
CHRISTIAN SCIENCE MONITOR
9/26/08
The Islamization of East Jerusalem
In Arab East Jerusalem, Islamist groups are gaining more of a foothold through charity, such as free iftar meals during Ramadan, opening schools, and offering services.
Ilene R. Prusher
Jerusalem - Neat rows of white lay across the courtyard's stone floors like carpeting for an honor guard ready to receive a president or king.
Upon closer look, these lines are rolls of plastic tablecloth, and in minutes, workers will place hundreds of hot meals along the ground that will, when Yusuf Hamaze gives the signal, be paired with hungry people breaking the day's Ramadan fast.
"If you have kids, share yours with them!" Mr. Hamaze yells as scores of women rush into place to make sure they get meals of lamb and rice, pita, yogurt, and sweet dates.
"I eat here every day on Ramadan, because with the checkpoints, it would be impossible to get home anyway," says Imm Iyad, a woman who lives in Bethlehem, beyond the security barriers around Jerusalem, but spends her days in the Old City market, selling couscous to support her family. "I'm here because this is the only place I know where they do this," the mother shrugs. "All of the people who come here to eat are in need."
This phenomenon of serving free iftar, the meal that breaks the Ramadan fast, to the economically strapped – as well as those unable to get home to break the fast with family – is relatively new here. It comes at the munificence of several Islamic groups, but most notably, it's a project of Sheikh Raed Salah, the head of the Islamic Movement of the North, based in Umm el-Fahm, Israel.
To the growing numbers who appreciate and admire Sheikh Salah's work, he is not only providing a handout, but is also providing a framework for Palestinians and Israeli Arabs who feel the lack of leadership in Jerusalem.
To the Israeli authorities, however, Salah is a firebrand who inflames emotions, making repeated calls to Muslims that the Al Aqsa Mosque, the third-holiest site in Islam, is in danger. He's also adding, many say, to a growing Islamization of East Jerusalem.
Last month, Israeli security forces raided the offices of the Islamic Movement in Umm al-Fahm under suspicions that it was aiding Hamas. Dozens of police entered the offices of the Al Aqsa Heritage Institute, the new name of Salah's organization. They confiscated documents, computers, and close to $100,000 held in a safe, according to officials and news wires.
In August 2007, Salah was indicted for inciting racism and violence after he called for a "third intifada," or uprising, his response to an Israeli archaeological dig in the Old City that he says is endangering the foundations of the Al Aqsa Mosque.
Salah himself has been barred by Israel from coming to Jerusalem. But the reach of his organization continues to make an impact here, most prominently in the form of this iftar that feeds up to 5,000 people a day.
He is filling in where secular Palestinian leaders have left a vacuum, as other Islamic institutions have across East Jerusalem. There are a growing number of Islamic private schools, as well as a whole host of services provided by Muslim organizations to meet the many needs there.
In the past, this role was occupied by Faisal Husseini, who since the 1993 Oslo Accords was the Palestinian Authority's Minister for Jerusalem Affairs, based in East Jerusalem's Orient House. Mr. Husseini died in 2001, and during the height of the intifada, Israeli authorities shut the Orient House and did not allow it to reopen.
"East Jerusalemites are experiencing the worst situation economically, politically, and socially," says Rasem Abaidat, an East Jerusalem writer and activist. "In the 1980s we tried to adapt to the Israeli way of life. But this turned to disappointment that they felt during the late 80s and early '90s, in terms of house demolitions, imposing of heavy taxes along with lack of services, and this has made them realize that the Israeli occupation is not a fair ruler."
At the same time, he says, the Palestinian Authority headed by Yasser Arafat was incapable of assisting East Jerusalemites, in part because of the amorphousness of their situation. They hold Israeli-issued identity cards, but vote in elections for Palestinians.
"Arafat was not able to fill the vacuum. On the contrary, East Jerusalemites watched as the West Bank and Gaza got international help to flourish, while no one gave them any attention in terms of aid and funding," Mr. Abaidat continues. "Therefore their only hope was God."
Meanwhile, there have been disagreements over which Islamic Waqf, or religious body, controls Jerusalem's holy places. Both a Jordanian one and a Palestinian one claim to have ultimate authority over the Harem es-Sharif, or Noble Enclosure, which includes Al Aqsa and the Dome of the Rock.
"Sheikh Salah has managed to fill the vacuum left by the internal fighting between the Jordanian Waqf and Palestinian Waqf, and has succeeded in highlighting the conflict over the Al Aqsa Mosque locally, regionally, and internationally," he says.
The result, he says, is an increasing identification with an Islamic agenda. "The people of East Jerusalem have been swept into this wave of Islamicism and are enjoying the attention given to them by such activities."
The trend comes against a backdrop of an upswing in attacks on Israeli perpetrated by East Jerusalemites, who had not been particularly active in the midst of the last intifada. This week, a 19-year-old from East Jerusalem ran over a group of Israeli soldiers outside the Old City, injuring 17 of them before being shot to death. It was the third such attack since July.
Taher Ghbarieh, who works for Salah's organization in Umm el-Fahm, says he is worried about a flare-up in violence after a right-wing Jewish group opened a synagogue this week in the Muslim Quarter of the Old City.
"Our institution has been following up on this building and drilling under the synagogue, and we consider this latest situation as one of the most dangerous the Al Aqsa Mosque has been put in," says Mr. Ghbarieh. "This is the straw that breaks the camel's back. People are fed up with the way Israel is dealing with Palestinians."
9/26/08
The Islamization of East Jerusalem
In Arab East Jerusalem, Islamist groups are gaining more of a foothold through charity, such as free iftar meals during Ramadan, opening schools, and offering services.
Ilene R. Prusher
Jerusalem - Neat rows of white lay across the courtyard's stone floors like carpeting for an honor guard ready to receive a president or king.
Upon closer look, these lines are rolls of plastic tablecloth, and in minutes, workers will place hundreds of hot meals along the ground that will, when Yusuf Hamaze gives the signal, be paired with hungry people breaking the day's Ramadan fast.
"If you have kids, share yours with them!" Mr. Hamaze yells as scores of women rush into place to make sure they get meals of lamb and rice, pita, yogurt, and sweet dates.
"I eat here every day on Ramadan, because with the checkpoints, it would be impossible to get home anyway," says Imm Iyad, a woman who lives in Bethlehem, beyond the security barriers around Jerusalem, but spends her days in the Old City market, selling couscous to support her family. "I'm here because this is the only place I know where they do this," the mother shrugs. "All of the people who come here to eat are in need."
This phenomenon of serving free iftar, the meal that breaks the Ramadan fast, to the economically strapped – as well as those unable to get home to break the fast with family – is relatively new here. It comes at the munificence of several Islamic groups, but most notably, it's a project of Sheikh Raed Salah, the head of the Islamic Movement of the North, based in Umm el-Fahm, Israel.
To the growing numbers who appreciate and admire Sheikh Salah's work, he is not only providing a handout, but is also providing a framework for Palestinians and Israeli Arabs who feel the lack of leadership in Jerusalem.
To the Israeli authorities, however, Salah is a firebrand who inflames emotions, making repeated calls to Muslims that the Al Aqsa Mosque, the third-holiest site in Islam, is in danger. He's also adding, many say, to a growing Islamization of East Jerusalem.
Last month, Israeli security forces raided the offices of the Islamic Movement in Umm al-Fahm under suspicions that it was aiding Hamas. Dozens of police entered the offices of the Al Aqsa Heritage Institute, the new name of Salah's organization. They confiscated documents, computers, and close to $100,000 held in a safe, according to officials and news wires.
In August 2007, Salah was indicted for inciting racism and violence after he called for a "third intifada," or uprising, his response to an Israeli archaeological dig in the Old City that he says is endangering the foundations of the Al Aqsa Mosque.
Salah himself has been barred by Israel from coming to Jerusalem. But the reach of his organization continues to make an impact here, most prominently in the form of this iftar that feeds up to 5,000 people a day.
He is filling in where secular Palestinian leaders have left a vacuum, as other Islamic institutions have across East Jerusalem. There are a growing number of Islamic private schools, as well as a whole host of services provided by Muslim organizations to meet the many needs there.
In the past, this role was occupied by Faisal Husseini, who since the 1993 Oslo Accords was the Palestinian Authority's Minister for Jerusalem Affairs, based in East Jerusalem's Orient House. Mr. Husseini died in 2001, and during the height of the intifada, Israeli authorities shut the Orient House and did not allow it to reopen.
"East Jerusalemites are experiencing the worst situation economically, politically, and socially," says Rasem Abaidat, an East Jerusalem writer and activist. "In the 1980s we tried to adapt to the Israeli way of life. But this turned to disappointment that they felt during the late 80s and early '90s, in terms of house demolitions, imposing of heavy taxes along with lack of services, and this has made them realize that the Israeli occupation is not a fair ruler."
At the same time, he says, the Palestinian Authority headed by Yasser Arafat was incapable of assisting East Jerusalemites, in part because of the amorphousness of their situation. They hold Israeli-issued identity cards, but vote in elections for Palestinians.
"Arafat was not able to fill the vacuum. On the contrary, East Jerusalemites watched as the West Bank and Gaza got international help to flourish, while no one gave them any attention in terms of aid and funding," Mr. Abaidat continues. "Therefore their only hope was God."
Meanwhile, there have been disagreements over which Islamic Waqf, or religious body, controls Jerusalem's holy places. Both a Jordanian one and a Palestinian one claim to have ultimate authority over the Harem es-Sharif, or Noble Enclosure, which includes Al Aqsa and the Dome of the Rock.
"Sheikh Salah has managed to fill the vacuum left by the internal fighting between the Jordanian Waqf and Palestinian Waqf, and has succeeded in highlighting the conflict over the Al Aqsa Mosque locally, regionally, and internationally," he says.
The result, he says, is an increasing identification with an Islamic agenda. "The people of East Jerusalem have been swept into this wave of Islamicism and are enjoying the attention given to them by such activities."
The trend comes against a backdrop of an upswing in attacks on Israeli perpetrated by East Jerusalemites, who had not been particularly active in the midst of the last intifada. This week, a 19-year-old from East Jerusalem ran over a group of Israeli soldiers outside the Old City, injuring 17 of them before being shot to death. It was the third such attack since July.
Taher Ghbarieh, who works for Salah's organization in Umm el-Fahm, says he is worried about a flare-up in violence after a right-wing Jewish group opened a synagogue this week in the Muslim Quarter of the Old City.
"Our institution has been following up on this building and drilling under the synagogue, and we consider this latest situation as one of the most dangerous the Al Aqsa Mosque has been put in," says Mr. Ghbarieh. "This is the straw that breaks the camel's back. People are fed up with the way Israel is dealing with Palestinians."
Arabs slam Israel over settlement policy at UN meet
Department of pretty much unnoticed in the US press.... N.B. Bernard Kouchner's statement as well as that of the Saudi Foreign Minister. The two-state solution, not -- it appears -- highlighted in the rebuttal by Israel's ambassador, seems to be vanishing everywhere except in the minds of unreflective Americans and apologists for Israel.
AFP
9/26/06
Arabs slam Israel over settlement policy at UN meet
UNITED NATIONS (AFP) — Arab countries slammed Israel over its settlement expansion policy in the West Bank Friday during a UN Security Council debate held only hours before a ministerial session of the Middle East diplomatic Quartet.
"Settlement makes the creation of a viable Palestinian state impossible," Prince Saud al-Faisal said during the council debate.
"The only path to Israel's security is peace and it is time for Israel to understand that it cannot continue to exempt itself from behaving in accordance to international law," said the Saudi foreign minister, whose country formally called for the debate Monday.
The debate was taking place only hours before the Middle East diplomatic Quartet was due to hold a ministerial session here to review prospects for peace between Israelis and Palestinians in the wake of the US-sponsored Annapolis process launched last November.
In August, Israel approved construction of 400 new homes in a Jewish neighbourhood in annexed east Jerusalem and invited bids for construction of another 416 settler homes in the occupied West Bank.
The construction of settlements -- viewed as a major obstacle to reaching a peace deal -- has nearly doubled since 2007, despite Israel's pledge to freeze such activities, the Israeli watchdog Peace Now said last month.
Palestinian President Mahmud Abbas told the council Friday that the Israeli settlement blocs "will not allow for the emergence of a viable Palestinian state because they divide the West Bank into at least four cantons."
"How can I convince my people of the necessity of peace with Israel when settlement construction continues?" he added.
But Israel's new UN Ambassador Gabriela Shalev told council members that while the settlements are a "delicate issue," they "are not an obstacle to peace."
"They have been used here as another instrument to bash Israel instead of addressing the realities on the ground," she added.
"There is much that those in the region can do to support that (peace) process, but it is not about more UN meetings," Shalev said. "It is, first and foremost, about commitment to prepare the people of the region for the price of peace, to accept the true meaning of peace."
US Secretary of State Condoleezza Rice did not focus on the settlement issue in her remarks to the debate and instead urged Arab countries to "consider ways they might reach out to Israel."
She added that the Arab world needed to fully understand that "Israel belongs to the Middle East and will remain" in the Middle East.
French Foreign Minister Bernard Kouchner, whose country currently chairs the European Union, meanwhile restated the EU view that Israeli settlements, "wherever in the occupied Palestinian territories, are illegal under international law."
He added that settlement "harms the credibility of the process started in Annapolis and affects the viability of the future Palestinian state."
In Annapolis, Maryland last November, Israel and the Palestinians revived negotiations toward resolving core problems like the status of Jerusalem, the borders of a future Palestinian state and refugees.
The aid agencies said the Quartet -- the United States, the EU, Russia and the United Nations -- has failed to hold Israel to account for expanding settlements in the West Bank -- which the four powers oppose -- and had little impact on boosting freedom of movement for Palestinians.
Moreover, the "lack of progress on key goals" set by the Quartet called the group's entire approach into question, said a report from the coalition, which includes Oxfam, Save the Children, Christian Aid, CARE and CAFOD.
AFP
9/26/06
Arabs slam Israel over settlement policy at UN meet
UNITED NATIONS (AFP) — Arab countries slammed Israel over its settlement expansion policy in the West Bank Friday during a UN Security Council debate held only hours before a ministerial session of the Middle East diplomatic Quartet.
"Settlement makes the creation of a viable Palestinian state impossible," Prince Saud al-Faisal said during the council debate.
"The only path to Israel's security is peace and it is time for Israel to understand that it cannot continue to exempt itself from behaving in accordance to international law," said the Saudi foreign minister, whose country formally called for the debate Monday.
The debate was taking place only hours before the Middle East diplomatic Quartet was due to hold a ministerial session here to review prospects for peace between Israelis and Palestinians in the wake of the US-sponsored Annapolis process launched last November.
In August, Israel approved construction of 400 new homes in a Jewish neighbourhood in annexed east Jerusalem and invited bids for construction of another 416 settler homes in the occupied West Bank.
The construction of settlements -- viewed as a major obstacle to reaching a peace deal -- has nearly doubled since 2007, despite Israel's pledge to freeze such activities, the Israeli watchdog Peace Now said last month.
Palestinian President Mahmud Abbas told the council Friday that the Israeli settlement blocs "will not allow for the emergence of a viable Palestinian state because they divide the West Bank into at least four cantons."
"How can I convince my people of the necessity of peace with Israel when settlement construction continues?" he added.
But Israel's new UN Ambassador Gabriela Shalev told council members that while the settlements are a "delicate issue," they "are not an obstacle to peace."
"They have been used here as another instrument to bash Israel instead of addressing the realities on the ground," she added.
"There is much that those in the region can do to support that (peace) process, but it is not about more UN meetings," Shalev said. "It is, first and foremost, about commitment to prepare the people of the region for the price of peace, to accept the true meaning of peace."
US Secretary of State Condoleezza Rice did not focus on the settlement issue in her remarks to the debate and instead urged Arab countries to "consider ways they might reach out to Israel."
She added that the Arab world needed to fully understand that "Israel belongs to the Middle East and will remain" in the Middle East.
French Foreign Minister Bernard Kouchner, whose country currently chairs the European Union, meanwhile restated the EU view that Israeli settlements, "wherever in the occupied Palestinian territories, are illegal under international law."
He added that settlement "harms the credibility of the process started in Annapolis and affects the viability of the future Palestinian state."
In Annapolis, Maryland last November, Israel and the Palestinians revived negotiations toward resolving core problems like the status of Jerusalem, the borders of a future Palestinian state and refugees.
The aid agencies said the Quartet -- the United States, the EU, Russia and the United Nations -- has failed to hold Israel to account for expanding settlements in the West Bank -- which the four powers oppose -- and had little impact on boosting freedom of movement for Palestinians.
Moreover, the "lack of progress on key goals" set by the Quartet called the group's entire approach into question, said a report from the coalition, which includes Oxfam, Save the Children, Christian Aid, CARE and CAFOD.
US 'will lose financial superpower status' By Bertrand Benoit in Berlin
FT.com logo
US 'will lose financial superpower status'
By Bertrand Benoit in Berlin
Published: September 25 2008 11:55 | Last updated: September 25 2008 20:28
The US will lose its role as a global financial "superpower" in the wake of the financial crisis, Peer Steinbrück, the German finance minister, said on Thursday, blaming Washington for failing to take the regulatory steps that might have averted the crisis.
"The US will lose its status as the superpower of the world financial system. This world will become multipolar" with the emergence of stronger, better capitalised centres in Asia and Europe, Mr Steinbrück told the German parliament. "The world will never be the same again."
His were the most outspoken comments by a senior European government figure since Wall Street fell into chaos two weeks ago.
He later told journalists: "When we look back 10 years from now, we will see 2008 as a fundamental rupture. I am not saying the dollar will lose its reserve currency status, but it will become relative."
The minister, who has spearheaded German efforts to rein in financial markets in the past two years, attacked the US government for opposing stricter regulations even after the subprime crisis had broken out last summer.
The US notion that markets should remain as free as possible from regulatory shackles "was as simplistic as it was dangerous", he said.
But Mr Steinbrück had warm words for the US's crisis management in the past fortnight, including the government's planned $700bn rescue package for the financial sector. Washington, he said, had earned credit for acting not just in the US interest but also in the interest of other nations.
Yet he repeated Germany's refusal to mount a similar rescue operation using taxpayers' money to acquire toxic assets. "This crisis originated in the US and is mainly hitting the US," he said. In Europe and Germany, such a package would be "neither sensible nor necessary".
The US, Mr Steinbrück said, had failed in its oversight of investment banks, adding that the crisis was an indictment of the US two-tier banking system and its "weak, divided financial oversight".
He blamed Washington for refusing to consider proposals Berlin had made as it chaired the Group of Eight industrial nations last year. These proposals, he said, "elicited mockery at best or were seen as a typical example of Germans' penchant for over-regulation".
His comments followed calls this week by Nicolas Sarkozy, the French president and current holder of the European Union presidency, for an emergency G8 meeting on the crisis.
Mr Steinbrück's proposals include a ban on "purely speculative short selling"; a crackdown on variable pay for bank managers, which had encouraged reckless risk-taking; a ban on banks securitising more than 80 per cent of the debt they hold; international standards making bank managers personally responsible for the consequences of their trades; and increased co-operation between European supervisors.
Following a meeting with Christine Lagarde, his French counterpart, in Berlin, he said France and Germany would set up a working group of treasury, central bank and supervisory authority officials that would consider tougher regulation of short selling.
Copyright The Financial Times Limited 2008
"FT" and "Financial Times" are trademarks of the Financial Times. Privacy policy | Terms
© Copyright The Financial Times Ltd 2008.
US 'will lose financial superpower status'
By Bertrand Benoit in Berlin
Published: September 25 2008 11:55 | Last updated: September 25 2008 20:28
The US will lose its role as a global financial "superpower" in the wake of the financial crisis, Peer Steinbrück, the German finance minister, said on Thursday, blaming Washington for failing to take the regulatory steps that might have averted the crisis.
"The US will lose its status as the superpower of the world financial system. This world will become multipolar" with the emergence of stronger, better capitalised centres in Asia and Europe, Mr Steinbrück told the German parliament. "The world will never be the same again."
His were the most outspoken comments by a senior European government figure since Wall Street fell into chaos two weeks ago.
He later told journalists: "When we look back 10 years from now, we will see 2008 as a fundamental rupture. I am not saying the dollar will lose its reserve currency status, but it will become relative."
The minister, who has spearheaded German efforts to rein in financial markets in the past two years, attacked the US government for opposing stricter regulations even after the subprime crisis had broken out last summer.
The US notion that markets should remain as free as possible from regulatory shackles "was as simplistic as it was dangerous", he said.
But Mr Steinbrück had warm words for the US's crisis management in the past fortnight, including the government's planned $700bn rescue package for the financial sector. Washington, he said, had earned credit for acting not just in the US interest but also in the interest of other nations.
Yet he repeated Germany's refusal to mount a similar rescue operation using taxpayers' money to acquire toxic assets. "This crisis originated in the US and is mainly hitting the US," he said. In Europe and Germany, such a package would be "neither sensible nor necessary".
The US, Mr Steinbrück said, had failed in its oversight of investment banks, adding that the crisis was an indictment of the US two-tier banking system and its "weak, divided financial oversight".
He blamed Washington for refusing to consider proposals Berlin had made as it chaired the Group of Eight industrial nations last year. These proposals, he said, "elicited mockery at best or were seen as a typical example of Germans' penchant for over-regulation".
His comments followed calls this week by Nicolas Sarkozy, the French president and current holder of the European Union presidency, for an emergency G8 meeting on the crisis.
Mr Steinbrück's proposals include a ban on "purely speculative short selling"; a crackdown on variable pay for bank managers, which had encouraged reckless risk-taking; a ban on banks securitising more than 80 per cent of the debt they hold; international standards making bank managers personally responsible for the consequences of their trades; and increased co-operation between European supervisors.
Following a meeting with Christine Lagarde, his French counterpart, in Berlin, he said France and Germany would set up a working group of treasury, central bank and supervisory authority officials that would consider tougher regulation of short selling.
Copyright The Financial Times Limited 2008
"FT" and "Financial Times" are trademarks of the Financial Times. Privacy policy | Terms
© Copyright The Financial Times Ltd 2008.
Welcome to chaos: Arab nations hit hard as world markets crash By Zvi Bar'el, Haaretz Correspondent
Welcome to chaos: Arab nations hit hard as world markets crash
By Zvi Bar'el, Haaretz Correspondent
The long tables set every evening at the entrance of Cairo's Khal el-Khalili bazaar are a traditional sight. They represent efforts by the Egyptian government, the city of Cairo and charitable organizations to feed hundreds of residents who lack the means to buy the basic foodstuffs for Iftar, the meal that breaks the daylong fast during the Ramadan holy month. Although this gesture is not enough to satisfy the millions of Egyptians who earn less than $1 a day, it does create the feeling that the state "is at least doing one good thing for the country's poor," as one worker who was organizing the tables told me in Cairo.
These very tables are also the center of a political struggle between the government and the Muslim Brotherhood. This year, for example, the government prohibited the Islamic organization from holding its annual collective holiday meal and separate public meals in the poor neighborhoods.
To undercut the Muslim Brothers' allegations concerning the government's poor economic performance - the government is blamed for the steep rise in the prices of basic commodities - the minister of economic development, Osman Mohamed Osman, has issued a new report on Egypt's economic situation. The report does not specify how many Egyptians are living below the poverty line, noting only that their number has decreased by half; the proportion of people earning less than $2 a day is said to be 43 percent of the population - some 38 million people. A year ago, the minister explained that anyone who earns $2 a day cannot be considered poor. Realizing that this explanation will no longer do, he has now declared that the government hopes the country will reach a poverty level of 10 percent by 2011.
Advertisement
A few streets away from the tables in the bazaar, at the Cairo Stock Exchange, the poverty data are of no interest: The Egyptian stock market plummeted 10 percent in two days, and foreign investors withdrew hundreds of millions of dollars. "The state's roulette table is collapsing," a small investor was quoted as saying in the newspaper Al-Masri al-Yum. "This is the end of capitalism. Welcome to chaos."
The Egyptian pound has also fallen to its lowest level in half a year, and inflation has soared to 26.5 percent. The economic development minister's forecast of diminished poverty levels receded further into the distance, and the plan to privatize government companies, as a measure to improve the economy, has become a fantasy.
"When potential foreign investors see their capital evaporate in Western stock markets, the last thing they will want is to buy a failing factory in Helwan," says a journalist in the economic section of the daily Al-Ahram.
Jordan: 'The money's gone'
A Jordanian who returned to Amman this week related, in a phone call, that when he arrived at Queen Alia International Airport, he was informed that his investment broker had been arrested and that the fate of the money deposited with him was unclear: "The government may indict him, but how will that help me? Jordan is not Dubai or Saudi Arabia, and certainly not Washington, which can immediately inject billions into the market to allay fears. Here, if your investment broker is arrested, the money is gone."
This week, the Al-Arabiya network reported that indictments had been filed against 46 Jordanian companies traded on the stock market. The companies' owners will be tried before a special court for security offenses, as their actions are considered harmful to the national economy. If convicted, they face prison terms of up to 15 years. Now it turns out that these companies provided potential clients with false profit forecasts, and also broadcast fake presentations on TV screens about the stocks they recommended.
Thousands of investors filed complaints with the general prosecutor in Jordan, but are unlikely to recoup their funds, which are estimated to total half a billion Jordanian dinars.
The Gulf: Good times
Less concerned about the global market plunge are the Gulf states, which raked in a fortune from the rise in oil prices and created vast monetary reserves that allowed their governments to inject funds into their financial markets to stabilize them. This week, for example, the central bank of the United Arab Emirates (UAE) announced that it would transfer about $14 billion to the country's banks and financial institutions as a loan taken in extraordinary conditions, so they can maintain liquidity at a desirable level. The central bank is considering lowering the liquidity level from the current rate of 14 percent, and it will also buy bonds from the banks.
As was the case throughout the Arab world, foreign investors yanked capital out of the Gulf states immediately after the markets began to crash. The Gulf banks, which are underwriting colossal building projects in those countries, would have faced a real disaster if clients had demanded their money. Thus, after investing $7.5 billion last November to save Citigroup, the Dubai Development and Investment Authority had to repeat the move - this time to save the country's banks.
However, beyond the stability of the banks in the Gulf states and the inhabitants' certain knowledge that the state will not allow the banks to collapse - mainly because most of them are owned by the ruling families and their cronies - people in the Gulf are starting to worry that the big bubble is liable to burst in their faces. Their concern is specifically for the real-estate bubble, which attracted big investors primarily to the UAE, and more recently to Qatar and Kuwait. With all the luxury towers, the neighborhoods of seaside villas, the office buildings designed by the world's leading architects - local economists now think that the real-estate market has reached the saturation point and that a shift to different fields, notably industry, is desirable.
According to a report issued this week by the Gulf Organization for Industrial Consulting in Dubai, Gulf oil companies and governments indeed intend to divert a larger portion of their profits from petroleum to industry. Already now there are more than 12,000 industrial plants in the Gulf states, which employ about a million people. The plan is to expand the industrial sector by dozens of percent. Industrial growth demands knowhow and professional training along with long-term financing, which does not promise the quick profits that big investors became accustomed to in real estate.
The economic lesson from the fall of the stock markets will compel these countries to undergo a cultural transformation that will posit work in industry as valuable, and educate toward the nationalization of labor and its removal from the hands of foreign workers.
Every so often the Gulf governments launch campaigns to get rid of the latter by toughening the terms for importing them from Asian countries. Recently, the UAE prohibited the rental of villas to bachelors or foreign workers. These campaigns have not produced concrete results, because in the end someone has to build the huge towers and the villas - which is the kind of work the citizens of the Gulf states don't like to do.
In fact, Gulf residents are probably not very upset about these macro-economic analyses. Because when the state ensures the banks against collapse, and when the oil continues to flow, other areas are open to investment. For example, while the political squabbling over the public meals during Ramadan continues in Egypt, the Gulf states imported 119 million tons of food products, and that was only during the first half of Ramadan. Where did all that food go? Much was donated to other countries, a little went for domestic consumption. The good times in the Gulf are continuing, and worried eyes are turned to Washington, which may launch a war against Iran and put an end to the good life.
Related articles:
# Washington Mutual collapses in biggest bank failure in U.S. history
# Bank of Israel chief holds emergency talks over global financial crisis
# HExperts: Israel heading for economic crisis in 2009
http://www.haaretz.com/hasen/spages/1024568.html
By Zvi Bar'el, Haaretz Correspondent
The long tables set every evening at the entrance of Cairo's Khal el-Khalili bazaar are a traditional sight. They represent efforts by the Egyptian government, the city of Cairo and charitable organizations to feed hundreds of residents who lack the means to buy the basic foodstuffs for Iftar, the meal that breaks the daylong fast during the Ramadan holy month. Although this gesture is not enough to satisfy the millions of Egyptians who earn less than $1 a day, it does create the feeling that the state "is at least doing one good thing for the country's poor," as one worker who was organizing the tables told me in Cairo.
These very tables are also the center of a political struggle between the government and the Muslim Brotherhood. This year, for example, the government prohibited the Islamic organization from holding its annual collective holiday meal and separate public meals in the poor neighborhoods.
To undercut the Muslim Brothers' allegations concerning the government's poor economic performance - the government is blamed for the steep rise in the prices of basic commodities - the minister of economic development, Osman Mohamed Osman, has issued a new report on Egypt's economic situation. The report does not specify how many Egyptians are living below the poverty line, noting only that their number has decreased by half; the proportion of people earning less than $2 a day is said to be 43 percent of the population - some 38 million people. A year ago, the minister explained that anyone who earns $2 a day cannot be considered poor. Realizing that this explanation will no longer do, he has now declared that the government hopes the country will reach a poverty level of 10 percent by 2011.
Advertisement
A few streets away from the tables in the bazaar, at the Cairo Stock Exchange, the poverty data are of no interest: The Egyptian stock market plummeted 10 percent in two days, and foreign investors withdrew hundreds of millions of dollars. "The state's roulette table is collapsing," a small investor was quoted as saying in the newspaper Al-Masri al-Yum. "This is the end of capitalism. Welcome to chaos."
The Egyptian pound has also fallen to its lowest level in half a year, and inflation has soared to 26.5 percent. The economic development minister's forecast of diminished poverty levels receded further into the distance, and the plan to privatize government companies, as a measure to improve the economy, has become a fantasy.
"When potential foreign investors see their capital evaporate in Western stock markets, the last thing they will want is to buy a failing factory in Helwan," says a journalist in the economic section of the daily Al-Ahram.
Jordan: 'The money's gone'
A Jordanian who returned to Amman this week related, in a phone call, that when he arrived at Queen Alia International Airport, he was informed that his investment broker had been arrested and that the fate of the money deposited with him was unclear: "The government may indict him, but how will that help me? Jordan is not Dubai or Saudi Arabia, and certainly not Washington, which can immediately inject billions into the market to allay fears. Here, if your investment broker is arrested, the money is gone."
This week, the Al-Arabiya network reported that indictments had been filed against 46 Jordanian companies traded on the stock market. The companies' owners will be tried before a special court for security offenses, as their actions are considered harmful to the national economy. If convicted, they face prison terms of up to 15 years. Now it turns out that these companies provided potential clients with false profit forecasts, and also broadcast fake presentations on TV screens about the stocks they recommended.
Thousands of investors filed complaints with the general prosecutor in Jordan, but are unlikely to recoup their funds, which are estimated to total half a billion Jordanian dinars.
The Gulf: Good times
Less concerned about the global market plunge are the Gulf states, which raked in a fortune from the rise in oil prices and created vast monetary reserves that allowed their governments to inject funds into their financial markets to stabilize them. This week, for example, the central bank of the United Arab Emirates (UAE) announced that it would transfer about $14 billion to the country's banks and financial institutions as a loan taken in extraordinary conditions, so they can maintain liquidity at a desirable level. The central bank is considering lowering the liquidity level from the current rate of 14 percent, and it will also buy bonds from the banks.
As was the case throughout the Arab world, foreign investors yanked capital out of the Gulf states immediately after the markets began to crash. The Gulf banks, which are underwriting colossal building projects in those countries, would have faced a real disaster if clients had demanded their money. Thus, after investing $7.5 billion last November to save Citigroup, the Dubai Development and Investment Authority had to repeat the move - this time to save the country's banks.
However, beyond the stability of the banks in the Gulf states and the inhabitants' certain knowledge that the state will not allow the banks to collapse - mainly because most of them are owned by the ruling families and their cronies - people in the Gulf are starting to worry that the big bubble is liable to burst in their faces. Their concern is specifically for the real-estate bubble, which attracted big investors primarily to the UAE, and more recently to Qatar and Kuwait. With all the luxury towers, the neighborhoods of seaside villas, the office buildings designed by the world's leading architects - local economists now think that the real-estate market has reached the saturation point and that a shift to different fields, notably industry, is desirable.
According to a report issued this week by the Gulf Organization for Industrial Consulting in Dubai, Gulf oil companies and governments indeed intend to divert a larger portion of their profits from petroleum to industry. Already now there are more than 12,000 industrial plants in the Gulf states, which employ about a million people. The plan is to expand the industrial sector by dozens of percent. Industrial growth demands knowhow and professional training along with long-term financing, which does not promise the quick profits that big investors became accustomed to in real estate.
The economic lesson from the fall of the stock markets will compel these countries to undergo a cultural transformation that will posit work in industry as valuable, and educate toward the nationalization of labor and its removal from the hands of foreign workers.
Every so often the Gulf governments launch campaigns to get rid of the latter by toughening the terms for importing them from Asian countries. Recently, the UAE prohibited the rental of villas to bachelors or foreign workers. These campaigns have not produced concrete results, because in the end someone has to build the huge towers and the villas - which is the kind of work the citizens of the Gulf states don't like to do.
In fact, Gulf residents are probably not very upset about these macro-economic analyses. Because when the state ensures the banks against collapse, and when the oil continues to flow, other areas are open to investment. For example, while the political squabbling over the public meals during Ramadan continues in Egypt, the Gulf states imported 119 million tons of food products, and that was only during the first half of Ramadan. Where did all that food go? Much was donated to other countries, a little went for domestic consumption. The good times in the Gulf are continuing, and worried eyes are turned to Washington, which may launch a war against Iran and put an end to the good life.
Related articles:
# Washington Mutual collapses in biggest bank failure in U.S. history
# Bank of Israel chief holds emergency talks over global financial crisis
# HExperts: Israel heading for economic crisis in 2009
http://www.haaretz.com/hasen/spages/1024568.html
Thursday, September 25, 2008
The Big Bank Job The Insanity of the $700 Billion Giveaway By MICHAEL HUDSON
http://www.counterpunch.org/hudson09252008.html
The Big Bank Job
The Insanity of the $700 Billion Giveaway
By MICHAEL HUDSON
The banksters’ plan now is for icing on the cake – to take Mr. Paulson’s $700 billion and run. It’s not a “bailout of the financial system.” It’s as giveaway – to insiders, to sell out all their bad bets. Companies across the board will get rid of their bad mortgages, and also their bad car loans, furniture time payments, credit-card loans, student loans – all the debts that any competent actuary could have told them never could have been paid in the first place.
This is not what Treasury Secretary Paulson is acknowledging, and shame on him for it. Last Friday, Sept., he was joined by Fed Chairman Ben Bernanke singing in unison an advertising jingle for America’s new kleptocracy that rings so false that Congress and the American public must hear the off-notes. London’s Financial Times, as well as a host of Europeans realize it. That is what has been driving the dollar’s exchange rate this week. It seems easier for foreigners to recognize the threat to turn American democracy into a rapacious kleptocracy.
This change always is sudden, arranged under emergency conditions. Those with a 12-year memory will see George Bush as playing the role of Boris Yeltsin in Russia in 1996, paying off his campaign contributors by giving them all the economic surplus that the government could expropriate in the notorious “loans for shares” plan applauded and supported by Clinton Treasury Secretary (and current Obama advisor) Robert Rubin. (The moral: do we have a Putin in our near future to lock in the anti-democratic coup?)
How ironic all this is! Back in the 1970s there was theorizing that the Russian and American economies were converging. The idea was that both were moving toward more centralized state control, state financing, state subsidy, and a military-industrial complex. Nobody expected the convergence to occur Yeltsin-style in government giveaways to insiders to create a new group of financial billionaires – the “seven bankers” under Yeltsin in 1996, and Mr. Paulson’s Crony Capitalist gang today.
Let’s look at the euphemisms as an exercise in doublethink. Mr. Paulson defended his “troubled asset relief program” (TARP) by claiming that “illiquid mortgage assets … have lost value … choking off the flow of credit that is so vitally important to our economy.” The credit that is “so vitally important” has taken the form of bad loans. Contra Mr. Paulson’s pretense, the problem is not that they are “illiquid.” If that were the problem, it would be merely temporary. The Federal Reserve banks are designed to provide liquidity – on good collateral, of course.
As Financial Times columnist Martin Wolf noted on Wednesday, Sept. 24, the problem is that the face value of mortgage loans and a raft of other bad loans far exceeds current market prices or prices that are likely to be realized this year, next year or the year after that. They are packaged into what the financial press rightly calls “toxic.” The bailout is not efficient, he writes, “because it can only deal with insolvency by buying bad assets at far above their true value, thereby guaranteeing big losses for taxpayers and providing an open-ended bail-out to the most irresponsible investors.” “The simplest way to recapitalize institutions,” He concludes, is “by forcing them to raise equity and halt dividends. If that did not work, there could be forced conversions of debt into equity. The attraction of debt-equity swaps is that they would create losses for creditors, which are essential for the long-run health of any financial system.” This is the key: if debts cannot be paid, then creditors must take losses.
These bad loans are toxic because they can only be sold at a loss – if at all, because foreign investors no longer trust the U.S. investment bankers or money managers to be honest. That is the problem that Congress is not willing to come out and face. Many of these loans are outright fraudulent. And they are being sold by crooks. Crooks who work for banks. Crooks who use accounting fraud – such as the fraud that led to the firing of Maurice Greenberg at A.I.G. and his counterparts at Fannie Mae, Freddie Mac and other companies engaging in Enron-type accounting.
This is not what the magic of compound interest promised. But it is where it had to end up, with mathematical inevitability. It was an advertising come-on for Wall Street money managers and promoters of “pension-fund capitalism” (or “peoples’ capitalism” as it was called in Chile by the Chicago Boys working for General Pinochet’s murderous regime, and Margaret Thatcher’s Conservatives in England). The promise is that if people consign these funds to individuals who make much, much more than they do but have the survival-of-the-fittest advantage of being much, much more greedy, they will receive a perpetual doubling of interest. That is how retirements for American workers are still supposed to be paid – by magic, not by direct investment. Prospective retirees are supposed to ensure a good life by investing savings in loans to corporate raiders who fire, lay off, downsize and outsource these very workers. The trick is to persuade employees to hand retirement funding over to financial managers whose idea was to make money off the economy by extracting interest and dividends off workers, homeowners and companies being bought on debt leverage. In the final analysis it is debt leverage by itself that is supposed to fuel capital gains.
This has led to madness. The maddest solution of all would be for the government to give the extractive financial sector even more money – funds that no private lenders have been willing to provide, not even vulture funds. No private firm has been able to discover what Mr. Paulson and the unfortunate Mr. Bernanke are sanctimoniously promising: that a viable deal, even an almost money-making one, can be made by buying junk now and waiting for “the economy” to make it good.
Just what is “the economy” that is supposed to perform this remarkable feat, if not its mortgage debtors and corporate debtors? The government is to do what law enforcement officials have moved to prevent Countrywide Financial and other predatory lenders from doing: squeezing exploding Adjustable Rate Mortgages and “negative equity” mortgages out of debtors, on terms that often were bait-and-switch to begin with. Private companies could be challenged and their array of penalty fees thrown out of court. But perhaps Congress can craft a law imposing these harsh terms on voters. It is not as if we live in a system where people vote their self-interest.
Promises that “taxpayers” will be able to recover a large part of this money are a fiction. If there were a hope of recovering this money, then investors abroad – foreign buyout funds, foreign banks, foreign sovereign wealth funds – would have been willing to buy Bear Stearns, Lehman Brothers, A.I.G. and other companies at some price. But they wouldn’t touch this at any price.
Why then should the U.S. Treasury pay three times as much as the Iraq War for money that will end up being lost after paying off the gamblers from their own bad bets. These are the bankers who already have placed all the risk onto their clients and, by lobbying to rewrite the bankruptcy laws, onto debtors. As matters now stand, the $700 billion is to be used to finance this year’s annual bonuses, this year’s million-dollar salaries and sales commission, and to contribute yet more to the retirement funds for the golden parachutes that financial managers have siphoned off to provide a safety net for themselves. So we are back to the basic motto these days: “You only have to make a fortune once in a lifetime.” Now is the time to make these fortunes as big as they’re going to get. Because it’s all down hill from here.
Why the banks won’t lend
Here’s why the government giveaway logic is fallacious: It’s a giveaway, not a bailout. A bailout is designed to keep the boat afloat. But the existing Wall Street boat crafted by the investment bankers seeking to unload their junk must sink. The question as it sinks is simply who will be able to grab the lifeboats, and who drowns.
There is a reason why the banks won’t lend: Housing and commercial real estate already are so heavily mortgaged that there is no rental value available (over and above operating expenses, current taxes and debt service) to pledge to the banks. It still costs more to buy a house than to rent it. No increase in the amount of credit, short of hyper-inflation can cure this. No lowering of interest rate, will lead banks to risk making a bad new loan – that is, a loan that probably will go bad and end up with the bank taking a loss after the borrower walks away or defaults.
Does Congress know what it is being told to do? Suppose that “taxpayers” are to squeeze money out of the “toxic” junk mortgages they buy from the investors that have bought these bad loans. The only way to do so would be for real estate prices to be raised to even higher levels. This means an even higher proportion of take-home pay by prospective homeowners.
Mr. Paulson realizes this. That’s why he’s directed Fannie Mae and Freddie Mac to inflate real estate prices all the more. At least, by the existing mortgage-holders to get paid off by existing debtors selling to the proverbial “greater fool.” The hope in Mr. Paulson’s plan is that there are enough “greater fools” with enough money to borrow from yet more foolish new mortgage lenders. Only Fannie Mae, Freddie Mac and the Federal Housing Agency are willing to make such foolish loans, and that is only because they are being directed to act in a foolish way by Mr. Paulson.
Here’s the problem with following Mr. Paulson’s orders and lending yet more: Every major real estate advisor on record has forecast a further drop of between 20 to 30 percent in property prices over the coming twelve months. This is now the standard forecast. It means that over and above the five million arrears and foreclosures that Mr. Paulson acknowledged already are on the books, yet more families are to give up the fight by this time next year. Is the $700 billion giveaway fund to try and recoup by evicting them too from their houses – to pay the “taxpayer” enough to bail out Countrywide, Washington Mutual and other predatory lenders for loans that state Attorneys General have accused of being fraudulent?
For the government to even begin to recover some of the value of the $700 billion in junk mortgages it has bought would force new homebuyers to pay even more of their income to the banks. And if they do that, they will have less income to spend on goods and services. The domestic market will shrink, and tax revenues will fall at the state, local and federal levels. The debt overhead will deflate the economy, causing shrinkage all down the line.
So here’s where the cognitive dissonance comes in: It is necessary, even inevitable, for the volume of debt to come down – not up – to restore equilibrium. The economy was well on its way to preparing the ground for this last week. As Alan Meltzer of the American Enterprise Institute (of all places!) explained on McNeill-Lehrer, Merrill Lynch was able to be sold at 22 cents on the dollar; and the economy survived Lehman Brothers and Bear Stearns being wiped out.
Such debt writes-offs are a precondition for writing down America’s mortgage debts to levels that are affordable. But Mr. Paulson’s plan is to fight against this tide. He wants the Wall Street to keep on raking in money at the expense of the economy at large. These are the big banks who lobbied Congress to appoint de-regulators, the banks whose officers paid themselves enormous bonuses and gave themselves enormous golden parachutes. They were the leaders in the great disinformation campaign about the magic of compound interest. And now they are to get their payoff.
The pretense is that not to pay them off would threaten “the economy.” The reality is that it only would stop their predatory behavior. Worse than that, for the economy at large a government take-over of these bad loans would prevent the debt write-down that the economy needs!
It gets worse. If Congress should be so destructive as to buy out $700 billion of bad loans (for starters), the sellers will do just what Russia’s kleptocrats did. They will take their money and move it abroad to a “hard” currency country. This will help collapse the dollar. Up will go gasoline costs and prices for other imports. America will be turned into a Russian-style post-Soviet economy, having endowed a new domestic kleptocracy of insiders, who use some of their gains to finance the campaigns of American Yeltsins such as McCain.
So let us admit that the economy has been taking a wrong track for a number of decades now. As John Kay noted : “When the dust settles, many banks and hedge funds will have lost more money on their trading activities in the past year or so than they had made in their entire history … The pursuit of shareholder value damaged both shareholder value and the business.”
I worry that Wednesday’s jump in the Dow Jones average signals that the big betters have decided that there is a good chance of the vast giveaway going through. The Republican protests seem to me to aim not so much at really stopping the measure, but on going on record that they opposed it – before they voted for it. When the public wakes up to the great giveaway, the Republicans can say, “It was a Democratic Congress that did it, not us. Read our anguished protests.” Everyone is trying to cover themselves. With good reason.
Don’t let them speak on behalf of voters and then act against the economy, claiming that they are trying to save it. A giveaway of unprecedented magnitude would cripple it for as far as the eye can see.
We have reached the point where it may finally be able to break through the membrane of cognitive dissonance that has been blinded people. The very first course in economics –starting in high school, followed up in college and then refined in graduate school – should explain to students why it is false to believe the advertisement that Wall Street has been trying to sell for the past half century: The deceptive promise that an economy can get rich off the mathematical “magic of compound interest.”
The unreality of this promise should be immediately apparent by looking at the math of exponential growth. Already at the time of the American Revolution, financial economists were popularizing the contrast that Malthus soon would imitate in his population theory: Debts grow at “geometric” rates, while the economy itself grows only “arithmetically,” in a slower and more linear way.
All that is needed is to put this idea together with the basic balance-sheet definition: One person’s savings are lent out to become other peoples’ debts. So the “magic of compound” interest to savers means an equal “magic of exploding debt” to somewhere else in the economy. And inasmuch as creditors insist on protecting themselves from inevitable default by possessing collateral, it is natural that most of the economy’s debts are owed on its largest asset: land and buildings. This explains why mortgage debts have become repayable and “gone toxic.”
The “magic of compound interest” refers to the tendency of savings to double and redouble exponentially, with a matching rise in what debtors owe on the other side of the balance sheet. These mathematics have been operated throughout history, ever since the charging of interest was invented in Sumer some time around 2750 BC. In every known society, the effect has been to concentrate wealth in the hands of people with money. In recent years, one’s own money is not even necessary to do this. The power to indebt others to oneself can be achieved by free credit creation. However, the resulting mushrooming exponential growth in indebtedness must collapse at the point where its interest and other carrying charges (now augmented by exorbitant late fees, bounced-check fees, credit-card costs and other penalties) absorb the entire economic surplus.
This is the point that has been reached – and passed – today. It has been developing for many decades. But there is a great reluctance to accept the fact that debts cannot be paid. “The poor are honest,” as one banker explained to me, and believe that “a debt is a debt” and must be paid. (This is not what Donald Trump, Bear Stearns or A.I.G. believe, but they are at the top of the economic pyramid, not its base.)
Numerous publishers turning down my proposed books on the subject over the years. As they have explained to me: “Nobody wants to read how the bubble will break – at least, not until after it bursts. Can’t you write a book on how you can make a million dollars off the coming economic collapse? That would be a winner, Prof. Hudson. But to tell people that they can’t put aside savings and pay for their retirement ‘in their sleep’ is like telling them that they will have bad sex after the age of 50. It’s a no-seller. Come back when you have good news.”
These are the words I’ve been hearing since the mid-1980s. I’ve spent much of my time looking through history to read up on how the failure to wipe out the debt overhead led to the collapse of Rome’s imperial republic, and to the Ottoman Empire as what was known as “the spoiling of Egypt” and “the ruin of Persia” toward the end of the 19th century. I’ve also published a series of four colloquia by assyriologists and archaeologists describing how earlier, from about 2500 to perhaps 300 BC, Babylonian and other Near Eastern rulers kept their citizens free and preserved their landholdings by annulling personal and agrarian debts when they took the throne – a true “tax holiday” – or when economic or military conditions warranted a general Clean Slate. (The series was funded and published by Harvard’s Peabody Museum and is now available from CDL Press.)
These Clean Slates were adopted literally, almost word for word, in the Biblical Jubilee Year of Leviticus 25. Even the same Hebrew word, deror, was used for the Babylonian andurarum proclaimed by rulers of Hammurapi’s dynasty from 2000 to 1600 BC. So it is remarkable to me that men claiming to be Christian leaders today should ignore the fact that in the very first sermon that Jesus gave, in Nazareth (Luke 4:14-30), he unrolled the scroll of Isaiah 61 and promised that he had come “to proclaim the Year of the Lord,” the Jubilee Year. That was the literal “good news” that the Bible preached, as the Dead Sea scrolls have abundantly illustrated.
Yet it is a sign of the power of creditor ideology that even the essence of this founding document of Western civilization has been ignored by a distorted view of what early Christianity, Judaism and other religions were all about. Hardly surprising. Luke’s passage on this founding sermon of Jesus concludes by pointing out that “all the people in the synagogue were furious when they heard this. They got up, drove him out of the town, and took him to the brow of the hill on which the town was built, in order to throw him down the cliff.”
Down the cliff! This is where the revolting right-wing Roman senators drove the followers of the Gracchi brothers on the Senate hill, in an exercise of political violence that prevented Rome from granting debt relief toward the end of the second century BC. Livy, Diodorus, Plutarch and other historians of the epoch attributed the prospective fall of the Roman Empire to its harsh creditor-oriented debt laws. But today, historians publish books speculating that perhaps the problem was lead piping or lead goblets for their wine, or disease, or imperial overreaching, or superstition – anything but the cause to which the Roman historians themselves pointed.
We are still living with the consequences of Rome’s oligarchic revolution. That is what makes this week’s Congressional hearings on the $700 billion giveaway so important. First with military force and then via debt bondage and serfdom, Rome bequeathed to Europe a property-based, creditor-oriented body of law. But since the 13th century, country after country has shifted the balance back to favor debtors – to save them from literal debt bondage, from debtor’s prisons, from permanent indebtedness, to give them Clean Slates on an individual level.
Handel arranged the first performance of The Messiah as a benefit to raise money to bail debtors out of Irish debtors’ prisons, and every year the oratorio was repeated for that charitable purpose. Martin Luther warned about the mathematics of compound interest as the monster Cacus, devouring all. Yet Luther’s denunciations of usury are excluded from his collected works in English, and are available in this language only in Vol. III of Marx’s Capital and Book III of his Theories of Surplus Value. The discussion of interest and banking has become so marginalized that even when I taught money and banking at the New School in New York City in the late 1960s and early ‘70s, it was not part of the core curriculum but treated as a special topic. (Fortunately, that is not the case where I am now happily situated at the University of Missouri in Kansas City. But it took a long time to get here.)
Behind this shift in legislative choice was the perception that no economy can keep up with the burden of debts growing at exponential rates faster than the economy itself is growing. No economy can grow at steady exponential rates; only debts can multiply in this way. That is why Mr. Paulson’s $700 billion giveaway to his Wall Street colleagues cannot work.
What it can do is provide a one-time transfer of wealth to insiders who already have been playing the debt-credit system and siphoning off its predatory financial proceeds to themselves. The Wall Street bankers, brokers and fund managers to whom I’ve been speaking for many decades all know this. That is why they pay themselves such large annual bonuses and large salaries each year. The idea is to take as much as you can. As the saying goes: “You only have to make a fortune once in a lifetime.” They have been salting away their fortunes year after year, mainly in hard assets: real estate (free of mortgages), fine furniture, boats and trophy art. One last $700 billion heist and they can make their getaway.
Michael Hudson is a former Wall Street economist specializing in the balance of payments and real estate at the Chase Manhattan Bank (now JPMorgan Chase & Co.), Arthur Anderson, and later at the Hudson Institute (no relation). In 1990 he helped established the world’s first sovereign debt fund for Scudder Stevens & Clark. Dr. Hudson was Dennis Kucinich’s Chief Economic Advisor in the recent Democratic primary presidential campaign, and has advised the U.S., Canadian, Mexican and Latvian governments, as well as the United Nations Institute for Training and Research (UNITAR). A Distinguished Research Professor at University of Missouri, Kansas City (UMKC), he is the author of many books, including Super Imperialism: The Economic Strategy of American Empire (new ed., Pluto Press, 2002) He can be reached via his website, mh@michael-hudson.com
Martin Wolf, “Paulson’s plan was not a true solution to the crisis,” Financial Times, September 24, 2008.
The Big Bank Job
The Insanity of the $700 Billion Giveaway
By MICHAEL HUDSON
The banksters’ plan now is for icing on the cake – to take Mr. Paulson’s $700 billion and run. It’s not a “bailout of the financial system.” It’s as giveaway – to insiders, to sell out all their bad bets. Companies across the board will get rid of their bad mortgages, and also their bad car loans, furniture time payments, credit-card loans, student loans – all the debts that any competent actuary could have told them never could have been paid in the first place.
This is not what Treasury Secretary Paulson is acknowledging, and shame on him for it. Last Friday, Sept., he was joined by Fed Chairman Ben Bernanke singing in unison an advertising jingle for America’s new kleptocracy that rings so false that Congress and the American public must hear the off-notes. London’s Financial Times, as well as a host of Europeans realize it. That is what has been driving the dollar’s exchange rate this week. It seems easier for foreigners to recognize the threat to turn American democracy into a rapacious kleptocracy.
This change always is sudden, arranged under emergency conditions. Those with a 12-year memory will see George Bush as playing the role of Boris Yeltsin in Russia in 1996, paying off his campaign contributors by giving them all the economic surplus that the government could expropriate in the notorious “loans for shares” plan applauded and supported by Clinton Treasury Secretary (and current Obama advisor) Robert Rubin. (The moral: do we have a Putin in our near future to lock in the anti-democratic coup?)
How ironic all this is! Back in the 1970s there was theorizing that the Russian and American economies were converging. The idea was that both were moving toward more centralized state control, state financing, state subsidy, and a military-industrial complex. Nobody expected the convergence to occur Yeltsin-style in government giveaways to insiders to create a new group of financial billionaires – the “seven bankers” under Yeltsin in 1996, and Mr. Paulson’s Crony Capitalist gang today.
Let’s look at the euphemisms as an exercise in doublethink. Mr. Paulson defended his “troubled asset relief program” (TARP) by claiming that “illiquid mortgage assets … have lost value … choking off the flow of credit that is so vitally important to our economy.” The credit that is “so vitally important” has taken the form of bad loans. Contra Mr. Paulson’s pretense, the problem is not that they are “illiquid.” If that were the problem, it would be merely temporary. The Federal Reserve banks are designed to provide liquidity – on good collateral, of course.
As Financial Times columnist Martin Wolf noted on Wednesday, Sept. 24, the problem is that the face value of mortgage loans and a raft of other bad loans far exceeds current market prices or prices that are likely to be realized this year, next year or the year after that. They are packaged into what the financial press rightly calls “toxic.” The bailout is not efficient, he writes, “because it can only deal with insolvency by buying bad assets at far above their true value, thereby guaranteeing big losses for taxpayers and providing an open-ended bail-out to the most irresponsible investors.” “The simplest way to recapitalize institutions,” He concludes, is “by forcing them to raise equity and halt dividends. If that did not work, there could be forced conversions of debt into equity. The attraction of debt-equity swaps is that they would create losses for creditors, which are essential for the long-run health of any financial system.” This is the key: if debts cannot be paid, then creditors must take losses.
These bad loans are toxic because they can only be sold at a loss – if at all, because foreign investors no longer trust the U.S. investment bankers or money managers to be honest. That is the problem that Congress is not willing to come out and face. Many of these loans are outright fraudulent. And they are being sold by crooks. Crooks who work for banks. Crooks who use accounting fraud – such as the fraud that led to the firing of Maurice Greenberg at A.I.G. and his counterparts at Fannie Mae, Freddie Mac and other companies engaging in Enron-type accounting.
This is not what the magic of compound interest promised. But it is where it had to end up, with mathematical inevitability. It was an advertising come-on for Wall Street money managers and promoters of “pension-fund capitalism” (or “peoples’ capitalism” as it was called in Chile by the Chicago Boys working for General Pinochet’s murderous regime, and Margaret Thatcher’s Conservatives in England). The promise is that if people consign these funds to individuals who make much, much more than they do but have the survival-of-the-fittest advantage of being much, much more greedy, they will receive a perpetual doubling of interest. That is how retirements for American workers are still supposed to be paid – by magic, not by direct investment. Prospective retirees are supposed to ensure a good life by investing savings in loans to corporate raiders who fire, lay off, downsize and outsource these very workers. The trick is to persuade employees to hand retirement funding over to financial managers whose idea was to make money off the economy by extracting interest and dividends off workers, homeowners and companies being bought on debt leverage. In the final analysis it is debt leverage by itself that is supposed to fuel capital gains.
This has led to madness. The maddest solution of all would be for the government to give the extractive financial sector even more money – funds that no private lenders have been willing to provide, not even vulture funds. No private firm has been able to discover what Mr. Paulson and the unfortunate Mr. Bernanke are sanctimoniously promising: that a viable deal, even an almost money-making one, can be made by buying junk now and waiting for “the economy” to make it good.
Just what is “the economy” that is supposed to perform this remarkable feat, if not its mortgage debtors and corporate debtors? The government is to do what law enforcement officials have moved to prevent Countrywide Financial and other predatory lenders from doing: squeezing exploding Adjustable Rate Mortgages and “negative equity” mortgages out of debtors, on terms that often were bait-and-switch to begin with. Private companies could be challenged and their array of penalty fees thrown out of court. But perhaps Congress can craft a law imposing these harsh terms on voters. It is not as if we live in a system where people vote their self-interest.
Promises that “taxpayers” will be able to recover a large part of this money are a fiction. If there were a hope of recovering this money, then investors abroad – foreign buyout funds, foreign banks, foreign sovereign wealth funds – would have been willing to buy Bear Stearns, Lehman Brothers, A.I.G. and other companies at some price. But they wouldn’t touch this at any price.
Why then should the U.S. Treasury pay three times as much as the Iraq War for money that will end up being lost after paying off the gamblers from their own bad bets. These are the bankers who already have placed all the risk onto their clients and, by lobbying to rewrite the bankruptcy laws, onto debtors. As matters now stand, the $700 billion is to be used to finance this year’s annual bonuses, this year’s million-dollar salaries and sales commission, and to contribute yet more to the retirement funds for the golden parachutes that financial managers have siphoned off to provide a safety net for themselves. So we are back to the basic motto these days: “You only have to make a fortune once in a lifetime.” Now is the time to make these fortunes as big as they’re going to get. Because it’s all down hill from here.
Why the banks won’t lend
Here’s why the government giveaway logic is fallacious: It’s a giveaway, not a bailout. A bailout is designed to keep the boat afloat. But the existing Wall Street boat crafted by the investment bankers seeking to unload their junk must sink. The question as it sinks is simply who will be able to grab the lifeboats, and who drowns.
There is a reason why the banks won’t lend: Housing and commercial real estate already are so heavily mortgaged that there is no rental value available (over and above operating expenses, current taxes and debt service) to pledge to the banks. It still costs more to buy a house than to rent it. No increase in the amount of credit, short of hyper-inflation can cure this. No lowering of interest rate, will lead banks to risk making a bad new loan – that is, a loan that probably will go bad and end up with the bank taking a loss after the borrower walks away or defaults.
Does Congress know what it is being told to do? Suppose that “taxpayers” are to squeeze money out of the “toxic” junk mortgages they buy from the investors that have bought these bad loans. The only way to do so would be for real estate prices to be raised to even higher levels. This means an even higher proportion of take-home pay by prospective homeowners.
Mr. Paulson realizes this. That’s why he’s directed Fannie Mae and Freddie Mac to inflate real estate prices all the more. At least, by the existing mortgage-holders to get paid off by existing debtors selling to the proverbial “greater fool.” The hope in Mr. Paulson’s plan is that there are enough “greater fools” with enough money to borrow from yet more foolish new mortgage lenders. Only Fannie Mae, Freddie Mac and the Federal Housing Agency are willing to make such foolish loans, and that is only because they are being directed to act in a foolish way by Mr. Paulson.
Here’s the problem with following Mr. Paulson’s orders and lending yet more: Every major real estate advisor on record has forecast a further drop of between 20 to 30 percent in property prices over the coming twelve months. This is now the standard forecast. It means that over and above the five million arrears and foreclosures that Mr. Paulson acknowledged already are on the books, yet more families are to give up the fight by this time next year. Is the $700 billion giveaway fund to try and recoup by evicting them too from their houses – to pay the “taxpayer” enough to bail out Countrywide, Washington Mutual and other predatory lenders for loans that state Attorneys General have accused of being fraudulent?
For the government to even begin to recover some of the value of the $700 billion in junk mortgages it has bought would force new homebuyers to pay even more of their income to the banks. And if they do that, they will have less income to spend on goods and services. The domestic market will shrink, and tax revenues will fall at the state, local and federal levels. The debt overhead will deflate the economy, causing shrinkage all down the line.
So here’s where the cognitive dissonance comes in: It is necessary, even inevitable, for the volume of debt to come down – not up – to restore equilibrium. The economy was well on its way to preparing the ground for this last week. As Alan Meltzer of the American Enterprise Institute (of all places!) explained on McNeill-Lehrer, Merrill Lynch was able to be sold at 22 cents on the dollar; and the economy survived Lehman Brothers and Bear Stearns being wiped out.
Such debt writes-offs are a precondition for writing down America’s mortgage debts to levels that are affordable. But Mr. Paulson’s plan is to fight against this tide. He wants the Wall Street to keep on raking in money at the expense of the economy at large. These are the big banks who lobbied Congress to appoint de-regulators, the banks whose officers paid themselves enormous bonuses and gave themselves enormous golden parachutes. They were the leaders in the great disinformation campaign about the magic of compound interest. And now they are to get their payoff.
The pretense is that not to pay them off would threaten “the economy.” The reality is that it only would stop their predatory behavior. Worse than that, for the economy at large a government take-over of these bad loans would prevent the debt write-down that the economy needs!
It gets worse. If Congress should be so destructive as to buy out $700 billion of bad loans (for starters), the sellers will do just what Russia’s kleptocrats did. They will take their money and move it abroad to a “hard” currency country. This will help collapse the dollar. Up will go gasoline costs and prices for other imports. America will be turned into a Russian-style post-Soviet economy, having endowed a new domestic kleptocracy of insiders, who use some of their gains to finance the campaigns of American Yeltsins such as McCain.
So let us admit that the economy has been taking a wrong track for a number of decades now. As John Kay noted : “When the dust settles, many banks and hedge funds will have lost more money on their trading activities in the past year or so than they had made in their entire history … The pursuit of shareholder value damaged both shareholder value and the business.”
I worry that Wednesday’s jump in the Dow Jones average signals that the big betters have decided that there is a good chance of the vast giveaway going through. The Republican protests seem to me to aim not so much at really stopping the measure, but on going on record that they opposed it – before they voted for it. When the public wakes up to the great giveaway, the Republicans can say, “It was a Democratic Congress that did it, not us. Read our anguished protests.” Everyone is trying to cover themselves. With good reason.
Don’t let them speak on behalf of voters and then act against the economy, claiming that they are trying to save it. A giveaway of unprecedented magnitude would cripple it for as far as the eye can see.
We have reached the point where it may finally be able to break through the membrane of cognitive dissonance that has been blinded people. The very first course in economics –starting in high school, followed up in college and then refined in graduate school – should explain to students why it is false to believe the advertisement that Wall Street has been trying to sell for the past half century: The deceptive promise that an economy can get rich off the mathematical “magic of compound interest.”
The unreality of this promise should be immediately apparent by looking at the math of exponential growth. Already at the time of the American Revolution, financial economists were popularizing the contrast that Malthus soon would imitate in his population theory: Debts grow at “geometric” rates, while the economy itself grows only “arithmetically,” in a slower and more linear way.
All that is needed is to put this idea together with the basic balance-sheet definition: One person’s savings are lent out to become other peoples’ debts. So the “magic of compound” interest to savers means an equal “magic of exploding debt” to somewhere else in the economy. And inasmuch as creditors insist on protecting themselves from inevitable default by possessing collateral, it is natural that most of the economy’s debts are owed on its largest asset: land and buildings. This explains why mortgage debts have become repayable and “gone toxic.”
The “magic of compound interest” refers to the tendency of savings to double and redouble exponentially, with a matching rise in what debtors owe on the other side of the balance sheet. These mathematics have been operated throughout history, ever since the charging of interest was invented in Sumer some time around 2750 BC. In every known society, the effect has been to concentrate wealth in the hands of people with money. In recent years, one’s own money is not even necessary to do this. The power to indebt others to oneself can be achieved by free credit creation. However, the resulting mushrooming exponential growth in indebtedness must collapse at the point where its interest and other carrying charges (now augmented by exorbitant late fees, bounced-check fees, credit-card costs and other penalties) absorb the entire economic surplus.
This is the point that has been reached – and passed – today. It has been developing for many decades. But there is a great reluctance to accept the fact that debts cannot be paid. “The poor are honest,” as one banker explained to me, and believe that “a debt is a debt” and must be paid. (This is not what Donald Trump, Bear Stearns or A.I.G. believe, but they are at the top of the economic pyramid, not its base.)
Numerous publishers turning down my proposed books on the subject over the years. As they have explained to me: “Nobody wants to read how the bubble will break – at least, not until after it bursts. Can’t you write a book on how you can make a million dollars off the coming economic collapse? That would be a winner, Prof. Hudson. But to tell people that they can’t put aside savings and pay for their retirement ‘in their sleep’ is like telling them that they will have bad sex after the age of 50. It’s a no-seller. Come back when you have good news.”
These are the words I’ve been hearing since the mid-1980s. I’ve spent much of my time looking through history to read up on how the failure to wipe out the debt overhead led to the collapse of Rome’s imperial republic, and to the Ottoman Empire as what was known as “the spoiling of Egypt” and “the ruin of Persia” toward the end of the 19th century. I’ve also published a series of four colloquia by assyriologists and archaeologists describing how earlier, from about 2500 to perhaps 300 BC, Babylonian and other Near Eastern rulers kept their citizens free and preserved their landholdings by annulling personal and agrarian debts when they took the throne – a true “tax holiday” – or when economic or military conditions warranted a general Clean Slate. (The series was funded and published by Harvard’s Peabody Museum and is now available from CDL Press.)
These Clean Slates were adopted literally, almost word for word, in the Biblical Jubilee Year of Leviticus 25. Even the same Hebrew word, deror, was used for the Babylonian andurarum proclaimed by rulers of Hammurapi’s dynasty from 2000 to 1600 BC. So it is remarkable to me that men claiming to be Christian leaders today should ignore the fact that in the very first sermon that Jesus gave, in Nazareth (Luke 4:14-30), he unrolled the scroll of Isaiah 61 and promised that he had come “to proclaim the Year of the Lord,” the Jubilee Year. That was the literal “good news” that the Bible preached, as the Dead Sea scrolls have abundantly illustrated.
Yet it is a sign of the power of creditor ideology that even the essence of this founding document of Western civilization has been ignored by a distorted view of what early Christianity, Judaism and other religions were all about. Hardly surprising. Luke’s passage on this founding sermon of Jesus concludes by pointing out that “all the people in the synagogue were furious when they heard this. They got up, drove him out of the town, and took him to the brow of the hill on which the town was built, in order to throw him down the cliff.”
Down the cliff! This is where the revolting right-wing Roman senators drove the followers of the Gracchi brothers on the Senate hill, in an exercise of political violence that prevented Rome from granting debt relief toward the end of the second century BC. Livy, Diodorus, Plutarch and other historians of the epoch attributed the prospective fall of the Roman Empire to its harsh creditor-oriented debt laws. But today, historians publish books speculating that perhaps the problem was lead piping or lead goblets for their wine, or disease, or imperial overreaching, or superstition – anything but the cause to which the Roman historians themselves pointed.
We are still living with the consequences of Rome’s oligarchic revolution. That is what makes this week’s Congressional hearings on the $700 billion giveaway so important. First with military force and then via debt bondage and serfdom, Rome bequeathed to Europe a property-based, creditor-oriented body of law. But since the 13th century, country after country has shifted the balance back to favor debtors – to save them from literal debt bondage, from debtor’s prisons, from permanent indebtedness, to give them Clean Slates on an individual level.
Handel arranged the first performance of The Messiah as a benefit to raise money to bail debtors out of Irish debtors’ prisons, and every year the oratorio was repeated for that charitable purpose. Martin Luther warned about the mathematics of compound interest as the monster Cacus, devouring all. Yet Luther’s denunciations of usury are excluded from his collected works in English, and are available in this language only in Vol. III of Marx’s Capital and Book III of his Theories of Surplus Value. The discussion of interest and banking has become so marginalized that even when I taught money and banking at the New School in New York City in the late 1960s and early ‘70s, it was not part of the core curriculum but treated as a special topic. (Fortunately, that is not the case where I am now happily situated at the University of Missouri in Kansas City. But it took a long time to get here.)
Behind this shift in legislative choice was the perception that no economy can keep up with the burden of debts growing at exponential rates faster than the economy itself is growing. No economy can grow at steady exponential rates; only debts can multiply in this way. That is why Mr. Paulson’s $700 billion giveaway to his Wall Street colleagues cannot work.
What it can do is provide a one-time transfer of wealth to insiders who already have been playing the debt-credit system and siphoning off its predatory financial proceeds to themselves. The Wall Street bankers, brokers and fund managers to whom I’ve been speaking for many decades all know this. That is why they pay themselves such large annual bonuses and large salaries each year. The idea is to take as much as you can. As the saying goes: “You only have to make a fortune once in a lifetime.” They have been salting away their fortunes year after year, mainly in hard assets: real estate (free of mortgages), fine furniture, boats and trophy art. One last $700 billion heist and they can make their getaway.
Michael Hudson is a former Wall Street economist specializing in the balance of payments and real estate at the Chase Manhattan Bank (now JPMorgan Chase & Co.), Arthur Anderson, and later at the Hudson Institute (no relation). In 1990 he helped established the world’s first sovereign debt fund for Scudder Stevens & Clark. Dr. Hudson was Dennis Kucinich’s Chief Economic Advisor in the recent Democratic primary presidential campaign, and has advised the U.S., Canadian, Mexican and Latvian governments, as well as the United Nations Institute for Training and Research (UNITAR). A Distinguished Research Professor at University of Missouri, Kansas City (UMKC), he is the author of many books, including Super Imperialism: The Economic Strategy of American Empire (new ed., Pluto Press, 2002) He can be reached via his website, mh@michael-hudson.com
Martin Wolf, “Paulson’s plan was not a true solution to the crisis,” Financial Times, September 24, 2008.
bitterlemons-international.org Middle East Roundtable Edition 38 Volume 6 - September 25, 2008 Aid and diplomacy: the Palestinian case
bitterlemons-international.org
Middle East Roundtable
Due to Muslim and Jewish holidays, bitterlemons-international will next be published on October 23. We wish our Muslim readers Eid Mubarak and our Jewish readers Shana Tova.
Edition 38 Volume 6 - September 25, 2008
Aid and diplomacy: the Palestinian case
• Israel's responsibilities - Yossi Alpher
The aid situation in Gaza, particularly since the Hamas armed takeover of June 2007, is especially problematic.
• Working in the void: views from an international aid worker - Alexander Costy
The long-term effect of an aid-dominated economy is to undo mutual relationships between leaders and ordinary people.
• Aid without development - George Giacaman
The willingness to provide aid is not accompanied by any vigorous political intervention.
• The hamster wheel - Anne Le More
Diplomatic engagement requires pushing for a change in the overall policy of occupation and territorial expansion.
Israel's responsibilities
Yossi Alpher
Aid--primarily international, but also Israeli aid--has long been a fixture of Israeli-Palestinian interaction. Israel's attitude toward both forms of aid has been complex and often ambivalent. Israel, whether as occupying power or as concerned neighbor, has a strong interest in facilitating international aid to the Palestinians in the West Bank and Gaza Strip.
Back in the pre-1967 days, when Israelis contemplated the role of UNRWA in the Palestinian refugee camps across the green line in Gaza and the West Bank and in neighboring Arab countries, the impression was overwhelmingly negative. UNRWA, it was said, contributed to Palestinian incitement and violence against Israel, and by its very existence prolonged the existence of the refugee issue, hence extended the conflict. The Palestinian refugees were the only ones in the world, out of some 150 million refugees in the post-WWII era, for whom a separate UN agency was established, and the only ones allowed to pass refugee status on from one generation to the next.
After the 1967 Six-Day War and the onset of the Israeli occupation, Israeli attitudes changed. UNRWA, it was discovered, also fed, clothed and educated Palestinian refugees--functions that under international humanitarian law would have to be born by the Israeli occupier unless it cooperated with the UN organization.
At the same time, Israeli government institutions also undertook some aid efforts, particularly with regard to agricultural and medical training and attempts to thin out the population of the Gaza Strip refugee camps. The latter enterprise involved both encouraging emigration and providing of land and resources for constructing alternative housing, and had a humanitarian as well as an ulterior motive--reducing potential refugee pressure for "return" to Israel. It proved both short-lived and generally unproductive or even counterproductive.
Today, under conditions of prolonged conflict, most Israeli medical, agricultural and other aid has been radically reduced or is delivered on a commercial basis. Cooperation on specific projects--e.g.,water resources development or joint marketing of agricultural produce--is limited in scope. It generally reflects an Israeli interest in promoting joint water and environmental conservation, along with collaboration in dealing with outbreaks of livestock epidemics and the like, and a degree of agricultural interdependence that has developed over the years. Israel also maintains Palestinian infrastructure supply--electricity, water, fuel, telephone services, etc.--on a commercial basis, as well as the supply of commercial foodstuffs and other materials, and continued to do so throughout two intifadas.
Meanwhile, international aid to the Palestinians has only increased. Today, most of it takes the form of emergency humanitarian assistance. The Israeli Civil Administration for the West Bank and Gaza, which liaises with the international aid organizations, generally argues that the donors provide a service that Israel cannot provide, particularly under hostile conditions. In general, Israelis have the impression that the Palestinian Authority squandered large aid increments in the period between Oslo and late 2000, when the outbreak of the current conflict put a virtual stop to development aid.
The aid situation in Gaza, particularly since Hamas' armed takeover of June 2007, is especially problematic. Israel, with the backing of the Quartet and even Egypt and the Ramallah-based PA, has taken to restricting the supply of international donor aid as well as commercial foodstuffs as a means of leveraging Palestinian public pressure on Hamas to moderate its extreme Islamist negation of Israel and restrict terrorists that fire rockets at Israeli civilian concentrations bordering on the Strip. (In some case, supply is curtailed of necessity because terrorists target aid delivery points.) There is little evidence that this Israeli economic warfare has the desired effect, while it certainly causes extensive humanitarian hardship. At a more general level, both Israel and at times the international community have for decades viewed economic aid and investment and their denial as effective carrots and sticks for steering Palestinians toward the desired political process--with little to show for their efforts, which ignore the essentially ideological/political nature of the conflict.
Some in the aid community believe that the international organizations are, in effect, subsidizing Israel's occupation; that it is Israel's obligation, and not theirs, to attend to the welfare of the Palestinian civilian population; and that the aid community could shorten the conflict significantly by "pulling out" and forcing Israel to confront the true cost of occupation. At the opposite pole of the spectrum there are also many Israeli politicians and security officials who today consider the international aid community to be a hypercritical source of trouble for Israel--one that inevitably sides with the Palestinian "underdog" and displays little sympathy or understanding for the Israeli response to Palestinian terrorism.
In effect, Israel's historically ambivalent attitude toward aid is embodied in the contradiction between its declared relinquishment of responsibility for the Gazan population after the 2005 disengagement on the one hand, and its call for the international community to cooperate with it and to continue to prevent a humanitarian disaster there, on the other.
Only if and when disengagement reaches phase two of the Israeli plan, under which Gaza's air and sea ports and land crossing (to Egypt) are reopened and developed, could Israel legitimately make the argument that it is legally and officially absolved of responsibility for the humanitarian welfare of the Gazan population, whether through economic development or through aid. Meanwhile, regardless of the logic or legal underpinnings of the international aid effort, it will continue to be necessary and justified, and will require various forms of coordination with Israel.
Looking further into the future, a viable two-state solution to the conflict may absolve Israel of its legal obligations toward the Palestinian population--but not, in the aftermath of 100 years of conflict, its moral obligation to alleviate Palestinian suffering (even though this need not and should not imply legal responsibility for that suffering). Moreover, eventual resolution of the Palestinian refugee problem and regional water problems will almost certainly bind Israel in some sort of treaty-based aid relationship with the Palestinian state. The two countries' infrastructures will also remain linked for a long time to come.
Friction over scarce resources, particularly borderless resources like water and clean air, will almost certainly continue to involve the international aid community in the "crossfire" between Israelis and Palestinians long after peace. At the same time, future Israeli-Palestinian relations will at least in some cases also reflect a strong Arab reticence to entertain overt Israeli aid, which will be seen and characterized as colonialist and paternalistic. This points to the prospect of a long term triangular relationship between Israel, the Palestinian political entity or entities and the donor community.- Published 25/9/2008 © bitterlemons-international.org
Yossi Alpher is coeditor of the bitterlemons family of internet publications. He is former director of the Jaffee Center for Strategic Studies, Tel Aviv University.
Working in the void: views from an international aid worker
Alexander Costy
Aid workers are supposed to be the good guys in international relations. Their work is steeped in ethics. They try to do what's good for people or, at the very least, to do no harm. Yet international assistance can produce contradictions that make even the most seasoned aid professionals cringe.
As far back as the 1940s, Marshall funds meant to support civilian reconstruction in Yugoslavia were used to violently suppress opponents of the emerging Tito regime. In the 1990s, international aid enabled warring factions in Angola to divert their domestic oil and mineral revenues toward military operations, while up to two million civilians languished in a state of chronic hunger, insecurity and displacement. Aid professionals usually blame such twisted outcomes on the "politics" beyond their control.
In the occupied Palestinian territory, well over $12 billion in international assistance has been spent over the past 15 years. Yet for most Palestinians the economy is worsening and public institutions are more fractured than ever. Statehood seems more elusive today than at any time in the past. In this context, there is a standing argument that the primary function of international aid has been to subsidize Israel's occupation. Here too, well-meaning aid experts can be forgiven for wringing their hands, resorting to ready arguments about neutrality and urgent needs and for regarding, once again, "politics" with grave suspicion.
But aid needs politics in order to work. It performs best when it is allocated for clear purpose and within an agreed political framework. In the Palestinian context, the main intent has always been to support the Palestinian Authority, not Israel, to discharge social, economic and security responsibilities in the areas under the PA's jurisdiction as agreed within the political framework of the Oslo accords. Clearly, the investment has been toward a two-state solution, not continued occupation. But with the erosion of Oslo as a framework for international aid these distinctions have blurred. Sadly, Oslo has been neither revived nor replaced, and many aid managers genuinely wonder what it is, exactly, that they are working toward in the long run.
In practical terms, working in a political void has had troubling effects on the ground. A bewildering array of plans--rapid-action, early recovery, medium-term, public sector reform, emergency response, etc.--have been produced almost without respite over the past four years, often simultaneously, by the PA and international organizations. They seek to draw aid funds in this direction or that, are often at logical odds with one another and mostly serve to justify new spending where there is little real progress to show. In the meantime, new (or newly re-packaged) "boutique projects" meant to produce quick and easy wins on the ground, to "roll-out success from the bottom up", are proliferating. Because they confer visibility in the thick fog of the crisis, they may be difficult for some donors to resist. But it is difficult to tell what bearing they have on the overall logic of the conflict or on its eventual resolution.
But most worryingly, the political void has prompted a growing reliance on emergency financing instruments that function outside the very institutions that are central to the Palestinian state-building project itself. This can be seen in the rapid growth of multilateral programs in recent years: between 2004 and 2007, the size of the UN's annual humanitarian appeal for Palestine more than doubled. The overall value of UN programs grew from some $430 million in 2006 to an estimated $550 million in 2008. This represents about 30 percent of the PA's own annual budget.
There is no question that the UN is an effective and reliable implementing partner. But we are left to wonder about the state-building logic of encouraging multilateral budgets to grow as the PA's own revenue base shrinks rapidly.
Although they may openly shirk political interference, most aid professionals privately recognize the need for a decisive politics (whether they agree with it or not) to guide the aid effort. Given the deep uncertainties of the moment, this will not happen overnight. But in the meantime, foreign politicians who release large amounts of money should understand that they are not just managing a difficult crisis. The long-term effect of an aid-dominated economy is to undo mutual relationships between leaders and ordinary people. Leaders' accountabilities are diluted because key spending decisions are taken in faraway capitals. And because they can barely affect these decisions, ordinary people become disenfranchised, feeling more like refugees than potential citizens of a new state.
If this rupture deepens, it will be difficult to overcome. If anything, the post-Oslo years have shown us that without a sound political logic, aid can only provide diminishing returns over time.- Published 25/9/2008 © bitterlemons-international.org
Alexander Costy has worked in conflicts in Africa, Asia and the Middle East. From 2004 to 2007, he was head of coordination in the Office of the UN Special Coordinator for the Middle East Peace Process.
Aid without development
George Giacaman
On September 13, 1993, the Declaration of Principles, the first Oslo agreement, was signed. Two weeks later, 42 countries and donor agencies met in Washington, DC to pledge over two billion dollars in aid explicitly for the purpose of furthering this "historic political breakthrough in the Middle East".
Since then, aid to Palestinians for development and diplomacy has gone through several stages. The first ended with the breakdown of the Camp David talks in the summer of 2000. Another was introduced with the re-invasion of the West Bank by the Israeli army in March 2002. Aid was by now largely dispersed for humanitarian purposes and to keep the Palestinian Authority afloat on condition it "reforms" itself. In June of the same year, the "100-Day Reform Plan" was launched.
After several interruptions, including the formation of the short-lived first ever Hamas government in 2006 and the subsequent unity government, this year has seen nearly seven billion dollars pledged for a three-year period to support the "Annapolis process". But there has been no development and the political process is stalling.
The World Bank is very clear about why there is no development. In the several reports the Bank has issued on the issue, it ranks the Israeli closure policy in the West Bank--the more than 500 obstacles to movement, including checkpoints, barricades, roadblocks etc.--as the main reason for the lack of investment, rising unemployment and general absence of socio-economic development in the occupied Palestinian territory.
In several of her 16 visits, US Secretary of State Condoleezza Rice has prodded the Israeli government to ease the closures, but to no avail. Slightly over three months are left until the end of the year, the Annapolis target date for reaching agreement, but hardly anyone is optimistic. And even if a "shelf agreement" is reached, Ehud Olmert, the Israeli prime minister, recently declared that it would only be implemented in stages over a period of ten years. Such a formula was one of the reasons the Oslo process collapsed.
It should be clear that for aid to lead to development in the Palestinian case, a stable political solution has to be arrived at. Here there's a problem with donors: the willingness to provide aid is not accompanied by any vigorous intervention in the political process that might bring results.
The reason for this paralysis is the fact that Israel has been far too successful in warding off external pressure to end its occupation of the West Bank and Gaza even while it has continued creating "facts on the ground" that undermine any possible political settlement. This is largely due to its influence in the US Congress and on various US administrations. As a result, the Palestinian-Israeli conflict has become an issue for negotiation primarily inside the Israeli political arena where the interests of parties and politicians are electoral, local and careerist. As Jordan's King Abdullah said recently, Israel has no strategic vision for peace. This is due to the fact that the conflict has become essentially a domestic Israeli issue.
Unless the conflict is put back in its correct place as a regional and international issue, no stable peace is likely to be achieved. This is where primarily the US but also Europe have failed. And everyone will pay and continue to pay a price and not only in aid. How many years donors are willing to continue to support the existence of the PA in the absence of a credible political process is an open question. Negotiations cannot be an end in themselves. Ultimately, the PA itself will lose legitimacy and whatever credibility it still retains. In the absence of peace, aid at best is "humanitarian relief".- Published 25/9/2008 © bitterlemons-international.org
George Giacaman provides political analysis for Arab and international media. He teaches in the MA program in Democracy and Human Rights, and the Department of Philosophy and Cultural Studies at Birzeit University.
The hamster wheel
Anne Le More
On September 22, the Ad-Hoc Liaison Committee, the main donor forum charged with coordinating international assistance to the Palestinians, met in New York on the margins of the United Nations General Assembly to discuss prospects for Palestinian economic revival and development.
This is seen by the international community not only as a humanitarian imperative given the dismal socio-economic conditions of the population of the occupied Palestinian territory, but also as a key pillar of Israeli-Palestinian peacemaking and Palestinian state-building. Although economic growth will in itself not guarantee peace, widespread poverty, unemployment and despair will make the search for a solution to the Israeli-Palestinian conflict and prospects for a viable Palestinian state much more difficult.
Key issues on the AHLC agenda were: (i) status of implementation of the Palestinian reform agenda as laid out in the Reform and Development Plan the Palestinian Authority presented to donors in Paris in December last year; (ii) status of implementation of measures by the Government of Israel to remove obstacles to Palestinian economic revival notably through facilitating the movement of goods and people as well as access to key natural resources such as land and water; and (iii) the need for donors to sustain their financial engagement through continued high levels of funds in direct support of the PA budget.
Though originally envisaged as an "ad-hoc" mechanism, the AHLC has now become a permanent donor mechanism and has been meeting regularly since the beginning of the Oslo process in the early 1990s. In view of continuing Israeli occupation and lack of Palestinian national sovereignty and control over borders and natural resources, a tripartite approach to further Palestinian economic development with parallel actions to be taken the PA, Israel and the donor community has also characterized those forums from the outset.
Sadly, however, not only has the AHLC become a fixed feature of the Israeli-Palestinian donor and diplomatic landscape with a fairly predictable tripartite format, but the issues on its agendas, analyses provided at its meetings by international institutions such as the IMF, World Bank and the United Nations, and the policy recommendations made on the basis of those analyses have also been remarkably constant. In fact, they seem to have become immovable.
This is how those meetings generally go and what they say:
The PA presents its development plan and is asked to make further progress in security performance, reform of its institutions and public financial management. Over the years, a number of plans such as the PRDP have been drawn up with more or less the same mix of measures to be taken, such as ensuring law and order, containing the wage bill or reducing Palestinian fiscal deficit. And some progress has been recorded in terms of security reform, transparency and fiscal management particularly in the post-Arafat period, even if much more can always be done.
For their parts, donors are asked to provide more funds. Indeed assistance has been growing year after year although flows often lack in predictability and generally fall short of the total amount needed. Just for the first eight months of 2008, the international community has disbursed an unprecedented $1.2 billion in recurrent budget support to the PA alone. Since 1994, more than $10 billion have been given to the Palestinian population of the West Bank and Gaza, not including the funds that cover UNRWA's regular budget. This is one of the highest and longest sustained rates of per capita foreign aid in the world.
Finally, Israel is asked to remove economic restrictions, notably facilitating the movement of goods and people within the Palestinian territories, between the West Bank and Gaza and between the oPt and the outside world. As stated over and over again by the World Bank, without a substantial overhaul of the closure system and access to economies of scale, natural resources and an investment horizon, there will simply not be any Palestinian economic growth. On this front, and despite sporadic and partial steps, the GoI is repeatedly found not to have fulfilled its obligations. And as restrictions persist, so does economic decline, despite sustained funds provided by the international community and whatever reform progress may be achieved. In fact, ever since the beginning of the Oslo peace process, Palestinian living conditions have worsened. Since 2000, the situation has become a full-fledged humanitarian crisis.
Of course, this parallelism in actions to be undertaken by the three main stakeholders is symbolic and primarily aimed at sustaining a semblance of diplomatic cooperation. As anyone who has been working on this dossier knows all too well, the situation is deeply asymmetric. As the World Bank states in its report to the AHLC this week, "aid and reform without access are unlikely to revive the Palestinian economy." Funds only just allow the PA to stay alive, so totally aid dependent have the PA and its economy become (external aid is estimated to represent about 32 percent of Palestinian GDP this year). Budget support will also prevent the population from growing ever more destitute as people increasingly rely on the public sector in the absence of growth and private sector opportunities. Fundamentally, however, little economic progress will be achieved.
And this system of restrictions is unlikely to be alleviated as long as Israel continues its military occupation, separation of the West Bank and Gaza and settlement expansion in the West Bank. For the past 15 years, the West Bank, East Jerusalem and Gaza Strip have become less and less contiguous and evolved into a collection of increasingly narrow and confined enclaves of high Palestinian population density. These are subjected to various regimes of control, citizenship status and human rights within one de facto Israeli sovereign space from the Mediterranean to the Jordan River. These "islands" of populations are isolated and strangled by a range of obstacles such as a complex permits system, military checkpoints, roadblocks, settlements, a dual segregated by-pass road system and the separation barrier. Though Israel has legitimate security concerns, those restrictions on Palestinian movement and access that stifle Palestinian life and development have less to do with the security of Israel proper than with that of its settlements and the by-pass roads that enable settlers to move freely within the occupied territories and between them and Israel.
Diplomatic accountability is needed for all stakeholders. Without linking economic assistance to a clear set of security, political and human rights goals leading to a permanent status agreement and an evenly balanced incentive structure toward both parties and not just the Palestinians, European and Arab taxpayers' money will continue to be spent without tangible economic benefits for the Palestinians. This also means little prospect of seeing the emergence of a viable independent state and, with it, of reaching a just agreement that will at long last bring peace to Palestinians and Israelis.
Diplomatic engagement requires more than packages of limited economic measures sporadically extracted by Quartet representatives such as James Wolfensohn and now Tony Blair. It requires pushing for a change in the overall policy of occupation and territorial expansion. It also requires for international partners to foster Palestinian national reconciliation rather than exacerbate the power struggle between Fateh and Hamas by providing funds to the PA while starving Hamas in Gaza. If serious political action is not taken to that effect, we can be sure that next year's AHLC will be about the exact same issues as this week--and the past 15 years.- Published 25/9/2008 © bitterlemons-international.org
Anne Le More is an associate fellow of the Middle East Program at Chatham House, London, and the author of International Assistance to the Palestinians after Oslo: Political Guilt, Wasted Money.
Bitterlemons-international.org is an internet forum for an array of world perspectives on the Middle East and its specific concerns. It aspires to engender greater understanding about the Middle East region and open a new common space for world thinkers and political leaders to present their viewpoints and initiatives on the region. Editors Ghassan Khatib and Yossi Alpher can be reached at ghassan@bitterlemons-international.org and yossi@bitterlemons-international.org, respectively.
Middle East Roundtable
Due to Muslim and Jewish holidays, bitterlemons-international will next be published on October 23. We wish our Muslim readers Eid Mubarak and our Jewish readers Shana Tova.
Edition 38 Volume 6 - September 25, 2008
Aid and diplomacy: the Palestinian case
• Israel's responsibilities - Yossi Alpher
The aid situation in Gaza, particularly since the Hamas armed takeover of June 2007, is especially problematic.
• Working in the void: views from an international aid worker - Alexander Costy
The long-term effect of an aid-dominated economy is to undo mutual relationships between leaders and ordinary people.
• Aid without development - George Giacaman
The willingness to provide aid is not accompanied by any vigorous political intervention.
• The hamster wheel - Anne Le More
Diplomatic engagement requires pushing for a change in the overall policy of occupation and territorial expansion.
Israel's responsibilities
Yossi Alpher
Aid--primarily international, but also Israeli aid--has long been a fixture of Israeli-Palestinian interaction. Israel's attitude toward both forms of aid has been complex and often ambivalent. Israel, whether as occupying power or as concerned neighbor, has a strong interest in facilitating international aid to the Palestinians in the West Bank and Gaza Strip.
Back in the pre-1967 days, when Israelis contemplated the role of UNRWA in the Palestinian refugee camps across the green line in Gaza and the West Bank and in neighboring Arab countries, the impression was overwhelmingly negative. UNRWA, it was said, contributed to Palestinian incitement and violence against Israel, and by its very existence prolonged the existence of the refugee issue, hence extended the conflict. The Palestinian refugees were the only ones in the world, out of some 150 million refugees in the post-WWII era, for whom a separate UN agency was established, and the only ones allowed to pass refugee status on from one generation to the next.
After the 1967 Six-Day War and the onset of the Israeli occupation, Israeli attitudes changed. UNRWA, it was discovered, also fed, clothed and educated Palestinian refugees--functions that under international humanitarian law would have to be born by the Israeli occupier unless it cooperated with the UN organization.
At the same time, Israeli government institutions also undertook some aid efforts, particularly with regard to agricultural and medical training and attempts to thin out the population of the Gaza Strip refugee camps. The latter enterprise involved both encouraging emigration and providing of land and resources for constructing alternative housing, and had a humanitarian as well as an ulterior motive--reducing potential refugee pressure for "return" to Israel. It proved both short-lived and generally unproductive or even counterproductive.
Today, under conditions of prolonged conflict, most Israeli medical, agricultural and other aid has been radically reduced or is delivered on a commercial basis. Cooperation on specific projects--e.g.,water resources development or joint marketing of agricultural produce--is limited in scope. It generally reflects an Israeli interest in promoting joint water and environmental conservation, along with collaboration in dealing with outbreaks of livestock epidemics and the like, and a degree of agricultural interdependence that has developed over the years. Israel also maintains Palestinian infrastructure supply--electricity, water, fuel, telephone services, etc.--on a commercial basis, as well as the supply of commercial foodstuffs and other materials, and continued to do so throughout two intifadas.
Meanwhile, international aid to the Palestinians has only increased. Today, most of it takes the form of emergency humanitarian assistance. The Israeli Civil Administration for the West Bank and Gaza, which liaises with the international aid organizations, generally argues that the donors provide a service that Israel cannot provide, particularly under hostile conditions. In general, Israelis have the impression that the Palestinian Authority squandered large aid increments in the period between Oslo and late 2000, when the outbreak of the current conflict put a virtual stop to development aid.
The aid situation in Gaza, particularly since Hamas' armed takeover of June 2007, is especially problematic. Israel, with the backing of the Quartet and even Egypt and the Ramallah-based PA, has taken to restricting the supply of international donor aid as well as commercial foodstuffs as a means of leveraging Palestinian public pressure on Hamas to moderate its extreme Islamist negation of Israel and restrict terrorists that fire rockets at Israeli civilian concentrations bordering on the Strip. (In some case, supply is curtailed of necessity because terrorists target aid delivery points.) There is little evidence that this Israeli economic warfare has the desired effect, while it certainly causes extensive humanitarian hardship. At a more general level, both Israel and at times the international community have for decades viewed economic aid and investment and their denial as effective carrots and sticks for steering Palestinians toward the desired political process--with little to show for their efforts, which ignore the essentially ideological/political nature of the conflict.
Some in the aid community believe that the international organizations are, in effect, subsidizing Israel's occupation; that it is Israel's obligation, and not theirs, to attend to the welfare of the Palestinian civilian population; and that the aid community could shorten the conflict significantly by "pulling out" and forcing Israel to confront the true cost of occupation. At the opposite pole of the spectrum there are also many Israeli politicians and security officials who today consider the international aid community to be a hypercritical source of trouble for Israel--one that inevitably sides with the Palestinian "underdog" and displays little sympathy or understanding for the Israeli response to Palestinian terrorism.
In effect, Israel's historically ambivalent attitude toward aid is embodied in the contradiction between its declared relinquishment of responsibility for the Gazan population after the 2005 disengagement on the one hand, and its call for the international community to cooperate with it and to continue to prevent a humanitarian disaster there, on the other.
Only if and when disengagement reaches phase two of the Israeli plan, under which Gaza's air and sea ports and land crossing (to Egypt) are reopened and developed, could Israel legitimately make the argument that it is legally and officially absolved of responsibility for the humanitarian welfare of the Gazan population, whether through economic development or through aid. Meanwhile, regardless of the logic or legal underpinnings of the international aid effort, it will continue to be necessary and justified, and will require various forms of coordination with Israel.
Looking further into the future, a viable two-state solution to the conflict may absolve Israel of its legal obligations toward the Palestinian population--but not, in the aftermath of 100 years of conflict, its moral obligation to alleviate Palestinian suffering (even though this need not and should not imply legal responsibility for that suffering). Moreover, eventual resolution of the Palestinian refugee problem and regional water problems will almost certainly bind Israel in some sort of treaty-based aid relationship with the Palestinian state. The two countries' infrastructures will also remain linked for a long time to come.
Friction over scarce resources, particularly borderless resources like water and clean air, will almost certainly continue to involve the international aid community in the "crossfire" between Israelis and Palestinians long after peace. At the same time, future Israeli-Palestinian relations will at least in some cases also reflect a strong Arab reticence to entertain overt Israeli aid, which will be seen and characterized as colonialist and paternalistic. This points to the prospect of a long term triangular relationship between Israel, the Palestinian political entity or entities and the donor community.- Published 25/9/2008 © bitterlemons-international.org
Yossi Alpher is coeditor of the bitterlemons family of internet publications. He is former director of the Jaffee Center for Strategic Studies, Tel Aviv University.
Working in the void: views from an international aid worker
Alexander Costy
Aid workers are supposed to be the good guys in international relations. Their work is steeped in ethics. They try to do what's good for people or, at the very least, to do no harm. Yet international assistance can produce contradictions that make even the most seasoned aid professionals cringe.
As far back as the 1940s, Marshall funds meant to support civilian reconstruction in Yugoslavia were used to violently suppress opponents of the emerging Tito regime. In the 1990s, international aid enabled warring factions in Angola to divert their domestic oil and mineral revenues toward military operations, while up to two million civilians languished in a state of chronic hunger, insecurity and displacement. Aid professionals usually blame such twisted outcomes on the "politics" beyond their control.
In the occupied Palestinian territory, well over $12 billion in international assistance has been spent over the past 15 years. Yet for most Palestinians the economy is worsening and public institutions are more fractured than ever. Statehood seems more elusive today than at any time in the past. In this context, there is a standing argument that the primary function of international aid has been to subsidize Israel's occupation. Here too, well-meaning aid experts can be forgiven for wringing their hands, resorting to ready arguments about neutrality and urgent needs and for regarding, once again, "politics" with grave suspicion.
But aid needs politics in order to work. It performs best when it is allocated for clear purpose and within an agreed political framework. In the Palestinian context, the main intent has always been to support the Palestinian Authority, not Israel, to discharge social, economic and security responsibilities in the areas under the PA's jurisdiction as agreed within the political framework of the Oslo accords. Clearly, the investment has been toward a two-state solution, not continued occupation. But with the erosion of Oslo as a framework for international aid these distinctions have blurred. Sadly, Oslo has been neither revived nor replaced, and many aid managers genuinely wonder what it is, exactly, that they are working toward in the long run.
In practical terms, working in a political void has had troubling effects on the ground. A bewildering array of plans--rapid-action, early recovery, medium-term, public sector reform, emergency response, etc.--have been produced almost without respite over the past four years, often simultaneously, by the PA and international organizations. They seek to draw aid funds in this direction or that, are often at logical odds with one another and mostly serve to justify new spending where there is little real progress to show. In the meantime, new (or newly re-packaged) "boutique projects" meant to produce quick and easy wins on the ground, to "roll-out success from the bottom up", are proliferating. Because they confer visibility in the thick fog of the crisis, they may be difficult for some donors to resist. But it is difficult to tell what bearing they have on the overall logic of the conflict or on its eventual resolution.
But most worryingly, the political void has prompted a growing reliance on emergency financing instruments that function outside the very institutions that are central to the Palestinian state-building project itself. This can be seen in the rapid growth of multilateral programs in recent years: between 2004 and 2007, the size of the UN's annual humanitarian appeal for Palestine more than doubled. The overall value of UN programs grew from some $430 million in 2006 to an estimated $550 million in 2008. This represents about 30 percent of the PA's own annual budget.
There is no question that the UN is an effective and reliable implementing partner. But we are left to wonder about the state-building logic of encouraging multilateral budgets to grow as the PA's own revenue base shrinks rapidly.
Although they may openly shirk political interference, most aid professionals privately recognize the need for a decisive politics (whether they agree with it or not) to guide the aid effort. Given the deep uncertainties of the moment, this will not happen overnight. But in the meantime, foreign politicians who release large amounts of money should understand that they are not just managing a difficult crisis. The long-term effect of an aid-dominated economy is to undo mutual relationships between leaders and ordinary people. Leaders' accountabilities are diluted because key spending decisions are taken in faraway capitals. And because they can barely affect these decisions, ordinary people become disenfranchised, feeling more like refugees than potential citizens of a new state.
If this rupture deepens, it will be difficult to overcome. If anything, the post-Oslo years have shown us that without a sound political logic, aid can only provide diminishing returns over time.- Published 25/9/2008 © bitterlemons-international.org
Alexander Costy has worked in conflicts in Africa, Asia and the Middle East. From 2004 to 2007, he was head of coordination in the Office of the UN Special Coordinator for the Middle East Peace Process.
Aid without development
George Giacaman
On September 13, 1993, the Declaration of Principles, the first Oslo agreement, was signed. Two weeks later, 42 countries and donor agencies met in Washington, DC to pledge over two billion dollars in aid explicitly for the purpose of furthering this "historic political breakthrough in the Middle East".
Since then, aid to Palestinians for development and diplomacy has gone through several stages. The first ended with the breakdown of the Camp David talks in the summer of 2000. Another was introduced with the re-invasion of the West Bank by the Israeli army in March 2002. Aid was by now largely dispersed for humanitarian purposes and to keep the Palestinian Authority afloat on condition it "reforms" itself. In June of the same year, the "100-Day Reform Plan" was launched.
After several interruptions, including the formation of the short-lived first ever Hamas government in 2006 and the subsequent unity government, this year has seen nearly seven billion dollars pledged for a three-year period to support the "Annapolis process". But there has been no development and the political process is stalling.
The World Bank is very clear about why there is no development. In the several reports the Bank has issued on the issue, it ranks the Israeli closure policy in the West Bank--the more than 500 obstacles to movement, including checkpoints, barricades, roadblocks etc.--as the main reason for the lack of investment, rising unemployment and general absence of socio-economic development in the occupied Palestinian territory.
In several of her 16 visits, US Secretary of State Condoleezza Rice has prodded the Israeli government to ease the closures, but to no avail. Slightly over three months are left until the end of the year, the Annapolis target date for reaching agreement, but hardly anyone is optimistic. And even if a "shelf agreement" is reached, Ehud Olmert, the Israeli prime minister, recently declared that it would only be implemented in stages over a period of ten years. Such a formula was one of the reasons the Oslo process collapsed.
It should be clear that for aid to lead to development in the Palestinian case, a stable political solution has to be arrived at. Here there's a problem with donors: the willingness to provide aid is not accompanied by any vigorous intervention in the political process that might bring results.
The reason for this paralysis is the fact that Israel has been far too successful in warding off external pressure to end its occupation of the West Bank and Gaza even while it has continued creating "facts on the ground" that undermine any possible political settlement. This is largely due to its influence in the US Congress and on various US administrations. As a result, the Palestinian-Israeli conflict has become an issue for negotiation primarily inside the Israeli political arena where the interests of parties and politicians are electoral, local and careerist. As Jordan's King Abdullah said recently, Israel has no strategic vision for peace. This is due to the fact that the conflict has become essentially a domestic Israeli issue.
Unless the conflict is put back in its correct place as a regional and international issue, no stable peace is likely to be achieved. This is where primarily the US but also Europe have failed. And everyone will pay and continue to pay a price and not only in aid. How many years donors are willing to continue to support the existence of the PA in the absence of a credible political process is an open question. Negotiations cannot be an end in themselves. Ultimately, the PA itself will lose legitimacy and whatever credibility it still retains. In the absence of peace, aid at best is "humanitarian relief".- Published 25/9/2008 © bitterlemons-international.org
George Giacaman provides political analysis for Arab and international media. He teaches in the MA program in Democracy and Human Rights, and the Department of Philosophy and Cultural Studies at Birzeit University.
The hamster wheel
Anne Le More
On September 22, the Ad-Hoc Liaison Committee, the main donor forum charged with coordinating international assistance to the Palestinians, met in New York on the margins of the United Nations General Assembly to discuss prospects for Palestinian economic revival and development.
This is seen by the international community not only as a humanitarian imperative given the dismal socio-economic conditions of the population of the occupied Palestinian territory, but also as a key pillar of Israeli-Palestinian peacemaking and Palestinian state-building. Although economic growth will in itself not guarantee peace, widespread poverty, unemployment and despair will make the search for a solution to the Israeli-Palestinian conflict and prospects for a viable Palestinian state much more difficult.
Key issues on the AHLC agenda were: (i) status of implementation of the Palestinian reform agenda as laid out in the Reform and Development Plan the Palestinian Authority presented to donors in Paris in December last year; (ii) status of implementation of measures by the Government of Israel to remove obstacles to Palestinian economic revival notably through facilitating the movement of goods and people as well as access to key natural resources such as land and water; and (iii) the need for donors to sustain their financial engagement through continued high levels of funds in direct support of the PA budget.
Though originally envisaged as an "ad-hoc" mechanism, the AHLC has now become a permanent donor mechanism and has been meeting regularly since the beginning of the Oslo process in the early 1990s. In view of continuing Israeli occupation and lack of Palestinian national sovereignty and control over borders and natural resources, a tripartite approach to further Palestinian economic development with parallel actions to be taken the PA, Israel and the donor community has also characterized those forums from the outset.
Sadly, however, not only has the AHLC become a fixed feature of the Israeli-Palestinian donor and diplomatic landscape with a fairly predictable tripartite format, but the issues on its agendas, analyses provided at its meetings by international institutions such as the IMF, World Bank and the United Nations, and the policy recommendations made on the basis of those analyses have also been remarkably constant. In fact, they seem to have become immovable.
This is how those meetings generally go and what they say:
The PA presents its development plan and is asked to make further progress in security performance, reform of its institutions and public financial management. Over the years, a number of plans such as the PRDP have been drawn up with more or less the same mix of measures to be taken, such as ensuring law and order, containing the wage bill or reducing Palestinian fiscal deficit. And some progress has been recorded in terms of security reform, transparency and fiscal management particularly in the post-Arafat period, even if much more can always be done.
For their parts, donors are asked to provide more funds. Indeed assistance has been growing year after year although flows often lack in predictability and generally fall short of the total amount needed. Just for the first eight months of 2008, the international community has disbursed an unprecedented $1.2 billion in recurrent budget support to the PA alone. Since 1994, more than $10 billion have been given to the Palestinian population of the West Bank and Gaza, not including the funds that cover UNRWA's regular budget. This is one of the highest and longest sustained rates of per capita foreign aid in the world.
Finally, Israel is asked to remove economic restrictions, notably facilitating the movement of goods and people within the Palestinian territories, between the West Bank and Gaza and between the oPt and the outside world. As stated over and over again by the World Bank, without a substantial overhaul of the closure system and access to economies of scale, natural resources and an investment horizon, there will simply not be any Palestinian economic growth. On this front, and despite sporadic and partial steps, the GoI is repeatedly found not to have fulfilled its obligations. And as restrictions persist, so does economic decline, despite sustained funds provided by the international community and whatever reform progress may be achieved. In fact, ever since the beginning of the Oslo peace process, Palestinian living conditions have worsened. Since 2000, the situation has become a full-fledged humanitarian crisis.
Of course, this parallelism in actions to be undertaken by the three main stakeholders is symbolic and primarily aimed at sustaining a semblance of diplomatic cooperation. As anyone who has been working on this dossier knows all too well, the situation is deeply asymmetric. As the World Bank states in its report to the AHLC this week, "aid and reform without access are unlikely to revive the Palestinian economy." Funds only just allow the PA to stay alive, so totally aid dependent have the PA and its economy become (external aid is estimated to represent about 32 percent of Palestinian GDP this year). Budget support will also prevent the population from growing ever more destitute as people increasingly rely on the public sector in the absence of growth and private sector opportunities. Fundamentally, however, little economic progress will be achieved.
And this system of restrictions is unlikely to be alleviated as long as Israel continues its military occupation, separation of the West Bank and Gaza and settlement expansion in the West Bank. For the past 15 years, the West Bank, East Jerusalem and Gaza Strip have become less and less contiguous and evolved into a collection of increasingly narrow and confined enclaves of high Palestinian population density. These are subjected to various regimes of control, citizenship status and human rights within one de facto Israeli sovereign space from the Mediterranean to the Jordan River. These "islands" of populations are isolated and strangled by a range of obstacles such as a complex permits system, military checkpoints, roadblocks, settlements, a dual segregated by-pass road system and the separation barrier. Though Israel has legitimate security concerns, those restrictions on Palestinian movement and access that stifle Palestinian life and development have less to do with the security of Israel proper than with that of its settlements and the by-pass roads that enable settlers to move freely within the occupied territories and between them and Israel.
Diplomatic accountability is needed for all stakeholders. Without linking economic assistance to a clear set of security, political and human rights goals leading to a permanent status agreement and an evenly balanced incentive structure toward both parties and not just the Palestinians, European and Arab taxpayers' money will continue to be spent without tangible economic benefits for the Palestinians. This also means little prospect of seeing the emergence of a viable independent state and, with it, of reaching a just agreement that will at long last bring peace to Palestinians and Israelis.
Diplomatic engagement requires more than packages of limited economic measures sporadically extracted by Quartet representatives such as James Wolfensohn and now Tony Blair. It requires pushing for a change in the overall policy of occupation and territorial expansion. It also requires for international partners to foster Palestinian national reconciliation rather than exacerbate the power struggle between Fateh and Hamas by providing funds to the PA while starving Hamas in Gaza. If serious political action is not taken to that effect, we can be sure that next year's AHLC will be about the exact same issues as this week--and the past 15 years.- Published 25/9/2008 © bitterlemons-international.org
Anne Le More is an associate fellow of the Middle East Program at Chatham House, London, and the author of International Assistance to the Palestinians after Oslo: Political Guilt, Wasted Money.
Bitterlemons-international.org is an internet forum for an array of world perspectives on the Middle East and its specific concerns. It aspires to engender greater understanding about the Middle East region and open a new common space for world thinkers and political leaders to present their viewpoints and initiatives on the region. Editors Ghassan Khatib and Yossi Alpher can be reached at ghassan@bitterlemons-international.org and yossi@bitterlemons-international.org, respectively.
Hubris with comeuppance Arnaud de Borchgrave
Hubris with comeuppance
Arnaud de Borchgrave
Thursday, September 25, 2008
COMMENTARY:
The United States, as seen by the media in the rest in the world, is sobering up at the Just Deserts Cafe.
Norway's Aftenposten wrote, "When God is on your team, the world can be dangerously simple. Arbitrary references to the Bible is a form of intellectual terrorism. ... For the past eight years, secularized Europe has been watching with increasing astonishment a president who for the most part is guided by religion; who has had a very difficult relationship with the English language; who has systematically prioritized loyalty over competence, and who seems to be without intellectual curiosity." Hence the temptation of simplicity.
Bylined Bernt Hagtvet, the editorial said the world is now terrified at the thought of a Sarah Palin presidency: "We are risking having a woman who sees God's hands in all she does a heartbeat from the Oval Office. An unholy mix of ignorance and vulgarity."
For the Saudi Gazette, "It's hard to believe that only a week ago all anyone wanted to talk about was mooseburgers, lipstick on pigs and being able to see Russia from a remote Alaskan island. ... The election is back to where it should have been all along. ... This makes the going just a bit rougher for McCain, and it gives Obama a chance to regain the momentum. ... McCain has always been just a bit challenged by economic issues, even saying when the financial crisis broke that the economic fundamentals were strong. With major financial institutions going to the wall, everyone could clearly see that was not the case, and some may even have wondered how in touch with economic issues a man could be who does not even know how many houses he owns. ... The earthquake has put an end to the mindless clamor of the silly season. ... It's time to get serious."
Germany's Die Tageszeitung said: "Palin's naivete puts the fear of God in all of us. In her interviews she was successful in provoking worldwide horror with her views on foreign policy... they caused bewilderment because of her colossal ignorance ... anyone interested in politics should pray for John McCain to live forever ... [the same Mr. McCain] who showed the world a monumental disregard for the most powerful office in the world the day he chose his second-in-command."
France's Le Monde wrote: "The U.S. seemed to be heading for a cliff, paying cash for their years of financial debauchery and an orgy of credit. In Europe, [there was] a touch of pleasure that through a financial intermediary, [the euro], they are directly assisting in the decline of the American empire."
But instead of sinking like a stone, noted Le Monde, "the greenback climbed back at full speed ... America, contrary to what some believed, and others hope, isn't KO'd." At least, not yet, echoed the Continental smoothies.
The London Sunday Times' Andrew Sullivan said: "Palin's favorables went from plus 17 to plus 1 in six days as voters realized there was less than nothing behind the marketing and the cynicism of this sinister and philistine Manchurian Candidate. ... Now [Americans] can no longer deny the massive mess they and their leaders have put themselves in."
"Americans," Mr. Sullivan continued, "resistant to the idea their incomes cannot keep growing at the free-lunch pace of the 1940s to the 1970s, decided to get rich the easy way. They borrowed to reflate in the 1980s, played the stock market in the 1990s, and gambled on the real-estate boom in the first decade of the 21st century. ... The greed that led many ordinary Americans to take out loans they had no way of repaying and the recklessness with which banks and mortgage companies satisfied that hunger, are, in retrospect, staggering. Both banks and the borrowers deserve their comeuppance. And a truly conservative, free-market administration would be happy to let them fail."
But Bush Republicanism, Mr. Sullivan continued, is not and has never been anything like conservatism. Bush Republicanism has cut taxes regardless of fiscal reality and boosted domestic spending at a pace not seen since the Franklin Roosevelt era, concluded Mr. Sullivan. He added: "Bush has added a staggering $32 trillion to unfunded government liabilities future generations of Americans will have to bear. And he has borrowed and borrowed from the Chinese to ensure that the consequences of his fiscal madness will never come back to punish him."
But Mr. Bush failed in this, concluded the Sunday Times, "as in every other part of his disgraceful record. Just as his Iraq incompetence came back to haunt him, so his surreal economics has finally returned the favor. Watching the feckless Bush administration now is an almost perfect coda to the surreally anti-conservative policies it has pursued from the beginning."
Britain's Independent headlined, "Bush launches $700 billion rescue plan and confesses he didn't realize how severe problems were" and then quoted a congressional aide on a telephone conference call between the Federal Reserve chairman, the treasury secretary and lawmakers in which the Fed chief said, "If Congress doesn't act quickly, there will be an economic meltdown."
"Financial earthquakes, like real ones," said the Independent, "are brutal reminders of the limits of the politician's capacity to shape events. Obama is no exception. He has been a sideshow to the dramas on the trading floor, and has added nothing to the debate except some sharp partisan barbs, when the population has yearned for leadership."
The Belize News in Central America, under the headline "America goes socialist," commented, "FDR's New Deal would have been considered socialist on Wall Street a few months ago, but now Wall Street, the cradle of crazy capitalism, has been crying out like a baby for government bailouts for the same financial institutions through which they looted the United States and the world over the last three decades. ... When there is a crisis, which they themselves create, the capitalists and the speculators always take their money and run. It is left to the people to pick up the pieces."
America's Humpty Dumpty has had a great fall. But no one is betting that all the kings of Wall Street can't put Humpty together again. For the rest of the world, the Bush Doctrine's hubris got its comeuppance.
Arnaud de Borchgrave is editor at large for The Washington Times and for United Press International.
Arnaud de Borchgrave
Thursday, September 25, 2008
COMMENTARY:
The United States, as seen by the media in the rest in the world, is sobering up at the Just Deserts Cafe.
Norway's Aftenposten wrote, "When God is on your team, the world can be dangerously simple. Arbitrary references to the Bible is a form of intellectual terrorism. ... For the past eight years, secularized Europe has been watching with increasing astonishment a president who for the most part is guided by religion; who has had a very difficult relationship with the English language; who has systematically prioritized loyalty over competence, and who seems to be without intellectual curiosity." Hence the temptation of simplicity.
Bylined Bernt Hagtvet, the editorial said the world is now terrified at the thought of a Sarah Palin presidency: "We are risking having a woman who sees God's hands in all she does a heartbeat from the Oval Office. An unholy mix of ignorance and vulgarity."
For the Saudi Gazette, "It's hard to believe that only a week ago all anyone wanted to talk about was mooseburgers, lipstick on pigs and being able to see Russia from a remote Alaskan island. ... The election is back to where it should have been all along. ... This makes the going just a bit rougher for McCain, and it gives Obama a chance to regain the momentum. ... McCain has always been just a bit challenged by economic issues, even saying when the financial crisis broke that the economic fundamentals were strong. With major financial institutions going to the wall, everyone could clearly see that was not the case, and some may even have wondered how in touch with economic issues a man could be who does not even know how many houses he owns. ... The earthquake has put an end to the mindless clamor of the silly season. ... It's time to get serious."
Germany's Die Tageszeitung said: "Palin's naivete puts the fear of God in all of us. In her interviews she was successful in provoking worldwide horror with her views on foreign policy... they caused bewilderment because of her colossal ignorance ... anyone interested in politics should pray for John McCain to live forever ... [the same Mr. McCain] who showed the world a monumental disregard for the most powerful office in the world the day he chose his second-in-command."
France's Le Monde wrote: "The U.S. seemed to be heading for a cliff, paying cash for their years of financial debauchery and an orgy of credit. In Europe, [there was] a touch of pleasure that through a financial intermediary, [the euro], they are directly assisting in the decline of the American empire."
But instead of sinking like a stone, noted Le Monde, "the greenback climbed back at full speed ... America, contrary to what some believed, and others hope, isn't KO'd." At least, not yet, echoed the Continental smoothies.
The London Sunday Times' Andrew Sullivan said: "Palin's favorables went from plus 17 to plus 1 in six days as voters realized there was less than nothing behind the marketing and the cynicism of this sinister and philistine Manchurian Candidate. ... Now [Americans] can no longer deny the massive mess they and their leaders have put themselves in."
"Americans," Mr. Sullivan continued, "resistant to the idea their incomes cannot keep growing at the free-lunch pace of the 1940s to the 1970s, decided to get rich the easy way. They borrowed to reflate in the 1980s, played the stock market in the 1990s, and gambled on the real-estate boom in the first decade of the 21st century. ... The greed that led many ordinary Americans to take out loans they had no way of repaying and the recklessness with which banks and mortgage companies satisfied that hunger, are, in retrospect, staggering. Both banks and the borrowers deserve their comeuppance. And a truly conservative, free-market administration would be happy to let them fail."
But Bush Republicanism, Mr. Sullivan continued, is not and has never been anything like conservatism. Bush Republicanism has cut taxes regardless of fiscal reality and boosted domestic spending at a pace not seen since the Franklin Roosevelt era, concluded Mr. Sullivan. He added: "Bush has added a staggering $32 trillion to unfunded government liabilities future generations of Americans will have to bear. And he has borrowed and borrowed from the Chinese to ensure that the consequences of his fiscal madness will never come back to punish him."
But Mr. Bush failed in this, concluded the Sunday Times, "as in every other part of his disgraceful record. Just as his Iraq incompetence came back to haunt him, so his surreal economics has finally returned the favor. Watching the feckless Bush administration now is an almost perfect coda to the surreally anti-conservative policies it has pursued from the beginning."
Britain's Independent headlined, "Bush launches $700 billion rescue plan and confesses he didn't realize how severe problems were" and then quoted a congressional aide on a telephone conference call between the Federal Reserve chairman, the treasury secretary and lawmakers in which the Fed chief said, "If Congress doesn't act quickly, there will be an economic meltdown."
"Financial earthquakes, like real ones," said the Independent, "are brutal reminders of the limits of the politician's capacity to shape events. Obama is no exception. He has been a sideshow to the dramas on the trading floor, and has added nothing to the debate except some sharp partisan barbs, when the population has yearned for leadership."
The Belize News in Central America, under the headline "America goes socialist," commented, "FDR's New Deal would have been considered socialist on Wall Street a few months ago, but now Wall Street, the cradle of crazy capitalism, has been crying out like a baby for government bailouts for the same financial institutions through which they looted the United States and the world over the last three decades. ... When there is a crisis, which they themselves create, the capitalists and the speculators always take their money and run. It is left to the people to pick up the pieces."
America's Humpty Dumpty has had a great fall. But no one is betting that all the kings of Wall Street can't put Humpty together again. For the rest of the world, the Bush Doctrine's hubris got its comeuppance.
Arnaud de Borchgrave is editor at large for The Washington Times and for United Press International.
Paulson cannot be allowed a blank cheque By George Soros
FT.com logo
Paulson cannot be allowed a blank cheque
By George Soros
Published: September 25 2008
Hank Paulson's $700bn rescue package has run into difficulty on Capitol Hill. Rightly so: it was ill-conceived. Congress would be abdicating its responsibility if it gave the Treasury secretary a blank cheque. The bill submitted to Congress even had language in it that would exempt the secretary's decisions from review by any court or administrative agency - the ultimate fulfillment of the Bush administration's dream of a unitary executive.
Mr Paulson's record does not inspire the confidence necessary to give him discretion over $700bn. His actions last week brought on the crisis that makes rescue necessary. On Monday he allowed Lehman Brothers to fail and refused to make government funds available to save AIG. By Tuesday he had to reverse himself and provide an $85bn loan to AIG on punitive terms. The demise of Lehman disrupted the commercial paper market. A large money market fund "broke the buck" and investment banks that relied on the commercial paper market had difficulty financing their operations. By Thursday a run on money market funds was in full swing and Morgan Stanley Goldman Sachswe came as close to a meltdown as at any time since the 1930s. Mr Paulson reversed again and proposed a systemic rescue.
Mr Paulson had got a blank cheque from Congress once before. That was to deal with Fannie Mae and Freddie Mac. His solution landed the housing market in the worst of all worlds: their managements knew that if the blank cheques were filled out they would lose their jobs, so they retrenched and made mortgages more expensive and less available. Within a few weeks the market forced Mr Paulson's hand and he had to take them over.
Mr Paulson's proposal to purchase distressed mortgage-related securities poses a classic problem of asymmetric information. The securities are hard to value but the sellers know more about them than the buyer: in any auction process the Treasury would end up with the dregs. The proposal is also rife with latent conflict of interest issues. Unless the Treasury overpays for the securities, the scheme would not bring relief. But if the scheme is used to bail out insolvent banks, what will the taxpayers get in return?
Barack Obama has outlined four conditions that ought to be imposed: an upside for the taxpayers as well as a downside; a bipartisan board to oversee the process; help for the homeowners as well as the holders of the mortgages; and some limits on the compensation of those who benefit from taxpayers' money. These are the right principles. They could be applied more effectively by capitalising the institutions that are burdened by distressed securities directly rather than by relieving them of the distressed securities.
The injection of government funds would be much less problematic if it were applied to the equity rather than the balance sheet. $700bn in preferred stock with warrants may be sufficient to make up the hole created by the bursting of the housing bubble. By contrast, the addition of $700bn on the demand side of an $11,000bn market may not be sufficient to arrest the decline of housing prices.
Something also needs to be done on the supply side. To prevent housing prices from overshooting on the downside, the number of foreclosures has to be kept to a minimum. The terms of mortgages need to be adjusted to the homeowners' ability to pay.
The rescue package leaves this task undone. Making the necessary modifications is a delicate task rendered more difficult by the fact that many mortgages have been sliced up and repackaged in the form of collateralised debt obligations. The holders of the various slices have conflicting interests. It would take too long to work out the conflicts to include a mortgage modification scheme in the rescue package. The package can, however, prepare the ground by modifying bankruptcy law as it relates to principal residences.
Now that the crisis has been unleashed a large-scale rescue package is probably indispensable to bring it under control. Rebuilding the depleted balance sheets of the banking system is the right way to go. Not every bank deserves to be saved, but the experts at the Federal Reserve, with proper supervision, can be counted on to make the right judgments. Managements that are reluctant to accept the consequences of past mistakes could be penalised by depriving them of the Fed's credit facilities. Making government funds available should also encourage the private sector to participate in recapitalising the banking sector and bringing the financial crisis to a close.
The writer is chairman of Soros Fund Management
Copyright The Financial Times Limited 2008
"FT" and "Financial Times" are trademarks of the Financial Times. Privacy policy | Terms
© Copyright The Financial Times Ltd 2008.
Paulson cannot be allowed a blank cheque
By George Soros
Published: September 25 2008
Hank Paulson's $700bn rescue package has run into difficulty on Capitol Hill. Rightly so: it was ill-conceived. Congress would be abdicating its responsibility if it gave the Treasury secretary a blank cheque. The bill submitted to Congress even had language in it that would exempt the secretary's decisions from review by any court or administrative agency - the ultimate fulfillment of the Bush administration's dream of a unitary executive.
Mr Paulson's record does not inspire the confidence necessary to give him discretion over $700bn. His actions last week brought on the crisis that makes rescue necessary. On Monday he allowed Lehman Brothers to fail and refused to make government funds available to save AIG. By Tuesday he had to reverse himself and provide an $85bn loan to AIG on punitive terms. The demise of Lehman disrupted the commercial paper market. A large money market fund "broke the buck" and investment banks that relied on the commercial paper market had difficulty financing their operations. By Thursday a run on money market funds was in full swing and Morgan Stanley Goldman Sachswe came as close to a meltdown as at any time since the 1930s. Mr Paulson reversed again and proposed a systemic rescue.
Mr Paulson had got a blank cheque from Congress once before. That was to deal with Fannie Mae and Freddie Mac. His solution landed the housing market in the worst of all worlds: their managements knew that if the blank cheques were filled out they would lose their jobs, so they retrenched and made mortgages more expensive and less available. Within a few weeks the market forced Mr Paulson's hand and he had to take them over.
Mr Paulson's proposal to purchase distressed mortgage-related securities poses a classic problem of asymmetric information. The securities are hard to value but the sellers know more about them than the buyer: in any auction process the Treasury would end up with the dregs. The proposal is also rife with latent conflict of interest issues. Unless the Treasury overpays for the securities, the scheme would not bring relief. But if the scheme is used to bail out insolvent banks, what will the taxpayers get in return?
Barack Obama has outlined four conditions that ought to be imposed: an upside for the taxpayers as well as a downside; a bipartisan board to oversee the process; help for the homeowners as well as the holders of the mortgages; and some limits on the compensation of those who benefit from taxpayers' money. These are the right principles. They could be applied more effectively by capitalising the institutions that are burdened by distressed securities directly rather than by relieving them of the distressed securities.
The injection of government funds would be much less problematic if it were applied to the equity rather than the balance sheet. $700bn in preferred stock with warrants may be sufficient to make up the hole created by the bursting of the housing bubble. By contrast, the addition of $700bn on the demand side of an $11,000bn market may not be sufficient to arrest the decline of housing prices.
Something also needs to be done on the supply side. To prevent housing prices from overshooting on the downside, the number of foreclosures has to be kept to a minimum. The terms of mortgages need to be adjusted to the homeowners' ability to pay.
The rescue package leaves this task undone. Making the necessary modifications is a delicate task rendered more difficult by the fact that many mortgages have been sliced up and repackaged in the form of collateralised debt obligations. The holders of the various slices have conflicting interests. It would take too long to work out the conflicts to include a mortgage modification scheme in the rescue package. The package can, however, prepare the ground by modifying bankruptcy law as it relates to principal residences.
Now that the crisis has been unleashed a large-scale rescue package is probably indispensable to bring it under control. Rebuilding the depleted balance sheets of the banking system is the right way to go. Not every bank deserves to be saved, but the experts at the Federal Reserve, with proper supervision, can be counted on to make the right judgments. Managements that are reluctant to accept the consequences of past mistakes could be penalised by depriving them of the Fed's credit facilities. Making government funds available should also encourage the private sector to participate in recapitalising the banking sector and bringing the financial crisis to a close.
The writer is chairman of Soros Fund Management
Copyright The Financial Times Limited 2008
"FT" and "Financial Times" are trademarks of the Financial Times. Privacy policy | Terms
© Copyright The Financial Times Ltd 2008.
The future is one nation The two-state approach in the Middle East has failed. There is a fairer, more durable solution
The future is one nation
The two-state approach in the Middle East has failed. There is a fairer, more durable solution
Ghada Karmi
The Guardian,
Thursday September 25 2008
http://www.guardian.co.uk/commentisfree/2008/sep/25/middleeast
Imagine the scene: the United Nations general assembly meets to discuss a resolution to the Israel-Palestine conflict. Unlike previous resolutions, which have been based on a Jewish state in most of historic Palestine with Palestinians relegated to the remnants, this one calls for a new state, covering what is now Israel, the West Bank and Gaza, whose present and former inhabitants are equal under the law. Such a resolution has, in fact, already been drafted and discussions have begun to place it on the agenda at the UN.
The one-state solution is now part of mainstream discourse. Increasingly, Palestinians - and some Israelis - support it as the only alternative to a Palestinian state subordinate to Israel. One-state groups have sprung up and conferences and studies are under way.
A UN resolution is the logical next step, underlining the issue's global importance and exposing the inequity and dishonesty of the two-state solution, to replace it with something fairer and more durable. It would be encapsulated in the following clauses, part of the draft UN resolution for a one-state solution, which has been under discussion for six months. Its principal authors are my fellow Palestinian Karl Sabbagh and myself:
"The general assembly notes the failure of recent efforts made by regional and international parties to resolve the conflict through the creation of two states; Recalling the recent history of the former [Palestine] Mandate territory as a land where Arabs and Jews shared equal rights of habitation; Reviewing Israel's non-compliance with UN Resolution 194, requiring Israel to repatriate the Palestinian refugees, and its illegal conduct in the occupied territories.
"Calls upon representatives of Israel and Palestine to agree on behalf of their peoples to share the land between the Mediterranean and the river Jordan ... by setting up a state which is democratic and secular, in which the rights of all people living within its borders to freedom of worship, security, and equality under the law are enshrined in a new constitution, to replace the separate forms of government that apply currently in Israel, the West Bank and Gaza."
The two-state adherents will not approve. David Miliband at the Labour party conference this week continued to argue for a two-state solution. Tomorrow in New York, Mahmoud Abbas will petition George Bush for the same thing. Both are on a hiding to nothing.
The pace of Israeli colonisation, unimpeded since 1967, redoubled after the Oslo accords, demonstrating Israel's aversion to a two-state solution. By 2007, the West Bank Jewish settler population had reached 282,000. In East Jerusalem, it rose to 200,000, massively Judaising the city and precluding it as a Palestinian capital. Today the West Bank is a jigsaw of settlements, bypass roads and barriers, making an independent state impossible. Gaza is a besieged enclave. In 2006 the UN special rapporteur in the Palestinian territories concluded that "a two-state solution is unattainable". Avraham Burg, former Knesset speaker, told the Israeli daily Haaretz in June that "time was running out for the two-state solution".
Scores of others have articulated the same view. The peace process predicated on the two-state solution is stagnant, and a momentum has started towards the obvious alternative, a unitary state. This month a new forum, encompassing Palestinian personalities from the occupied territories and outside, has published a petition in the Arabic daily Al-Hayat to halt negotiations, annex the territories to Israel and demand equal rights in one state. This echoes many recent Palestinian demands to dissolve the Palestinian Authority and start an anti-apartheid campaign for equal rights.
The UN high commissioner for human rights has referred us to Robert Serry, the UN official responsible for the peace process, who stated that UN policy must conform to the Palestinian formal position, the two-state solution. A change in that position is not unthinkable. For our resolution to be discussed at the UN, a member state would have to present it, and several are privately known to support our aims.
A unitary state is inevitable. Establishing an exclusive state defined along ethnic-religious lines and excluding its previous inhabitants was unjust and ultimately unsustainable. No political acrobatics will alter this. The sooner the UN, which unwisely created Israel in the first place, takes charge of the consequences, the better it will be for Palestinians, for Israelis and for the region as a whole.
· Ghada Karmi is research fellow at the Institute of Arab and Islamic Studies, Exeter University. g.karmi@exeter.ac.uk
The two-state approach in the Middle East has failed. There is a fairer, more durable solution
Ghada Karmi
The Guardian,
Thursday September 25 2008
http://www.guardian.co.uk/commentisfree/2008/sep/25/middleeast
Imagine the scene: the United Nations general assembly meets to discuss a resolution to the Israel-Palestine conflict. Unlike previous resolutions, which have been based on a Jewish state in most of historic Palestine with Palestinians relegated to the remnants, this one calls for a new state, covering what is now Israel, the West Bank and Gaza, whose present and former inhabitants are equal under the law. Such a resolution has, in fact, already been drafted and discussions have begun to place it on the agenda at the UN.
The one-state solution is now part of mainstream discourse. Increasingly, Palestinians - and some Israelis - support it as the only alternative to a Palestinian state subordinate to Israel. One-state groups have sprung up and conferences and studies are under way.
A UN resolution is the logical next step, underlining the issue's global importance and exposing the inequity and dishonesty of the two-state solution, to replace it with something fairer and more durable. It would be encapsulated in the following clauses, part of the draft UN resolution for a one-state solution, which has been under discussion for six months. Its principal authors are my fellow Palestinian Karl Sabbagh and myself:
"The general assembly notes the failure of recent efforts made by regional and international parties to resolve the conflict through the creation of two states; Recalling the recent history of the former [Palestine] Mandate territory as a land where Arabs and Jews shared equal rights of habitation; Reviewing Israel's non-compliance with UN Resolution 194, requiring Israel to repatriate the Palestinian refugees, and its illegal conduct in the occupied territories.
"Calls upon representatives of Israel and Palestine to agree on behalf of their peoples to share the land between the Mediterranean and the river Jordan ... by setting up a state which is democratic and secular, in which the rights of all people living within its borders to freedom of worship, security, and equality under the law are enshrined in a new constitution, to replace the separate forms of government that apply currently in Israel, the West Bank and Gaza."
The two-state adherents will not approve. David Miliband at the Labour party conference this week continued to argue for a two-state solution. Tomorrow in New York, Mahmoud Abbas will petition George Bush for the same thing. Both are on a hiding to nothing.
The pace of Israeli colonisation, unimpeded since 1967, redoubled after the Oslo accords, demonstrating Israel's aversion to a two-state solution. By 2007, the West Bank Jewish settler population had reached 282,000. In East Jerusalem, it rose to 200,000, massively Judaising the city and precluding it as a Palestinian capital. Today the West Bank is a jigsaw of settlements, bypass roads and barriers, making an independent state impossible. Gaza is a besieged enclave. In 2006 the UN special rapporteur in the Palestinian territories concluded that "a two-state solution is unattainable". Avraham Burg, former Knesset speaker, told the Israeli daily Haaretz in June that "time was running out for the two-state solution".
Scores of others have articulated the same view. The peace process predicated on the two-state solution is stagnant, and a momentum has started towards the obvious alternative, a unitary state. This month a new forum, encompassing Palestinian personalities from the occupied territories and outside, has published a petition in the Arabic daily Al-Hayat to halt negotiations, annex the territories to Israel and demand equal rights in one state. This echoes many recent Palestinian demands to dissolve the Palestinian Authority and start an anti-apartheid campaign for equal rights.
The UN high commissioner for human rights has referred us to Robert Serry, the UN official responsible for the peace process, who stated that UN policy must conform to the Palestinian formal position, the two-state solution. A change in that position is not unthinkable. For our resolution to be discussed at the UN, a member state would have to present it, and several are privately known to support our aims.
A unitary state is inevitable. Establishing an exclusive state defined along ethnic-religious lines and excluding its previous inhabitants was unjust and ultimately unsustainable. No political acrobatics will alter this. The sooner the UN, which unwisely created Israel in the first place, takes charge of the consequences, the better it will be for Palestinians, for Israelis and for the region as a whole.
· Ghada Karmi is research fellow at the Institute of Arab and Islamic Studies, Exeter University. g.karmi@exeter.ac.uk
Wednesday, September 24, 2008
Save the world? Hank just didn't have a clue The staggering incompetence of the US Treasury Secretary is now acknowledged - and is a disaster for Geor
Save the world? Hank just didn't have a clue
The staggering incompetence of the US Treasury Secretary is now acknowledged - and is a disaster for George Bush
Anatole Kaletsky
The Emperor has no clothes. If you want to know why American capitalism is on the brink of disaster, but also want to understand what will save it, then log on to the C-Span congressional website and watch the interrogations of Henry Paulson, the US Treasury Secretary, by the Senate and House banking committees.
Until last week, I was in a minority of one in arguing that Mr Paulson was personally responsible for suddenly turning the painful but manageable credit crunch that had been grinding away 18 months in the background of the US economy into a global catastrophe. Mr Paulson's appearances on Capitol Hill, marked by the characteristic Bush-era combination of arrogance and incompetence, are turning my once-outlandish view into conventional wisdom: Henry Paulson is to finance what Donald Rumsfeld was to military strategy, Dick Cheney to geopolitics and Michael Chertoff to flood defence.
Mr Paulson may be a former chairman of Goldman Sachs, but as US Treasury Secretary he does not know what he is doing. His recent blunders, starting with the “rescue” of Fannie Mae, have triggered unintended consequences around the world, resulting in the death-spiral of financial values. But last Friday Mr Paulson outdid even these Rumsfeldian achievements, when he demanded $700 billion from Congress for a “comprehensive and fundamental” solution to the global financial crisis, without apparently having any idea of what he would actually do.
The good news - before I return to the perils of Mr Paulson - is that his blunders no longer matter very much. There will still be a huge US government bank bailout, which will probably avert a disastrous slump in the US and global economies. But because Mr Paulson has lost the political initiative, this bailout will now be led by the Democratic leadership in Congress and will be structured around its priorities - relief from mortgage foreclosures, restrictions on bankers' pay and big government shareholdings in US banks. For President Bush it is a disaster, dashing his last faint hope of having a tangible achievement to his name before he leaves office.
How did things come to such a pass? When Mr Paulson announced his $700 billion “plan” last Friday, everybody in the financial world (myself included) heaved a sigh of relief. Finally, it seemed, the US Government was going to do whatever it takes to stabilise the world financial system. The universal assumption was that Mr Paulson would present a detailed plan of action over the weekend, putting a safety net under the value of homes, mortgages and related assets. Yet all that appeared by Saturday evening was a three-page legislative outline, with no hint of the mechanisms to be used. The only substantive clause in the draft was a swaggering demand for untrammelled power: “Decisions by the Secretary pursuant to this Act are non-reviewable and may not be reviewed by any court of law or any administrative agency.”
When further details of the Paulson plan failed to appear on Sunday it was assumed that the details were being untangled in late-night political negotiations. When there was still no plan on Monday, the view was that Mr Paulson must be holding back the details for his testimony to the Senate Banking Committee the following day. But then, to everyone's astonishment, Mr Paulson turned up to the committee on Tuesday morning with only the briefest opening statement, which simply repeated what he had already said the week before: the sky was falling and the only way to stop it was to give him authority over $700 billion in public money, to be spent in unspecified ways.
And suddenly the sky did fall down - not on the world economy, but on Mr Paulson. Consider the reactions from American politicians, including Republicans: “Stunning and unprecedented in its lack of detail”... “a $700 billion blank cheque to Wall Street”... “neither workable nor comprehensive”... “foolish waste of massive taxpayer funds”... “eerily similar to the rush to war in Iraq”. Best of all was John McCain's comment: “When we're talking about a trillion dollars of taxpayer money, ‘trust me' just isn't good enough.”
At first, nobody could quite believe Mr Paulson was incompetent. Was it really possible that the Treasury Secretary had no idea of what to do with this unprecedented financial firepower? Perhaps his silence on crucial issues such as what he would pay for the banks' “troubled assets” was just a tactical ruse.
But as the cross-examination rolled on, and Mr Paulson just waffled - “we will ask experts to advise us”, “we will get the best and brightest financiers to suggest ideas” - the terrible truth dawned. There was no such thing as a Paulson plan. Not only did Mr Paulson not know what he was doing. He did not know what he was talking about. When pressed to offer at least some basic principles for his rescue, Mr Paulson had no answers. When challenged about limits to executive remuneration and taxpayer stakes in future profits of participating banks, he brusquely rejected all such proposals - on the amazing ground that they might discourage some of the stronger banks from taking advantage of government support!
Could he really be so clueless? Surely not. Why, then, has Mr Paulson failed? His inability to think seriously about solutions to the present financial crisis probably has deep ideological roots. Just as Mr Rumsfeld could simply not believe that US foreign policy might be misguided, Mr Paulson simply cannot believe that markets can be fundamentally wrong. He therefore cannot imagine, for example, that government judgments about the value of bank securities may, in some circumstances, reflect economic realities more accurately than market prices. Since some such recognition of market failure is fundamental to any understanding of banking crises, it is not surprising that Mr Paulson finds it difficult to come up with a credible solution.
The ideological pendulum is now swinging but what is needed to avoid future crises is not necessarily more regulation. It is better-quality regulation, managed by people who understand and respect markets but do not worship them. Markets are usually right, but sometimes they are dangerously wrong - and they need to be managed with decisive and competent government intervention.
The people who do not understand the role of government should not be regulating markets any more than they should be fighting wars or managing flood defences. P.J.O'Rourke, the conservative writer, once remarked: “The Republicans are a party that says government doesn't work - and then get elected and prove it.” This should be the epitaph for the Bush Administration - and Mr Paulson.
http://www.timesonline.co.uk/tol/comment/columnists/anatole_kaletsky/article4820549.ece
The staggering incompetence of the US Treasury Secretary is now acknowledged - and is a disaster for George Bush
Anatole Kaletsky
The Emperor has no clothes. If you want to know why American capitalism is on the brink of disaster, but also want to understand what will save it, then log on to the C-Span congressional website and watch the interrogations of Henry Paulson, the US Treasury Secretary, by the Senate and House banking committees.
Until last week, I was in a minority of one in arguing that Mr Paulson was personally responsible for suddenly turning the painful but manageable credit crunch that had been grinding away 18 months in the background of the US economy into a global catastrophe. Mr Paulson's appearances on Capitol Hill, marked by the characteristic Bush-era combination of arrogance and incompetence, are turning my once-outlandish view into conventional wisdom: Henry Paulson is to finance what Donald Rumsfeld was to military strategy, Dick Cheney to geopolitics and Michael Chertoff to flood defence.
Mr Paulson may be a former chairman of Goldman Sachs, but as US Treasury Secretary he does not know what he is doing. His recent blunders, starting with the “rescue” of Fannie Mae, have triggered unintended consequences around the world, resulting in the death-spiral of financial values. But last Friday Mr Paulson outdid even these Rumsfeldian achievements, when he demanded $700 billion from Congress for a “comprehensive and fundamental” solution to the global financial crisis, without apparently having any idea of what he would actually do.
The good news - before I return to the perils of Mr Paulson - is that his blunders no longer matter very much. There will still be a huge US government bank bailout, which will probably avert a disastrous slump in the US and global economies. But because Mr Paulson has lost the political initiative, this bailout will now be led by the Democratic leadership in Congress and will be structured around its priorities - relief from mortgage foreclosures, restrictions on bankers' pay and big government shareholdings in US banks. For President Bush it is a disaster, dashing his last faint hope of having a tangible achievement to his name before he leaves office.
How did things come to such a pass? When Mr Paulson announced his $700 billion “plan” last Friday, everybody in the financial world (myself included) heaved a sigh of relief. Finally, it seemed, the US Government was going to do whatever it takes to stabilise the world financial system. The universal assumption was that Mr Paulson would present a detailed plan of action over the weekend, putting a safety net under the value of homes, mortgages and related assets. Yet all that appeared by Saturday evening was a three-page legislative outline, with no hint of the mechanisms to be used. The only substantive clause in the draft was a swaggering demand for untrammelled power: “Decisions by the Secretary pursuant to this Act are non-reviewable and may not be reviewed by any court of law or any administrative agency.”
When further details of the Paulson plan failed to appear on Sunday it was assumed that the details were being untangled in late-night political negotiations. When there was still no plan on Monday, the view was that Mr Paulson must be holding back the details for his testimony to the Senate Banking Committee the following day. But then, to everyone's astonishment, Mr Paulson turned up to the committee on Tuesday morning with only the briefest opening statement, which simply repeated what he had already said the week before: the sky was falling and the only way to stop it was to give him authority over $700 billion in public money, to be spent in unspecified ways.
And suddenly the sky did fall down - not on the world economy, but on Mr Paulson. Consider the reactions from American politicians, including Republicans: “Stunning and unprecedented in its lack of detail”... “a $700 billion blank cheque to Wall Street”... “neither workable nor comprehensive”... “foolish waste of massive taxpayer funds”... “eerily similar to the rush to war in Iraq”. Best of all was John McCain's comment: “When we're talking about a trillion dollars of taxpayer money, ‘trust me' just isn't good enough.”
At first, nobody could quite believe Mr Paulson was incompetent. Was it really possible that the Treasury Secretary had no idea of what to do with this unprecedented financial firepower? Perhaps his silence on crucial issues such as what he would pay for the banks' “troubled assets” was just a tactical ruse.
But as the cross-examination rolled on, and Mr Paulson just waffled - “we will ask experts to advise us”, “we will get the best and brightest financiers to suggest ideas” - the terrible truth dawned. There was no such thing as a Paulson plan. Not only did Mr Paulson not know what he was doing. He did not know what he was talking about. When pressed to offer at least some basic principles for his rescue, Mr Paulson had no answers. When challenged about limits to executive remuneration and taxpayer stakes in future profits of participating banks, he brusquely rejected all such proposals - on the amazing ground that they might discourage some of the stronger banks from taking advantage of government support!
Could he really be so clueless? Surely not. Why, then, has Mr Paulson failed? His inability to think seriously about solutions to the present financial crisis probably has deep ideological roots. Just as Mr Rumsfeld could simply not believe that US foreign policy might be misguided, Mr Paulson simply cannot believe that markets can be fundamentally wrong. He therefore cannot imagine, for example, that government judgments about the value of bank securities may, in some circumstances, reflect economic realities more accurately than market prices. Since some such recognition of market failure is fundamental to any understanding of banking crises, it is not surprising that Mr Paulson finds it difficult to come up with a credible solution.
The ideological pendulum is now swinging but what is needed to avoid future crises is not necessarily more regulation. It is better-quality regulation, managed by people who understand and respect markets but do not worship them. Markets are usually right, but sometimes they are dangerously wrong - and they need to be managed with decisive and competent government intervention.
The people who do not understand the role of government should not be regulating markets any more than they should be fighting wars or managing flood defences. P.J.O'Rourke, the conservative writer, once remarked: “The Republicans are a party that says government doesn't work - and then get elected and prove it.” This should be the epitaph for the Bush Administration - and Mr Paulson.
http://www.timesonline.co.uk/tol/comment/columnists/anatole_kaletsky/article4820549.ece
Dr. Frankenstein's Wall Street By Victor Davis Hanson
Dr. Frankenstein's Wall Street
By Victor Davis Hanson
When the mortgage bubble burst, Americans were "shocked" at how many Wall Street buccaneers had been gambling in a vast pyramid scheme with someone else's money. Paper fortunes were made buying and selling questionable sub-prime mortgages on the silly assumption that such gargantuan inside profiting would always expand -- even as the number of homebuyers able to buy overpriced properties was shrinking.
Now after the recent crash in sub-prime mortgages and the stock of several investment firms, a trillion dollars in "assets" could be nearly worthless. An already indebted American government must restore some sort of trust to banks and markets by either printing money or borrowing hundreds of billions of dollars from foreign creditors to guarantee loans.
All that remains of this Ponzi scheme is the election-year blame game. Republicans charge that important financial firewalls were dismantled by the Clinton administration while insider liberal senators got shady campaign donations in exchange for aiding Wall Street. Democrats counter that the laissez-faire capitalism espoused by Republicans for two decades encouraged financial piracy while tax policy favored the rich speculator over the middle-class wage earner.
But no one dares to ask what really drove the wheeler-dealer portfolio managers. Who re-elected these shady politicians of both parties? Who fostered the cash-in culture in which both Wall Street profit mongering and Washington lobbying are nourished and thrive? We citizens did -- red-state conservatives and blue-state liberals, Republicans and Democrats, alike. We may be victims of Wall Street greed -- but not quite innocent victims.
Let me explain. The profiteering was not just the result of a few thousand scoundrels on Wall Street or in Washington, as greedy and as bonus-hungry as many of them no doubt were. Look at the housing market as a sort of musical chairs in which everyone profited as long he grabbed a seat when the music stopped. Then those left standing -- with high-priced loans and negative equity when the crash came -- defaulted and stuck taxpayers with debt in the billions of dollars. But until then, most owners who had sold homes cashed out beyond their wildest dreams.
Thousands of dollars in past profits are still in sellers' bank accounts or were spent on their own consumption. If the shaky buyer at the bottom of the pyramid should not have borrowed to buy an overpriced house, then the luckier seller higher up hardly worried that the cash-strapped fool was paying him way too much with unsecured borrowed money.
We created the cultural climate for this shared madness. Television shows advised how to "flip" a house after putting in cosmetic improvements. Real-estate seminars and popular videos convinced us that homes were not places to live in and raise a family but rather no different from piles of chips on a Vegas table.
We created the phony populist creed that everyone deserved to own a house. So lawmakers got the message to relax lending standards in service to "fairness." But Americans forgot that historically nearly four in 10 of us aren't ever ready, or able, to sacrifice for a down payment, monthly mortgage bills, home maintenance and yearly taxes -- and so should stick to renting.
The problem went way beyond real-estate fantasies. Five-percent interest as a return on our money was once considered pretty good -- especially inasmuch as a factory or farm on the other side of the banking equation could not really stay in business paying 10 percent in interest to banks for its necessary borrowing.
But soon retirement-account holders and institutional investors began to expect as a given 7, 10 -- and even 20 -- percent "return" on their portfolios. Wage earners and professionals alike compared the glossy brochures that appeared in the mail, and then jumped to this 401(k) investment or that mutual fund to "maximize" retirement portfolio earnings.
How Wall Street managers, eager for more multimillion-dollar bonuses, planned to deliver on their promised sky-high returns no one asked. But it often proved to be more by hook-and-crook shell games than by financing new productive businesses or by extending credit for the production of real goods in vital plants.
In a larger sense, this zeal for quick profits and easy money reflected an oblivious too-good-to-be-true culture in which we drove larger cars but demanded more oil drilling from everyone except ourselves. We expected both expanded government entitlements and lower taxes.
Our government borrowed ever more money from foreign creditors, because it was a collective reflection of our own profligate financial habits. Of course, we should reform Wall Street and Washington -- and punish severely the crooks in both places. But Americans should remember that Frankenstein was not the name of the monster but of its creator.
Victor Davis Hanson is a classicist and historian at the Hoover Institution, Stanford University, and author, most recently, of "A War Like No Other: How the Athenians and Spartans Fought the Peloponnesian War." You can reach him by e-mailing author@victorhanson.com.
http://www.realclearpolitics.com/articles/2008/09/dr_frankensteins_wall_street.html
By Victor Davis Hanson
When the mortgage bubble burst, Americans were "shocked" at how many Wall Street buccaneers had been gambling in a vast pyramid scheme with someone else's money. Paper fortunes were made buying and selling questionable sub-prime mortgages on the silly assumption that such gargantuan inside profiting would always expand -- even as the number of homebuyers able to buy overpriced properties was shrinking.
Now after the recent crash in sub-prime mortgages and the stock of several investment firms, a trillion dollars in "assets" could be nearly worthless. An already indebted American government must restore some sort of trust to banks and markets by either printing money or borrowing hundreds of billions of dollars from foreign creditors to guarantee loans.
All that remains of this Ponzi scheme is the election-year blame game. Republicans charge that important financial firewalls were dismantled by the Clinton administration while insider liberal senators got shady campaign donations in exchange for aiding Wall Street. Democrats counter that the laissez-faire capitalism espoused by Republicans for two decades encouraged financial piracy while tax policy favored the rich speculator over the middle-class wage earner.
But no one dares to ask what really drove the wheeler-dealer portfolio managers. Who re-elected these shady politicians of both parties? Who fostered the cash-in culture in which both Wall Street profit mongering and Washington lobbying are nourished and thrive? We citizens did -- red-state conservatives and blue-state liberals, Republicans and Democrats, alike. We may be victims of Wall Street greed -- but not quite innocent victims.
Let me explain. The profiteering was not just the result of a few thousand scoundrels on Wall Street or in Washington, as greedy and as bonus-hungry as many of them no doubt were. Look at the housing market as a sort of musical chairs in which everyone profited as long he grabbed a seat when the music stopped. Then those left standing -- with high-priced loans and negative equity when the crash came -- defaulted and stuck taxpayers with debt in the billions of dollars. But until then, most owners who had sold homes cashed out beyond their wildest dreams.
Thousands of dollars in past profits are still in sellers' bank accounts or were spent on their own consumption. If the shaky buyer at the bottom of the pyramid should not have borrowed to buy an overpriced house, then the luckier seller higher up hardly worried that the cash-strapped fool was paying him way too much with unsecured borrowed money.
We created the cultural climate for this shared madness. Television shows advised how to "flip" a house after putting in cosmetic improvements. Real-estate seminars and popular videos convinced us that homes were not places to live in and raise a family but rather no different from piles of chips on a Vegas table.
We created the phony populist creed that everyone deserved to own a house. So lawmakers got the message to relax lending standards in service to "fairness." But Americans forgot that historically nearly four in 10 of us aren't ever ready, or able, to sacrifice for a down payment, monthly mortgage bills, home maintenance and yearly taxes -- and so should stick to renting.
The problem went way beyond real-estate fantasies. Five-percent interest as a return on our money was once considered pretty good -- especially inasmuch as a factory or farm on the other side of the banking equation could not really stay in business paying 10 percent in interest to banks for its necessary borrowing.
But soon retirement-account holders and institutional investors began to expect as a given 7, 10 -- and even 20 -- percent "return" on their portfolios. Wage earners and professionals alike compared the glossy brochures that appeared in the mail, and then jumped to this 401(k) investment or that mutual fund to "maximize" retirement portfolio earnings.
How Wall Street managers, eager for more multimillion-dollar bonuses, planned to deliver on their promised sky-high returns no one asked. But it often proved to be more by hook-and-crook shell games than by financing new productive businesses or by extending credit for the production of real goods in vital plants.
In a larger sense, this zeal for quick profits and easy money reflected an oblivious too-good-to-be-true culture in which we drove larger cars but demanded more oil drilling from everyone except ourselves. We expected both expanded government entitlements and lower taxes.
Our government borrowed ever more money from foreign creditors, because it was a collective reflection of our own profligate financial habits. Of course, we should reform Wall Street and Washington -- and punish severely the crooks in both places. But Americans should remember that Frankenstein was not the name of the monster but of its creator.
Victor Davis Hanson is a classicist and historian at the Hoover Institution, Stanford University, and author, most recently, of "A War Like No Other: How the Athenians and Spartans Fought the Peloponnesian War." You can reach him by e-mailing author@victorhanson.com.
http://www.realclearpolitics.com/articles/2008/09/dr_frankensteins_wall_street.html
How and Why Congress Should Play for Time The Financial Crisis By ROBERT WEISSMAN
How and Why Congress Should Play for Time
The Financial Crisis
By ROBERT WEISSMAN
Here's the situation: Thanks to its own inability to control itself, Wall Street is now facing a crisis unmatched since the Great Depression. Unfortunately, a collapse of the financial sector would not only hurt rich investors, it would devastate the global economy. So, government action is imperative.
Treasury Secretary Henry Paulson and Federal Reserve Chair Ben Bernanke say immediate Congressional legislation is imperative. And Congress is adjourning at the end of this week, with Members eager to get back to their districts and states to campaign.
But there is no way to handle the complexity of a $700 billion bailout in a few days.
There are some really hard questions about how to structure a Wall Street bailout program. Financial firms have to be subsidized, but they also have to feel some serious pain. Figuring out who to subsidize, and how much, is tricky. Determining how to ensure taxpayers get the best and fairest payback from the subsidized financial institutions is complicated. And developing a transparent and accountable structure to administer a $700 billion program buying and selling exotic securities is no easy matter.
Meanwhile, it would be unconscionable to bail out Wall Street but not protect homeowners and renters in homes that may be foreclosed on. Between allegedly super-sophisticated Wall Street hot shots and people who were fooled into taking bad mortgages -- or who have the misfortunate of renting from a landlord who's being foreclosed on -- it's obvious who is more deserving of government assistance. But Congress and the President have not been able to agree on plans anywhere near commensurate with the scale of the problem over the past year-plus. It's very hard to see how a proper and sufficiently scaled system of protection and assistance for homeowners and vulnerable renters is agreed upon in a few days.
The current financial mess is the outgrowth of a quarter-century rollback of regulations that controlled what financial firms could do, and protected financial titans from their own worst instincts. Wall Street is chastened right now, but it is a 100 percent certainty that the speculative culture will reemerge with a vengeance -- and in much shorter order than many now seem to believe -- unless regulatory standards are imposed to prevent a repeat of the current disaster. Legislation affording Wall Street what may be the biggest bailout in history is the time to attach new, robust regulatory rules. There are a lot of good ideas floating around about sound financial regulation, but the details are extraordinarily intricate and convoluted. It's not the kind of thing you can easily handle in a few days, even if you burn the candle at both ends.
Given the time pressure and the realities of the legislative process, is there anything Congress can do, other than make some minor adjustments to the Paulson proposal that asks Congress to give the Treasury Secretary $700 billion and trust him to make good decisions?
Yes. Congress can play for time.
Here are two ways Congress can give itself more time to do justice to the bailout legislation.
Option One: Congressional leadership commits itself publicly to doing bailout legislation. The leaders commit to a hard date -- maybe a week from Friday, maybe two weeks -- and announce that the Congress will reconvene on that date, with a guaranteed vote on the same day. They might even usher through legislation now that limits the length of debate and guarantees an up-or-down vote. The urgency to act now reflects Wall Street's crystallized panic. An assurance of pending action should quiet the panic enough for the economy to continue to function.
A variant of this idea is that Congress commit to adopt bailout legislation in a lame duck session, after the election. Even with a guaranteed vote, this option would enable more extended investigation, hearings and debate. But it would drag the process out longer, and a judgment would have to be made that the financial markets could remain calm enough, for long enough.
Option Two: Congress adopts the Paulson plan this week, with two major modifications. Instead of the requested $700 billion, Congress appropriates $100 billion. Congressional leaders commit to reconvene in a lame duck session, and guarantee a vote on the remaining $600 billion. However, the $600 billion package includes provisions that direct how the bailout is to be conducted, includes protections for homeowners, and imposes meaningful regulatory standards. The second key feature of the initial appropriating legislation is that it specifies firms benefiting from the $100 billion bailout fund agree to accept the terms imposed on the $600 billion bailout fund. That way, only the most troubled firms step up right away for bailouts, and no firm is able to escape the conditions imposed after Congress has more time to think through the implications of the bailout deal.
There is real urgency to act. But Congress still has the ability to dodge the Paulson steamroller and buy some time to do legitimate legislating.
Robert Weissman is editor of the Washington, D.C.-based Multinational Monitor and director of Essential Action.
http://www.counterpunch.org/weissman09242008.html
The Financial Crisis
By ROBERT WEISSMAN
Here's the situation: Thanks to its own inability to control itself, Wall Street is now facing a crisis unmatched since the Great Depression. Unfortunately, a collapse of the financial sector would not only hurt rich investors, it would devastate the global economy. So, government action is imperative.
Treasury Secretary Henry Paulson and Federal Reserve Chair Ben Bernanke say immediate Congressional legislation is imperative. And Congress is adjourning at the end of this week, with Members eager to get back to their districts and states to campaign.
But there is no way to handle the complexity of a $700 billion bailout in a few days.
There are some really hard questions about how to structure a Wall Street bailout program. Financial firms have to be subsidized, but they also have to feel some serious pain. Figuring out who to subsidize, and how much, is tricky. Determining how to ensure taxpayers get the best and fairest payback from the subsidized financial institutions is complicated. And developing a transparent and accountable structure to administer a $700 billion program buying and selling exotic securities is no easy matter.
Meanwhile, it would be unconscionable to bail out Wall Street but not protect homeowners and renters in homes that may be foreclosed on. Between allegedly super-sophisticated Wall Street hot shots and people who were fooled into taking bad mortgages -- or who have the misfortunate of renting from a landlord who's being foreclosed on -- it's obvious who is more deserving of government assistance. But Congress and the President have not been able to agree on plans anywhere near commensurate with the scale of the problem over the past year-plus. It's very hard to see how a proper and sufficiently scaled system of protection and assistance for homeowners and vulnerable renters is agreed upon in a few days.
The current financial mess is the outgrowth of a quarter-century rollback of regulations that controlled what financial firms could do, and protected financial titans from their own worst instincts. Wall Street is chastened right now, but it is a 100 percent certainty that the speculative culture will reemerge with a vengeance -- and in much shorter order than many now seem to believe -- unless regulatory standards are imposed to prevent a repeat of the current disaster. Legislation affording Wall Street what may be the biggest bailout in history is the time to attach new, robust regulatory rules. There are a lot of good ideas floating around about sound financial regulation, but the details are extraordinarily intricate and convoluted. It's not the kind of thing you can easily handle in a few days, even if you burn the candle at both ends.
Given the time pressure and the realities of the legislative process, is there anything Congress can do, other than make some minor adjustments to the Paulson proposal that asks Congress to give the Treasury Secretary $700 billion and trust him to make good decisions?
Yes. Congress can play for time.
Here are two ways Congress can give itself more time to do justice to the bailout legislation.
Option One: Congressional leadership commits itself publicly to doing bailout legislation. The leaders commit to a hard date -- maybe a week from Friday, maybe two weeks -- and announce that the Congress will reconvene on that date, with a guaranteed vote on the same day. They might even usher through legislation now that limits the length of debate and guarantees an up-or-down vote. The urgency to act now reflects Wall Street's crystallized panic. An assurance of pending action should quiet the panic enough for the economy to continue to function.
A variant of this idea is that Congress commit to adopt bailout legislation in a lame duck session, after the election. Even with a guaranteed vote, this option would enable more extended investigation, hearings and debate. But it would drag the process out longer, and a judgment would have to be made that the financial markets could remain calm enough, for long enough.
Option Two: Congress adopts the Paulson plan this week, with two major modifications. Instead of the requested $700 billion, Congress appropriates $100 billion. Congressional leaders commit to reconvene in a lame duck session, and guarantee a vote on the remaining $600 billion. However, the $600 billion package includes provisions that direct how the bailout is to be conducted, includes protections for homeowners, and imposes meaningful regulatory standards. The second key feature of the initial appropriating legislation is that it specifies firms benefiting from the $100 billion bailout fund agree to accept the terms imposed on the $600 billion bailout fund. That way, only the most troubled firms step up right away for bailouts, and no firm is able to escape the conditions imposed after Congress has more time to think through the implications of the bailout deal.
There is real urgency to act. But Congress still has the ability to dodge the Paulson steamroller and buy some time to do legitimate legislating.
Robert Weissman is editor of the Washington, D.C.-based Multinational Monitor and director of Essential Action.
http://www.counterpunch.org/weissman09242008.html
Mortgaging the Nation The Bitter Fruits of Deregulation By PAUL CRAIG ROBERTS
Mortgaging the Nation
The Bitter Fruits of Deregulation
By PAUL CRAIG ROBERTS
Remember the good old days when the economic threat was mere recession? The Federal Reserve would encourage the economy with low interest rates until the economy overheated. Prices would rise, and unions would strike for higher benefits. Then the Fed would put on the brakes by raising interest rates. Money supply growth would fall. Inventories would grow, and layoffs would result. When the economy cooled down, the cycle would start over.
The nice thing about 20th century recessions was that the jobs returned when the Federal Reserve lowered interest rates and consumer demand increased. In the 21st century, the jobs that have been moved offshore do not come back. More than three million U.S. manufacturing jobs have been lost while Bush was in the White House. Those jobs represent consumer income and career opportunities that America will never see again.
In the 21st century the US economy has produced net new jobs only in low paid domestic services, such as waitresses, bartenders, hospital orderlies, and retail clerks. The kind of jobs that provided ladders of upward mobility into the middle class are being exported abroad or filled by foreigners brought in on work visas. Today when you purchase an American name brand, you are supporting economic growth and consumer incomes in China and Indonesia, not in Detroit and Cincinnati.
In the 20th century, economic growth resulted from improved technologies, new investment, and increases in labor productivity, which raised consumers’ incomes and purchasing power. In contrast, in the 21st century, economic growth has resulted from debt expansion.
Most Americans have experienced little, if any, income growth in the 21st century. Instead, consumers have kept the economy going by maxing out their credit cards and refinancing their mortgages in order to consume the equity in their homes.
The income gains of the 21st century have gone to corporate chief executives, shareholders of offshoring corporations, and financial corporations.
By replacing $20 an hour U.S. labor with $1 an hour Chinese labor, the profits of U.S. offshoring corporations have boomed, thus driving up share prices and “performance” bonuses for corporate CEOs. With Bush/Cheney, the Republicans have resurrected their policy of favoring the rich over the poor. John McCain captured today’s high income class with his quip that you are middle class if you have an annual income less than $5 million.
Financial companies have made enormous profits by securitizing income flows from unknown risks and selling asset backed securities to pension funds and investors at home and abroad.
Today recession is only a small part of the threat that we face. Financial deregulation, Alan Greenspan’s low interest rates, and the belief that the market was the best regulator of risks, have created a highly leveraged pyramid of risk without adequate capital or collateral to back the risk. Consequently, a wide variety of financial institutions are threatened with insolvency, threatening a collapse comparable to the bank failures that shrank the supply of money and credit and produced the Great Depression.
Washington has been slow to recognize the current problem. A millstone around the neck of every financial institution is the mark-to-market rule, an ill-advised “reform” from a previous crisis that was blamed on fraudulent accounting that over-valued assets on the books. As a result, today institutions have to value their assets at current market value.
In the current crisis the rule has turned out to be a curse. Asset backed securities, such as collateralized mortgage obligations, faced their first market pricing in panicked circumstances. The owner of a bond backed by 1,000 mortgages doesn’t know how many of the mortgages are good and how many are bad. The uncertainty erodes the value of the bond.
If significant amounts of such untested securities are on the balance sheet, insolvency rears its ugly head. The bonds get dumped in order to realize some part of their value. Merrill Lynch sold its asset backed securities for twenty cents on the dollar, although it is
unlikely that 80 percent of the instruments were worthless.
The mark to market rule, together with the suspect values of the asset backed securities and collateral debt obligations and swaps, allowed short sellers to make fortunes by driving down the share prices of the investment banks, thus worsening the crisis. With their capitalization shrinking, the investment banks could no longer borrow. The authorities took their time in halting short-selling, and short-selling is set to resume on October 3 or thereabout.
If the mark to market rule had been suspended and short-selling prohibited, the crisis would have been mitigated. Instead, the crisis intensified, provoking the US Treasury to propose to take responsibility for $700 billion more in troubled financial instruments in addition to the Fannie Mae, Freddie Mac, and AIG bailouts. Treasury guarantees are also apparently being extended to money market funds.
All of this makes sense at a certain level. But what if the $700 billion doesn’t stem the tide and another $700 billion is needed? At what point does the Treasury’s assumption of liabilities erode its own credit standing?
This crisis comes at the worst possible time. Gratuitous wars and military spending in pursuit of US world hegemony have inflated the federal budget deficit, which recession is further enlarging. Massive trade deficits, magnified by the offshoring of goods and services, cannot be eliminated by US export capability.
These large deficits are financed by foreigners, and foreign unease has resulted in a decline in the US dollar’s value compared to other tradable currencies, precious metals, and oil.
The US Treasury does not have $700 billion on hand with which to buy the troubled assets from the troubled institutions. The Treasury will have to borrow the $700 billion from abroad.
The dependency of Treasury Secretary Paulson’s bailout scheme on foreign willingness to absorb more Treasury paper in order that the Treasury has the money to bail out the troubled institutions is heavy proof that the US is in a financially dependent position that is inconsistent with that of America’s “superpower” status.
The US is not a superpower. The US is a financially dependent country that foreign lenders can close down at will.
Washington still hasn’t learned this. American hubris can lead the administration and Congress into a bailout solution that the rest of the world, which has to finance it, might not accept.
Currently, the fight between the administration and Congress over the bailout is whether the bailout will include the Democrats’ poor constituencies as well as the Republicans’ rich ones. The Republicans, for the most part, and their media shills are doing their best to exclude the ordinary American from the rescue plan.
A less appreciated feature of Paulson’s bailout plan is his demand for freedom from accountability. Congress balked at Paulson’s demand that the executive branch’s conduct of the bailout be non-reviewable by Congress or the courts: “Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion.” However, Congress substituted for its own authority a “board” that possibly will consist of the bailed out parties, by which I mean Republican and Democratic constituencies. The control over the financial system that the bailout would give to the executive branch would mean, in effect, state capitalism or fascism.
If we add state capitalism to the Bush administration’s success in eroding both the US Constitution and the power of Congress, we may be witnessing the final death of accountable constitutional government.
The US might also be on the verge of a decision by foreign lenders to cease financing a country that claims to be a hegemonic power with the right and the virtue to impose its will on the rest of the world. The US is able to be at war in Iraq and Afghanistan and is able to pick fights with Iran, Pakistan and Russia, because the Chinese, the Japanese and the sovereign wealth funds of the oil kingdoms finance America’s wars and military budgets. Aside from nuclear weapons, which are also in the hands of other countries, the US has no assets of its own with which to pursue its control over the world.
The US cannot be a hegemonic power without foreign financing. All indications are that the rest of the world is tiring of US arrogance.
If the US Treasury’s assumption of bailout responsibilities becomes excessive, the US dollar will lose its reserve currency role. The minute that occurs, foreign financing of America’s twin deficits will cease, as will the bailout. The US government would have to turn to the printing of paper money as did Weimar Germany.
For now this pending problem is hidden from view, because in times of panic, the tradition is to flee into “safety,” that is, into US Treasury debt obligations. The safety of Treasuries will be revealed by the extent of the bailout.
Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan administration. He was Associate Editor of the Wall Street Journal editorial page and Contributing Editor of National Review. He is coauthor of The Tyranny of Good Intentions. He can be reached at: PaulCraigRoberts@yahoo.com
http://www.counterpunch.org/roberts09242008.html
The Bitter Fruits of Deregulation
By PAUL CRAIG ROBERTS
Remember the good old days when the economic threat was mere recession? The Federal Reserve would encourage the economy with low interest rates until the economy overheated. Prices would rise, and unions would strike for higher benefits. Then the Fed would put on the brakes by raising interest rates. Money supply growth would fall. Inventories would grow, and layoffs would result. When the economy cooled down, the cycle would start over.
The nice thing about 20th century recessions was that the jobs returned when the Federal Reserve lowered interest rates and consumer demand increased. In the 21st century, the jobs that have been moved offshore do not come back. More than three million U.S. manufacturing jobs have been lost while Bush was in the White House. Those jobs represent consumer income and career opportunities that America will never see again.
In the 21st century the US economy has produced net new jobs only in low paid domestic services, such as waitresses, bartenders, hospital orderlies, and retail clerks. The kind of jobs that provided ladders of upward mobility into the middle class are being exported abroad or filled by foreigners brought in on work visas. Today when you purchase an American name brand, you are supporting economic growth and consumer incomes in China and Indonesia, not in Detroit and Cincinnati.
In the 20th century, economic growth resulted from improved technologies, new investment, and increases in labor productivity, which raised consumers’ incomes and purchasing power. In contrast, in the 21st century, economic growth has resulted from debt expansion.
Most Americans have experienced little, if any, income growth in the 21st century. Instead, consumers have kept the economy going by maxing out their credit cards and refinancing their mortgages in order to consume the equity in their homes.
The income gains of the 21st century have gone to corporate chief executives, shareholders of offshoring corporations, and financial corporations.
By replacing $20 an hour U.S. labor with $1 an hour Chinese labor, the profits of U.S. offshoring corporations have boomed, thus driving up share prices and “performance” bonuses for corporate CEOs. With Bush/Cheney, the Republicans have resurrected their policy of favoring the rich over the poor. John McCain captured today’s high income class with his quip that you are middle class if you have an annual income less than $5 million.
Financial companies have made enormous profits by securitizing income flows from unknown risks and selling asset backed securities to pension funds and investors at home and abroad.
Today recession is only a small part of the threat that we face. Financial deregulation, Alan Greenspan’s low interest rates, and the belief that the market was the best regulator of risks, have created a highly leveraged pyramid of risk without adequate capital or collateral to back the risk. Consequently, a wide variety of financial institutions are threatened with insolvency, threatening a collapse comparable to the bank failures that shrank the supply of money and credit and produced the Great Depression.
Washington has been slow to recognize the current problem. A millstone around the neck of every financial institution is the mark-to-market rule, an ill-advised “reform” from a previous crisis that was blamed on fraudulent accounting that over-valued assets on the books. As a result, today institutions have to value their assets at current market value.
In the current crisis the rule has turned out to be a curse. Asset backed securities, such as collateralized mortgage obligations, faced their first market pricing in panicked circumstances. The owner of a bond backed by 1,000 mortgages doesn’t know how many of the mortgages are good and how many are bad. The uncertainty erodes the value of the bond.
If significant amounts of such untested securities are on the balance sheet, insolvency rears its ugly head. The bonds get dumped in order to realize some part of their value. Merrill Lynch sold its asset backed securities for twenty cents on the dollar, although it is
unlikely that 80 percent of the instruments were worthless.
The mark to market rule, together with the suspect values of the asset backed securities and collateral debt obligations and swaps, allowed short sellers to make fortunes by driving down the share prices of the investment banks, thus worsening the crisis. With their capitalization shrinking, the investment banks could no longer borrow. The authorities took their time in halting short-selling, and short-selling is set to resume on October 3 or thereabout.
If the mark to market rule had been suspended and short-selling prohibited, the crisis would have been mitigated. Instead, the crisis intensified, provoking the US Treasury to propose to take responsibility for $700 billion more in troubled financial instruments in addition to the Fannie Mae, Freddie Mac, and AIG bailouts. Treasury guarantees are also apparently being extended to money market funds.
All of this makes sense at a certain level. But what if the $700 billion doesn’t stem the tide and another $700 billion is needed? At what point does the Treasury’s assumption of liabilities erode its own credit standing?
This crisis comes at the worst possible time. Gratuitous wars and military spending in pursuit of US world hegemony have inflated the federal budget deficit, which recession is further enlarging. Massive trade deficits, magnified by the offshoring of goods and services, cannot be eliminated by US export capability.
These large deficits are financed by foreigners, and foreign unease has resulted in a decline in the US dollar’s value compared to other tradable currencies, precious metals, and oil.
The US Treasury does not have $700 billion on hand with which to buy the troubled assets from the troubled institutions. The Treasury will have to borrow the $700 billion from abroad.
The dependency of Treasury Secretary Paulson’s bailout scheme on foreign willingness to absorb more Treasury paper in order that the Treasury has the money to bail out the troubled institutions is heavy proof that the US is in a financially dependent position that is inconsistent with that of America’s “superpower” status.
The US is not a superpower. The US is a financially dependent country that foreign lenders can close down at will.
Washington still hasn’t learned this. American hubris can lead the administration and Congress into a bailout solution that the rest of the world, which has to finance it, might not accept.
Currently, the fight between the administration and Congress over the bailout is whether the bailout will include the Democrats’ poor constituencies as well as the Republicans’ rich ones. The Republicans, for the most part, and their media shills are doing their best to exclude the ordinary American from the rescue plan.
A less appreciated feature of Paulson’s bailout plan is his demand for freedom from accountability. Congress balked at Paulson’s demand that the executive branch’s conduct of the bailout be non-reviewable by Congress or the courts: “Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion.” However, Congress substituted for its own authority a “board” that possibly will consist of the bailed out parties, by which I mean Republican and Democratic constituencies. The control over the financial system that the bailout would give to the executive branch would mean, in effect, state capitalism or fascism.
If we add state capitalism to the Bush administration’s success in eroding both the US Constitution and the power of Congress, we may be witnessing the final death of accountable constitutional government.
The US might also be on the verge of a decision by foreign lenders to cease financing a country that claims to be a hegemonic power with the right and the virtue to impose its will on the rest of the world. The US is able to be at war in Iraq and Afghanistan and is able to pick fights with Iran, Pakistan and Russia, because the Chinese, the Japanese and the sovereign wealth funds of the oil kingdoms finance America’s wars and military budgets. Aside from nuclear weapons, which are also in the hands of other countries, the US has no assets of its own with which to pursue its control over the world.
The US cannot be a hegemonic power without foreign financing. All indications are that the rest of the world is tiring of US arrogance.
If the US Treasury’s assumption of bailout responsibilities becomes excessive, the US dollar will lose its reserve currency role. The minute that occurs, foreign financing of America’s twin deficits will cease, as will the bailout. The US government would have to turn to the printing of paper money as did Weimar Germany.
For now this pending problem is hidden from view, because in times of panic, the tradition is to flee into “safety,” that is, into US Treasury debt obligations. The safety of Treasuries will be revealed by the extent of the bailout.
Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan administration. He was Associate Editor of the Wall Street Journal editorial page and Contributing Editor of National Review. He is coauthor of The Tyranny of Good Intentions. He can be reached at: PaulCraigRoberts@yahoo.com
http://www.counterpunch.org/roberts09242008.html
$5 Trillion Cash Pool Needed to Stop Rout, Ohmae Says (Update1) By Bei Hu
$5 Trillion Cash Pool Needed to Stop Rout, Ohmae Says (Update1)
By Bei Hu
Sept. 23 (Bloomberg) -- Treasury Secretary Henry Paulson's $700 billion plan to buy devalued assets from financial companies is ``a joke'' because it doesn't go far enough to calm markets, said Kenichi Ohmae, president of Business Breakthrough Inc.
Ohmae, nicknamed ``Mr. Strategy'' during his 23 years as a McKinsey & Co. partner, called for a $5 trillion ``international facility'' to be made available to financial institutions. The system could be modeled on one used by Sweden during its banking crisis in the early 1990s, he said.
``This is a liquidity crisis,'' Ohmae said at an investor forum hosted by CLSA Asia-Pacific Markets, the regional broking arm of Credit Agricole SA, in Hong Kong yesterday. ``The liquidity has to be so big that people won't get panicky.''
Paulson's proposal to remove hard-to-sell assets clogging the financial system marks the broadest intervention since at least the Great Depression. Asian stocks fell today, following U.S. shares lower as investors questioned whether the effort is enough to prevent a recession.
The plan came after the collapse of 158-year-old Lehman Brothers Holdings Inc. and the government takeover of insurer American International Group Inc. caused financial markets to seize up last week. The calamity was the culmination of a year during which the U.S. housing market slump left banks and securities firms with more than $520 billion of asset writedowns and credit losses.
Yesterday, Paulson and lawmakers narrowed their differences on the plan and agreed that the U.S. should get equity in participating companies.
Hard to Coordinate
Ohmae, 65, is the author of management books including ``The Mind of The Strategist,'' ``The Borderless World'' and ``The End of the Nation State.'' Business Breakthrough, founded in 1998, provides online management training.
One way of funding the $5 trillion facility would be through contributions from foreign exchange reserves in China, Japan, Taiwan, the Gulf states, the European Union and Russia, Ohmae said.
An international relief effort on that scale might be difficult to coordinate, said Robert Howe, founder of Hong Kong- based hedge fund manager Geomatrix (HK) Ltd., which oversees $32 million. ``I doubt the practicality of getting international cooperation on something like this,'' he said.
Ohmae compared the current financial crisis with Japan's 15- year economic decline that began in 1989. Both started with a property bubble, which wiped out companies' equity when it burst, and like in Japan, the current one could lead to escalating bankruptcies as banks worried about their own survival rein in lending, he said.
`Viagra' Economy
The financial-market upheaval may lead to slower growth in China and the reversal of the commodity boom as ship orders are canceled and steel supply dumped, said Ohmae. What Ohmae called Japan's ``Viagra'' economy and Australia's ``dig and deliver'' boom may also fizzle as China weakens, he said.
Against the backdrop of a potential global market panic, Paulson's plan is insufficient, said Ohmae. Paulson is a former chief executive of Goldman Sachs Group Inc., the world's biggest securities firm.
``He wants to fix problems one by one as if he were still the chief executive officer of Goldman Sachs,'' he said. ``He has to take his CEO hat completely off and come up with a systemic solution as opposed to a one-by-one solution.''
To contact the reporter on this story: Bei Hu in Hong Kong at bhu5@bloomberg.netFind phone numbers fast with the New AOL Yellow Pages! .AOLWebSuite .AOLPicturesFullSizeLink { height: 1px; width: 1px; overflow: hidden; } .AOLWebSuite a {color:blue; text-decoration: underline; cursor: pointer}
By Bei Hu
Sept. 23 (Bloomberg) -- Treasury Secretary Henry Paulson's $700 billion plan to buy devalued assets from financial companies is ``a joke'' because it doesn't go far enough to calm markets, said Kenichi Ohmae, president of Business Breakthrough Inc.
Ohmae, nicknamed ``Mr. Strategy'' during his 23 years as a McKinsey & Co. partner, called for a $5 trillion ``international facility'' to be made available to financial institutions. The system could be modeled on one used by Sweden during its banking crisis in the early 1990s, he said.
``This is a liquidity crisis,'' Ohmae said at an investor forum hosted by CLSA Asia-Pacific Markets, the regional broking arm of Credit Agricole SA, in Hong Kong yesterday. ``The liquidity has to be so big that people won't get panicky.''
Paulson's proposal to remove hard-to-sell assets clogging the financial system marks the broadest intervention since at least the Great Depression. Asian stocks fell today, following U.S. shares lower as investors questioned whether the effort is enough to prevent a recession.
The plan came after the collapse of 158-year-old Lehman Brothers Holdings Inc. and the government takeover of insurer American International Group Inc. caused financial markets to seize up last week. The calamity was the culmination of a year during which the U.S. housing market slump left banks and securities firms with more than $520 billion of asset writedowns and credit losses.
Yesterday, Paulson and lawmakers narrowed their differences on the plan and agreed that the U.S. should get equity in participating companies.
Hard to Coordinate
Ohmae, 65, is the author of management books including ``The Mind of The Strategist,'' ``The Borderless World'' and ``The End of the Nation State.'' Business Breakthrough, founded in 1998, provides online management training.
One way of funding the $5 trillion facility would be through contributions from foreign exchange reserves in China, Japan, Taiwan, the Gulf states, the European Union and Russia, Ohmae said.
An international relief effort on that scale might be difficult to coordinate, said Robert Howe, founder of Hong Kong- based hedge fund manager Geomatrix (HK) Ltd., which oversees $32 million. ``I doubt the practicality of getting international cooperation on something like this,'' he said.
Ohmae compared the current financial crisis with Japan's 15- year economic decline that began in 1989. Both started with a property bubble, which wiped out companies' equity when it burst, and like in Japan, the current one could lead to escalating bankruptcies as banks worried about their own survival rein in lending, he said.
`Viagra' Economy
The financial-market upheaval may lead to slower growth in China and the reversal of the commodity boom as ship orders are canceled and steel supply dumped, said Ohmae. What Ohmae called Japan's ``Viagra'' economy and Australia's ``dig and deliver'' boom may also fizzle as China weakens, he said.
Against the backdrop of a potential global market panic, Paulson's plan is insufficient, said Ohmae. Paulson is a former chief executive of Goldman Sachs Group Inc., the world's biggest securities firm.
``He wants to fix problems one by one as if he were still the chief executive officer of Goldman Sachs,'' he said. ``He has to take his CEO hat completely off and come up with a systemic solution as opposed to a one-by-one solution.''
To contact the reporter on this story: Bei Hu in Hong Kong at bhu5@bloomberg.netFind phone numbers fast with the New AOL Yellow Pages! .AOLWebSuite .AOLPicturesFullSizeLink { height: 1px; width: 1px; overflow: hidden; } .AOLWebSuite a {color:blue; text-decoration: underline; cursor: pointer}
Tuesday, September 23, 2008
In marked contrast to attitudes in western Europe.... Russians back hardline policies By Charles Clover in Moscow
In marked contrast to attitudes in western Europe....
Russians back hardline policies
By Charles Clover in Moscow
The Financial Times
September 22 2008
In contrast to the growing international concern over Russia, public support within the country for Russia's current course is stronger than at any time since the fall of the USSR and views of the US have reached new lows, according to opinion polls taken since the war in the Caucasus.
The Russian public, which overwhelmingly supported the war, has become a bastion of support for hardline policies and may become an obstacle to the few political figures trying to reconnect with the west and maintain economic and political integration, the polls suggest.
Some 59 per cent believe their country's foreign policy is "effective" and 82 per cent believe Russia should try to be the most powerful country in the world, according to recent polls from the Public Opinion Foundation, a Moscow polling body. A majority now do not consider confrontation with the west to be a threat to internal stability, according to Valery Fedorov, director of Vtsiom, another agency. He said this view resembled the novel Nineteen Eighty-Four by George Orwell, where "war is peace".
This confidence seems to be connected to a new-found patriotism, long absent during the post-communist transition era of the 1990s. Some 60 per cent now believe their country is a superpower, while 26 per cent do not, an almost perfect inversion from 1996, when 21 per cent believed Russia to be a superpower against 68 per cent not, according to the foundation. Opinion of the west has fallen to its lowest point in years following the August conflict, but it is nuanced.
The Levada Center, another polling agency, found that 67 per cent of Russians polled in mid-September have a "bad opinion" of America, compared with 23 per cent good. Meanwhile, 45 per cent of Russians have a good opinion of Europe, compared with 39 per cent bad.
The prototypical Europhile is an 18- to 24-year-old female Muscovite with higher education and property. The prototypical "America-hater" in Russia is male, attended technical school, is over 55 and lives in a small town.
Copyright The Financial Times Limited 2008
"FT" and "Financial Times" are trademarks of the Financial Times. Privacy policy | Terms
© Copyright The Financial Times Ltd 2008.
Russians back hardline policies
By Charles Clover in Moscow
The Financial Times
September 22 2008
In contrast to the growing international concern over Russia, public support within the country for Russia's current course is stronger than at any time since the fall of the USSR and views of the US have reached new lows, according to opinion polls taken since the war in the Caucasus.
The Russian public, which overwhelmingly supported the war, has become a bastion of support for hardline policies and may become an obstacle to the few political figures trying to reconnect with the west and maintain economic and political integration, the polls suggest.
Some 59 per cent believe their country's foreign policy is "effective" and 82 per cent believe Russia should try to be the most powerful country in the world, according to recent polls from the Public Opinion Foundation, a Moscow polling body. A majority now do not consider confrontation with the west to be a threat to internal stability, according to Valery Fedorov, director of Vtsiom, another agency. He said this view resembled the novel Nineteen Eighty-Four by George Orwell, where "war is peace".
This confidence seems to be connected to a new-found patriotism, long absent during the post-communist transition era of the 1990s. Some 60 per cent now believe their country is a superpower, while 26 per cent do not, an almost perfect inversion from 1996, when 21 per cent believed Russia to be a superpower against 68 per cent not, according to the foundation. Opinion of the west has fallen to its lowest point in years following the August conflict, but it is nuanced.
The Levada Center, another polling agency, found that 67 per cent of Russians polled in mid-September have a "bad opinion" of America, compared with 23 per cent good. Meanwhile, 45 per cent of Russians have a good opinion of Europe, compared with 39 per cent bad.
The prototypical Europhile is an 18- to 24-year-old female Muscovite with higher education and property. The prototypical "America-hater" in Russia is male, attended technical school, is over 55 and lives in a small town.
Copyright The Financial Times Limited 2008
"FT" and "Financial Times" are trademarks of the Financial Times. Privacy policy | Terms
© Copyright The Financial Times Ltd 2008.
US citizens call for better global ties By Demetri Sevastopulo in Washington
US citizens call for better global ties
By Demetri Sevastopulo in Washington
The Financial Times
September 23 2008
A big majority of Americans think the US should concentrate on repairing its world image to help restore its global influence, according to survey results just published.
The Chicago Council on Global Affairs survey found that 83 per cent of respondents thought that improving their country's world standing should be a "very important" foreign policy goal.
This was the highest priority, ranking above the 80 per cent who saw protecting US jobs as very important.
The survey comes as John McCain, the Republican presidential candidate, and Barack Obama, his Democratic opponent, prepare to square up on Friday in the first presidential debate. The poll, conducted in July, suggests that most Americans think the US should talk to hostile states – a view more closely aligned with Mr Obama.
"It is not difficult to see why both candidates are putting so much emphasis on the theme of 'change'," said Steven Kull, director of the International Policy Attitudes programme at the University of Maryland.
"They are trying to speak to the same feelings that came through in this poll. Americans want a significant retooling of America's relations with the world."
Seventy per cent expressed support for talking to Cuba and 65 per cent for dealing with Iran. Slim majorities backed talks with the militant Shia group Hizbollah and the Palestinian Islamist group Hamas.
Only 17 per cent thought that helping to bring democracy to other nations was a "very important" goal. Twenty-four per cent saw a similar importance in protecting weaker states from outside aggression.
"Americans understand the message that is coming from the rest of the world that the US is too unilateralist," added Mr Kull.
Pakistan has complained about US military action inside its borders. But 68 per cent of respondents thought the US should target terrorists operating in Pakistan, with or without Islamabad's approval.
On the issue of Iraq, Mr Obama wants to pull out US combat troops within 16 months, while Mr McCain has resisted a timetable.
The survey found that 24 per cent backed immediate withdrawal, while 43 per cent wanted troops out within two years. But there was a significant difference depending on political affiliation: 58 per cent of Republicans favoured an open commitment, as opposed to only 9 per cent of Democrats.
Copyright The Financial Times Limited 2008
"FT" and "Financial Times" are trademarks of the Financial Times. Privacy policy | Terms
© Copyright The Financial Times Ltd 2008.
By Demetri Sevastopulo in Washington
The Financial Times
September 23 2008
A big majority of Americans think the US should concentrate on repairing its world image to help restore its global influence, according to survey results just published.
The Chicago Council on Global Affairs survey found that 83 per cent of respondents thought that improving their country's world standing should be a "very important" foreign policy goal.
This was the highest priority, ranking above the 80 per cent who saw protecting US jobs as very important.
The survey comes as John McCain, the Republican presidential candidate, and Barack Obama, his Democratic opponent, prepare to square up on Friday in the first presidential debate. The poll, conducted in July, suggests that most Americans think the US should talk to hostile states – a view more closely aligned with Mr Obama.
"It is not difficult to see why both candidates are putting so much emphasis on the theme of 'change'," said Steven Kull, director of the International Policy Attitudes programme at the University of Maryland.
"They are trying to speak to the same feelings that came through in this poll. Americans want a significant retooling of America's relations with the world."
Seventy per cent expressed support for talking to Cuba and 65 per cent for dealing with Iran. Slim majorities backed talks with the militant Shia group Hizbollah and the Palestinian Islamist group Hamas.
Only 17 per cent thought that helping to bring democracy to other nations was a "very important" goal. Twenty-four per cent saw a similar importance in protecting weaker states from outside aggression.
"Americans understand the message that is coming from the rest of the world that the US is too unilateralist," added Mr Kull.
Pakistan has complained about US military action inside its borders. But 68 per cent of respondents thought the US should target terrorists operating in Pakistan, with or without Islamabad's approval.
On the issue of Iraq, Mr Obama wants to pull out US combat troops within 16 months, while Mr McCain has resisted a timetable.
The survey found that 24 per cent backed immediate withdrawal, while 43 per cent wanted troops out within two years. But there was a significant difference depending on political affiliation: 58 per cent of Republicans favoured an open commitment, as opposed to only 9 per cent of Democrats.
Copyright The Financial Times Limited 2008
"FT" and "Financial Times" are trademarks of the Financial Times. Privacy policy | Terms
© Copyright The Financial Times Ltd 2008.
Europeans see Moscow as security threat By James Blitz in London
Europeans see Moscow as security threat
By James Blitz in London
The Financial Times
September 22 2008
The Russian military's recent incursion into Georgia means that many more west Europeans now regard Russia as a greater threat to global stability than states such as Iran, Iraq and North Korea, according to a survey for the Financial Times.
Despite this, a clear majority of people in western Europe remain firmly opposed to their governments spending more on defence and diverting resources away from public health and social programmes.
Indeed, the Harris opinion poll for the Financial Times, conducted after the conflict between Russia and Georgia last month, indicates the citizens of three west European states would strongly oppose their national armies defending east European nations from a Russian attack.
Britain, France, Germany, Italy and Spain are all legally obliged to defend their fellow Nato members Estonia, Latvia and Lithuania under the Atlantic alliance's Article 5 commitment to mutual defence.
However, in Germany, Italy and Spain, more people say they would oppose the notion of their national troops rushing to defend the Baltic states than would support the idea.
In Germany, as many as 50 per cent of people say they would oppose national troops going to the defence of the three states, compared with only 26 per cent who say they would support it. Only in Britain and France do more people support the idea of their armies defending the Baltic states than oppose it.
The contrast between Europeans' rising fears of Russia and their unwillingness to support any action to meet the challenge posed by Moscow militarily is the most striking feature of the survey. The difficulty for governments contemplating an increase in defence spending is that growing public anxiety about Russia is somehow doing little to change the debate.
Harris poll charts
Even in the UK, which has the most fraught bilateral relationship with Russia of any west European state, 49 per cent of people oppose extra spending on the military as a result of Russia's actions.
Overall, the events in Georgia have pushed Russia up the table of countries that are perceived by west Europeans to endanger world peace.
Over the past year, Harris has asked Europeans on a monthly basis which states they regard as the greatest threat to global stability. Russia has repeatedly ranked well behind China, the US, Iran and Iraq. As recently as August, before Russia's incursion into Georgia, only four per cent of west Europeans deemed Russia as the greatest threat to world stability. But the September poll shows 17 per cent of respondents putting Russia top of the list, ahead of Iran on 14 per cent and not far behind China on 21 per cent.
The number of US respondents who say Russia is the greatest threat has also soared, from two per cent in early August to 13 per cent this month.
Harris's poll, meanwhile, shows a sharp divergence between Europeans and Americans over which of the US presidential candidates are seen as better protecting Europe's interests with regard to Russia.
On this measure, Barack Obama, the Democratic presidential nominee, is overwhelmingly favoured in each of the five European countries surveyed. Only in the US is John McCain seen as being better able to protect Europe's interests – gaining 41 per cent of votes to Mr Obama's 37.
Copyright The Financial Times Limited 2008
"FT" and "Financial Times" are trademarks of the Financial Times. Privacy policy | Terms
© Copyright The Financial Times Ltd 2008
By James Blitz in London
The Financial Times
September 22 2008
The Russian military's recent incursion into Georgia means that many more west Europeans now regard Russia as a greater threat to global stability than states such as Iran, Iraq and North Korea, according to a survey for the Financial Times.
Despite this, a clear majority of people in western Europe remain firmly opposed to their governments spending more on defence and diverting resources away from public health and social programmes.
Indeed, the Harris opinion poll for the Financial Times, conducted after the conflict between Russia and Georgia last month, indicates the citizens of three west European states would strongly oppose their national armies defending east European nations from a Russian attack.
Britain, France, Germany, Italy and Spain are all legally obliged to defend their fellow Nato members Estonia, Latvia and Lithuania under the Atlantic alliance's Article 5 commitment to mutual defence.
However, in Germany, Italy and Spain, more people say they would oppose the notion of their national troops rushing to defend the Baltic states than would support the idea.
In Germany, as many as 50 per cent of people say they would oppose national troops going to the defence of the three states, compared with only 26 per cent who say they would support it. Only in Britain and France do more people support the idea of their armies defending the Baltic states than oppose it.
The contrast between Europeans' rising fears of Russia and their unwillingness to support any action to meet the challenge posed by Moscow militarily is the most striking feature of the survey. The difficulty for governments contemplating an increase in defence spending is that growing public anxiety about Russia is somehow doing little to change the debate.
Harris poll charts
Even in the UK, which has the most fraught bilateral relationship with Russia of any west European state, 49 per cent of people oppose extra spending on the military as a result of Russia's actions.
Overall, the events in Georgia have pushed Russia up the table of countries that are perceived by west Europeans to endanger world peace.
Over the past year, Harris has asked Europeans on a monthly basis which states they regard as the greatest threat to global stability. Russia has repeatedly ranked well behind China, the US, Iran and Iraq. As recently as August, before Russia's incursion into Georgia, only four per cent of west Europeans deemed Russia as the greatest threat to world stability. But the September poll shows 17 per cent of respondents putting Russia top of the list, ahead of Iran on 14 per cent and not far behind China on 21 per cent.
The number of US respondents who say Russia is the greatest threat has also soared, from two per cent in early August to 13 per cent this month.
Harris's poll, meanwhile, shows a sharp divergence between Europeans and Americans over which of the US presidential candidates are seen as better protecting Europe's interests with regard to Russia.
On this measure, Barack Obama, the Democratic presidential nominee, is overwhelmingly favoured in each of the five European countries surveyed. Only in the US is John McCain seen as being better able to protect Europe's interests – gaining 41 per cent of votes to Mr Obama's 37.
Copyright The Financial Times Limited 2008
"FT" and "Financial Times" are trademarks of the Financial Times. Privacy policy | Terms
© Copyright The Financial Times Ltd 2008
The US can afford to pay for this rescue - but little else
The US can afford to pay for this rescue - but little else
If Obama is elected his fiscal hands will be tied by the banks' safety net. Any new public spending will mean raising taxes
* Bill Emmott
*
o Bill Emmott
o The Guardian,
o Tuesday September 23 2008
'You can always rely on the US to do the right thing," quipped Winston Churchill, "once it has exhausted the alternatives." That is indeed why Friday's market euphoria at the US Treasury's financial rescue plan was justified: launching a rescue was the right thing to do, and the good thing about the US is that it has done it quickly, about 13 months after the credit crunch began - rather than taking seven or eight years, as Japan did after its own crunch in the 1990s.
Perhaps it takes a free market, wild-west capitalist system to know when the sheriff should be called in. Anyone wishing to see this market turmoil as somehow the denouement of deregulated "finance capitalism", the end of Thatcher-Reaganism, and proof that regulated systems work better, needs to take account of Japan, the world's second largest economy and home of the other great 1930s-style financial crash of recent decades.
Japan's banking system collapsed in the 90s, and its once-brilliant bureaucrat-regulators failed to act quickly to clean up the mess. So far, the US - helped, no doubt, by the chance to learn from Japan's example - is doing better.
But the rapture about the US needs some modification. The good news, both about the latest mega-rescue and the earlier nationalisation of Fannie Mae, Freddie Mac and AIG, is that the American government has shown that it is willing to assume responsibility for clearing up the bad debts. A safety net is thus now available to prevent more banks thudding into the ground.
The bad news, however, is that preventing any more collapses will be far from easy. The problem is that it is unclear, in such situations, what a "bad debt" really is. In the 1980s, when the US government cleaned up after the collapse of its savings and loans industry (an equivalent of building societies), it took over bankrupt firms and sold their debt. This time, it is promising to buy bad debts from banks that are still active. It will have to set some sort of price, but also haggle over the definition of eligible debts. For when an economy is sliding into recession, as the US will probably now do, a debt that is good today can turn bad tomorrow.
Consequently, no one can know how much money this rescue will cost. Numbers being bandied about range from $700bn to $1 trillion, though generally with a cheery caveat attached that the federal government could even end up making a profit by taking on bad debts and later selling them. In no calculation of the cost of this venture should that be counted upon. After all, if it looked a good bet, other governments presiding over sliding housing markets, including the UK's, would be rushing to offer their own plans to buy up dud mortgage debt. They aren't - though probably some will have to before this affair is over.
No doubt the violent mood swings in financial markets we saw last week will return at some point: new black holes will be found or suspected, and more institutions will be brought to the brink of collapse. But the US action does mark a turning point, as long as neither the White House nor Congress decides to renege on the promises to provide a safety net.
From this point, the right questions will centre on the consequences for fiscal policy and national debt, rather than on banking as such. Right at the outset of the credit crunch, in August last year, the International Monetary Fund's then new boss, Dominique Strauss-Kahn, called for a big fiscal expansion to try to support the global economy. Finally, he is going to get his way - but not in quite the form he expected.
There has been much hyperactive talk about how vast the US rescue plan is, and how earth-shattering will be the extension of government that it represents. This is misleading: the rescue is indeed very large, but so is the American economy. The federal government is already in debt to the tune of $5.4 trillion, which sounds impossibly large if you don't realise that the US's annual GDP is nearly $14 trillion. This isn't Italy, in other words: there is room to add another few trillion to the debt.
The annual cost on the budget deficit in the first year could be $700bn, larger even than the impact of the Iraq war. But that, too, is misleading if you don't realise that the US federal deficit currently is less than 3% of GDP - smaller than Britain's (3.8%). Similarly, this extra debt is unlikely, of itself, to lead to a new decline in the dollar, as some have predicted: the dollar might fall in value relative to other currencies, but only if the US economy goes into a deep and prolonged recession, which is what the rescue plan meant to avert.
No, the true impact of this expansion of public spending lies in politics, and in what this rescue will now make more difficult or perhaps impossible: the expansion of other areas of public spending, such as healthcare or public programmes for alternative energy. If Barack Obama is elected president in November, he will find his fiscal hands tied a lot tighter than he may have hoped, even with a Democratic Congress alongside him - unless, of course, he wants to raise taxes.
· Bill Emmott is a former editor of the Economist and the author of Rivals: How the Power Struggle between China, India and Japan will Shape our Next Decade.
bill@billemmott.com
If Obama is elected his fiscal hands will be tied by the banks' safety net. Any new public spending will mean raising taxes
* Bill Emmott
*
o Bill Emmott
o The Guardian,
o Tuesday September 23 2008
'You can always rely on the US to do the right thing," quipped Winston Churchill, "once it has exhausted the alternatives." That is indeed why Friday's market euphoria at the US Treasury's financial rescue plan was justified: launching a rescue was the right thing to do, and the good thing about the US is that it has done it quickly, about 13 months after the credit crunch began - rather than taking seven or eight years, as Japan did after its own crunch in the 1990s.
Perhaps it takes a free market, wild-west capitalist system to know when the sheriff should be called in. Anyone wishing to see this market turmoil as somehow the denouement of deregulated "finance capitalism", the end of Thatcher-Reaganism, and proof that regulated systems work better, needs to take account of Japan, the world's second largest economy and home of the other great 1930s-style financial crash of recent decades.
Japan's banking system collapsed in the 90s, and its once-brilliant bureaucrat-regulators failed to act quickly to clean up the mess. So far, the US - helped, no doubt, by the chance to learn from Japan's example - is doing better.
But the rapture about the US needs some modification. The good news, both about the latest mega-rescue and the earlier nationalisation of Fannie Mae, Freddie Mac and AIG, is that the American government has shown that it is willing to assume responsibility for clearing up the bad debts. A safety net is thus now available to prevent more banks thudding into the ground.
The bad news, however, is that preventing any more collapses will be far from easy. The problem is that it is unclear, in such situations, what a "bad debt" really is. In the 1980s, when the US government cleaned up after the collapse of its savings and loans industry (an equivalent of building societies), it took over bankrupt firms and sold their debt. This time, it is promising to buy bad debts from banks that are still active. It will have to set some sort of price, but also haggle over the definition of eligible debts. For when an economy is sliding into recession, as the US will probably now do, a debt that is good today can turn bad tomorrow.
Consequently, no one can know how much money this rescue will cost. Numbers being bandied about range from $700bn to $1 trillion, though generally with a cheery caveat attached that the federal government could even end up making a profit by taking on bad debts and later selling them. In no calculation of the cost of this venture should that be counted upon. After all, if it looked a good bet, other governments presiding over sliding housing markets, including the UK's, would be rushing to offer their own plans to buy up dud mortgage debt. They aren't - though probably some will have to before this affair is over.
No doubt the violent mood swings in financial markets we saw last week will return at some point: new black holes will be found or suspected, and more institutions will be brought to the brink of collapse. But the US action does mark a turning point, as long as neither the White House nor Congress decides to renege on the promises to provide a safety net.
From this point, the right questions will centre on the consequences for fiscal policy and national debt, rather than on banking as such. Right at the outset of the credit crunch, in August last year, the International Monetary Fund's then new boss, Dominique Strauss-Kahn, called for a big fiscal expansion to try to support the global economy. Finally, he is going to get his way - but not in quite the form he expected.
There has been much hyperactive talk about how vast the US rescue plan is, and how earth-shattering will be the extension of government that it represents. This is misleading: the rescue is indeed very large, but so is the American economy. The federal government is already in debt to the tune of $5.4 trillion, which sounds impossibly large if you don't realise that the US's annual GDP is nearly $14 trillion. This isn't Italy, in other words: there is room to add another few trillion to the debt.
The annual cost on the budget deficit in the first year could be $700bn, larger even than the impact of the Iraq war. But that, too, is misleading if you don't realise that the US federal deficit currently is less than 3% of GDP - smaller than Britain's (3.8%). Similarly, this extra debt is unlikely, of itself, to lead to a new decline in the dollar, as some have predicted: the dollar might fall in value relative to other currencies, but only if the US economy goes into a deep and prolonged recession, which is what the rescue plan meant to avert.
No, the true impact of this expansion of public spending lies in politics, and in what this rescue will now make more difficult or perhaps impossible: the expansion of other areas of public spending, such as healthcare or public programmes for alternative energy. If Barack Obama is elected president in November, he will find his fiscal hands tied a lot tighter than he may have hoped, even with a Democratic Congress alongside him - unless, of course, he wants to raise taxes.
· Bill Emmott is a former editor of the Economist and the author of Rivals: How the Power Struggle between China, India and Japan will Shape our Next Decade.
bill@billemmott.com
Financial Crisis And the End of American Hegemony (II)
allAfrica.com
Financial Crisis And the End of American Hegemony (II)
Daily Trust
(Abuja)
OPINION
22 September 2008
Posted to the web 23 September 2008
By Obadiah Mailafia
For America, it may not be the end of the world, but it certainly signals the end of en era. Strategic thinkers from Michael Howard to Paul Kennedy have warned that empires often self-destruct through the folly of imperial overstretch.
In over-extending herself beyond her means and her material capabilities, America has ended up alienating her allies, pursuing a unilateralist course that wise men from Franklin Roosevelt to Harry Truman and Ronald Reagan would never have dared to contemplate.
In so doing, George Bush and the neocons who govern America have exhausted the moral capital that the United States has accumulated since Woodrow Wilson's Atlantic Charter. In pursuing such misguided policies, they are threatening to also bring down the engine room of international capitalism by a combination of myopia, greed and folly. More than at any time in her illustrious history, America stands isolated and bereft of moral authority - and on the verge of bankruptcy.
In 1945, the U.S. economy accounted for 48% of world output. The Bretton Woods international financial architecture which was constructed through American leadership has ensured a worldwide expansion that has continued to our day. Through the Marshall Plan, America saved Europe from crumbling under the ashes left by the war against the Nazis.
Without American help, the development trajectories of Japan, South Korea, Taiwan and the Philippines would have been quite different from what they are today. For more than six decades, the U.S. has been the de facto global banker of last resort, with the dollar being the de facto world reserve currency. With her open economy and impregnable fortress of rules-based markets, the country has been the destination of choice for international investment capital.
It is an open secret that America is today the world's number one debtor-nation. One of the greatest achievements of the Clinton Presidency was to have eliminated the budget deficit. When the Republicans took over, the notion of balanced budgets was cast out through the window. It was further aggravated by military adventures in Afghanistan and Iraq that cost an astonishing US$1 billion daily in taxpayers' money. And we all know that those adventures have more to do with advancing the interests of oil sharks and the military-industrial complex than about fighting terrorism or spreading the ideals of democratic government.
The Bush administration has cornered itself into a classic quandary: if they remain in Iraq, they would continue to attract the hatred of the Arabs and the Islamic world while continuing to waste their national resources; if they leave, they would lose face and Iraq would most likely descend into chaos. In thus overstretching herself, the American Imperium has squandered its international goodwill whilst impoverishing its people at the same time.
To be sure, America still leads the world in high technology and innovation. But it is also a nation of spendthrifts, with a consumerist prodigality that inspires no one. Today, Asian countries hold U.S. treasury bills in excess of the magnitude of US$1 trillion. If those countries were suddenly to seek redemption of those assets, the United States economy would automatically be bankrupted. Indeed, super-investor Warren Buffett has predicted that the net ownership of American assets by foreigners would reach a staggering US$11 trillion in 2015, by which time, according to him, the country would become a nation of 'sharecroppers'.
One would have to agree with IMF Managing Director Dominique Strauss-Kahn's warning that the financial crisis is likely to portend a major slowdown in the world economy for much of the coming year. On his part, OECD secretary-general Angel Gurria believes there is a likelihood of a contagion effect, with the prospects of more banks collapsing and many more falling into 'intensive care'. The collapse of financial institutions will spread collateral damage to related industrial sectors, with the prospects of reduced output and the loss of millions of jobs.
For us in Nigeria, the current crisis could not have come at a worse time, especially when we have been facing a capital market meltdown of our own for some months now. It goes without saying that the current crisis calls for the highest qualities of prudence and economic statecraft. Whilst I welcome the effort by my former colleagues in the Central Bank in responding so robustly through the Monetary Policy Committee, it is important to point out that our own stock market crisis has more to do with internal institutional defects than from the turmoil that has erupted across the Atlantic.
Perhaps we also need to carefully consider the pros and cons of leaving our foreign reserves in dollar accounts. Part of the likely effects of the current crisis may be a massive shift of capital from North America into the Euroland area, a prospect that would further weaken the value of the dollar against other world currencies. The cognoscenti of high finance, including the great Warren Buffett, have long predicted that the almighty dollar will continue in its secular trend of decline over the coming decade.
Keeping all our reserves in dollars may be a great risk, as we may already have lost some 20% of our national wealth by sheer virtue of the dollar's decline over the last three years. For geopolitical reasons, countries such as Iran long ago took a decision to move their reserves into the Euro area. Any precipitate action in this regard would, of course, be untoward. But our monetary authorities must keep clear this possibility as an option in case the current turbulence transmutes into a cataclysm.
The months ahead will be difficult for the American people and indeed the world economy. Some have suggested that the current crisis will give Barack Obama the Presidency on a platter. Whilst this may be so, I believe that what America faces today transcends mere partisan politics. There is need for a new historic consensus to rebuild the country and to restore hope in a time of upheaval. We need no less than 'a world restored', as the young Kissinger once wrote as a doctoral student at Harvard.
But such restoration will not be possible without America retracing its moral bearings and forging a new coalition for the reconstruction of international economic order. Part of the greatness of American civilisation, if we could so call it, is its infinite capacity to reinvent itself and to adapt to new realities. In the new world that is upon us, America must eschew the arrogance of power and accept to share the responsibility for global leadership with the EU, China and India, and, shall we say, Nigeria, Brazil and other regional hegemons.
Francis Fukuyama's End of History thesis has turned out to be a rather premature verdict on the fate of the human condition in our time. The Promethean forces unleashed by technology and globalisation have created new dangers and tumults. In our age of complex interdependence, new fears and insecurities may resurrect the long-forgotten cloven hooves of history.
One of the paradoxes of our age is the emergence of an integrated world economy without the requisite multilateral governance institutions. A new Bretton Woods world is needed to address the challenges of global economic and political governance. More than ever before, we stand in need of vision and statesmanship; the kind of leadership that would effectively confront systemic challenges such as financial turbulence, global warming, the spread of infectious diseases and the nightmare of poverty which condemns half of the world's peoples to conditions akin to those of the dark Middle Ages.
It is in our collective self-interest to rally around America in her hour of crisis. Europe, Japan and China would have a major role to play in all this. When America does recover, as surely it would, her place and influence in the world would probably be a much reduced one. It is one of the iron laws of history that all empires sooner or later must come to an end. While some have crashed with a bang, others have come down with a whimper. To avoid inevitable chaos, statesmen must come together to hammer out a new framework for global economic and political governance.
The late Hedley Bull, Montague Burton Professor of International Relations at Oxford, once underlined the ethic of 'cosmopolitan enlightenment' as the moral foundation of a new international order. As an idealist without illusions, Bull was prescient enough to know that in an age of post-ideological politics, civilisation itself may be imperiled unless the nations come together to forge a new compact based on solidarity and hope.
Dr Mailafia is Chairman of the Centre for Policy and Economic Research, Abuja.
Copyright © 2008 Daily Trust. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com).
Financial Crisis And the End of American Hegemony (II)
Daily Trust
(Abuja)
OPINION
22 September 2008
Posted to the web 23 September 2008
By Obadiah Mailafia
For America, it may not be the end of the world, but it certainly signals the end of en era. Strategic thinkers from Michael Howard to Paul Kennedy have warned that empires often self-destruct through the folly of imperial overstretch.
In over-extending herself beyond her means and her material capabilities, America has ended up alienating her allies, pursuing a unilateralist course that wise men from Franklin Roosevelt to Harry Truman and Ronald Reagan would never have dared to contemplate.
In so doing, George Bush and the neocons who govern America have exhausted the moral capital that the United States has accumulated since Woodrow Wilson's Atlantic Charter. In pursuing such misguided policies, they are threatening to also bring down the engine room of international capitalism by a combination of myopia, greed and folly. More than at any time in her illustrious history, America stands isolated and bereft of moral authority - and on the verge of bankruptcy.
In 1945, the U.S. economy accounted for 48% of world output. The Bretton Woods international financial architecture which was constructed through American leadership has ensured a worldwide expansion that has continued to our day. Through the Marshall Plan, America saved Europe from crumbling under the ashes left by the war against the Nazis.
Without American help, the development trajectories of Japan, South Korea, Taiwan and the Philippines would have been quite different from what they are today. For more than six decades, the U.S. has been the de facto global banker of last resort, with the dollar being the de facto world reserve currency. With her open economy and impregnable fortress of rules-based markets, the country has been the destination of choice for international investment capital.
It is an open secret that America is today the world's number one debtor-nation. One of the greatest achievements of the Clinton Presidency was to have eliminated the budget deficit. When the Republicans took over, the notion of balanced budgets was cast out through the window. It was further aggravated by military adventures in Afghanistan and Iraq that cost an astonishing US$1 billion daily in taxpayers' money. And we all know that those adventures have more to do with advancing the interests of oil sharks and the military-industrial complex than about fighting terrorism or spreading the ideals of democratic government.
The Bush administration has cornered itself into a classic quandary: if they remain in Iraq, they would continue to attract the hatred of the Arabs and the Islamic world while continuing to waste their national resources; if they leave, they would lose face and Iraq would most likely descend into chaos. In thus overstretching herself, the American Imperium has squandered its international goodwill whilst impoverishing its people at the same time.
To be sure, America still leads the world in high technology and innovation. But it is also a nation of spendthrifts, with a consumerist prodigality that inspires no one. Today, Asian countries hold U.S. treasury bills in excess of the magnitude of US$1 trillion. If those countries were suddenly to seek redemption of those assets, the United States economy would automatically be bankrupted. Indeed, super-investor Warren Buffett has predicted that the net ownership of American assets by foreigners would reach a staggering US$11 trillion in 2015, by which time, according to him, the country would become a nation of 'sharecroppers'.
One would have to agree with IMF Managing Director Dominique Strauss-Kahn's warning that the financial crisis is likely to portend a major slowdown in the world economy for much of the coming year. On his part, OECD secretary-general Angel Gurria believes there is a likelihood of a contagion effect, with the prospects of more banks collapsing and many more falling into 'intensive care'. The collapse of financial institutions will spread collateral damage to related industrial sectors, with the prospects of reduced output and the loss of millions of jobs.
For us in Nigeria, the current crisis could not have come at a worse time, especially when we have been facing a capital market meltdown of our own for some months now. It goes without saying that the current crisis calls for the highest qualities of prudence and economic statecraft. Whilst I welcome the effort by my former colleagues in the Central Bank in responding so robustly through the Monetary Policy Committee, it is important to point out that our own stock market crisis has more to do with internal institutional defects than from the turmoil that has erupted across the Atlantic.
Perhaps we also need to carefully consider the pros and cons of leaving our foreign reserves in dollar accounts. Part of the likely effects of the current crisis may be a massive shift of capital from North America into the Euroland area, a prospect that would further weaken the value of the dollar against other world currencies. The cognoscenti of high finance, including the great Warren Buffett, have long predicted that the almighty dollar will continue in its secular trend of decline over the coming decade.
Keeping all our reserves in dollars may be a great risk, as we may already have lost some 20% of our national wealth by sheer virtue of the dollar's decline over the last three years. For geopolitical reasons, countries such as Iran long ago took a decision to move their reserves into the Euro area. Any precipitate action in this regard would, of course, be untoward. But our monetary authorities must keep clear this possibility as an option in case the current turbulence transmutes into a cataclysm.
The months ahead will be difficult for the American people and indeed the world economy. Some have suggested that the current crisis will give Barack Obama the Presidency on a platter. Whilst this may be so, I believe that what America faces today transcends mere partisan politics. There is need for a new historic consensus to rebuild the country and to restore hope in a time of upheaval. We need no less than 'a world restored', as the young Kissinger once wrote as a doctoral student at Harvard.
But such restoration will not be possible without America retracing its moral bearings and forging a new coalition for the reconstruction of international economic order. Part of the greatness of American civilisation, if we could so call it, is its infinite capacity to reinvent itself and to adapt to new realities. In the new world that is upon us, America must eschew the arrogance of power and accept to share the responsibility for global leadership with the EU, China and India, and, shall we say, Nigeria, Brazil and other regional hegemons.
Francis Fukuyama's End of History thesis has turned out to be a rather premature verdict on the fate of the human condition in our time. The Promethean forces unleashed by technology and globalisation have created new dangers and tumults. In our age of complex interdependence, new fears and insecurities may resurrect the long-forgotten cloven hooves of history.
One of the paradoxes of our age is the emergence of an integrated world economy without the requisite multilateral governance institutions. A new Bretton Woods world is needed to address the challenges of global economic and political governance. More than ever before, we stand in need of vision and statesmanship; the kind of leadership that would effectively confront systemic challenges such as financial turbulence, global warming, the spread of infectious diseases and the nightmare of poverty which condemns half of the world's peoples to conditions akin to those of the dark Middle Ages.
It is in our collective self-interest to rally around America in her hour of crisis. Europe, Japan and China would have a major role to play in all this. When America does recover, as surely it would, her place and influence in the world would probably be a much reduced one. It is one of the iron laws of history that all empires sooner or later must come to an end. While some have crashed with a bang, others have come down with a whimper. To avoid inevitable chaos, statesmen must come together to hammer out a new framework for global economic and political governance.
The late Hedley Bull, Montague Burton Professor of International Relations at Oxford, once underlined the ethic of 'cosmopolitan enlightenment' as the moral foundation of a new international order. As an idealist without illusions, Bull was prescient enough to know that in an age of post-ideological politics, civilisation itself may be imperiled unless the nations come together to forge a new compact based on solidarity and hope.
Dr Mailafia is Chairman of the Centre for Policy and Economic Research, Abuja.
Copyright © 2008 Daily Trust. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com).
CBO: Budget deficits likely to mount Federal bailout on Wall Street deepens debt in the trillions
CBO: Budget deficits likely to mount
Federal bailout on Wall Street deepens debt in the trillions
David M. Dickson
Monday, September 22, 2008
As the U.S. government embarks on a financial-rescue mission - whose cost is impossible to predict - the nation is already headed for a sustained period of budget deficits on a scale never seen before, said Peter R. Orszag, director of the Congressional Budget Office.
Mr. Orszag recently outlined a scenario in which $7 trillion in cumulative deficits could be piled up over the next 10 years.
The so-called "on-budget deficits," which exclude Social Security surpluses, would exceed $9 trillion over the next 10 years, CBO data reveal.
Under the plausible fiscal-policy scenarios detailed in CBO's latest "Budget and Economic Outlook," which was released earlier this month, the budget deficits for 2017 and 2018 could exceed $1 trillion each year.
Trillion-dollar deficits would be arriving just as the cash-flow surpluses from Social Security turn into cash-flow deficits, a development that would require the federal government to use general revenues to meet Social Security benefit payments.
If the projections hold true, these deficits would become the primary force that would add $10 trillion to the national debt, more than doubling it by 2018.
"Unfortunately, that's the good news," Mr. Orszag said, "because thereafter we start to experience the longer-term budget pressures that are at the heart of the long-term fiscal problems the nation faces."
David M. Walker, the former comptroller general of the United States, said, "It is very possible that the numbers could be worse" than the 10-year, $7 trillion deficit projected by the CBO director. Mr. Walker, who, as head of the Government Accountability Office, conducted a nationwide Fiscal Wake-Up Tour chronicled in the documentary "I.O.U.S.A," recently became president and CEO of the Peter G. Peterson Foundation, which was established to alert Americans about the forthcoming fiscal crisis.
The impact of $700 billion deficits
Reduced: 14% of original size [ 3500 x 2688 ] - Click to view full image
UNITED PRESS INTERNATIONAL President Bush makes a statement on the economy outside the Oval Office on Thursday. He has been meeting with advisers concerning the banking debacle.
If the deficits unfold as Mr. Orszag projects, "it would clearly have an adverse long-term effect on our economic position, but the scarier thing is that it is just the beginning. Baby boomers don't begin retiring in big numbers until after 2018, when a fiscal tsunami could swamp our country," Mr. Walker said
It is worth noting that none of these figures includes a dime of costs that the taxpayer might be forced to bear after the government's recent takeover of mortgage-financing giants Fannie Mae and the Federal Home Loan Mortgage Corp. (Freddie Mac) and other bailouts.
Mr. Orszag estimated deficits averaging $700 billion per year would "hover" in the 4 percent to 5 percent range of gross domestic product (GDP).
Except during the 1940s, when budget deficits during World War II averaged 22 percent of GDP, the 1980s was the only decade since the beginning of the 20th century when deficits averaged more than 4 percent of GDP. According to a study by Lawrence H. Summers, the Harvard economist who served as Secretary of the Treasury under President Clinton, real (inflation-adjusted) interest rates for short-term business loans averaged 4.1 percent during the 1980s, a level higher than any other decade since 1900.
In the near term, the U.S. budget deficit will likely exceed half a trillion dollars for the first time ever in fiscal 2009, which begins Oct. 1, Mr. Orszag said. That's more than three times the $162 billion budget deficit for 2007.
Compared with the $236 billion surplus in 2000, America's annual fiscal situation will have deteriorated by three-quarters of a trillion dollars in 2009.
The sobering deficit numbers would seriously complicate the tax and spending policies of the incoming administration, regardless of who is elected. "The next president, whoever he is, will be forced to tackle this problem," said Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget.
"Deficits of that magnitude or even smaller magnitude do impose economic costs because they slow the rate at which we're accumulating capital over time for the future and thereby impair our future income," Mr. Orszag said.
"Most economists would say that budget deficits of that scale would tend to push up interest rates in the United States," said Robert E. Scott, a senior international economist at the Washington-based Economic Policy Institute. The rising interest rates would apply to government borrowing, to mortgages for home buyers, to bonds financing business investment and to loans for interest-rate-sensitive consumer purchases, such as automobiles, Mr. Scott said. As a result, "rising interest rates could slow the U.S. economy," he said.
"For the past decade, there has been tremendous demand for U.S. financial assets, and we haven't seen a big run-up in interest rates despite recent large budget deficits," Mr. Scott acknowledged. "But the housing debacle could change that by raising the risk premiums."
If annual deficits were sustained at a $700 billion level, they would damage the U.S. economy in both the short term and long term by pushing up interest rates and crowding out investment, which would lower future productivity gains, explained Brian A. Bethune, chief U.S. financial economist at Global Insight.
Diane Lim Rogers, chief economist at the Concord Coalition, a nonpartisan grass-roots organization dedicated to eliminating the budget deficit, agreed that current and ongoing fiscal irresponsibility would exact a price in terms of future economic growth.
"We are going to see higher interest rates because even the world capital markets have limits, and we are testing those limits," Ms. Rogers said. "We have been lulled into the sense that borrowing is cheap, but that is about to change as we bump up against the world's capital constraints."
If America postpones closing today's fiscal gap by making it even larger by running deficits averaging $700 billion per year, it simply means that the cost of closing the gap today will become three times as high after we dig the fiscal hole deeper and deeper, she estimated.
"Such a large, sustained budget deficit would usually be expected to put upward pressure on interest rates, especially in an economy with such a low savings rate - at least if it is not offset by large inflows from abroad on very generous terms," said Brad W. Setser, a fellow for geoeconomics at the Council on Foreign Relations and the author of the "Follow the Money" blog. "Running sustained, large, long-term deficits in a country with such a low private savings rate is risky."
Mr. Setser also said that relying on the rest of the world, especially foreign governments, to prevent upward pressure on U.S. interest rates would require a huge inflow of financial capital from the rest of the world and likely from central banks intervening in the market to keep their currencies down. Moreover, the attendant external trade deficits would be unhealthy for the U.S. economy, would exacerbate trade-protectionist sentiments in the United States and would worsen the currency conflicts the United States has with China, he said.
Budget deficits for the previous 40 years have averaged 2.4 percent of GDP. The 2009 deficit of $530 billion would be 3.6 percent of GDP, and that assumes the economy grows by 0.8 percent in fiscal 2009. The enactment of a second economic-stimulus package could easily tip the 2009 deficit above $600 billion, and a recession could shift it above $700 billion, or more than 5 percent of GDP.
The largest post-World War II deficit in relation to GDP - 6 percent - occurred in fiscal 1983, when unemployment averaged more than 10 percent. In contrast, CBO projects the unemployment rate will average 5.1 percent for the 2009-2018 period, when deficits would "hover" in the range of 4 to 5 percent of GDP. Worth noting is the fact that from 1983 through 1987, when budget deficits averaged 4.8 percent of GDP, real interest rates were exceptionally high.
International dimensions of U.S. debt
Deficits in the range projected by Mr. Orszag almost certainly would require the United States to become increasingly indebted to foreign countries, which owned 45 percent of America's publicly held debt at the end of fiscal year 2007 (up from 15 percent in 1985).
"The federal debt will grow at an unsustainable rate, which means more borrowing from China, more borrowing from Japan and more borrowing from oil exporters like Saudi Arabia," said Sen. Kent Conrad, North Dakota Democrat, who chairs the Senate Budget Committee. As foreign investors hold larger shares of U.S. government debt, interest payments on that debt would increasingly go abroad.
Years ago, a standard Economics 101 argument held that the national debt was not a problem because we owed nearly all of it to ourselves and Americans received the interest payments. If that was true in 1970, when foreigners owned 5 percent of publicly held debt, it cannot be true today, with foreign investors owning 45 percent of that debt.
If foreign investors balk at financing ever-larger U.S. government debts, perhaps because they fear a depreciating dollar, then the deficits would have to be financed internally. This, too, would tend to raise interest rates because the U.S. economy has so little savings today.
Presidential promises
Just as President Clinton felt compelled to break his campaign promise to enact a middle-class tax cut in order to concentrate on reducing a budget deficit that averaged 4.6 percent of GDP during 1990 and 1991 and 4.8 percent throughout the 1980s, the next president may be forced to rearrange priorities in the face of the unending onslaught of red ink that will greet him on Inauguration Day.
Inheriting an annual budget deficit north of $500 billion, which is far more likely on its way to $1 trillion than to zero, a President Obama could feel constrained by the markets, if not by a Democratic Congress, in his efforts to dramatically expand government-subsidized health-insurance coverage ($65 billion per year) and to eliminate the "doughnut hole" in the Medicare prescription-drug program ($43 billion per year). Those are only the health programs.
Just as Mr. Clinton deep-sixed his middle-class tax cut in 1993, will Mr. Obama feel obliged to cancel or delay his refundable "Make Work Pay" tax credit ($72 billion per year), his refundable "Saver's" tax credit ($21 billion per year), his refundable college tax credit ($13 billion per year) and his refundable "Universal Mortgage" tax credit ($13 billion per year)? What will become of his $15 billion per year green-technology program, his $6 billion per year infrastructure-reinvestment bank and his $15 billion per year increase in basic research? (The cost estimates were provided by the Committee for a Responsible Federal Budget.)
In an environment of half-trillion-dollar deficits on their way to being doubled, where might a President McCain find the funds to finance the reduction in the top corporate income-tax rate from 35 percent to 25 percent, which could cost $68 billion per year?
Impact on the national debt
Large budget deficits will, of course, raise the national debt, which was $5.6 trillion at the end of fiscal 2000. It is now $9.6 trillion. Before consideration of any costs from the Fannie and Freddie takeover, the national debt would increase by $10 trillion during the next 10 years under the plausible scenario that Mr. Orszag outlined.
The national debt, which exceeded 120 percent of GDP at the end of World War II, reached its postwar low of 33 percent of GDP in 1981. It is 67 percent today. Under Mr. Orszag's fiscal scenario, the national debt would reach 87 percent of GDP in 2018. That also assumes no recessions, which always cause the deficit and the national debt to rise faster than otherwise.
CBO's plausible scenario
To arrive at the 10-year, $7 trillion deficit, CBO made several assumptions, which mostly extended current policy. For example, CBO assumed the Bush tax cuts, which are scheduled to expire at the end of 2010, would be extended through at least 2018.
In addition to extending virtually all of the Bush tax cuts, Republican presidential nominee Sen. John McCain, as noted, would also cut the top corporate income tax rate from 35 percent to 25 percent. Sen. Barack Obama, the Democratic nominee, would extend all the Bush tax cuts for those earning under $250,000, while giving substantial tax relief to lower- and middle-income households.
Reduced: 38% of original size [ 1339 x 2000 ] - Click to view full image
ROD LAMKEY JR. / THE WASHINGTON TIMES Congressional Budget Office Director Peter R. Orszag, here testifying before a House committee, says the budget deficit will likely exceed half a trillion dollars for the first time ever in fiscal 2009.
CBO also assumed the routine extension of other tax provisions, such as the popular research and development tax credit, which both candidates support. CBO assumed Congress and the White House would continue to adjust the alternative minimum tax (AMT) for inflation, a position each presidential candidate embraces. In fact, Mr. McCain has promised to eliminate the AMT.
CBO assumed that the number of troops in Iraq and Afghanistan would be reduced from about 175,000 today to 30,000 by 2011. Given that the United States already has more than 30,000 troops in Afghanistan and that both presidential candidates want to expand that force, this assumption seems very reasonable, if not overly optimistic.
Finally, CBO assumed that discretionary spending, excluding funding for the global war on terrorism, would grow at the same rate as nominal GDP. That would mean discretionary spending would remain at the same percent of GDP that it is today.
Notwithstanding both candidates' pledges to continue increasing U.S. military forces and the need to replace much of the equipment lost in Iraq and Afghanistan, this last CBO assumption still might seem overly generous on the spending side, according to James R. Horney, the director of federal fiscal policy at the D.C.-based Center on Budget Policy and Priorities.
If discretionary spending, which excludes interest payments and entitlements such as Social Security, Medicare and Medicaid, were to grow only by the rate of inflation, CBO projects that the 10-year cumulative deficit would total $5.75 trillion, or $575 billion per year. Mr. Horney estimates a deficit that size would average about 3.1 percent of GDP, comfortably above the average for the past 40 years.
Looking at the past, Ms. MacGuineas of the Committee for a Responsible Federal Budget believes CBO's assumption about discretionary spending is realistic. Since Democrats would be very aggressive in meeting their perceived pent-up spending needs, the pursuit of "a faster growth rate of spending is not at all out of the realm of the possibility, and seems likely to occur if Democrats control both the White House and Congress," she said.
"Deficits averaging $700 billion per year are certainly outside the comfort zone," Ms. MacGuineas said. "Given that this is the first year baby boomers have become eligible for Social Security, there is no excuse for not saving in advance."
"If you think these numbers are bad," said Mr. Walker, the former GAO head, "you ain't seen nothing yet. We are headed for unprecedented deficit and debt levels that threaten our future economy, our standard of living, our international standing and our national security."
http://www.washingtontimes.com/news/2008/sep/22/budget-deficits-likely-to-mount/
Federal bailout on Wall Street deepens debt in the trillions
David M. Dickson
Monday, September 22, 2008
As the U.S. government embarks on a financial-rescue mission - whose cost is impossible to predict - the nation is already headed for a sustained period of budget deficits on a scale never seen before, said Peter R. Orszag, director of the Congressional Budget Office.
Mr. Orszag recently outlined a scenario in which $7 trillion in cumulative deficits could be piled up over the next 10 years.
The so-called "on-budget deficits," which exclude Social Security surpluses, would exceed $9 trillion over the next 10 years, CBO data reveal.
Under the plausible fiscal-policy scenarios detailed in CBO's latest "Budget and Economic Outlook," which was released earlier this month, the budget deficits for 2017 and 2018 could exceed $1 trillion each year.
Trillion-dollar deficits would be arriving just as the cash-flow surpluses from Social Security turn into cash-flow deficits, a development that would require the federal government to use general revenues to meet Social Security benefit payments.
If the projections hold true, these deficits would become the primary force that would add $10 trillion to the national debt, more than doubling it by 2018.
"Unfortunately, that's the good news," Mr. Orszag said, "because thereafter we start to experience the longer-term budget pressures that are at the heart of the long-term fiscal problems the nation faces."
David M. Walker, the former comptroller general of the United States, said, "It is very possible that the numbers could be worse" than the 10-year, $7 trillion deficit projected by the CBO director. Mr. Walker, who, as head of the Government Accountability Office, conducted a nationwide Fiscal Wake-Up Tour chronicled in the documentary "I.O.U.S.A," recently became president and CEO of the Peter G. Peterson Foundation, which was established to alert Americans about the forthcoming fiscal crisis.
The impact of $700 billion deficits
Reduced: 14% of original size [ 3500 x 2688 ] - Click to view full image
UNITED PRESS INTERNATIONAL President Bush makes a statement on the economy outside the Oval Office on Thursday. He has been meeting with advisers concerning the banking debacle.
If the deficits unfold as Mr. Orszag projects, "it would clearly have an adverse long-term effect on our economic position, but the scarier thing is that it is just the beginning. Baby boomers don't begin retiring in big numbers until after 2018, when a fiscal tsunami could swamp our country," Mr. Walker said
It is worth noting that none of these figures includes a dime of costs that the taxpayer might be forced to bear after the government's recent takeover of mortgage-financing giants Fannie Mae and the Federal Home Loan Mortgage Corp. (Freddie Mac) and other bailouts.
Mr. Orszag estimated deficits averaging $700 billion per year would "hover" in the 4 percent to 5 percent range of gross domestic product (GDP).
Except during the 1940s, when budget deficits during World War II averaged 22 percent of GDP, the 1980s was the only decade since the beginning of the 20th century when deficits averaged more than 4 percent of GDP. According to a study by Lawrence H. Summers, the Harvard economist who served as Secretary of the Treasury under President Clinton, real (inflation-adjusted) interest rates for short-term business loans averaged 4.1 percent during the 1980s, a level higher than any other decade since 1900.
In the near term, the U.S. budget deficit will likely exceed half a trillion dollars for the first time ever in fiscal 2009, which begins Oct. 1, Mr. Orszag said. That's more than three times the $162 billion budget deficit for 2007.
Compared with the $236 billion surplus in 2000, America's annual fiscal situation will have deteriorated by three-quarters of a trillion dollars in 2009.
The sobering deficit numbers would seriously complicate the tax and spending policies of the incoming administration, regardless of who is elected. "The next president, whoever he is, will be forced to tackle this problem," said Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget.
"Deficits of that magnitude or even smaller magnitude do impose economic costs because they slow the rate at which we're accumulating capital over time for the future and thereby impair our future income," Mr. Orszag said.
"Most economists would say that budget deficits of that scale would tend to push up interest rates in the United States," said Robert E. Scott, a senior international economist at the Washington-based Economic Policy Institute. The rising interest rates would apply to government borrowing, to mortgages for home buyers, to bonds financing business investment and to loans for interest-rate-sensitive consumer purchases, such as automobiles, Mr. Scott said. As a result, "rising interest rates could slow the U.S. economy," he said.
"For the past decade, there has been tremendous demand for U.S. financial assets, and we haven't seen a big run-up in interest rates despite recent large budget deficits," Mr. Scott acknowledged. "But the housing debacle could change that by raising the risk premiums."
If annual deficits were sustained at a $700 billion level, they would damage the U.S. economy in both the short term and long term by pushing up interest rates and crowding out investment, which would lower future productivity gains, explained Brian A. Bethune, chief U.S. financial economist at Global Insight.
Diane Lim Rogers, chief economist at the Concord Coalition, a nonpartisan grass-roots organization dedicated to eliminating the budget deficit, agreed that current and ongoing fiscal irresponsibility would exact a price in terms of future economic growth.
"We are going to see higher interest rates because even the world capital markets have limits, and we are testing those limits," Ms. Rogers said. "We have been lulled into the sense that borrowing is cheap, but that is about to change as we bump up against the world's capital constraints."
If America postpones closing today's fiscal gap by making it even larger by running deficits averaging $700 billion per year, it simply means that the cost of closing the gap today will become three times as high after we dig the fiscal hole deeper and deeper, she estimated.
"Such a large, sustained budget deficit would usually be expected to put upward pressure on interest rates, especially in an economy with such a low savings rate - at least if it is not offset by large inflows from abroad on very generous terms," said Brad W. Setser, a fellow for geoeconomics at the Council on Foreign Relations and the author of the "Follow the Money" blog. "Running sustained, large, long-term deficits in a country with such a low private savings rate is risky."
Mr. Setser also said that relying on the rest of the world, especially foreign governments, to prevent upward pressure on U.S. interest rates would require a huge inflow of financial capital from the rest of the world and likely from central banks intervening in the market to keep their currencies down. Moreover, the attendant external trade deficits would be unhealthy for the U.S. economy, would exacerbate trade-protectionist sentiments in the United States and would worsen the currency conflicts the United States has with China, he said.
Budget deficits for the previous 40 years have averaged 2.4 percent of GDP. The 2009 deficit of $530 billion would be 3.6 percent of GDP, and that assumes the economy grows by 0.8 percent in fiscal 2009. The enactment of a second economic-stimulus package could easily tip the 2009 deficit above $600 billion, and a recession could shift it above $700 billion, or more than 5 percent of GDP.
The largest post-World War II deficit in relation to GDP - 6 percent - occurred in fiscal 1983, when unemployment averaged more than 10 percent. In contrast, CBO projects the unemployment rate will average 5.1 percent for the 2009-2018 period, when deficits would "hover" in the range of 4 to 5 percent of GDP. Worth noting is the fact that from 1983 through 1987, when budget deficits averaged 4.8 percent of GDP, real interest rates were exceptionally high.
International dimensions of U.S. debt
Deficits in the range projected by Mr. Orszag almost certainly would require the United States to become increasingly indebted to foreign countries, which owned 45 percent of America's publicly held debt at the end of fiscal year 2007 (up from 15 percent in 1985).
"The federal debt will grow at an unsustainable rate, which means more borrowing from China, more borrowing from Japan and more borrowing from oil exporters like Saudi Arabia," said Sen. Kent Conrad, North Dakota Democrat, who chairs the Senate Budget Committee. As foreign investors hold larger shares of U.S. government debt, interest payments on that debt would increasingly go abroad.
Years ago, a standard Economics 101 argument held that the national debt was not a problem because we owed nearly all of it to ourselves and Americans received the interest payments. If that was true in 1970, when foreigners owned 5 percent of publicly held debt, it cannot be true today, with foreign investors owning 45 percent of that debt.
If foreign investors balk at financing ever-larger U.S. government debts, perhaps because they fear a depreciating dollar, then the deficits would have to be financed internally. This, too, would tend to raise interest rates because the U.S. economy has so little savings today.
Presidential promises
Just as President Clinton felt compelled to break his campaign promise to enact a middle-class tax cut in order to concentrate on reducing a budget deficit that averaged 4.6 percent of GDP during 1990 and 1991 and 4.8 percent throughout the 1980s, the next president may be forced to rearrange priorities in the face of the unending onslaught of red ink that will greet him on Inauguration Day.
Inheriting an annual budget deficit north of $500 billion, which is far more likely on its way to $1 trillion than to zero, a President Obama could feel constrained by the markets, if not by a Democratic Congress, in his efforts to dramatically expand government-subsidized health-insurance coverage ($65 billion per year) and to eliminate the "doughnut hole" in the Medicare prescription-drug program ($43 billion per year). Those are only the health programs.
Just as Mr. Clinton deep-sixed his middle-class tax cut in 1993, will Mr. Obama feel obliged to cancel or delay his refundable "Make Work Pay" tax credit ($72 billion per year), his refundable "Saver's" tax credit ($21 billion per year), his refundable college tax credit ($13 billion per year) and his refundable "Universal Mortgage" tax credit ($13 billion per year)? What will become of his $15 billion per year green-technology program, his $6 billion per year infrastructure-reinvestment bank and his $15 billion per year increase in basic research? (The cost estimates were provided by the Committee for a Responsible Federal Budget.)
In an environment of half-trillion-dollar deficits on their way to being doubled, where might a President McCain find the funds to finance the reduction in the top corporate income-tax rate from 35 percent to 25 percent, which could cost $68 billion per year?
Impact on the national debt
Large budget deficits will, of course, raise the national debt, which was $5.6 trillion at the end of fiscal 2000. It is now $9.6 trillion. Before consideration of any costs from the Fannie and Freddie takeover, the national debt would increase by $10 trillion during the next 10 years under the plausible scenario that Mr. Orszag outlined.
The national debt, which exceeded 120 percent of GDP at the end of World War II, reached its postwar low of 33 percent of GDP in 1981. It is 67 percent today. Under Mr. Orszag's fiscal scenario, the national debt would reach 87 percent of GDP in 2018. That also assumes no recessions, which always cause the deficit and the national debt to rise faster than otherwise.
CBO's plausible scenario
To arrive at the 10-year, $7 trillion deficit, CBO made several assumptions, which mostly extended current policy. For example, CBO assumed the Bush tax cuts, which are scheduled to expire at the end of 2010, would be extended through at least 2018.
In addition to extending virtually all of the Bush tax cuts, Republican presidential nominee Sen. John McCain, as noted, would also cut the top corporate income tax rate from 35 percent to 25 percent. Sen. Barack Obama, the Democratic nominee, would extend all the Bush tax cuts for those earning under $250,000, while giving substantial tax relief to lower- and middle-income households.
Reduced: 38% of original size [ 1339 x 2000 ] - Click to view full image
ROD LAMKEY JR. / THE WASHINGTON TIMES Congressional Budget Office Director Peter R. Orszag, here testifying before a House committee, says the budget deficit will likely exceed half a trillion dollars for the first time ever in fiscal 2009.
CBO also assumed the routine extension of other tax provisions, such as the popular research and development tax credit, which both candidates support. CBO assumed Congress and the White House would continue to adjust the alternative minimum tax (AMT) for inflation, a position each presidential candidate embraces. In fact, Mr. McCain has promised to eliminate the AMT.
CBO assumed that the number of troops in Iraq and Afghanistan would be reduced from about 175,000 today to 30,000 by 2011. Given that the United States already has more than 30,000 troops in Afghanistan and that both presidential candidates want to expand that force, this assumption seems very reasonable, if not overly optimistic.
Finally, CBO assumed that discretionary spending, excluding funding for the global war on terrorism, would grow at the same rate as nominal GDP. That would mean discretionary spending would remain at the same percent of GDP that it is today.
Notwithstanding both candidates' pledges to continue increasing U.S. military forces and the need to replace much of the equipment lost in Iraq and Afghanistan, this last CBO assumption still might seem overly generous on the spending side, according to James R. Horney, the director of federal fiscal policy at the D.C.-based Center on Budget Policy and Priorities.
If discretionary spending, which excludes interest payments and entitlements such as Social Security, Medicare and Medicaid, were to grow only by the rate of inflation, CBO projects that the 10-year cumulative deficit would total $5.75 trillion, or $575 billion per year. Mr. Horney estimates a deficit that size would average about 3.1 percent of GDP, comfortably above the average for the past 40 years.
Looking at the past, Ms. MacGuineas of the Committee for a Responsible Federal Budget believes CBO's assumption about discretionary spending is realistic. Since Democrats would be very aggressive in meeting their perceived pent-up spending needs, the pursuit of "a faster growth rate of spending is not at all out of the realm of the possibility, and seems likely to occur if Democrats control both the White House and Congress," she said.
"Deficits averaging $700 billion per year are certainly outside the comfort zone," Ms. MacGuineas said. "Given that this is the first year baby boomers have become eligible for Social Security, there is no excuse for not saving in advance."
"If you think these numbers are bad," said Mr. Walker, the former GAO head, "you ain't seen nothing yet. We are headed for unprecedented deficit and debt levels that threaten our future economy, our standard of living, our international standing and our national security."
http://www.washingtontimes.com/news/2008/sep/22/budget-deficits-likely-to-mount/
Monday, September 22, 2008
A New and Revealing Study of the Influence of the Neocons The Making of Recent U.S. Middle East Policies By BILL and KATHLEEN CHRISTISON
A New and Revealing Study of the Influence of the Neocons
The Making of Recent U.S. Middle East Policies
By BILL and KATHLEEN CHRISTISON
Stephen J. Sniegoski, The Transparent Cabal: The Neoconservative Agenda, War in the Middle East, and the National Interest of Israel, Enigma Editions, Norfolk, Virginia, 2008
Not a few honest political analysts have long recognized the tight relationship between the Israel-U.S. partnership and the disastrous Bush administration adventures throughout the Middle East, including its backing for Israel’s systematic oppression of the Palestinians. Stephen Sniegoski has had the persistence to ferret out mountains of impossible-to-challenge evidence that this Israel-U.S. connection is the driving force behind virtually all Middle East decisionmaking over the last eight years, as well as the political courage to write a book about it.
Sniegoski’s new book demonstrates clearly how U.S. and Israeli policies and actions with respect to Iraq, Iran, Afghanistan, Syria, Lebanon, Saudi Arabia, Kuwait, the other Gulf states, and even most recently Georgia are all tied together in a bundle of interrelated linkages, each of which affects all the others. The right wing of Israeli politics, the neoconservatives in the U.S. who strongly support Israel, and the aging Israel lobby in the United States all have worked together, and are still doing so, to bring about more wars, regime changes, and instability, specifically the fragmentation of any Middle Eastern states that might ever conceivably threaten Israel.
In addition, one purpose of such wars and other changes is explicitly to intensify the discouragement of Palestinians as the latter’s potential allies are knocked off one by one, making it easier for Israel, over time, to finish off the Palestinians. That’s the theory. Those who believe it is vital to improve the human rights situation and the political outlook for the Palestinians must not only work to reverse present Israeli policies, but it is probably more important that we in the United States work even harder to reverse U.S. policies.
This is a long but quite splendid book. After a foreword by ex-Congressman Paul Findley and an introduction by Professor of Humanities Paul Gottfried, Ph.D., the text itself has 382 pages covering the entire history of the neoconservatives from the 1960s to 2008. The author has clearly spent untold hours reading all the writings he could find by not only the top few neocons but also numerous others who are far less well known but still important figures in the movement.
The neocons, by the way, are by and large not conspiratorial. They prefer to write voluminously and act openly with respect to their philosophies and actions. The word “transparent” in the title of the book emphasizes this very point. On the other hand, the neocons are also very skilled propagandists and are more than willing to spin “facts” in many situations in ways that often do not leave readers with an honest, unvarnished version of “truth.”
Sniegoski states his own main argument as follows:
“This book has maintained that the origins of the American war on Iraq revolve around the United States’ adoption of a war agenda whose basic format was conceived in Israel to advance Israeli interests and was ardently pushed by the influential pro-Israeli American neoconservatives, both inside and outside the Bush administration. Voluminous evidence, much of it derived from a lengthy neoconservative paper trail, has been marshaled to substantiate these contentions.” [Page 351]
The author then points out that
“… what was an unnecessary, deleterious war from the standpoint of [“realists” in] the United States, did advance many Israeli interests, as those interests were envisioned by the Israeli right. America came to identify more closely with the position of Israel toward the Palestinians as it began to equate resistance to Israeli occupation with ‘terrorism.’ … Israel took advantage of the new American ‘anti-terrorist’ position. The ‘security wall’ built by the Sharon government on Palestinian land isolated the Palestinians and made their existence on the West Bank less viable than ever. For the first time, an American president put the United States on record as supporting Israel’s eventual annexation of parts of the West Bank. Obviously, Israel benefited for the very reason that the United States had become the belligerent enemy of Israel’s enemies. As such, America seriously weakened Israel’s foes at no cost to Israel. The war and occupation basically eliminated Iraq as a potential power. Instead of having a unified democratic government, as the Bush administration had predicted, Iraq was fragmenting into warring sectarian groups, in line with the original Likudnik goal.” [Pages 356-357]
And yet one more quote is in order here:
“Since one is dealing with a topic of utmost sensitivity, it should be reiterated that the reference to Israel and the neoconservatives doesn’t imply that all or even most American Jews supported the war on Iraq and the overall neocon war agenda. … A Gallup poll conducted in February 2007 found that 77 percent of [American] Jews believed that the war on Iraq had been a mistake, while only 21 percent held otherwise. This contrasted with the overall American population in which the war was viewed as a mistake by a 52 percent to 46 percent margin. … [Nevertheless,] evidence for the neoconservative and Israeli connection to the United States war is overwhelming and publicly available. There was no dark, hidden ‘conspiracy,’ a term of derision often used by detractors of the idea of a neocon connection to the war. … It should be hoped that … Americans should not fear to honestly discuss the background and motivation for the war in Iraq and the overall United States policy in the Middle East. Only by understanding the truth can the United States possibly take the proper corrective action in the Middle East; without such an understanding, catastrophe looms.” [Pages 371-372]
The reader will note that the above excerpts all come from near the end of Sniegoski’s book. Before reaching this point in the book, you will be treated to informative and well-written chapters on the origins of the neoconservative movement, the Israeli origins of the United States’ Middle East war agenda, and neocon planning against Iran, as well as chapters entitled “World War IV” (a very important chapter), and “Democracy for the Middle East.” A particularly important chapter on “Oil and Other Arguments for the War” argues that oil was not as important a reason for the 2003 U.S. invasion of Iraq as was Israel.
This book is a veritable bible on the neocons -- and a frightening one. Anyone who thought that neocon thinking and policymaking had become passé with the political eclipse of the likes of Paul Wolfowitz, Richard Perle, and Douglas Feith will be disquieted to find that these individuals were only the tip of the iceberg and that on all issues having to do with Israel neocon thinking lives on in policymaking councils and is about to be passed on to the next administration, whether it be Democratic or Republican.
Bill Christison was a senior official of the CIA. He served as a National Intelligence officer and as director of the CIA's Office of Regional and Political Analysis.
Kathleen Christison is a former CIA political analyst. She is the author of Perceptions of Palestine and The Wound of Dispossession. They can be reached at kb.christison@earthlink.net.
http://www.counterpunch.org/christison09202008.html
The Making of Recent U.S. Middle East Policies
By BILL and KATHLEEN CHRISTISON
Stephen J. Sniegoski, The Transparent Cabal: The Neoconservative Agenda, War in the Middle East, and the National Interest of Israel, Enigma Editions, Norfolk, Virginia, 2008
Not a few honest political analysts have long recognized the tight relationship between the Israel-U.S. partnership and the disastrous Bush administration adventures throughout the Middle East, including its backing for Israel’s systematic oppression of the Palestinians. Stephen Sniegoski has had the persistence to ferret out mountains of impossible-to-challenge evidence that this Israel-U.S. connection is the driving force behind virtually all Middle East decisionmaking over the last eight years, as well as the political courage to write a book about it.
Sniegoski’s new book demonstrates clearly how U.S. and Israeli policies and actions with respect to Iraq, Iran, Afghanistan, Syria, Lebanon, Saudi Arabia, Kuwait, the other Gulf states, and even most recently Georgia are all tied together in a bundle of interrelated linkages, each of which affects all the others. The right wing of Israeli politics, the neoconservatives in the U.S. who strongly support Israel, and the aging Israel lobby in the United States all have worked together, and are still doing so, to bring about more wars, regime changes, and instability, specifically the fragmentation of any Middle Eastern states that might ever conceivably threaten Israel.
In addition, one purpose of such wars and other changes is explicitly to intensify the discouragement of Palestinians as the latter’s potential allies are knocked off one by one, making it easier for Israel, over time, to finish off the Palestinians. That’s the theory. Those who believe it is vital to improve the human rights situation and the political outlook for the Palestinians must not only work to reverse present Israeli policies, but it is probably more important that we in the United States work even harder to reverse U.S. policies.
This is a long but quite splendid book. After a foreword by ex-Congressman Paul Findley and an introduction by Professor of Humanities Paul Gottfried, Ph.D., the text itself has 382 pages covering the entire history of the neoconservatives from the 1960s to 2008. The author has clearly spent untold hours reading all the writings he could find by not only the top few neocons but also numerous others who are far less well known but still important figures in the movement.
The neocons, by the way, are by and large not conspiratorial. They prefer to write voluminously and act openly with respect to their philosophies and actions. The word “transparent” in the title of the book emphasizes this very point. On the other hand, the neocons are also very skilled propagandists and are more than willing to spin “facts” in many situations in ways that often do not leave readers with an honest, unvarnished version of “truth.”
Sniegoski states his own main argument as follows:
“This book has maintained that the origins of the American war on Iraq revolve around the United States’ adoption of a war agenda whose basic format was conceived in Israel to advance Israeli interests and was ardently pushed by the influential pro-Israeli American neoconservatives, both inside and outside the Bush administration. Voluminous evidence, much of it derived from a lengthy neoconservative paper trail, has been marshaled to substantiate these contentions.” [Page 351]
The author then points out that
“… what was an unnecessary, deleterious war from the standpoint of [“realists” in] the United States, did advance many Israeli interests, as those interests were envisioned by the Israeli right. America came to identify more closely with the position of Israel toward the Palestinians as it began to equate resistance to Israeli occupation with ‘terrorism.’ … Israel took advantage of the new American ‘anti-terrorist’ position. The ‘security wall’ built by the Sharon government on Palestinian land isolated the Palestinians and made their existence on the West Bank less viable than ever. For the first time, an American president put the United States on record as supporting Israel’s eventual annexation of parts of the West Bank. Obviously, Israel benefited for the very reason that the United States had become the belligerent enemy of Israel’s enemies. As such, America seriously weakened Israel’s foes at no cost to Israel. The war and occupation basically eliminated Iraq as a potential power. Instead of having a unified democratic government, as the Bush administration had predicted, Iraq was fragmenting into warring sectarian groups, in line with the original Likudnik goal.” [Pages 356-357]
And yet one more quote is in order here:
“Since one is dealing with a topic of utmost sensitivity, it should be reiterated that the reference to Israel and the neoconservatives doesn’t imply that all or even most American Jews supported the war on Iraq and the overall neocon war agenda. … A Gallup poll conducted in February 2007 found that 77 percent of [American] Jews believed that the war on Iraq had been a mistake, while only 21 percent held otherwise. This contrasted with the overall American population in which the war was viewed as a mistake by a 52 percent to 46 percent margin. … [Nevertheless,] evidence for the neoconservative and Israeli connection to the United States war is overwhelming and publicly available. There was no dark, hidden ‘conspiracy,’ a term of derision often used by detractors of the idea of a neocon connection to the war. … It should be hoped that … Americans should not fear to honestly discuss the background and motivation for the war in Iraq and the overall United States policy in the Middle East. Only by understanding the truth can the United States possibly take the proper corrective action in the Middle East; without such an understanding, catastrophe looms.” [Pages 371-372]
The reader will note that the above excerpts all come from near the end of Sniegoski’s book. Before reaching this point in the book, you will be treated to informative and well-written chapters on the origins of the neoconservative movement, the Israeli origins of the United States’ Middle East war agenda, and neocon planning against Iran, as well as chapters entitled “World War IV” (a very important chapter), and “Democracy for the Middle East.” A particularly important chapter on “Oil and Other Arguments for the War” argues that oil was not as important a reason for the 2003 U.S. invasion of Iraq as was Israel.
This book is a veritable bible on the neocons -- and a frightening one. Anyone who thought that neocon thinking and policymaking had become passé with the political eclipse of the likes of Paul Wolfowitz, Richard Perle, and Douglas Feith will be disquieted to find that these individuals were only the tip of the iceberg and that on all issues having to do with Israel neocon thinking lives on in policymaking councils and is about to be passed on to the next administration, whether it be Democratic or Republican.
Bill Christison was a senior official of the CIA. He served as a National Intelligence officer and as director of the CIA's Office of Regional and Political Analysis.
Kathleen Christison is a former CIA political analyst. She is the author of Perceptions of Palestine and The Wound of Dispossession. They can be reached at kb.christison@earthlink.net.
http://www.counterpunch.org/christison09202008.html
Sunday, September 21, 2008
The American Empire: Too Big to Fail? Who gets bailed out – and who doesn't by Justin Raimondo
The American Empire:
Too Big to Fail?
Who gets bailed out – and who doesn't
by Justin Raimondo
In reading about the federal bailout of all those financial wheeler-dealer outfits that are supposedly "too big to fail," the layman may be forgiven for failing to comprehend the intricacies of the arcane financial instruments currently backfiring on their whiz-kid inventors. Such exotic creatures as "credit default swaps" may elude the understanding of the hoi polloi, but one thing the man in the street does know: he'll never be "too big to fail," of that he can be sure.
He's just not the Bear-Stearns type, and Congress would never shell out a penny before he loses his savings and his home, which – due to the propaganda of Panglossian economics, whereby houses stopped being homes and became investments – amount to pretty much the same thing. The paper-pushers of Wall Street made untold trillions out of a policy that was doomed to fail [.pdf] in advance, and whose critics have long predicted would end in precisely the manner our tale of economic woe is unfolding.
The policy of bank credit expansion, which enriches the already wealthy at the expense of the rest of us, has a fatal allure. It induces an initial euphoria, the false promise of permanent prosperity. This Panglossian view is the perfect economic system for an emerging empire, especially one with such inflated pretensions as ours. It is the economics of hubris – the same grandiosity that let us imagine we could implant "democracy" in the arid soil of Iraq and make the desert bloom.
After the fall of the Soviet Union, the U.S. bestrode the earth like a colossus, America's stock was rising, and the pride that goeth before a fall imbued our leaders with the illusion that they couldn't fail. The American empire, they thought, is too big to fail. It's the end of history – and the rest will just be a mopping-up operation, that will be well worth the costs.
The failed policies that led to our current economic predicament – the whole system of central banking and fiat currency – are precisely those policies that benefited those who are now demanding to be bailed out. They may have bankrupted the country, but you can be damned sure they aren't going down with the rest of us, no sirree!
This outrageous rip-off is mirrored in the foreign policy realm, where the very same crowd that dragged us waist-deep into the Middle Eastern quicksand are lecturing us from every podium. The neocons who brought us the Iraq war are directing John McCain's campaign, hanging on to power for dear life, shamelessly touting their alleged "success" even as the $3 trillion bill comes in and the people ask "For what?' These are the real dead-enders, the ones who believe that George W. Bush never implemented his self-proclaimed "global democratic revolution," but they will.
The same foreign lobbyists who pushed for the overthrow of Saddam Hussein by U.S. force of arms have now turned their sights on Iran. The same newspaper columnists and professional know-it-alls who imagined that we would have a quick victory in Iraq – that it would be a "cakewalk," as one of the more arrogant neocons once put it – are still dominating the official discourse with their calls to action on this front and that. Bill Kristol, the little Lenin of the neocons, who made the Iraq war his vocation, was awarded a coveted pulpit on the op-ed page of the New York Times. Other people are demoted for advocating failed policies, but members in good standing of the War Party are promoted. They, too, are too big to fail.
When the bill comes due, American taxpayers – and grieving parents and loved ones of the fallen – will have to pay, while the authors of our suicidal foreign policy get off scot-free.
The war profiteers aren't just the arms manufacturers, the Halliburtons, and the "private" international security firms who do the empire's dirty work. Key to the War Party are the intellectuals who gain prestige and real power over policymaking and public opinion on the strength of their reputations as paladins of interventionism. In some cases, these two types are embodied in the same people, Richard Perle being the exemplar.
In any event, what's becoming increasingly clear is that the bailout brothers are all members of the same clan: think of them as a Mafia family, with a strict hierarchy of authority and command, albeit an informal one. At the top is the Don, finance capital, which controls the engine and sits at the dashboard pressing buttons according to a pattern: first inflation, then deflation, boom then bust, peace and then war again. But the bailout boys always parachute to safety before disaster envelopes the rest of us. Which is why failure only emboldens them.
Our rulers really do believe their empire is too big to fail, but of all the would-be lords of creation, our own ruling elite may have the shortest reign – and the hardest fall. The engine that runs the machinery of imperialism is breaking down at key junctures, and the whole structure is teetering and creaking ominously, as if to presage the coming implosion.
For the truth of the matter is that the very bigness of the American Imperium, the sheer scope of its rulers' ambition, is precisely what is fated to bring about its downfall, and a very messy and painful descent it will surely be. As I relate in Reclaiming the American Right: The Lost Legacy of the Conservative Movement, during Rose Wilder Lane's eye-opening trip to the Soviet Union in the 1920s she met a Russian peasant who predicted, with perfect accuracy, the fate of the commissars some 70 years later:
"'It's too big,' he said. 'Too big. At the top, it is too small. It will not work. In Moscow, there are only men, and man is not God. A man has only a man's head, and one hundred heads together do not make one great head. No. Only God can know Russia.'"
The problem is that some men think they are gods. In the end, however, we will all pay the price for their hubris – the guilty as well as the innocent – as the American empire meets the fate of its Soviet predecessor, and for the same reason.
~ Justin Raimondo
http://www.antiwar.com/justin/?articleid=13489
Too Big to Fail?
Who gets bailed out – and who doesn't
by Justin Raimondo
In reading about the federal bailout of all those financial wheeler-dealer outfits that are supposedly "too big to fail," the layman may be forgiven for failing to comprehend the intricacies of the arcane financial instruments currently backfiring on their whiz-kid inventors. Such exotic creatures as "credit default swaps" may elude the understanding of the hoi polloi, but one thing the man in the street does know: he'll never be "too big to fail," of that he can be sure.
He's just not the Bear-Stearns type, and Congress would never shell out a penny before he loses his savings and his home, which – due to the propaganda of Panglossian economics, whereby houses stopped being homes and became investments – amount to pretty much the same thing. The paper-pushers of Wall Street made untold trillions out of a policy that was doomed to fail [.pdf] in advance, and whose critics have long predicted would end in precisely the manner our tale of economic woe is unfolding.
The policy of bank credit expansion, which enriches the already wealthy at the expense of the rest of us, has a fatal allure. It induces an initial euphoria, the false promise of permanent prosperity. This Panglossian view is the perfect economic system for an emerging empire, especially one with such inflated pretensions as ours. It is the economics of hubris – the same grandiosity that let us imagine we could implant "democracy" in the arid soil of Iraq and make the desert bloom.
After the fall of the Soviet Union, the U.S. bestrode the earth like a colossus, America's stock was rising, and the pride that goeth before a fall imbued our leaders with the illusion that they couldn't fail. The American empire, they thought, is too big to fail. It's the end of history – and the rest will just be a mopping-up operation, that will be well worth the costs.
The failed policies that led to our current economic predicament – the whole system of central banking and fiat currency – are precisely those policies that benefited those who are now demanding to be bailed out. They may have bankrupted the country, but you can be damned sure they aren't going down with the rest of us, no sirree!
This outrageous rip-off is mirrored in the foreign policy realm, where the very same crowd that dragged us waist-deep into the Middle Eastern quicksand are lecturing us from every podium. The neocons who brought us the Iraq war are directing John McCain's campaign, hanging on to power for dear life, shamelessly touting their alleged "success" even as the $3 trillion bill comes in and the people ask "For what?' These are the real dead-enders, the ones who believe that George W. Bush never implemented his self-proclaimed "global democratic revolution," but they will.
The same foreign lobbyists who pushed for the overthrow of Saddam Hussein by U.S. force of arms have now turned their sights on Iran. The same newspaper columnists and professional know-it-alls who imagined that we would have a quick victory in Iraq – that it would be a "cakewalk," as one of the more arrogant neocons once put it – are still dominating the official discourse with their calls to action on this front and that. Bill Kristol, the little Lenin of the neocons, who made the Iraq war his vocation, was awarded a coveted pulpit on the op-ed page of the New York Times. Other people are demoted for advocating failed policies, but members in good standing of the War Party are promoted. They, too, are too big to fail.
When the bill comes due, American taxpayers – and grieving parents and loved ones of the fallen – will have to pay, while the authors of our suicidal foreign policy get off scot-free.
The war profiteers aren't just the arms manufacturers, the Halliburtons, and the "private" international security firms who do the empire's dirty work. Key to the War Party are the intellectuals who gain prestige and real power over policymaking and public opinion on the strength of their reputations as paladins of interventionism. In some cases, these two types are embodied in the same people, Richard Perle being the exemplar.
In any event, what's becoming increasingly clear is that the bailout brothers are all members of the same clan: think of them as a Mafia family, with a strict hierarchy of authority and command, albeit an informal one. At the top is the Don, finance capital, which controls the engine and sits at the dashboard pressing buttons according to a pattern: first inflation, then deflation, boom then bust, peace and then war again. But the bailout boys always parachute to safety before disaster envelopes the rest of us. Which is why failure only emboldens them.
Our rulers really do believe their empire is too big to fail, but of all the would-be lords of creation, our own ruling elite may have the shortest reign – and the hardest fall. The engine that runs the machinery of imperialism is breaking down at key junctures, and the whole structure is teetering and creaking ominously, as if to presage the coming implosion.
For the truth of the matter is that the very bigness of the American Imperium, the sheer scope of its rulers' ambition, is precisely what is fated to bring about its downfall, and a very messy and painful descent it will surely be. As I relate in Reclaiming the American Right: The Lost Legacy of the Conservative Movement, during Rose Wilder Lane's eye-opening trip to the Soviet Union in the 1920s she met a Russian peasant who predicted, with perfect accuracy, the fate of the commissars some 70 years later:
"'It's too big,' he said. 'Too big. At the top, it is too small. It will not work. In Moscow, there are only men, and man is not God. A man has only a man's head, and one hundred heads together do not make one great head. No. Only God can know Russia.'"
The problem is that some men think they are gods. In the end, however, we will all pay the price for their hubris – the guilty as well as the innocent – as the American empire meets the fate of its Soviet predecessor, and for the same reason.
~ Justin Raimondo
http://www.antiwar.com/justin/?articleid=13489
The Shock Doctrine The Rise of Disaster Capitalism
The Shock Doctrine
The Rise of Disaster Capitalism
By Stephen Lendman
Naomi Klein is the author of "The Shock Doctrine: The Rise of Disaster Capitalism" that explodes the myth of "free market" democracy. It shows how neoliberal Washington Consensus fundamentalism dominates the world with America its lead exponent exploiting security threats, terror attacks, economic meltdowns, competing ideologies, tectonic political or economic shifts, and natural disasters to impose its will everywhere. Continue
http://www.informationclearinghouse.info/article18430.htm
The Rise of Disaster Capitalism
By Stephen Lendman
Naomi Klein is the author of "The Shock Doctrine: The Rise of Disaster Capitalism" that explodes the myth of "free market" democracy. It shows how neoliberal Washington Consensus fundamentalism dominates the world with America its lead exponent exploiting security threats, terror attacks, economic meltdowns, competing ideologies, tectonic political or economic shifts, and natural disasters to impose its will everywhere. Continue
http://www.informationclearinghouse.info/article18430.htm
Mushroom Cloud Over Wall Street "All Hail Caesar!" The days of the republic are over.
Mushroom Cloud Over Wall Street
"All Hail Caesar!" The days of the republic are over.
By Mike Whitney
"The bill gives Paulson the ability to nationalize unlimited amount of private debt and force you and your children to pay for it." Continue
http://www.informationclearinghouse.info/article20839.htm
"All Hail Caesar!" The days of the republic are over.
By Mike Whitney
"The bill gives Paulson the ability to nationalize unlimited amount of private debt and force you and your children to pay for it." Continue
http://www.informationclearinghouse.info/article20839.htm
US invests in lifestyle preservation
US invests in lifestyle preservation
* Anne Davies
* September 22, 2008
AMERICA, the land of credit cards and seemingly endless debt financing, is standing on a precipice.
For the first time the US Administration is having to consider what might happen if the world decided the US was not such a sure bet to pay back what it owed.
What if investors stopped buying investments in US dollars? What if they stopped investing?
The possible consequences for a country that depends on Chinese savings and Arab oil wealth to fund its lifestyle are so horrifying that no one — not President George Bush nor Treasury Secretary Hank Paulson — is prepared to contemplate it. The President has announced an unprecedented $US700 billion ($A840 billion) plan to buy up poorly performing mortgage-backed securities.
The hope is that this extraordinary commitment will so reassure investors about American markets that the fear of further collapses will recede — and with it fears about American credit-worthiness.
But the announcement is a blow to free-market ideologues.
For the first time, the US may have to come to terms with economic rules that most countries, including Australia, have laboured under for years: that if you run big deficits and accumulate foreign debt, eventually the rest of the world will punish you, beginning with your currency and your interest rates and culminating in a decision to invest elsewhere.
Announcing the first details, Bush said he had become convinced that the contagion could spread to the broader economy and start affecting Americans' ability to get a home loan or a college loan.
"There's going to be billions — hundreds of billions of dollars at risk. This is a big package because it was a big problem," he said.
The President is asking for bipartisan support for a scheme that would generally find greater support from the Democrats than fellow Republicans, because at heart it is a massive nationalisation of risk.
Bush is urging a pragmatic approach to markets that have largely gone unregulated under his own Administration.
When the bill comes before Congress this week, it is certain to lay bare this fissure in the Republican Party.
Republican presidential nominee John McCain, having initially signalled he might favour leaving Wall Street to market forces, tried to seize the initiative by announcing his own rescue package.
Democratic nominee Barack Obama has kept his powder dry so far but from the Democrats' perspective, the issue is just as complex.
A Rasmussen poll last Wednesday, taken in the early stages of the meltdown, showed that only 7% of people supported a Government bail-out — 65% thought Wall Street should bear the losses.
The Democrats are almost certain to push for a part of the package that helps ordinary Americans, whether it be more help for people trapped by subprime loans or a second stimulus package.
After all, asking taxpayers to stump $2000 each for Wall Street is a big deal. It has raised complaints about why it's fine to expand the federal deficit to bail out Wall Street, but it was not appropriate to do so to pay for a national health scheme.
The Bush Administration's hope is that the latest action will serve as inoculation against the worst version of a Wall Street collapse.
* Anne Davies
* September 22, 2008
AMERICA, the land of credit cards and seemingly endless debt financing, is standing on a precipice.
For the first time the US Administration is having to consider what might happen if the world decided the US was not such a sure bet to pay back what it owed.
What if investors stopped buying investments in US dollars? What if they stopped investing?
The possible consequences for a country that depends on Chinese savings and Arab oil wealth to fund its lifestyle are so horrifying that no one — not President George Bush nor Treasury Secretary Hank Paulson — is prepared to contemplate it. The President has announced an unprecedented $US700 billion ($A840 billion) plan to buy up poorly performing mortgage-backed securities.
The hope is that this extraordinary commitment will so reassure investors about American markets that the fear of further collapses will recede — and with it fears about American credit-worthiness.
But the announcement is a blow to free-market ideologues.
For the first time, the US may have to come to terms with economic rules that most countries, including Australia, have laboured under for years: that if you run big deficits and accumulate foreign debt, eventually the rest of the world will punish you, beginning with your currency and your interest rates and culminating in a decision to invest elsewhere.
Announcing the first details, Bush said he had become convinced that the contagion could spread to the broader economy and start affecting Americans' ability to get a home loan or a college loan.
"There's going to be billions — hundreds of billions of dollars at risk. This is a big package because it was a big problem," he said.
The President is asking for bipartisan support for a scheme that would generally find greater support from the Democrats than fellow Republicans, because at heart it is a massive nationalisation of risk.
Bush is urging a pragmatic approach to markets that have largely gone unregulated under his own Administration.
When the bill comes before Congress this week, it is certain to lay bare this fissure in the Republican Party.
Republican presidential nominee John McCain, having initially signalled he might favour leaving Wall Street to market forces, tried to seize the initiative by announcing his own rescue package.
Democratic nominee Barack Obama has kept his powder dry so far but from the Democrats' perspective, the issue is just as complex.
A Rasmussen poll last Wednesday, taken in the early stages of the meltdown, showed that only 7% of people supported a Government bail-out — 65% thought Wall Street should bear the losses.
The Democrats are almost certain to push for a part of the package that helps ordinary Americans, whether it be more help for people trapped by subprime loans or a second stimulus package.
After all, asking taxpayers to stump $2000 each for Wall Street is a big deal. It has raised complaints about why it's fine to expand the federal deficit to bail out Wall Street, but it was not appropriate to do so to pay for a national health scheme.
The Bush Administration's hope is that the latest action will serve as inoculation against the worst version of a Wall Street collapse.
Financial crisis: Default by the US government is no longer unthinkable By Liam Halligan
Financial crisis: Default by the US government is no longer unthinkable
By Liam Halligan
Telegraph.Co.UK
So, here we are - the start of a new world order. After the tumultuous events of the last fortnight, the global economic landscape will never look the same again.
The front page of the Brooklyn Daily Eagle newspaper on the day of the initial Wall Street Crash in 1929
Hard times: central banks have acted to avoid a repeat of 1929
Power has tangibly shifted - away from the United States and the Western world generally, and towards the fast-growing giants of the East. That's been happening for some years now.
But September 2008 marks the moment when the scale of our excesses, the extent of our debts and the moral bankruptcy of our financial regulatory system finally began to be truly exposed.
I say began to be exposed. Back in March, Standard and Poor's, the US ratings agency, estimated some $285bn (£156bn) of mortgage-backed securities would eventually be written-off by the global banking sector. On Friday, almost unnoticed amid the panic, that forecast was upped to $378bn.
In reality, total credit losses will be much higher - at least $750bn in my view. But the extent of the 33 per cent one-off increase in S&P's estimate speaks volumes. It reflects just how little anyone truly knows about either the ultimate size of the sub-prime losses or who ultimately holds the related securities.
advertisement
But with one in ten US mortgages now "delinquent" or "in foreclosure", and house prices still falling, such "toxic waste" is burning holes in balance sheets wherever it sits. That's why this crisis is far from over.
It's difficult to overstate the enormity of what happened last week. By any standard, the collapse of Lehman Brothers was a dramatic - and alarming event. One of the biggest names on Wall Street, the 158-year old bank was consumed by the scale of its losses and crippled by executive feuds. Deemed by the US Federal Reserve to be "sufficiently unconnected" to the rest of the global financial system, Lehman was allowed to fold.
In contrast, American International Group, the world's largest insurer, was judged "too interconnected" to collapse. So the Fed effectively "nationalised" AIG - the biggest rescue of a private firm in human history. And it's only a few weeks, of course, since the even more expensive bail-out of quasi-government lenders Fannie Mae and Freddie Mac - which, between them, account for a mind-boggling $5,300bn of mortgages, around half of America's home loans.
On top of all that, US Treasury Secretary Hank Paulson sent an $800bn financial rescue plan to Congress. He wants to create a second "Resolution Trust Corporation" - or government-owned asset management company - to take on illiquid mortgage-related debts. The original RTC was established to rescue the US Savings and Loans Associations that went bust in the 1980s.
And by the way, the Fed has also just offered another $125bn of liquidity to banks outside the US that are desperate for dollars and can't access America's frozen credit markets - a move co-ordinated with central banks in Japan, the Eurozone, Switzerland, Canada and here in the UK.
The combination of these measures - each of them of enormous significance in its own right - sent stock markets shooting-up on Friday. America's S&P 500 rose 4.03 per cent and London's FTSE 100 soared 8.84 per cent, its largest one-day rise ever. But, despite the end-of-week euphoria and trader-talk that "the only way is up", despite America's undoubted resolve and Paulson's determination to do "whatever it takes", the situation remains very fragile.
Nothing better reflects the amount of fear among banks in America - banks everywhere - than the sky-high rates they're continuing to charge when lending to each other. Ordinarily, inter-bank (or Libor) interest rates are only slightly above base rates. But with so much uncertainty remaining about the scale and occurrence of "sub-prime" - and with desperate bank executives still so reluctant to "fess-up" their losses - the US Libor rate on money to be paid back in three months is now a staggering 1.5 per cent above base. In recent weeks, Libor rates have shot up in other countries too.
Paulson's latest liquidity injection has lowered over-night Libor rates for now. But, despite the torrent of cash the US has directed at the credit markets, longer-term inter-bank rates have stayed stubbornly high, and some have gone up further. In other words, even the banks themselves don't think the rescue plan will work. Expect more - and bigger - liquidity operations in weeks to come.
The trouble is, though, as the bill for these bail-outs keeps rising, so does the possibility that the political consensus will crack and there'll be an almighty, and debilitating, dust-up. Paulson's RTC plan, in theory, could restore confidence. By taking sub-prime loans off banks' books, it could de-ice the inter-bank market, restoring credit lines to households and firms and preventing the "credit crunch" from shifting wholesale, in that fabled phrase, "from Wall Street to Main Street".
But, in the run-up to the US election in November, Democrats in Congress - and even some Republicans - may decide they're simply not having it. How much more can the US taxpayer take? It sounds insane, but the liabilities being taken on by the Fed and the US Treasury are now so enormous that the government itself could default. No?
How fragile we are: Chickens may yet come home to roost for the US government
Check out the chart showing the recent spikes in the US 10-year credit default swap. In other words, the market is now pricing-in the genuine possibility that the US will struggle to pay-back some of its long-term T-bills.
That possibility is still deemed to be quite low. But the ultimate financial question - until recently, unthinkable - is now being asked. Yes siree, the mighty US government could default. That's how much the world has changed.
Liam Halligan is chief economist at Prosperity Capital Management
===================================
Copyright (c) 1999 - 2008
Le Metropole Cafe, Inc.
By Liam Halligan
Telegraph.Co.UK
So, here we are - the start of a new world order. After the tumultuous events of the last fortnight, the global economic landscape will never look the same again.
The front page of the Brooklyn Daily Eagle newspaper on the day of the initial Wall Street Crash in 1929
Hard times: central banks have acted to avoid a repeat of 1929
Power has tangibly shifted - away from the United States and the Western world generally, and towards the fast-growing giants of the East. That's been happening for some years now.
But September 2008 marks the moment when the scale of our excesses, the extent of our debts and the moral bankruptcy of our financial regulatory system finally began to be truly exposed.
I say began to be exposed. Back in March, Standard and Poor's, the US ratings agency, estimated some $285bn (£156bn) of mortgage-backed securities would eventually be written-off by the global banking sector. On Friday, almost unnoticed amid the panic, that forecast was upped to $378bn.
In reality, total credit losses will be much higher - at least $750bn in my view. But the extent of the 33 per cent one-off increase in S&P's estimate speaks volumes. It reflects just how little anyone truly knows about either the ultimate size of the sub-prime losses or who ultimately holds the related securities.
advertisement
But with one in ten US mortgages now "delinquent" or "in foreclosure", and house prices still falling, such "toxic waste" is burning holes in balance sheets wherever it sits. That's why this crisis is far from over.
It's difficult to overstate the enormity of what happened last week. By any standard, the collapse of Lehman Brothers was a dramatic - and alarming event. One of the biggest names on Wall Street, the 158-year old bank was consumed by the scale of its losses and crippled by executive feuds. Deemed by the US Federal Reserve to be "sufficiently unconnected" to the rest of the global financial system, Lehman was allowed to fold.
In contrast, American International Group, the world's largest insurer, was judged "too interconnected" to collapse. So the Fed effectively "nationalised" AIG - the biggest rescue of a private firm in human history. And it's only a few weeks, of course, since the even more expensive bail-out of quasi-government lenders Fannie Mae and Freddie Mac - which, between them, account for a mind-boggling $5,300bn of mortgages, around half of America's home loans.
On top of all that, US Treasury Secretary Hank Paulson sent an $800bn financial rescue plan to Congress. He wants to create a second "Resolution Trust Corporation" - or government-owned asset management company - to take on illiquid mortgage-related debts. The original RTC was established to rescue the US Savings and Loans Associations that went bust in the 1980s.
And by the way, the Fed has also just offered another $125bn of liquidity to banks outside the US that are desperate for dollars and can't access America's frozen credit markets - a move co-ordinated with central banks in Japan, the Eurozone, Switzerland, Canada and here in the UK.
The combination of these measures - each of them of enormous significance in its own right - sent stock markets shooting-up on Friday. America's S&P 500 rose 4.03 per cent and London's FTSE 100 soared 8.84 per cent, its largest one-day rise ever. But, despite the end-of-week euphoria and trader-talk that "the only way is up", despite America's undoubted resolve and Paulson's determination to do "whatever it takes", the situation remains very fragile.
Nothing better reflects the amount of fear among banks in America - banks everywhere - than the sky-high rates they're continuing to charge when lending to each other. Ordinarily, inter-bank (or Libor) interest rates are only slightly above base rates. But with so much uncertainty remaining about the scale and occurrence of "sub-prime" - and with desperate bank executives still so reluctant to "fess-up" their losses - the US Libor rate on money to be paid back in three months is now a staggering 1.5 per cent above base. In recent weeks, Libor rates have shot up in other countries too.
Paulson's latest liquidity injection has lowered over-night Libor rates for now. But, despite the torrent of cash the US has directed at the credit markets, longer-term inter-bank rates have stayed stubbornly high, and some have gone up further. In other words, even the banks themselves don't think the rescue plan will work. Expect more - and bigger - liquidity operations in weeks to come.
The trouble is, though, as the bill for these bail-outs keeps rising, so does the possibility that the political consensus will crack and there'll be an almighty, and debilitating, dust-up. Paulson's RTC plan, in theory, could restore confidence. By taking sub-prime loans off banks' books, it could de-ice the inter-bank market, restoring credit lines to households and firms and preventing the "credit crunch" from shifting wholesale, in that fabled phrase, "from Wall Street to Main Street".
But, in the run-up to the US election in November, Democrats in Congress - and even some Republicans - may decide they're simply not having it. How much more can the US taxpayer take? It sounds insane, but the liabilities being taken on by the Fed and the US Treasury are now so enormous that the government itself could default. No?
How fragile we are: Chickens may yet come home to roost for the US government
Check out the chart showing the recent spikes in the US 10-year credit default swap. In other words, the market is now pricing-in the genuine possibility that the US will struggle to pay-back some of its long-term T-bills.
That possibility is still deemed to be quite low. But the ultimate financial question - until recently, unthinkable - is now being asked. Yes siree, the mighty US government could default. That's how much the world has changed.
Liam Halligan is chief economist at Prosperity Capital Management
===================================
Copyright (c) 1999 - 2008
Le Metropole Cafe, Inc.
Hey U.S., welcome to the Third World! It's been a quick slide from economic superpower to economic basket case. Rosa Brooks
http://www.latimes.com/news/opinion/commentary/la-oe-brooks18-2008sep18,0,7282720.column
Hey U.S., welcome to the Third World!
It's been a quick slide from economic superpower to economic basket case.
Rosa Brooks
September 18, 2008
Dear United States, Welcome to the Third World!
It's not every day that a superpower makes a bid to transform itself into a Third World nation, and we here at the World Bank and the International Monetary Fund want to be among the first to welcome you to the community of states in desperate need of international economic assistance. As you spiral into a catastrophic financial meltdown, we are delighted to respond to your Treasury Department's request that we undertake a joint stability assessment of your financial sector. In these turbulent times, we can provide services ranging from subsidized loans to expert advisors willing to perform an emergency overhaul of your entire government.
As you know, some outside intervention in your economy is overdue. Last week -- even before Wall Street's latest collapse -- 13 former finance ministers convened at the University of Virginia and agreed that you must fix your "broken financial system." Australia's Peter Costello noted that lately you've been "exporting instability" in world markets, and Yashwant Sinha, former finance minister of India, concluded, "The time has come. The U.S. should accept some monitoring by the IMF."
We hope you won't feel embarrassed as we assess the stability of your economy and suggest needed changes. Remember, many other countries have been in your shoes. We've bailed out the economies of Argentina, Brazil, Indonesia and South Korea. But whether our work is in Sudan, Bangladesh or now the United States, our experts are committed to intervening in national economies with care and sensitivity.
We thus want to acknowledge the progress you have made in your evolution from economic superpower to economic basket case. Normally, such a process might take 100 years or more. With your oscillation between free-market extremism and nationalization of private companies, however, you have successfully achieved, in a few short years, many of the key hallmarks of Third World economies.
Your policies of irresponsible government deregulation in critical sectors allowed you to rapidly develop an energy crisis, a housing crisis, a credit crisis and a financial market crisis, all at once, and accompanied (and partly caused) by impressive levels of corruption and speculation. Meanwhile, those of your political leaders charged with oversight were either napping or in bed with corporate lobbyists.
Take John McCain, your Republican presidential nominee, whose senior staff includes half a dozen prominent former lobbyists. As he recently put it, "I was chairman of the [Senate] Commerce Committee that oversights every part of the economy." No question about it: Your leaders' failure to notice the damage done by irresponsible deregulation was indeed an oversight of epic proportions.
Now you are facing the consequences. Income inequality has increased, as the rich have gotten windfalls while the middle class has seen incomes stagnate. Fewer and fewer of your citizens have access to affordable housing, healthcare or security in retirement. Even life expectancy has dropped. And when your economic woes went from chronic to acute, you responded -- like so many Third World states have -- with an extensive program of nationalizing private companies and assets. Your mortgage giants Fannie Mae and Freddie Mac are now state owned and controlled, and this week your reinsurance giant AIG was effectively nationalized, with the Federal Reserve Board seizing an 80% equity stake in the flailing company.
Some might deride this as socialism. But desperate times call for desperate measures.
Admittedly, your transition to Third World status is far from over, and it won't be painless. At first, for instance, you may find it hard to get used to the shantytowns that will replace the exurban sprawl of McMansions that helped fuel the real estate speculation bubble. But in time, such shantytowns will simply become part of the landscape. Similarly, as unemployment rates continue to rise, you will initially struggle to find a use for the expanding pool of angry, jobless young men. But you will gradually realize that you can recruit them to fight in a ceaseless round of armed conflicts, a solution that has been utilized by many other Third World states before you. Indeed, with your wars in Iraq and Afghanistan, you are off to an excellent start.
Perhaps this letter comes as a surprise to you, and you feel you're not fully ready to join the Third World. Don't let this feeling concern you. Though you may never have realized it, you've been preparing for this moment for years.
Hey U.S., welcome to the Third World!
It's been a quick slide from economic superpower to economic basket case.
Rosa Brooks
September 18, 2008
Dear United States, Welcome to the Third World!
It's not every day that a superpower makes a bid to transform itself into a Third World nation, and we here at the World Bank and the International Monetary Fund want to be among the first to welcome you to the community of states in desperate need of international economic assistance. As you spiral into a catastrophic financial meltdown, we are delighted to respond to your Treasury Department's request that we undertake a joint stability assessment of your financial sector. In these turbulent times, we can provide services ranging from subsidized loans to expert advisors willing to perform an emergency overhaul of your entire government.
As you know, some outside intervention in your economy is overdue. Last week -- even before Wall Street's latest collapse -- 13 former finance ministers convened at the University of Virginia and agreed that you must fix your "broken financial system." Australia's Peter Costello noted that lately you've been "exporting instability" in world markets, and Yashwant Sinha, former finance minister of India, concluded, "The time has come. The U.S. should accept some monitoring by the IMF."
We hope you won't feel embarrassed as we assess the stability of your economy and suggest needed changes. Remember, many other countries have been in your shoes. We've bailed out the economies of Argentina, Brazil, Indonesia and South Korea. But whether our work is in Sudan, Bangladesh or now the United States, our experts are committed to intervening in national economies with care and sensitivity.
We thus want to acknowledge the progress you have made in your evolution from economic superpower to economic basket case. Normally, such a process might take 100 years or more. With your oscillation between free-market extremism and nationalization of private companies, however, you have successfully achieved, in a few short years, many of the key hallmarks of Third World economies.
Your policies of irresponsible government deregulation in critical sectors allowed you to rapidly develop an energy crisis, a housing crisis, a credit crisis and a financial market crisis, all at once, and accompanied (and partly caused) by impressive levels of corruption and speculation. Meanwhile, those of your political leaders charged with oversight were either napping or in bed with corporate lobbyists.
Take John McCain, your Republican presidential nominee, whose senior staff includes half a dozen prominent former lobbyists. As he recently put it, "I was chairman of the [Senate] Commerce Committee that oversights every part of the economy." No question about it: Your leaders' failure to notice the damage done by irresponsible deregulation was indeed an oversight of epic proportions.
Now you are facing the consequences. Income inequality has increased, as the rich have gotten windfalls while the middle class has seen incomes stagnate. Fewer and fewer of your citizens have access to affordable housing, healthcare or security in retirement. Even life expectancy has dropped. And when your economic woes went from chronic to acute, you responded -- like so many Third World states have -- with an extensive program of nationalizing private companies and assets. Your mortgage giants Fannie Mae and Freddie Mac are now state owned and controlled, and this week your reinsurance giant AIG was effectively nationalized, with the Federal Reserve Board seizing an 80% equity stake in the flailing company.
Some might deride this as socialism. But desperate times call for desperate measures.
Admittedly, your transition to Third World status is far from over, and it won't be painless. At first, for instance, you may find it hard to get used to the shantytowns that will replace the exurban sprawl of McMansions that helped fuel the real estate speculation bubble. But in time, such shantytowns will simply become part of the landscape. Similarly, as unemployment rates continue to rise, you will initially struggle to find a use for the expanding pool of angry, jobless young men. But you will gradually realize that you can recruit them to fight in a ceaseless round of armed conflicts, a solution that has been utilized by many other Third World states before you. Indeed, with your wars in Iraq and Afghanistan, you are off to an excellent start.
Perhaps this letter comes as a surprise to you, and you feel you're not fully ready to join the Third World. Don't let this feeling concern you. Though you may never have realized it, you've been preparing for this moment for years.
US bailout fund is a gamble
US bailout fund is a gamble
22/09/2008 5:49:00 AM. | AIR
So now we have the mega US government fund that will save the markets from imploding.
It has stopped the rot in sharemarkets, but credit markets remain wary and uncertain.
But for the time being, we have to assume that the bailout is going to work and it could even allow some of the folk who caused the current crisis, to keep ducking reality and avoid taking their lumps.
So it's no wonder there are mutterings about the fates of Lehman Bros, Merrill Lynch and AIG: the usual collection of opportunists and lurk merchants want to know why the bailout came Friday and not last Sunday when Lehman failed, and then AIG was taken over and Merrill Lynch sent hurrying into the embrace of Bank of America.
Lawyers are being assembled and loopholes looked for.
So the cynics and smarter investors are asking who gets to bear the cost in the long run.
The answer is the American taxpayer is the only one who will pay.
So the poor American taxpayer is paying two ways for the housing crisis: losing their homes in three million cases, facing that prospects in millions more, losing their jobs (an extra 610,000 so far this year) and now having to stump up well over $US800 billion, and well over a $US1trillion if the costs of early support moves are added in.
What about shareholders and managements of the institutions being supported by the Treasury plan?
On all the evidence so far, it will do nothing to help end the root cause of the problem, the continuing decline in US home sales, new home starts and house prices.
Until that happens, the cost to the US Treasury and to US and other financial groups will continue to escalate.
It's going to do nothing to stop that, or change the direction of the US economy which is sliding remorselessly towards an increasingly nasty recession.
An announcement is due from the US government shortly, led by Treasury Secretary Hank Paulson, Federal Reserve chairman Ben Bernanke and US Congressional leaders, detailing some sort of agreement and the scope of the legislation for the fund and its rules and regulations.
The fund will be around $US700 billion, but that considerably underplays the true cost of the debacle so far.
Since March Mr Paulson and Mr Bernanke have spent $US29 billion guaranteeing the bailout of Bear Stearns, $200 billion at least on the bailout of Fannie Mae and Freddie Mac, $85 billion on the bailout of AIG (the big insurer which wrote credit default swaps on a range of debt that it had no idea about) and at least $US50 billion guaranteeing money market funds.
That's $US364 billion.
Seeing financial institutions around the world have already written down or lost over $US500 billion (and have raised around $US360 billion in new capital), the cost so far of the debacle that started with dodgy subprime mortgages and associated credit derivatives is well over $US800 billion (including Fannie, Freddie IAG etc).
If the $US700 billion is for new purchases of bad securities (and it could be extended to non-US groups at the decision of the Treasury secretary), the cost will balloon. That will allow the likes of Deutsche Bank, UBS, Credit Swiss and French and UK banks to unload their dodgy securities in certain cases.
Assuming that the $700 billion is spent on new securities, the cost could be well over $US1.1 trillion, excluding already announced losses (and over $US1.6 trillion if they are included).
Remember that a lot of analysts and commentators, plus bankers and their mates laughed at the International Monetary Fund when it said earlier in the year that the losses could be $US1 trillion.
It was obviously very conservative.
We are yet to see whether the debt to be bought will include non-mortgage related debt, say CDSs (Credit Default Swaps) and other dodgy credit derivatives issued over the debt of groups like General Motors or healthy US or foreign corporations' debt.
Will it include leverage buyout debt for the likes of private equity groups like Blackstone, KKR, CVC and the like?
And on top of all the spending so far on the likes of Bear Stearns and AIG, there's the $US500 billion spent or being spent a day by the Fed funding the markets in the US, Europe, Japan, Canada, Switzerland and other areas.
There's the $US180 billion swapped last week, there's the monthly $US200 billion being lent to banks and other groups in the US each 28 days and there's the daily $US33 billion being injected into US commercial banks each day and the $59 billion primary dealers last week (investment banks).
Even in a US economy that produces $US14.4 trillion worth of goods and services a year, that's a lot of cash.
In fact a working paper from two IMF economists estimated that banking crises chew up an average of 16% of the GDP of an economy. That's based on looking at 42 major banking crises around the world from 1970 to 2007 (and not including the current problem).
Spending all that money will intensify long-standing questions about America's fiscal health, possibly at the expense of another drop in the value of the dollar.
No wonder the US dollar blew out on Friday, sliding to over $US1.44 on the euro (the Australian dollar rose by more than 1.5c in offshore trading on Friday night).
To mitigate the cost and make for a more brutal (to the selling groups) and equitable arrangement for US taxpayers, the purchases could be made by the US Treasury through a bidding process.
Companies that want to offload their dodgy assets would bid to sell to the government at a huge discount. The company willing to sell at the lowest price wins. That's a reverse auction.
The government would then be able to sell the assets back into the market when it wanted: the government could give the banks a share of the upside if there are any profits.
The Fed lent that $US85 billion to AIG at a margin of 8.5% over the rate banks lend to each other internationally (so-called 3 month LIBOR). That's around 11% or a bit more in normal times outside of last week.
Using that as a yardstick, the pricing by the Fed could be brutal indeed.
So far it seems like the purchases will be aimed at dodgy housing-related debt of varying kind, but you can bet there will be pressure to offload corporate and buyout loans that are going bad. The property related debt specified in the proposed bill is residential (AND) commercial.
That alone will limit the Fund's ability to concentrate solely on residential debt.
And what about personal loans, credit card and car loan debt tied to foreclosures and home equity loans which is another disaster area?
The idea seems to be that the US government will buy at below-market rates and sell for a gain when the housing market recovers: when that will happen, no one is willing to say.
The problem is that the dodgy housing-related assets have proven extremely difficult to value as the demand for them has disappeared.
And there is a nasty message there: those banks and financial groups that stayed away from this sort of toxic debt are being punished. The incompetent and imprudent will be rewarded by being bailed out. This is what moral hazard is all about.
The strong stock-market rally late last week reflects the belief that companies have been saved from the cost of making dodgy decisions on these loans from incompetent and risky decisions to speculate and gear balance sheets to generate big earnings for the company and themselves.
The inevitable death of weaker firms will be delayed, and in turn that will delay the reckoning that must occur before a sustainable economic recovery can take shape.
The US government is seeking to eliminate legal challenges by making the Treasury the sole and final arbiter and not allowing any legal challenges, a move that has upset Americans in the legal field (naturally).
While the proposal calls for the purchase of as much as $US700 billion of bad loans, it's unknown what taxpayers will ultimately pay for the bailout.
The Bush administration's proposal requests that the US Congress authorises an increase to America's debt ceiling.
That's set to rise to $US10.6 trillion for fiscal year 2009 - which runs from October 2008 through September 2009, to accommodate a Federal Budget deficit already estimated at some $US580 billion.
But now the Administration wants to lift the ceiling to $US11.315 trillion to allow for the purchases of these dodgy mortgage-backed assets.
US commentators say that it's unclear at this point if it will help homeowners.
If the Treasury buys an entire securitized loan, it could help struggling homeowners by modifying the terms. This could include reducing a loan's interest rate or principal balance to help prevent foreclosure.
But if it doesn't buy all the securities. It could be held to ransom by the other holders.
The bottom line remains: if the plan doesn't stem the tide of foreclosures, home prices will not stabilize and the economy will not recover and banks and other financial groups will still be on death watch.
It will not help them lend more money for housing business, credit cards and the like.
Information provided to you by the Australasian Investment Review (AIR).AIR publishes a weekly magazine. Subscriptions are free at aireview.com.au
http://livenews.com.au/Articles/2008/09/21/US_bailout_Fund_Gamble
22/09/2008 5:49:00 AM. | AIR
So now we have the mega US government fund that will save the markets from imploding.
It has stopped the rot in sharemarkets, but credit markets remain wary and uncertain.
But for the time being, we have to assume that the bailout is going to work and it could even allow some of the folk who caused the current crisis, to keep ducking reality and avoid taking their lumps.
So it's no wonder there are mutterings about the fates of Lehman Bros, Merrill Lynch and AIG: the usual collection of opportunists and lurk merchants want to know why the bailout came Friday and not last Sunday when Lehman failed, and then AIG was taken over and Merrill Lynch sent hurrying into the embrace of Bank of America.
Lawyers are being assembled and loopholes looked for.
So the cynics and smarter investors are asking who gets to bear the cost in the long run.
The answer is the American taxpayer is the only one who will pay.
So the poor American taxpayer is paying two ways for the housing crisis: losing their homes in three million cases, facing that prospects in millions more, losing their jobs (an extra 610,000 so far this year) and now having to stump up well over $US800 billion, and well over a $US1trillion if the costs of early support moves are added in.
What about shareholders and managements of the institutions being supported by the Treasury plan?
On all the evidence so far, it will do nothing to help end the root cause of the problem, the continuing decline in US home sales, new home starts and house prices.
Until that happens, the cost to the US Treasury and to US and other financial groups will continue to escalate.
It's going to do nothing to stop that, or change the direction of the US economy which is sliding remorselessly towards an increasingly nasty recession.
An announcement is due from the US government shortly, led by Treasury Secretary Hank Paulson, Federal Reserve chairman Ben Bernanke and US Congressional leaders, detailing some sort of agreement and the scope of the legislation for the fund and its rules and regulations.
The fund will be around $US700 billion, but that considerably underplays the true cost of the debacle so far.
Since March Mr Paulson and Mr Bernanke have spent $US29 billion guaranteeing the bailout of Bear Stearns, $200 billion at least on the bailout of Fannie Mae and Freddie Mac, $85 billion on the bailout of AIG (the big insurer which wrote credit default swaps on a range of debt that it had no idea about) and at least $US50 billion guaranteeing money market funds.
That's $US364 billion.
Seeing financial institutions around the world have already written down or lost over $US500 billion (and have raised around $US360 billion in new capital), the cost so far of the debacle that started with dodgy subprime mortgages and associated credit derivatives is well over $US800 billion (including Fannie, Freddie IAG etc).
If the $US700 billion is for new purchases of bad securities (and it could be extended to non-US groups at the decision of the Treasury secretary), the cost will balloon. That will allow the likes of Deutsche Bank, UBS, Credit Swiss and French and UK banks to unload their dodgy securities in certain cases.
Assuming that the $700 billion is spent on new securities, the cost could be well over $US1.1 trillion, excluding already announced losses (and over $US1.6 trillion if they are included).
Remember that a lot of analysts and commentators, plus bankers and their mates laughed at the International Monetary Fund when it said earlier in the year that the losses could be $US1 trillion.
It was obviously very conservative.
We are yet to see whether the debt to be bought will include non-mortgage related debt, say CDSs (Credit Default Swaps) and other dodgy credit derivatives issued over the debt of groups like General Motors or healthy US or foreign corporations' debt.
Will it include leverage buyout debt for the likes of private equity groups like Blackstone, KKR, CVC and the like?
And on top of all the spending so far on the likes of Bear Stearns and AIG, there's the $US500 billion spent or being spent a day by the Fed funding the markets in the US, Europe, Japan, Canada, Switzerland and other areas.
There's the $US180 billion swapped last week, there's the monthly $US200 billion being lent to banks and other groups in the US each 28 days and there's the daily $US33 billion being injected into US commercial banks each day and the $59 billion primary dealers last week (investment banks).
Even in a US economy that produces $US14.4 trillion worth of goods and services a year, that's a lot of cash.
In fact a working paper from two IMF economists estimated that banking crises chew up an average of 16% of the GDP of an economy. That's based on looking at 42 major banking crises around the world from 1970 to 2007 (and not including the current problem).
Spending all that money will intensify long-standing questions about America's fiscal health, possibly at the expense of another drop in the value of the dollar.
No wonder the US dollar blew out on Friday, sliding to over $US1.44 on the euro (the Australian dollar rose by more than 1.5c in offshore trading on Friday night).
To mitigate the cost and make for a more brutal (to the selling groups) and equitable arrangement for US taxpayers, the purchases could be made by the US Treasury through a bidding process.
Companies that want to offload their dodgy assets would bid to sell to the government at a huge discount. The company willing to sell at the lowest price wins. That's a reverse auction.
The government would then be able to sell the assets back into the market when it wanted: the government could give the banks a share of the upside if there are any profits.
The Fed lent that $US85 billion to AIG at a margin of 8.5% over the rate banks lend to each other internationally (so-called 3 month LIBOR). That's around 11% or a bit more in normal times outside of last week.
Using that as a yardstick, the pricing by the Fed could be brutal indeed.
So far it seems like the purchases will be aimed at dodgy housing-related debt of varying kind, but you can bet there will be pressure to offload corporate and buyout loans that are going bad. The property related debt specified in the proposed bill is residential (AND) commercial.
That alone will limit the Fund's ability to concentrate solely on residential debt.
And what about personal loans, credit card and car loan debt tied to foreclosures and home equity loans which is another disaster area?
The idea seems to be that the US government will buy at below-market rates and sell for a gain when the housing market recovers: when that will happen, no one is willing to say.
The problem is that the dodgy housing-related assets have proven extremely difficult to value as the demand for them has disappeared.
And there is a nasty message there: those banks and financial groups that stayed away from this sort of toxic debt are being punished. The incompetent and imprudent will be rewarded by being bailed out. This is what moral hazard is all about.
The strong stock-market rally late last week reflects the belief that companies have been saved from the cost of making dodgy decisions on these loans from incompetent and risky decisions to speculate and gear balance sheets to generate big earnings for the company and themselves.
The inevitable death of weaker firms will be delayed, and in turn that will delay the reckoning that must occur before a sustainable economic recovery can take shape.
The US government is seeking to eliminate legal challenges by making the Treasury the sole and final arbiter and not allowing any legal challenges, a move that has upset Americans in the legal field (naturally).
While the proposal calls for the purchase of as much as $US700 billion of bad loans, it's unknown what taxpayers will ultimately pay for the bailout.
The Bush administration's proposal requests that the US Congress authorises an increase to America's debt ceiling.
That's set to rise to $US10.6 trillion for fiscal year 2009 - which runs from October 2008 through September 2009, to accommodate a Federal Budget deficit already estimated at some $US580 billion.
But now the Administration wants to lift the ceiling to $US11.315 trillion to allow for the purchases of these dodgy mortgage-backed assets.
US commentators say that it's unclear at this point if it will help homeowners.
If the Treasury buys an entire securitized loan, it could help struggling homeowners by modifying the terms. This could include reducing a loan's interest rate or principal balance to help prevent foreclosure.
But if it doesn't buy all the securities. It could be held to ransom by the other holders.
The bottom line remains: if the plan doesn't stem the tide of foreclosures, home prices will not stabilize and the economy will not recover and banks and other financial groups will still be on death watch.
It will not help them lend more money for housing business, credit cards and the like.
Information provided to you by the Australasian Investment Review (AIR).AIR publishes a weekly magazine. Subscriptions are free at aireview.com.au
http://livenews.com.au/Articles/2008/09/21/US_bailout_Fund_Gamble
Worry About bin Laden, Not the Taliban by Ivan Eland
http://www.antiwar.com/eland/?articleid=13480
Worry About bin Laden, Not the Taliban
by Ivan Eland
A recent US raid into Pakistan from Afghanistan using Special Forces on the ground is apparently part of the Bush administration's new "get tough" policy on the Taliban and al-Qaeda sanctuary in the tribal areas of Pakistan. For many years, Osama bin Laden and the al-Qaeda leadership have been thought by US intelligence to be hiding in these wild and remote areas.
Well, at last, the administration, in its waning days, has directed its policy toward the right country. After 9/11 and bin Laden's escape from Afghanistan into Pakistan, the administration became sidetracked with nation-building projects in Afghanistan and then Iraq. These counterproductive episodes of military social work have increased the number of terrorism incidents worldwide and diverted administration attention, intelligence assets, and Special Forces units from the main goal of capturing or killing bin Laden and the other al-Qaeda leaders.
Notice the absence of the word "Taliban" from the last sentence. Even Barack Obama and the Democrats declare that "we cannot lose Afghanistan." The main reason for the stepped up US incursions on the ground, and the concomitant increase in strikes by Predator Unmanned Aerial Vehicles into Pakistan, is to hit the Taliban's safe havens to impede the group's cross-border attacks on Afghanistan. Yet the United States has to worry about the Taliban resurgence in Afghanistan and Pakistan only because its non-Muslim occupation of a Muslim land is causing it. The US government and the American public have lost sight of the fact that the Taliban did not attack the United States on 9/11, bin Laden and al-Qaeda did.
A more aggressive policy by the US in Pakistan, when combined with the continued occupation of Afghanistan, is likely to make the Taliban even more wildly popular in both places. Rising Islamic radicalism in Pakistan is very dangerous, because the country possesses nuclear weapons. The US originally helped create al-Qaeda; let's not create any more threats.
To deflate the Taliban ascendancy in Afghanistan and Pakistan, the vast majority of US and allied forces should be withdrawn from Afghanistan, leaving only a small contingent of clandestine Special Forces and Predators to take advantage of any window of opportunity, should bin Laden or any other leadership targets be located. However, most of the US effort should be reoriented to the same policy that has reduced violence in Iraq: paying off your enemies not to fight you.
Removing the non-Muslim occupation from Muslim soil would likely take the fire out of the Taliban resurgence in Afghanistan and Pakistan, and the United States could simply pay any Taliban remnants not to fight. Even more important, keeping its "eyes on the prize," the US should offer whatever the Taliban in Pakistan wants to turn over bin Laden and the al-Qaeda leadership. In that part of the world, allegiances often shift with the flow of cash. In late 2001 after 9/11, when bin Laden was on the run from US forces, he apparently paid Afghans to let him escape. So why can't the US just pay whatever it takes to bring him in? Tell the Taliban to name their price. Some say that no matter how high the reward, the Taliban is too dedicated in its radical Islamic beliefs to turn over bin Laden, but the group regularly violates its principles to profitably consort with Afghanistan's drug lords.
But the amount will no doubt be much more than the measly $50 million sum the US government currently has on bin Laden's head. Such a sum seems like a lot, but is chump change for countries and political movements, such as the Taliban.
I guess it would be too much to expect the Bush administration – which has incompetently distracted itself with every other task in the "War on Terror" except what should have been its main objective: capturing or killing the perpetrator of one of the most heinous acts of terror in human history – to get it right at this late date. But because a new administration is just around the corner, hope springs eternal.
Worry About bin Laden, Not the Taliban
by Ivan Eland
A recent US raid into Pakistan from Afghanistan using Special Forces on the ground is apparently part of the Bush administration's new "get tough" policy on the Taliban and al-Qaeda sanctuary in the tribal areas of Pakistan. For many years, Osama bin Laden and the al-Qaeda leadership have been thought by US intelligence to be hiding in these wild and remote areas.
Well, at last, the administration, in its waning days, has directed its policy toward the right country. After 9/11 and bin Laden's escape from Afghanistan into Pakistan, the administration became sidetracked with nation-building projects in Afghanistan and then Iraq. These counterproductive episodes of military social work have increased the number of terrorism incidents worldwide and diverted administration attention, intelligence assets, and Special Forces units from the main goal of capturing or killing bin Laden and the other al-Qaeda leaders.
Notice the absence of the word "Taliban" from the last sentence. Even Barack Obama and the Democrats declare that "we cannot lose Afghanistan." The main reason for the stepped up US incursions on the ground, and the concomitant increase in strikes by Predator Unmanned Aerial Vehicles into Pakistan, is to hit the Taliban's safe havens to impede the group's cross-border attacks on Afghanistan. Yet the United States has to worry about the Taliban resurgence in Afghanistan and Pakistan only because its non-Muslim occupation of a Muslim land is causing it. The US government and the American public have lost sight of the fact that the Taliban did not attack the United States on 9/11, bin Laden and al-Qaeda did.
A more aggressive policy by the US in Pakistan, when combined with the continued occupation of Afghanistan, is likely to make the Taliban even more wildly popular in both places. Rising Islamic radicalism in Pakistan is very dangerous, because the country possesses nuclear weapons. The US originally helped create al-Qaeda; let's not create any more threats.
To deflate the Taliban ascendancy in Afghanistan and Pakistan, the vast majority of US and allied forces should be withdrawn from Afghanistan, leaving only a small contingent of clandestine Special Forces and Predators to take advantage of any window of opportunity, should bin Laden or any other leadership targets be located. However, most of the US effort should be reoriented to the same policy that has reduced violence in Iraq: paying off your enemies not to fight you.
Removing the non-Muslim occupation from Muslim soil would likely take the fire out of the Taliban resurgence in Afghanistan and Pakistan, and the United States could simply pay any Taliban remnants not to fight. Even more important, keeping its "eyes on the prize," the US should offer whatever the Taliban in Pakistan wants to turn over bin Laden and the al-Qaeda leadership. In that part of the world, allegiances often shift with the flow of cash. In late 2001 after 9/11, when bin Laden was on the run from US forces, he apparently paid Afghans to let him escape. So why can't the US just pay whatever it takes to bring him in? Tell the Taliban to name their price. Some say that no matter how high the reward, the Taliban is too dedicated in its radical Islamic beliefs to turn over bin Laden, but the group regularly violates its principles to profitably consort with Afghanistan's drug lords.
But the amount will no doubt be much more than the measly $50 million sum the US government currently has on bin Laden's head. Such a sum seems like a lot, but is chump change for countries and political movements, such as the Taliban.
I guess it would be too much to expect the Bush administration – which has incompetently distracted itself with every other task in the "War on Terror" except what should have been its main objective: capturing or killing the perpetrator of one of the most heinous acts of terror in human history – to get it right at this late date. But because a new administration is just around the corner, hope springs eternal.
Responding to Neo-Atheism By Rick Richman
Responding to Neo-Atheism
By Rick Richman
Neo-atheism has had a very successful publishing run over the past several years, with best-selling books by Christopher Hitchens ("god is not great"), Sam Harris ("Letter to a Christian Nation") and Richard Dawkins ("The God Delusion"), among others. But this year there has been an equally impressive counter-phenomenon. Three recent books, written from three widely divergent perspectives, have responded to the arguments of neo-atheism with both intellectual force and literary grace.
In April, David Berlinski, a secular Jew and well-known skeptic of Darwinism, who holds a Ph. D. in Philosophy from Princeton and has written widely on mathematics and science, published "The Devil's Delusion: Atheism and Its Scientific Pretensions." The book defends religion by attacking atheism's attempt to enlist science in its cause.
The book is written with Mr. Berlinski's characteristic literary verve. To a Nobel Prize scientist's argument -- offered at a conference on "science, religion and reason" -- that "for good people to do evil things, [it] takes religion," Berlinski responds: "Just who has imposed on the suffering human race poison gas, barbed wire, high explosives, experiments in eugenics, the formula for Zyklon B, heavy artillery, pseudo-scientific justifications for mass murder, cluster bombs, attack submarines, napalm, intercontinental ballistic missiles, military space platforms, and nuclear weapons?"
"If memory serves," he writes, "it was not the Vatican."
Last month, Michael Novak, a Catholic scholar who holds the Jewett Chair in Religion, Philosophy and Public Policy at the American Enterprise Institute, published "No One Sees God: The Dark Night of Atheists and Believers." Mr. Novak believes the country needs a respectful dialogue between believers and unbelievers, and he has effectively produced one in book-length form, setting forth the arguments of the neo-atheists with extraordinary respect and civility before presenting his own views.
He has written a humble book, all the more powerful for its humility. Even at age 74, after a lifetime of religious study and writing, he acknowledges he cannot be certain that what he believes is true. But he has set forth a case for religion that is all the more compelling for its serious treatment of the other side.
This month, Rabbi David J. Wolpe, named earlier this year by Newsweek at age 49 as the number one pulpit rabbi in America, published "Why Faith Matters." It is a book in a class by itself, because it combines both intellectual force and lawyer-like accumulation of historical, statistical and other evidence with something equally compelling -- the power of personal example.
Wolpe is the senior rabbi at Sinai Temple in Los Angeles and teaches modern Jewish religious thought at UCLA, but he was -- at an important stage in his life -- an ardent atheist. He grew up in a rabbinical family, initially rebelled against a religious future and, influenced by the works of Bertrand Russell, fell into atheism during his college years. He eventually rejected Russell's views decided to try rabbinical school -- "on spec," as he told his friends. One of his brothers predicted it would be "a phase."
His new book is his seventh he has written during the phase. His first book, "The Healer of Shattered Hearts," was a lyrical summary of rabbinic Judaism that established him, in Rabbi Joseph Telushkin's words, as "the poet of Jewish theology." His mother's stroke at age 52 led him to write "In Speech and Silence," a book-length meditation on words and song in religion. His most remarkable volume, "Making Loss Matter," described a way of capturing meaning from the most painful moments of life. It was written in the midst of the cancer that struck his wife at age 31, preventing her from bearing further children.
In a column in 2003, Rabbi Wolpe wrote about the Talmud's insistence that we "bless God for the bad as well as the good" -- and later that year lived out that teaching. He collapsed during a speech at the University of Pennsylvania, with what was shortly diagnosed as a brain tumor requiring surgery. The tumor was benign, but three years later he learned he had a new malady: lymphoma. He underwent extensive chemotherapy, losing his hair and strength but continuing to give weekly sermons at Sinai Temple throughout. Some of the lessons he learned from those experiences are at the heart of his book.
The faith reflected in his book is thus hard won, arriving after a long journey from atheism, through adversity, to an understanding that gives his book the earned eloquence that comes from a book not simply written but lived. He covers an extraordinarily large array of issues in just 198 pages of text: whether faith is simply projected onto a meaningless world; whether science answers the questions religion once addressed; whether history demonstrates that religion is responsible for numerous wars; whether people would be happier without it; whether evolution can explain self-consciousness; whether evil can be understood; and numerous other issues.
Ultimately he believes that life is at its heart not a puzzle to be solved but a mystery to be appreciated. The legendary Jewish educator, Shlomo Bardin, was once asked whether he believed God in fact existed. Mr. Bardin's response was "I don't know; I only know that when I see a sunset, I want to say a Psalm." It was an acknowledgement of the limits of human intelligence, the evidence before our eyes, and the power of religious ritual.
Rabbi Wolpe's book continues that theme, effectively conveying that religion is the reasonable response to the wonder we see around us, and to the knowledge that many things -- starting with love -- are things we cannot see. He takes Shlomo Bardin's poetic observation one step further, concluding that "what represents God in this world is neither the sky nor the sanctuary, but the human face" - something Wolpe demonstrates with groups by simply asking them to look into each others' eyes. Perhaps the most eloquent page of his book is his five-word inscription to his wife and child: "All the proof I need."
All three of these books exhibit a quality that is largely missing from the volumes by the neo-atheists: a sense that there is wisdom in all points of view, and that wisdom is not exclusively found in one. It is ironic that what ultimately makes neo-atheism not only unconvincing but off-putting is the fact that it often exhibits the very fundamentalism it purports to find in religion: an absolute certainty in its views, an uncritical worship of its god -- science -- as a saving force, and a denigration of those who refuse to be saved. Berlinski, Novak and Wolpe, in their divergent ways, demonstrate that a religious outlook that does not deny doubt, values humility, and appreciates the implications of the miracle of our existence, is the more reasonable approach to life.
Rick Richman edits Jewish Current Issues.
http://www.americanthinker.com/2008/09/responding_to_neoatheism.html
By Rick Richman
Neo-atheism has had a very successful publishing run over the past several years, with best-selling books by Christopher Hitchens ("god is not great"), Sam Harris ("Letter to a Christian Nation") and Richard Dawkins ("The God Delusion"), among others. But this year there has been an equally impressive counter-phenomenon. Three recent books, written from three widely divergent perspectives, have responded to the arguments of neo-atheism with both intellectual force and literary grace.
In April, David Berlinski, a secular Jew and well-known skeptic of Darwinism, who holds a Ph. D. in Philosophy from Princeton and has written widely on mathematics and science, published "The Devil's Delusion: Atheism and Its Scientific Pretensions." The book defends religion by attacking atheism's attempt to enlist science in its cause.
The book is written with Mr. Berlinski's characteristic literary verve. To a Nobel Prize scientist's argument -- offered at a conference on "science, religion and reason" -- that "for good people to do evil things, [it] takes religion," Berlinski responds: "Just who has imposed on the suffering human race poison gas, barbed wire, high explosives, experiments in eugenics, the formula for Zyklon B, heavy artillery, pseudo-scientific justifications for mass murder, cluster bombs, attack submarines, napalm, intercontinental ballistic missiles, military space platforms, and nuclear weapons?"
"If memory serves," he writes, "it was not the Vatican."
Last month, Michael Novak, a Catholic scholar who holds the Jewett Chair in Religion, Philosophy and Public Policy at the American Enterprise Institute, published "No One Sees God: The Dark Night of Atheists and Believers." Mr. Novak believes the country needs a respectful dialogue between believers and unbelievers, and he has effectively produced one in book-length form, setting forth the arguments of the neo-atheists with extraordinary respect and civility before presenting his own views.
He has written a humble book, all the more powerful for its humility. Even at age 74, after a lifetime of religious study and writing, he acknowledges he cannot be certain that what he believes is true. But he has set forth a case for religion that is all the more compelling for its serious treatment of the other side.
This month, Rabbi David J. Wolpe, named earlier this year by Newsweek at age 49 as the number one pulpit rabbi in America, published "Why Faith Matters." It is a book in a class by itself, because it combines both intellectual force and lawyer-like accumulation of historical, statistical and other evidence with something equally compelling -- the power of personal example.
Wolpe is the senior rabbi at Sinai Temple in Los Angeles and teaches modern Jewish religious thought at UCLA, but he was -- at an important stage in his life -- an ardent atheist. He grew up in a rabbinical family, initially rebelled against a religious future and, influenced by the works of Bertrand Russell, fell into atheism during his college years. He eventually rejected Russell's views decided to try rabbinical school -- "on spec," as he told his friends. One of his brothers predicted it would be "a phase."
His new book is his seventh he has written during the phase. His first book, "The Healer of Shattered Hearts," was a lyrical summary of rabbinic Judaism that established him, in Rabbi Joseph Telushkin's words, as "the poet of Jewish theology." His mother's stroke at age 52 led him to write "In Speech and Silence," a book-length meditation on words and song in religion. His most remarkable volume, "Making Loss Matter," described a way of capturing meaning from the most painful moments of life. It was written in the midst of the cancer that struck his wife at age 31, preventing her from bearing further children.
In a column in 2003, Rabbi Wolpe wrote about the Talmud's insistence that we "bless God for the bad as well as the good" -- and later that year lived out that teaching. He collapsed during a speech at the University of Pennsylvania, with what was shortly diagnosed as a brain tumor requiring surgery. The tumor was benign, but three years later he learned he had a new malady: lymphoma. He underwent extensive chemotherapy, losing his hair and strength but continuing to give weekly sermons at Sinai Temple throughout. Some of the lessons he learned from those experiences are at the heart of his book.
The faith reflected in his book is thus hard won, arriving after a long journey from atheism, through adversity, to an understanding that gives his book the earned eloquence that comes from a book not simply written but lived. He covers an extraordinarily large array of issues in just 198 pages of text: whether faith is simply projected onto a meaningless world; whether science answers the questions religion once addressed; whether history demonstrates that religion is responsible for numerous wars; whether people would be happier without it; whether evolution can explain self-consciousness; whether evil can be understood; and numerous other issues.
Ultimately he believes that life is at its heart not a puzzle to be solved but a mystery to be appreciated. The legendary Jewish educator, Shlomo Bardin, was once asked whether he believed God in fact existed. Mr. Bardin's response was "I don't know; I only know that when I see a sunset, I want to say a Psalm." It was an acknowledgement of the limits of human intelligence, the evidence before our eyes, and the power of religious ritual.
Rabbi Wolpe's book continues that theme, effectively conveying that religion is the reasonable response to the wonder we see around us, and to the knowledge that many things -- starting with love -- are things we cannot see. He takes Shlomo Bardin's poetic observation one step further, concluding that "what represents God in this world is neither the sky nor the sanctuary, but the human face" - something Wolpe demonstrates with groups by simply asking them to look into each others' eyes. Perhaps the most eloquent page of his book is his five-word inscription to his wife and child: "All the proof I need."
All three of these books exhibit a quality that is largely missing from the volumes by the neo-atheists: a sense that there is wisdom in all points of view, and that wisdom is not exclusively found in one. It is ironic that what ultimately makes neo-atheism not only unconvincing but off-putting is the fact that it often exhibits the very fundamentalism it purports to find in religion: an absolute certainty in its views, an uncritical worship of its god -- science -- as a saving force, and a denigration of those who refuse to be saved. Berlinski, Novak and Wolpe, in their divergent ways, demonstrate that a religious outlook that does not deny doubt, values humility, and appreciates the implications of the miracle of our existence, is the more reasonable approach to life.
Rick Richman edits Jewish Current Issues.
http://www.americanthinker.com/2008/09/responding_to_neoatheism.html
Saturday, September 20, 2008
Death and Near-Death Experiences on Wall St.
Death and Near-Death Experiences on Wall St.
EARLY last Monday morning, Richard S. Fuld Jr., the longtime chief executive of Lehman Brothers, put his 158-year-old firm into bankruptcy, burying a company where he had spent his entire career.
Several hours later, John A. Thain, the chief executive of Merrill Lynch, climbed a stage in Manhattan and told his employees, most of whom he had barely gotten to know during his brief tenure, that he was selling the troubled firm to the Bank of America Corporation.Although both men played starring roles in a cataclysm that has threatened to break the economic backbone of the United States and has rearranged the financial landscape, their firms are hardly the only ones wounded in the crisis. And what began with falling house prices has escalated into staggering bank and stock-market losses, unleashing deep-rooted uncertainty about the resilience of the economy.
Over the last six months alone, the federal government has ponied up hundreds of billions in taxpayer funds to try to blunt the impact of outsize financial blunders on Wall Street and at Fannie Mae, Freddie Mac and the American International Group. On Friday, the government took extraordinary and historic steps to save some firms and restore investor confidence by proposing to buy hundreds of billions of dollars in distressed assets.
Lehman had pleaded with regulators for months to use similar tactics to rescue it, but to no avail. Merrill, on the other hand, was able to stay in the game just long enough to find a suitor and benefit from the federal bailout announced on Friday.
Mr. Thain and Mr. Fuld made different strategic decisions over the last year that shaped radically diverse outcomes for their employees and shareholders. But the chaotic backdrop also spelled death for some companies and unlikely survival for others. Indeed, had last week’s government bailout arrived sooner, Lehman, like Merrill, might still exist.
A reserved and almost robotic executive, Mr. Thain approached Merrill’s fate like a technocrat, coolly assessing his options and selling the company before the pain got worse. Mr. Fuld, a passionate, dedicated and combative leader, kept struggling to survive until his firm finally ran into the ground.
“We are all prisoners of where we have been. The longer you are attached to a place, the harder it is to see it without rose-colored glasses,” says James D. Cox, a professor at the Duke University School of Law. “When Mr. Thain got to Merrill, he started moving quickly to put the problems behind him.”
“But Mr. Fuld helped build Lehman,” he adds. “He had spent his entire career there and helped build some of the assets that ended up causing so many problems. It’s almost impossible to force yourself to completely reconceptualize your career and your life, and undo the company you built.”
Other than being in the same business, Mr. Thain, 53, and Mr. Fuld, 62, appear to have little in common. Mr. Fuld is a classic Wall Street trader — taking big risks, reaping huge rewards, exuding intensity and demanding loyalty. A University of Colorado graduate, he stumbled into the industry and through sheer determination rose from a trading floor to the highest ranks of his profession.
Mr. Thain, a dead ringer for Clark Kent, is cautiously amiable and seemed to act out, rather than inhabit, the role of C.E.O. A graduate of the Massachusetts Institute of Technology, he spent his career at Goldman Sachs and the New York Stock Exchange before Merrill’s board asked him to calm a firm rife with palace politics and glaringly lax risk management.
In the end, the technocrat brought Merrill a measure of safety, though only by the narrowest of margins.
And the defiance and independence that marked Mr. Fuld’s tenure and made him one of Wall Street’s most admired chief executives served him poorly when — like many — he misjudged the severity of the financial upheaval.
“Everyone on Wall Street is navigating uncharted waters right now,” said Jeffrey A. Sonnenfeld, a professor at the Yale School of Management. “No one could have dreamed it would have gotten this bad, and now that it is, no one is completely certain which choices were right and which were wrong.”
LAST October, E. Stanley O’Neal, Merrill’s ambitious chief executive, was forced to resign after reporting a $2.3 billion loss and making a desperate and unapproved attempt to find a merger partner. About two weeks later, the board announced that it had hired Mr. Thain.
At the time, Mr. Thain said he took the job because Merrill had the best wealth management business in the world and a premier investment banking franchise. Privately, he told friends that he wanted to resurrect the “MGM” days when Merrill, Goldman Sachs and Morgan Stanley dominated investment banking.
But his immediate needs were more prosaic: raising money to fill the firm’s dwindling coffers. Even before Mr. Thain arrived, Merrill executives concluded that they needed to raise money in order to survive.
Mr. Thain argued to investors that he hadn’t created the debacle enveloping Merrill and that he came to the firm to fix its problems. On Christmas Eve, he announced that he had raised $6.2 billion; a few weeks later, he announced an additional $6.6 billion.
Just as important, he began an internal charm offensive. In January, a day before Merrill announced its annual earnings, Mr. Thain traveled to Arizona to meet with 800 of the firm’s wealth managers. He warned them that the firm’s results would be bad. But he promised that the company was on the right track. As he exited the stage, he was followed by Money, a live bull who was a flesh-and-blood embodiment of Merrill’s ubiquitous corporate logo.
The next day Merrill announced a huge hit: $9.8 billion in losses and $16.7 billion in write-downs. Speaking to investors, Mr. Thain said he was “confident that we have the capital base we need to go forward with 2008.” A few weeks later in a private meeting with a group of investors at the company’s headquarters in New York, Mr. Thain reassured them that he would take a tough-love approach.
“We’ve got fresh eyes on these problems, and we’re not wedded to believing this company has done everything right for years,” he said, according to two participants in that meeting, who requested anonymity because the talks were confidential.
“Look at Citi,” he said, referring to Citigroup, the banking giant. “If the 800-pound gorilla has to raise money, then everyone should be asking if it isn’t time to do the same.”
As Merrill wrestled with its financial demons, Lehman seemed in better shape.
Earlier this year, Mr. Fuld, who started as a Lehman intern 42 years ago and had run the firm since 1994, was basking in two quarters of surprisingly good results. Investors were hammering his stock, but he saw those downturns as opportunities to dole out more shares to employees he believed would benefit when the storm passed.
After all, he was fond of noting, life on Wall Street was war.
“Every day is a grind, every day we’re in it, really trying to trudge through the stuff, and don’t think this is a walk through the park,” he said in an interview last fall. “Every day is a battle: think about the firm, do the right thing, protect your client, protect the firm, be in it, be a good team member.”
Lehman executives took comfort in the fact that their balance sheet was heavily weighted with commercial real estate — which they felt was immune to the mess in residential housing. Moreover, Lehman didn’t hold the same type of bundled mortgages, known as collateralized debt obligations, that had hamstrung Merrill.
Earlier this year, when Lehman’s chief financial officer, Erin Callan, met with some investors at the company’s headquarters in Midtown Manhattan, she exuded confidence.
During the meeting an investor challenged Ms. Callan, according to two participants who requested anonymity because they did not want to jeopardize their relationships with senior executives. With firms like Citigroup and Merrill raising capital, the investor asked, why wasn’t Lehman following suit?
Ms. Callan was brusque, the two participants recalled. Glaring at her questioner, she said that Lehman didn’t need more money at the time — after all, it had yet to post a loss during the credit crisis. The company had industry veterans in the executive suite who had perfected the science of risk management, she said.
According to both investors, she said Lehman’s real estate investments were top-notch. “This company’s leadership has been here so long that they know the strengths and weaknesses,” participants recalled her saying. “We know when we need to be worried, and when we don’t.”
In an interview, Ms. Callan challenged that version of events and said that she was never defensive with investors. While conceding that she may have said those things, she thinks that investors who met with her took her comments out of context.
Lehman had been searching for a strategic partner for almost two years to buy a 10 percent or 15 percent stake in it — a move that would have made its stock less volatile and expand its business — according to people briefed on the discussions.
In 2006, it had unsuccessfully tried to team up with American International Group, the insurance behemoth. A year later it considered links with state investment agencies in Kuwait and China. Mr. Fuld and other Lehman executives also held discussions with Mizuho Corporate Bank of Japan, these people said.
But those deals hadn’t panned out. And as the credit crisis grew, investors were increasingly wary of the firm.
After federal regulators intervened to stop a collapse of Bear Stearns in March, Lehman’s stock fell 45 percent in two days. Shortly after, it reported meager profits of $489 million and write-downs of $1.8 billion — and soon after, it raised $4 billion in new capital.
With Bear gone, Lehman became the smallest investment bank on Wall Street. A chorus of whispers began: Lehman is next. Critics began opining that a world of woe lurked on its balance sheet. In May, David Einhorn, a well-regarded hedge fund manager, began publicly questioning the company’s accounting and mocking Ms. Callan’s self-assurance.
As the stock declined, Mr. Fuld authorized his executives to seek a minority investment from a deep-pocketed investor, which would give the market confidence, according to people briefed on the discussions. Potential investors were said to include General Electric, HSBC and Barclays.
Top executives still believed Lehman could remain independent. The market, however, disagreed.
As Lehman tried to make a case with the media and regulators that investors betting against its stock were unfairly going after the firm, top executives increasingly realized that their strategy was failing and assets were withering.
In June, Lehman was forced to unveil its second-quarter earnings early — an unexpected loss of $2.8 billion. Mr. Fuld replaced the president, Joseph Gregory, his closest friend at the company, and demoted Ms. Callan, who later left.
Lehman raised $6 billion more in capital and explored selling parts of its business. But neither management shake-ups nor promises that a dramatic turnaround was forthcoming stopped the stock from dropping.
AS Lehman publicly struggled, Merrill was quietly trying to right its ship.
In spite of Mr. Thain’s assurances in January that Merrill wouldn’t need new capital, the plummeting value of its mortgage securities soon made it apparent to its executives that they needed more funds.
Inside Merrill, Mr. Thain had drawn criticism for being aloof and for surrounding himself with a small cadre of colleagues from his previous jobs.
By July, when the stocks of mortgage giants Fannie Mae and Freddie Mac began spiraling downward, it was clear to investors everywhere that problems within the housing market were getting out of control.
Most consumers could see the reality of collapsing home prices for themselves. Within banks like Merrill, other hidden dangers existed: a dizzying array of complex products, known as derivatives, that tied mortgage-related securities, other assets and debts to companies here and overseas — a daisy chain that amplified the downturn.
Knowing he was caught in this web, Mr. Thain announced in July that he would sell some assets, including the firm’s stake in Bloomberg, the financial data and media company, for $4.4 billion. Merrill also raised $8.5 billion in a deal that severely diluted Merrill’s shareholders. It reported a second-quarter loss of $4.6 billion and $9.7 billion in write-downs.
A few weeks later, Mr. Thain announced a deal that stunned the markets: he offloaded $31 billion of toxic mortgage assets to Lone Star, a small investment company, for 22 cents on the dollar. Merrill had to finance 75 percent of the sale. Analysts uniformly agreed that Lone Star got a sweet deal.
“We have over 60,000 people working every day,” Mr. Thain said in an interview at the time, responding to criticism that he had sold the assets for a song. “All the efforts of these people were overwhelmed by the write-downs in the mortgage-related assets.”
Within months it would become clear that the Lone Star deal had, in fact, helped give Merrill extra time by untethering it from a block of ugly assets that might have stood in the way of a merger.
As the crisis escalated in July and August, Lehman was also racing to shore up its weaknesses. But investors had been burned by earlier investments in struggling financial service companies and were tapped out.
Still, Lehman executives held out hope that they would be able to save themselves by selling a stake to the Korea Development Bank, a state bank. But when Mr. Fuld, ever the tough negotiator, pushed the bank to take over some underperforming loans, the Koreans balked.
By Labor Day, a tidal wave was crashing down on the entire economy and Fannie Mae and Freddie Mac had become the centers of concern. Hoping to prevent companies of all sizes from toppling into one another like dominos, the government bailed out the two mortgage giants for about $200 billion.
While most banks and brokerage stocks soared on the news, including Merrill’s, Lehman’s stock dropped more than 50 percent in the two days following the bailout.
As government officials quietly said they were done rescuing financial firms, Lehman scrambled to find a solution. It was waiting for bids on its investment management division, a deal it hoped might secure $5 billion to $6 billion. It also floated the idea of splitting itself in two to create a separate company to house its troubled assets.
Then, just over a week ago, Lehman announced a $4 billion loss and a $5.6 billion write-down. It also said it would spin out $30 billion of troubled assets into a separate company.
“We’ve been through adversity before, and we always come out a lot stronger,” Mr. Fuld said in a conference call on Sept. 10, sounding unusually resigned and utterly exhausted.
The markets didn’t buy it. Clients pulled money from Lehman, other firms wanted trading guarantees and Lehman finally ran out of cash. After surviving more than a century, Lehman would be dead within days unless someone stepped in.
ON a rainy afternoon nine days ago, with just an hour’s notice, Timothy F. Geithner, president of the Federal Reserve Bank of New York, summoned Wall Street’s leading chief executives to a meeting at the Fed’s cavernous downtown offices. Many were getting ready to leave for the weekend, and all of them were worn out after a treacherous week.
Notably absent from the meeting was Mr. Fuld, who was scrambling to strike a deal with Bank of America, said people briefed on the negotiations. Mr. Geithner, who declined interview requests, told the gathering the government wouldn’t rescue Lehman, according to various participants. It was up to the industry to find a solution, he said.
Although Lehman’s woes were in the headlines, some participants wondered if they shouldn’t be talking about other troubled firms as well. Weren’t A.I.G.’s problems just as big, if not bigger? James Dimon, JPMorgan’s chief executive, said A.I.G. had hired his bank, which was trying to find a solution.
Others in the room focused on Merrill’s sagging stock and huge debt burden. If Lehman collapsed, participants wondered to themselves, was Merrill next? Some banks were so concerned that they considered stopping trading with Merrill if Lehman went under.
When the meeting broke up at 8:30 p.m., Mr. Geithner asked the executives to return at 9 the next morning and to count on spending most of the weekend trying to build a bulwark against the biggest economic firestorm since the Great Depression.
On Saturday morning, when Mr. Thain arrived at the Fed, Lehman had returned to the center of discussion. Various scenarios, including the impact of a Lehman bankruptcy, were considered; everyone knew that Bank of America and Barclays were considering buying Lehman but had wanted government backing. Regulators made it clear that that wasn’t going to happen.
During the morning session, Mr. Thain sat across the table from Herbert H. McDade III, Lehman’s president. “I don’t want to be in his seat,” Mr. Thain thought to himself, according to a person familiar with his thinking.
And to make sure he didn’t wind up in that seat within days, Mr. Thain decided Merrill had to do something bold by Monday. His hope was to sell about a 10 percent stake to a cash-rich partner.
His first call was to Kenneth D. Lewis, Bank of America’s chief executive, who had long coveted Merrill. Mr. Thain got Mr. Lewis’s phone number from Gregory J. Fleming, Merrill’s president, who wanted a tie-up between the two. Mr. Fleming was worried that if Bank of America purchased Lehman first, the bank wouldn’t cut a deal with Merrill.
Mr. Lewis raised the ante: he said he wasn’t interested in buying just a stake in Merrill. He wanted the whole company. Mr. Lewis flew to New York from the bank’s headquarters in Charlotte, N.C., to meet with Mr. Thain on Saturday afternoon in a corporate apartment.
Those conversations went well. But then Mr. Thain trekked back to the Fed, where another surprise awaited. Peter Kraus, his head of strategy, told him that Goldman Sachs was interested in buying a 9.9 percent stake and extending a $10 billion credit line, according to people briefed on the discussions.
And Goldman wasn’t the only other interested suitor. John J. Mack, chief executive of Morgan Stanley, told Mr. Thain that “we should talk,” according to people familiar with the discussions. A two-hour meeting was held that afternoon on the Upper East Side with the C.E.O.’s and their advisers.
But by Saturday afternoon, Mr. Fleming was already leading Merrill’s bankers and lawyers through a quick scouring of Bank of America and its proposal, giving the North Carolina bank a leg up.
Around 9 on Sunday morning, Henry M. Paulson Jr., the Treasury secretary, told the Fed group that Lehman hadn’t found a buyer and that they should brace for its bankruptcy.
ATTENTION immediately shifted to Merrill Lynch, which many were certain would be the next to topple. Bankers started discussing the possibility of creating a vast liquidity pool that the next troubled institution could tap into.
Meanwhile, Mr. Thain set a noon conference call with his board. He said he expected a bid from Bank of America and had held discussions with Goldman Sachs and Morgan Stanley, according to people briefed on the discussions. He concluded that Mr. Lewis’s bid — a takeover of the entire company at a premium price — was the best offer.
At a 6 p.m. meeting with his board at the St. Regis hotel, Mr. Thain recommended to his board that it accept. The deal was unanimously approved.
For Lehman, the weekend shaped up very differently.
On Friday night, Lehman executives believed a deal with Bank of America was possible, according to people briefed on the negotiations. But by Saturday, they couldn’t get Bank of America to return their calls.
Mr. Fuld stayed in his office from 7 a.m. until after midnight on Saturday and on Sunday, calling regulators, potential buyers and his own team. But his options were fading. Even promising talks with Barclays, a British bank, were running aground.
Late in the day on Sunday, Mr. Fuld learned that the Fed would expand its lending by allowing banks to post a wider variety of collateral, and that the banking industry had cobbled together a $70 billion lending pool.
According to people briefed on the conversations, Mr. Fuld implored the regulators to let Lehman have access to those new funds — a move that he believed would have saved the firm. No, he was told: these measures are to stabilize the market in the aftermath of a Lehman liquidation, not to prevent it.
In fact, the pool was intended to help Merrill, industry participants said. Ironically, though, Merrill wouldn’t need that capital because it was completing its deal with Bank of America.
Regulators and bankers tried to wait for Lehman’s bankruptcy filing before announcing the two new lending options. But by 10 Sunday night, Lehman still hadn’t filed, because Mr. Fuld was still trying to do a deal with Barclays.
After Barclays fell through, Mr. Fuld directed his lawyers at 12:30 a.m. Monday to file for bankruptcy. Within hours, Mr. Thain announced his deal.
On Wednesday, Barclays offered the bankruptcy court $1.75 billion — far less than Lehman wanted for that firm’s core capital markets and investment banking business, its headquarters and two data centers.
And with each day the drama continues. On Friday, the rumor mill was speculating that a huge market rebound sparked by the federal bailout of Wall Street might mean that Merrill wouldn’t need to sell itself to Bank of America.
Both companies insist the deal is still on.
Landon Thomas Jr. contributed reporting.
http://www.nytimes.com/2008/09/21/business...?pagewanted=all
EARLY last Monday morning, Richard S. Fuld Jr., the longtime chief executive of Lehman Brothers, put his 158-year-old firm into bankruptcy, burying a company where he had spent his entire career.
Several hours later, John A. Thain, the chief executive of Merrill Lynch, climbed a stage in Manhattan and told his employees, most of whom he had barely gotten to know during his brief tenure, that he was selling the troubled firm to the Bank of America Corporation.Although both men played starring roles in a cataclysm that has threatened to break the economic backbone of the United States and has rearranged the financial landscape, their firms are hardly the only ones wounded in the crisis. And what began with falling house prices has escalated into staggering bank and stock-market losses, unleashing deep-rooted uncertainty about the resilience of the economy.
Over the last six months alone, the federal government has ponied up hundreds of billions in taxpayer funds to try to blunt the impact of outsize financial blunders on Wall Street and at Fannie Mae, Freddie Mac and the American International Group. On Friday, the government took extraordinary and historic steps to save some firms and restore investor confidence by proposing to buy hundreds of billions of dollars in distressed assets.
Lehman had pleaded with regulators for months to use similar tactics to rescue it, but to no avail. Merrill, on the other hand, was able to stay in the game just long enough to find a suitor and benefit from the federal bailout announced on Friday.
Mr. Thain and Mr. Fuld made different strategic decisions over the last year that shaped radically diverse outcomes for their employees and shareholders. But the chaotic backdrop also spelled death for some companies and unlikely survival for others. Indeed, had last week’s government bailout arrived sooner, Lehman, like Merrill, might still exist.
A reserved and almost robotic executive, Mr. Thain approached Merrill’s fate like a technocrat, coolly assessing his options and selling the company before the pain got worse. Mr. Fuld, a passionate, dedicated and combative leader, kept struggling to survive until his firm finally ran into the ground.
“We are all prisoners of where we have been. The longer you are attached to a place, the harder it is to see it without rose-colored glasses,” says James D. Cox, a professor at the Duke University School of Law. “When Mr. Thain got to Merrill, he started moving quickly to put the problems behind him.”
“But Mr. Fuld helped build Lehman,” he adds. “He had spent his entire career there and helped build some of the assets that ended up causing so many problems. It’s almost impossible to force yourself to completely reconceptualize your career and your life, and undo the company you built.”
Other than being in the same business, Mr. Thain, 53, and Mr. Fuld, 62, appear to have little in common. Mr. Fuld is a classic Wall Street trader — taking big risks, reaping huge rewards, exuding intensity and demanding loyalty. A University of Colorado graduate, he stumbled into the industry and through sheer determination rose from a trading floor to the highest ranks of his profession.
Mr. Thain, a dead ringer for Clark Kent, is cautiously amiable and seemed to act out, rather than inhabit, the role of C.E.O. A graduate of the Massachusetts Institute of Technology, he spent his career at Goldman Sachs and the New York Stock Exchange before Merrill’s board asked him to calm a firm rife with palace politics and glaringly lax risk management.
In the end, the technocrat brought Merrill a measure of safety, though only by the narrowest of margins.
And the defiance and independence that marked Mr. Fuld’s tenure and made him one of Wall Street’s most admired chief executives served him poorly when — like many — he misjudged the severity of the financial upheaval.
“Everyone on Wall Street is navigating uncharted waters right now,” said Jeffrey A. Sonnenfeld, a professor at the Yale School of Management. “No one could have dreamed it would have gotten this bad, and now that it is, no one is completely certain which choices were right and which were wrong.”
LAST October, E. Stanley O’Neal, Merrill’s ambitious chief executive, was forced to resign after reporting a $2.3 billion loss and making a desperate and unapproved attempt to find a merger partner. About two weeks later, the board announced that it had hired Mr. Thain.
At the time, Mr. Thain said he took the job because Merrill had the best wealth management business in the world and a premier investment banking franchise. Privately, he told friends that he wanted to resurrect the “MGM” days when Merrill, Goldman Sachs and Morgan Stanley dominated investment banking.
But his immediate needs were more prosaic: raising money to fill the firm’s dwindling coffers. Even before Mr. Thain arrived, Merrill executives concluded that they needed to raise money in order to survive.
Mr. Thain argued to investors that he hadn’t created the debacle enveloping Merrill and that he came to the firm to fix its problems. On Christmas Eve, he announced that he had raised $6.2 billion; a few weeks later, he announced an additional $6.6 billion.
Just as important, he began an internal charm offensive. In January, a day before Merrill announced its annual earnings, Mr. Thain traveled to Arizona to meet with 800 of the firm’s wealth managers. He warned them that the firm’s results would be bad. But he promised that the company was on the right track. As he exited the stage, he was followed by Money, a live bull who was a flesh-and-blood embodiment of Merrill’s ubiquitous corporate logo.
The next day Merrill announced a huge hit: $9.8 billion in losses and $16.7 billion in write-downs. Speaking to investors, Mr. Thain said he was “confident that we have the capital base we need to go forward with 2008.” A few weeks later in a private meeting with a group of investors at the company’s headquarters in New York, Mr. Thain reassured them that he would take a tough-love approach.
“We’ve got fresh eyes on these problems, and we’re not wedded to believing this company has done everything right for years,” he said, according to two participants in that meeting, who requested anonymity because the talks were confidential.
“Look at Citi,” he said, referring to Citigroup, the banking giant. “If the 800-pound gorilla has to raise money, then everyone should be asking if it isn’t time to do the same.”
As Merrill wrestled with its financial demons, Lehman seemed in better shape.
Earlier this year, Mr. Fuld, who started as a Lehman intern 42 years ago and had run the firm since 1994, was basking in two quarters of surprisingly good results. Investors were hammering his stock, but he saw those downturns as opportunities to dole out more shares to employees he believed would benefit when the storm passed.
After all, he was fond of noting, life on Wall Street was war.
“Every day is a grind, every day we’re in it, really trying to trudge through the stuff, and don’t think this is a walk through the park,” he said in an interview last fall. “Every day is a battle: think about the firm, do the right thing, protect your client, protect the firm, be in it, be a good team member.”
Lehman executives took comfort in the fact that their balance sheet was heavily weighted with commercial real estate — which they felt was immune to the mess in residential housing. Moreover, Lehman didn’t hold the same type of bundled mortgages, known as collateralized debt obligations, that had hamstrung Merrill.
Earlier this year, when Lehman’s chief financial officer, Erin Callan, met with some investors at the company’s headquarters in Midtown Manhattan, she exuded confidence.
During the meeting an investor challenged Ms. Callan, according to two participants who requested anonymity because they did not want to jeopardize their relationships with senior executives. With firms like Citigroup and Merrill raising capital, the investor asked, why wasn’t Lehman following suit?
Ms. Callan was brusque, the two participants recalled. Glaring at her questioner, she said that Lehman didn’t need more money at the time — after all, it had yet to post a loss during the credit crisis. The company had industry veterans in the executive suite who had perfected the science of risk management, she said.
According to both investors, she said Lehman’s real estate investments were top-notch. “This company’s leadership has been here so long that they know the strengths and weaknesses,” participants recalled her saying. “We know when we need to be worried, and when we don’t.”
In an interview, Ms. Callan challenged that version of events and said that she was never defensive with investors. While conceding that she may have said those things, she thinks that investors who met with her took her comments out of context.
Lehman had been searching for a strategic partner for almost two years to buy a 10 percent or 15 percent stake in it — a move that would have made its stock less volatile and expand its business — according to people briefed on the discussions.
In 2006, it had unsuccessfully tried to team up with American International Group, the insurance behemoth. A year later it considered links with state investment agencies in Kuwait and China. Mr. Fuld and other Lehman executives also held discussions with Mizuho Corporate Bank of Japan, these people said.
But those deals hadn’t panned out. And as the credit crisis grew, investors were increasingly wary of the firm.
After federal regulators intervened to stop a collapse of Bear Stearns in March, Lehman’s stock fell 45 percent in two days. Shortly after, it reported meager profits of $489 million and write-downs of $1.8 billion — and soon after, it raised $4 billion in new capital.
With Bear gone, Lehman became the smallest investment bank on Wall Street. A chorus of whispers began: Lehman is next. Critics began opining that a world of woe lurked on its balance sheet. In May, David Einhorn, a well-regarded hedge fund manager, began publicly questioning the company’s accounting and mocking Ms. Callan’s self-assurance.
As the stock declined, Mr. Fuld authorized his executives to seek a minority investment from a deep-pocketed investor, which would give the market confidence, according to people briefed on the discussions. Potential investors were said to include General Electric, HSBC and Barclays.
Top executives still believed Lehman could remain independent. The market, however, disagreed.
As Lehman tried to make a case with the media and regulators that investors betting against its stock were unfairly going after the firm, top executives increasingly realized that their strategy was failing and assets were withering.
In June, Lehman was forced to unveil its second-quarter earnings early — an unexpected loss of $2.8 billion. Mr. Fuld replaced the president, Joseph Gregory, his closest friend at the company, and demoted Ms. Callan, who later left.
Lehman raised $6 billion more in capital and explored selling parts of its business. But neither management shake-ups nor promises that a dramatic turnaround was forthcoming stopped the stock from dropping.
AS Lehman publicly struggled, Merrill was quietly trying to right its ship.
In spite of Mr. Thain’s assurances in January that Merrill wouldn’t need new capital, the plummeting value of its mortgage securities soon made it apparent to its executives that they needed more funds.
Inside Merrill, Mr. Thain had drawn criticism for being aloof and for surrounding himself with a small cadre of colleagues from his previous jobs.
By July, when the stocks of mortgage giants Fannie Mae and Freddie Mac began spiraling downward, it was clear to investors everywhere that problems within the housing market were getting out of control.
Most consumers could see the reality of collapsing home prices for themselves. Within banks like Merrill, other hidden dangers existed: a dizzying array of complex products, known as derivatives, that tied mortgage-related securities, other assets and debts to companies here and overseas — a daisy chain that amplified the downturn.
Knowing he was caught in this web, Mr. Thain announced in July that he would sell some assets, including the firm’s stake in Bloomberg, the financial data and media company, for $4.4 billion. Merrill also raised $8.5 billion in a deal that severely diluted Merrill’s shareholders. It reported a second-quarter loss of $4.6 billion and $9.7 billion in write-downs.
A few weeks later, Mr. Thain announced a deal that stunned the markets: he offloaded $31 billion of toxic mortgage assets to Lone Star, a small investment company, for 22 cents on the dollar. Merrill had to finance 75 percent of the sale. Analysts uniformly agreed that Lone Star got a sweet deal.
“We have over 60,000 people working every day,” Mr. Thain said in an interview at the time, responding to criticism that he had sold the assets for a song. “All the efforts of these people were overwhelmed by the write-downs in the mortgage-related assets.”
Within months it would become clear that the Lone Star deal had, in fact, helped give Merrill extra time by untethering it from a block of ugly assets that might have stood in the way of a merger.
As the crisis escalated in July and August, Lehman was also racing to shore up its weaknesses. But investors had been burned by earlier investments in struggling financial service companies and were tapped out.
Still, Lehman executives held out hope that they would be able to save themselves by selling a stake to the Korea Development Bank, a state bank. But when Mr. Fuld, ever the tough negotiator, pushed the bank to take over some underperforming loans, the Koreans balked.
By Labor Day, a tidal wave was crashing down on the entire economy and Fannie Mae and Freddie Mac had become the centers of concern. Hoping to prevent companies of all sizes from toppling into one another like dominos, the government bailed out the two mortgage giants for about $200 billion.
While most banks and brokerage stocks soared on the news, including Merrill’s, Lehman’s stock dropped more than 50 percent in the two days following the bailout.
As government officials quietly said they were done rescuing financial firms, Lehman scrambled to find a solution. It was waiting for bids on its investment management division, a deal it hoped might secure $5 billion to $6 billion. It also floated the idea of splitting itself in two to create a separate company to house its troubled assets.
Then, just over a week ago, Lehman announced a $4 billion loss and a $5.6 billion write-down. It also said it would spin out $30 billion of troubled assets into a separate company.
“We’ve been through adversity before, and we always come out a lot stronger,” Mr. Fuld said in a conference call on Sept. 10, sounding unusually resigned and utterly exhausted.
The markets didn’t buy it. Clients pulled money from Lehman, other firms wanted trading guarantees and Lehman finally ran out of cash. After surviving more than a century, Lehman would be dead within days unless someone stepped in.
ON a rainy afternoon nine days ago, with just an hour’s notice, Timothy F. Geithner, president of the Federal Reserve Bank of New York, summoned Wall Street’s leading chief executives to a meeting at the Fed’s cavernous downtown offices. Many were getting ready to leave for the weekend, and all of them were worn out after a treacherous week.
Notably absent from the meeting was Mr. Fuld, who was scrambling to strike a deal with Bank of America, said people briefed on the negotiations. Mr. Geithner, who declined interview requests, told the gathering the government wouldn’t rescue Lehman, according to various participants. It was up to the industry to find a solution, he said.
Although Lehman’s woes were in the headlines, some participants wondered if they shouldn’t be talking about other troubled firms as well. Weren’t A.I.G.’s problems just as big, if not bigger? James Dimon, JPMorgan’s chief executive, said A.I.G. had hired his bank, which was trying to find a solution.
Others in the room focused on Merrill’s sagging stock and huge debt burden. If Lehman collapsed, participants wondered to themselves, was Merrill next? Some banks were so concerned that they considered stopping trading with Merrill if Lehman went under.
When the meeting broke up at 8:30 p.m., Mr. Geithner asked the executives to return at 9 the next morning and to count on spending most of the weekend trying to build a bulwark against the biggest economic firestorm since the Great Depression.
On Saturday morning, when Mr. Thain arrived at the Fed, Lehman had returned to the center of discussion. Various scenarios, including the impact of a Lehman bankruptcy, were considered; everyone knew that Bank of America and Barclays were considering buying Lehman but had wanted government backing. Regulators made it clear that that wasn’t going to happen.
During the morning session, Mr. Thain sat across the table from Herbert H. McDade III, Lehman’s president. “I don’t want to be in his seat,” Mr. Thain thought to himself, according to a person familiar with his thinking.
And to make sure he didn’t wind up in that seat within days, Mr. Thain decided Merrill had to do something bold by Monday. His hope was to sell about a 10 percent stake to a cash-rich partner.
His first call was to Kenneth D. Lewis, Bank of America’s chief executive, who had long coveted Merrill. Mr. Thain got Mr. Lewis’s phone number from Gregory J. Fleming, Merrill’s president, who wanted a tie-up between the two. Mr. Fleming was worried that if Bank of America purchased Lehman first, the bank wouldn’t cut a deal with Merrill.
Mr. Lewis raised the ante: he said he wasn’t interested in buying just a stake in Merrill. He wanted the whole company. Mr. Lewis flew to New York from the bank’s headquarters in Charlotte, N.C., to meet with Mr. Thain on Saturday afternoon in a corporate apartment.
Those conversations went well. But then Mr. Thain trekked back to the Fed, where another surprise awaited. Peter Kraus, his head of strategy, told him that Goldman Sachs was interested in buying a 9.9 percent stake and extending a $10 billion credit line, according to people briefed on the discussions.
And Goldman wasn’t the only other interested suitor. John J. Mack, chief executive of Morgan Stanley, told Mr. Thain that “we should talk,” according to people familiar with the discussions. A two-hour meeting was held that afternoon on the Upper East Side with the C.E.O.’s and their advisers.
But by Saturday afternoon, Mr. Fleming was already leading Merrill’s bankers and lawyers through a quick scouring of Bank of America and its proposal, giving the North Carolina bank a leg up.
Around 9 on Sunday morning, Henry M. Paulson Jr., the Treasury secretary, told the Fed group that Lehman hadn’t found a buyer and that they should brace for its bankruptcy.
ATTENTION immediately shifted to Merrill Lynch, which many were certain would be the next to topple. Bankers started discussing the possibility of creating a vast liquidity pool that the next troubled institution could tap into.
Meanwhile, Mr. Thain set a noon conference call with his board. He said he expected a bid from Bank of America and had held discussions with Goldman Sachs and Morgan Stanley, according to people briefed on the discussions. He concluded that Mr. Lewis’s bid — a takeover of the entire company at a premium price — was the best offer.
At a 6 p.m. meeting with his board at the St. Regis hotel, Mr. Thain recommended to his board that it accept. The deal was unanimously approved.
For Lehman, the weekend shaped up very differently.
On Friday night, Lehman executives believed a deal with Bank of America was possible, according to people briefed on the negotiations. But by Saturday, they couldn’t get Bank of America to return their calls.
Mr. Fuld stayed in his office from 7 a.m. until after midnight on Saturday and on Sunday, calling regulators, potential buyers and his own team. But his options were fading. Even promising talks with Barclays, a British bank, were running aground.
Late in the day on Sunday, Mr. Fuld learned that the Fed would expand its lending by allowing banks to post a wider variety of collateral, and that the banking industry had cobbled together a $70 billion lending pool.
According to people briefed on the conversations, Mr. Fuld implored the regulators to let Lehman have access to those new funds — a move that he believed would have saved the firm. No, he was told: these measures are to stabilize the market in the aftermath of a Lehman liquidation, not to prevent it.
In fact, the pool was intended to help Merrill, industry participants said. Ironically, though, Merrill wouldn’t need that capital because it was completing its deal with Bank of America.
Regulators and bankers tried to wait for Lehman’s bankruptcy filing before announcing the two new lending options. But by 10 Sunday night, Lehman still hadn’t filed, because Mr. Fuld was still trying to do a deal with Barclays.
After Barclays fell through, Mr. Fuld directed his lawyers at 12:30 a.m. Monday to file for bankruptcy. Within hours, Mr. Thain announced his deal.
On Wednesday, Barclays offered the bankruptcy court $1.75 billion — far less than Lehman wanted for that firm’s core capital markets and investment banking business, its headquarters and two data centers.
And with each day the drama continues. On Friday, the rumor mill was speculating that a huge market rebound sparked by the federal bailout of Wall Street might mean that Merrill wouldn’t need to sell itself to Bank of America.
Both companies insist the deal is still on.
Landon Thomas Jr. contributed reporting.
http://www.nytimes.com/2008/09/21/business...?pagewanted=all
Bailout or Not, Credit Will Be Crunched The credit crunch has only just begun.
Bailout or Not, Credit Will Be Crunched The credit crunch has only just begun.
http://online.barrons.com/article/SB122187640064459597.html?mod=b_hpp_9_0002_b_this_weeks_magazine_home_left
http://online.barrons.com/article/SB122187640064459597.html?mod=b_hpp_9_0002_b_this_weeks_magazine_home_left
The Bi-Partisan Origins of the Financial Crisis Shattering the Glass-Steagall Act By WILLIAM KAUFMAN
The Bi-Partisan Origins of the Financial Crisis
Shattering the Glass-Steagall Act
By WILLIAM KAUFMAN
If you're looking for a major cause of the current banking meltdown, you need seek no farther than the 1999 repeal of the Glass-Steagall Act.
The Glass-Steagall Act, passed in 1933, mandated the separation of commercial and investment banking in order to protect depositors from the hazards of risky investment and speculation. It worked fine for fifty years until the banking industry began lobbying for its repeal during the 1980s, the go-go years of Reaganesque market fundamentalism, an outlook embraced wholeheartedly by mainstream Democrats under the rubric "neoliberalism."
The main cheerleader for the repeal was Phil Gramm, the fulsome reactionary who, until he recently shoved his foot even farther into his mouth than usual, was McCain's chief economic advisor.
But wait . . . as usual, the Democrats were eager to pile on to this reversal of New Deal regulatory progressivism -- fully 38 of 45 Senate Democrats voted for the repeal (which passed 90-8), including some famous names commonly associated with "progressive" politics by the easily gulled: Dodd, Kennedy, Kerry, Reid, and Schumer. And, of course, there was the inevitable shout of "yea" from the ever-servile corporate factotum Joseph Biden, Barack Obama's idea of a tribune of "change"--if by change one means erasing any lingering obstacle to corporate domination of the polity.
This disgraceful bow to the banking industry, eagerly signed into law by Bill Clinton in 1999, bears a major share of responsibility for the current banking crisis. Here's the complete roll call of shame:
REPUBLICANS FOR (52): Abraham, Allard, Ashcroft, Bennett, Brownback, Bond, Bunning, Burns, Campbell, Chafee, Cochran, Collins, Coverdell, Craig, Crapo, DeWine, Domenici, Enzi, Frist, Gorton, Gramm (Tex.), Grams (Minn.), Grassley, Gregg, Hegel, Hatch, Helms, Hutchinson (Ark.), Hutchison (Tex.), Inhofe, Jeffords, Kyl, Lott, Lugar, Mack, McConnell, Murkowski, Nickles, Roberts, Roth, Santorum, Sessions, Smith (N.H.), Smith (Ore.), Snowe, Specter, Stevens, Thomas, Thompson, Thurmond, Voinovich and Warner. DEMOCRATS FOR (38): Akaka, Baucus, Bayh, Biden, Bingaman, Breaux, Byrd, Cleland, Conrad, Daschle, Dodd, Durbin, Edwards, Feinstein, Graham (Fla.), Hollings, Inouye, Johnson, Kennedy, Kerrey (Neb.), Kerry (Mass.), Kohl, Landrieu, Lautenberg, Leahy, Levin, Lieberman, Lincoln, Moynihan, Murray, Reed (R.L), Reid (Nev.), Robb, Rockefeller, Sarbanes, Schumer, Torricelli and Wyden.
REPUBLICANS AGAINST(1): Shelby.
DEMOCRATS AGAINST(7): Boxer, Bryan, Dorgan, Feingold, Harkin, Mikulski and Wellstone.
NOT VOTING: 2 REPUBLICANS (2): Fitzgerald (voted present) and McCain.
The House Democrats were no less enthusiastic in their endorsement of this invitation to plunder--the repeal passed there by a margin of 343-86, with the Donkey Party favoring the measure by a two-to-one margin, 138-69. Current House speaker Nancy Pelosi managed not to register a vote on this one, so great was her fear of offending her party's corporate paymasters even though she knew passage was a sure thing.
According to Wikipedia, many economists "have criticized the repeal of the Glass-Steagall Act as contributing to the 2007 subprime mortgage financial crisis. The repeal enabled commercial lenders such as Citigroup, the largest U.S. bank by assets, to underwrite and trade instruments such as mortgage-backed securities and collateralized debt obligations and establish so-called structured investment vehicles, or SIVs, that bought those securities. Citigroup played a major part in the repeal. Then called Citicorp, the company merged with Travelers Insurance company the year before using loopholes in Glass-Steagall that allowed for temporary exemptions. With lobbying led by Roger Levy, the 'finance, insurance and real estate industries together are regularly the largest campaign contributors and biggest spenders on lobbying of all business sectors [in 1999]. They laid out more than $200 million for lobbying in 1998, ' according to the Center for Responsive Politics. ' These industries succeeded in their two decades long effort to repeal the act. ' "
This lust for banking largesse is as wanton among Democrats as Republicans--right up to the current presidential campaign. According to the Phoenix Business Journal,
Obama and McCain . . . have accepted a substantial amount of campaign money from Wall Street bankers, investment and securities firms and their executives during this election cycle.
Investment firms have donated $9.9 million to Obama and $6.9 million to McCain this campaign thus far, according to the Center for Responsive Politics. Commercial banks have given Obama $2.1 million and McCain $1.9 million. Private equity firms and hedge funds have given Obama $2 million and McCain $1.4 million, according to CFRP.
Lehman Brothers, Goldman Sachs, JP Morgan Chase & Co., UBS and heavyweight law firm DLA Piper are among Obama's top contributors. JP Morgan acquired Bear Stearns with the federal government taking on as much as $30 billion Bear assets as part of the deal. McCain's top donor sources include Merrill Lynch, Goldman Sachs, Citigroup and Blank Rome and Greenberg Traurig LLP law firms.
So . . . the next time a mass-media-lulled Democrat ridicules Ralph Nader for arguing that there are few significant differences between the two major parties on the truly important issues, you might refer them to this atrocity, along with all the other ones.
William Kaufman can be reached at kman484@earthlink.net
Shattering the Glass-Steagall Act
By WILLIAM KAUFMAN
If you're looking for a major cause of the current banking meltdown, you need seek no farther than the 1999 repeal of the Glass-Steagall Act.
The Glass-Steagall Act, passed in 1933, mandated the separation of commercial and investment banking in order to protect depositors from the hazards of risky investment and speculation. It worked fine for fifty years until the banking industry began lobbying for its repeal during the 1980s, the go-go years of Reaganesque market fundamentalism, an outlook embraced wholeheartedly by mainstream Democrats under the rubric "neoliberalism."
The main cheerleader for the repeal was Phil Gramm, the fulsome reactionary who, until he recently shoved his foot even farther into his mouth than usual, was McCain's chief economic advisor.
But wait . . . as usual, the Democrats were eager to pile on to this reversal of New Deal regulatory progressivism -- fully 38 of 45 Senate Democrats voted for the repeal (which passed 90-8), including some famous names commonly associated with "progressive" politics by the easily gulled: Dodd, Kennedy, Kerry, Reid, and Schumer. And, of course, there was the inevitable shout of "yea" from the ever-servile corporate factotum Joseph Biden, Barack Obama's idea of a tribune of "change"--if by change one means erasing any lingering obstacle to corporate domination of the polity.
This disgraceful bow to the banking industry, eagerly signed into law by Bill Clinton in 1999, bears a major share of responsibility for the current banking crisis. Here's the complete roll call of shame:
REPUBLICANS FOR (52): Abraham, Allard, Ashcroft, Bennett, Brownback, Bond, Bunning, Burns, Campbell, Chafee, Cochran, Collins, Coverdell, Craig, Crapo, DeWine, Domenici, Enzi, Frist, Gorton, Gramm (Tex.), Grams (Minn.), Grassley, Gregg, Hegel, Hatch, Helms, Hutchinson (Ark.), Hutchison (Tex.), Inhofe, Jeffords, Kyl, Lott, Lugar, Mack, McConnell, Murkowski, Nickles, Roberts, Roth, Santorum, Sessions, Smith (N.H.), Smith (Ore.), Snowe, Specter, Stevens, Thomas, Thompson, Thurmond, Voinovich and Warner. DEMOCRATS FOR (38): Akaka, Baucus, Bayh, Biden, Bingaman, Breaux, Byrd, Cleland, Conrad, Daschle, Dodd, Durbin, Edwards, Feinstein, Graham (Fla.), Hollings, Inouye, Johnson, Kennedy, Kerrey (Neb.), Kerry (Mass.), Kohl, Landrieu, Lautenberg, Leahy, Levin, Lieberman, Lincoln, Moynihan, Murray, Reed (R.L), Reid (Nev.), Robb, Rockefeller, Sarbanes, Schumer, Torricelli and Wyden.
REPUBLICANS AGAINST(1): Shelby.
DEMOCRATS AGAINST(7): Boxer, Bryan, Dorgan, Feingold, Harkin, Mikulski and Wellstone.
NOT VOTING: 2 REPUBLICANS (2): Fitzgerald (voted present) and McCain.
The House Democrats were no less enthusiastic in their endorsement of this invitation to plunder--the repeal passed there by a margin of 343-86, with the Donkey Party favoring the measure by a two-to-one margin, 138-69. Current House speaker Nancy Pelosi managed not to register a vote on this one, so great was her fear of offending her party's corporate paymasters even though she knew passage was a sure thing.
According to Wikipedia, many economists "have criticized the repeal of the Glass-Steagall Act as contributing to the 2007 subprime mortgage financial crisis. The repeal enabled commercial lenders such as Citigroup, the largest U.S. bank by assets, to underwrite and trade instruments such as mortgage-backed securities and collateralized debt obligations and establish so-called structured investment vehicles, or SIVs, that bought those securities. Citigroup played a major part in the repeal. Then called Citicorp, the company merged with Travelers Insurance company the year before using loopholes in Glass-Steagall that allowed for temporary exemptions. With lobbying led by Roger Levy, the 'finance, insurance and real estate industries together are regularly the largest campaign contributors and biggest spenders on lobbying of all business sectors [in 1999]. They laid out more than $200 million for lobbying in 1998, ' according to the Center for Responsive Politics. ' These industries succeeded in their two decades long effort to repeal the act. ' "
This lust for banking largesse is as wanton among Democrats as Republicans--right up to the current presidential campaign. According to the Phoenix Business Journal,
Obama and McCain . . . have accepted a substantial amount of campaign money from Wall Street bankers, investment and securities firms and their executives during this election cycle.
Investment firms have donated $9.9 million to Obama and $6.9 million to McCain this campaign thus far, according to the Center for Responsive Politics. Commercial banks have given Obama $2.1 million and McCain $1.9 million. Private equity firms and hedge funds have given Obama $2 million and McCain $1.4 million, according to CFRP.
Lehman Brothers, Goldman Sachs, JP Morgan Chase & Co., UBS and heavyweight law firm DLA Piper are among Obama's top contributors. JP Morgan acquired Bear Stearns with the federal government taking on as much as $30 billion Bear assets as part of the deal. McCain's top donor sources include Merrill Lynch, Goldman Sachs, Citigroup and Blank Rome and Greenberg Traurig LLP law firms.
So . . . the next time a mass-media-lulled Democrat ridicules Ralph Nader for arguing that there are few significant differences between the two major parties on the truly important issues, you might refer them to this atrocity, along with all the other ones.
William Kaufman can be reached at kman484@earthlink.net
Paulson Bailout Plan a Historic Swindle By William Greider
Paulson Bailout Plan a Historic Swindle
By William Greider
Financial-market wise guys, who had been seized with fear, are suddenly drunk with hope. They are rallying explosively because they think they have successfully stampeded Washington into accepting the Wall Street Journal solution to the crisis: dump it all on the taxpayers. Continue http://www.informationclearinghouse.info/article20823.htm
By William Greider
Financial-market wise guys, who had been seized with fear, are suddenly drunk with hope. They are rallying explosively because they think they have successfully stampeded Washington into accepting the Wall Street Journal solution to the crisis: dump it all on the taxpayers. Continue http://www.informationclearinghouse.info/article20823.htm
Financial Bailout: America's Own Kleptocracy The largest transformation of America's Financial System since the Great Depression By Michael Hudson
Financial Bailout:
America's Own Kleptocracy
The largest transformation of America's Financial System since the Great Depression
By Michael Hudson
Nobody expected industrial capitalism to end up like this. Continue
http://www.informationclearinghouse.info/article20822.htm
America's Own Kleptocracy
The largest transformation of America's Financial System since the Great Depression
By Michael Hudson
Nobody expected industrial capitalism to end up like this. Continue
http://www.informationclearinghouse.info/article20822.htm
Why Does the US Think it Can Win in Afghanistan? By Robert Fisk
Why Does the US Think it Can Win in Afghanistan?
By Robert Fisk
Back in 2001, we won the war in Afghanistan by overthrowing the Taliban. Then we marched off to win the war in Iraq. Now – with at least one suicide bombing a day and the nation carved up into mutually antagonistic sectarian enclaves – we have won the war in Iraq and are heading back to re-win the war in Afghanistan where the Taliban, so thoroughly trounced by our chaps seven years ago, have proved their moral and political bankruptcy by recapturing half the country. Continue
http://www.informationclearinghouse.info/article20818.htm
By Robert Fisk
Back in 2001, we won the war in Afghanistan by overthrowing the Taliban. Then we marched off to win the war in Iraq. Now – with at least one suicide bombing a day and the nation carved up into mutually antagonistic sectarian enclaves – we have won the war in Iraq and are heading back to re-win the war in Afghanistan where the Taliban, so thoroughly trounced by our chaps seven years ago, have proved their moral and political bankruptcy by recapturing half the country. Continue
http://www.informationclearinghouse.info/article20818.htm
Friday, September 19, 2008
Ayatollah Ali Khamenei says Iran, Israel on 'collision course' Iran's supreme leader brushes aside recent overtures by top Iranian officials to Israe
Aside from illustrating the complexities of Iranian politics, this outburst by Khamenei has to be taken a great deal more seriously than anything President Ahmedinejad has said. With bellicose rhetoric continuing to emanate from Israel and the US having just reversed our earlier refusal to sell GBU-28 bunker-busters to the Israeli Air Force, it is not a good sign.
Ayatollah Ali Khamenei says Iran, Israel on 'collision course'
Iran's supreme leader brushes aside recent overtures by top Iranian officials to Israeli citizens with statements that could inflame tensions.
By Ramin Mostaghim and Borzou Daragahi, Special to The Los Angeles Times
September 20, 2008
TEHRAN -- Iran's highest authority lashed out against Israel on Friday with some of his harshest comments in recent memory about the Jewish state.
Supreme Leader Ayatollah Ali Khamenei, who is Iran's top political and military figure, said his country's hostility to Israel extended beyond the government to the Israeli people as well. In saying so, he was brushing aside recent overtures by top Iranian officials to the Israeli public.
Khamenei said Iran and Israel were on a "collision course," a statement that could further increase tensions in a Middle East already fearful of a conflict between the two countries.
"Who are Israelis?" Khamenei told thousands of worshipers gathered for Friday prayers in downtown Tehran. "They are responsible for usurping houses, territory, farmlands and businesses. They are combatants at the disposal of Zionist operatives. A Muslim nation cannot remain indifferent vis-a-vis such people who are stooges at the service of the arch-foes of the Muslim world."
Iran and Israel are locked in a war of words. Israel accuses Iran of seeking nuclear weapons under the guise of a peaceful energy program and supporting anti-Israeli militant groups in Lebanon and the Palestinian territories. Iran's leaders have repeatedly denied the legitimacy of the Jewish state, which they consider a Western colonial outpost.
The comments came amid a controversy in Iran over remarks attributed to an Iranian official close to President Mahmoud Ahmadinejad. Esfandiar Rahim Mashaei, a vice president in charge of tourism, was quoted in a July interview as saying that Iranians were friends with the Israeli people, despite the conflict between the governments.
"Today, Iran is friends with the American and Israeli people," he said, according to the semi-official Fars News Agency. "No nation in the world is our enemy."
Hard-liners close to the government pounced on Mashaei's remarks. But Thursday night Ahmadinejad appeared to back up Mashaei, voicing sympathy for the Israeli people, even as he predicted Israel's demise.
"The Iranian nation never recognized Israel and will never ever recognize it," he said at a news conference. "But we feel pity for those who have been deceived or smuggled into Israel to be oppressed citizens in Israel."
Ahmadinejad is scheduled to arrive in New York within days for the opening session of the United Nations General Assembly, which probably will take up the issue of Iran's nuclear program.
Khamenei left little doubt about Iran's position on relations with Israel, saying he was raising the issue "to spell an end to any debates" on it.
"It is incorrect, irrational, pointless and nonsense to say that we are friends of Israeli people," said Khamenei, who delivers prayer sermons only on special occasions.
Iranian officials typically increase anti-Israeli and pro-Palestinian rhetoric in the week before the last Friday in the holy month of Ramadan, which is called Jerusalem Day in Iran. This year, it falls on Sept. 26.
Khamenei said Iran has no problem with Judaism or other religions. "But we are on a collision course with the occupiers of Palestine and the occupiers are the Zionist regime," he said. "This is the position of our regime, our revolution and our people."
daragahi@latimes.com
Special correspondent Mostaghim reported from Tehran and Times staff writer Daragahi from Beirut.
Ayatollah Ali Khamenei says Iran, Israel on 'collision course'
Iran's supreme leader brushes aside recent overtures by top Iranian officials to Israeli citizens with statements that could inflame tensions.
By Ramin Mostaghim and Borzou Daragahi, Special to The Los Angeles Times
September 20, 2008
TEHRAN -- Iran's highest authority lashed out against Israel on Friday with some of his harshest comments in recent memory about the Jewish state.
Supreme Leader Ayatollah Ali Khamenei, who is Iran's top political and military figure, said his country's hostility to Israel extended beyond the government to the Israeli people as well. In saying so, he was brushing aside recent overtures by top Iranian officials to the Israeli public.
Khamenei said Iran and Israel were on a "collision course," a statement that could further increase tensions in a Middle East already fearful of a conflict between the two countries.
"Who are Israelis?" Khamenei told thousands of worshipers gathered for Friday prayers in downtown Tehran. "They are responsible for usurping houses, territory, farmlands and businesses. They are combatants at the disposal of Zionist operatives. A Muslim nation cannot remain indifferent vis-a-vis such people who are stooges at the service of the arch-foes of the Muslim world."
Iran and Israel are locked in a war of words. Israel accuses Iran of seeking nuclear weapons under the guise of a peaceful energy program and supporting anti-Israeli militant groups in Lebanon and the Palestinian territories. Iran's leaders have repeatedly denied the legitimacy of the Jewish state, which they consider a Western colonial outpost.
The comments came amid a controversy in Iran over remarks attributed to an Iranian official close to President Mahmoud Ahmadinejad. Esfandiar Rahim Mashaei, a vice president in charge of tourism, was quoted in a July interview as saying that Iranians were friends with the Israeli people, despite the conflict between the governments.
"Today, Iran is friends with the American and Israeli people," he said, according to the semi-official Fars News Agency. "No nation in the world is our enemy."
Hard-liners close to the government pounced on Mashaei's remarks. But Thursday night Ahmadinejad appeared to back up Mashaei, voicing sympathy for the Israeli people, even as he predicted Israel's demise.
"The Iranian nation never recognized Israel and will never ever recognize it," he said at a news conference. "But we feel pity for those who have been deceived or smuggled into Israel to be oppressed citizens in Israel."
Ahmadinejad is scheduled to arrive in New York within days for the opening session of the United Nations General Assembly, which probably will take up the issue of Iran's nuclear program.
Khamenei left little doubt about Iran's position on relations with Israel, saying he was raising the issue "to spell an end to any debates" on it.
"It is incorrect, irrational, pointless and nonsense to say that we are friends of Israeli people," said Khamenei, who delivers prayer sermons only on special occasions.
Iranian officials typically increase anti-Israeli and pro-Palestinian rhetoric in the week before the last Friday in the holy month of Ramadan, which is called Jerusalem Day in Iran. This year, it falls on Sept. 26.
Khamenei said Iran has no problem with Judaism or other religions. "But we are on a collision course with the occupiers of Palestine and the occupiers are the Zionist regime," he said. "This is the position of our regime, our revolution and our people."
daragahi@latimes.com
Special correspondent Mostaghim reported from Tehran and Times staff writer Daragahi from Beirut.
Why Has Al-Qaeda Lasted 20 Years? by Rami G. Khouri
Why Has Al-Qaeda Lasted 20 Years?
by Rami G. Khouri
17 Sep 2008
BEIRUT -- It was almost exactly 20 years ago this month that Al-Qaeda was born in Afghanistan, as a movement of zealous holy warriors that was prepared to fight and die to protect the Islamic umma, or community, from foreign assault. The Russian occupation of Afghanistan was the immediate catalyst that sparked its creation, though the formative motivations sending thousands of young men from Arab and Asian lands to join the jihad were usually anchored in local events and personal experiences.
The several phenomena that Al-Qaeda represents -- defensive jihad, militant self-assertion, a puritanical interpretation of religious doctrine, cosmic theological battle, and political struggle to purify tainted Islamic societies -- appeal to a wide variety of individuals who gravitate to its call in the same manner that zealots join any other such movement of true believers.
Coming to grips with the phenomena it represents -- especially the continuing threat of terrorism -- requires grasping the combination of social, economic and political conditions in local societies from which Al-Qaeda recruits emanate -- mainly in the Arab World, South Asia, and immigrant quarters of urban Europe.
Al-Qaeda 's 20th anniversary is an appropriate moment to do this, and the 20-year analytical frame is much more useful than the shorter time context commemorating the September 11, 2001 attack against the United States that has been Al-Qaeda 's hallmark signature event. Over the past two decades, Al-Qaeda seems to have evolved in line with trends impacting the wider world of Islamist movements, including local crackdowns in many countries, and the American-led "global war on terror" that has been defined heavily, but not exclusively, by the wars in Afghanistan and Iraq.
These pressures to disrupt Al-Qaeda have been offset by a continuation of the stressful conditions at local and national levels in many Arab-Asian societies that nourish these Salafist jihadi movements in the first place. So a more useful question than "What is Al-Qaeda 's condition today?" concerns the wider trends in Arab-Asian societies that bolster Islamist radicalism by spurring five related forces:
1. The slow political fragmentation and fraying at the edges of once centralized nation-states like Pakistan, Iraq, Somalia, Lebanon, Sudan, Afghanistan and Algeria, creating vacuums of authority that Islamists and others quickly fill.
2. The continued sharp disparities in local delivery of basic social services, job opportunities and security throughout much of the Arab-Asian region, creating urgent needs that Islamists are very good at meeting.
3. The impact of major nationalist issues such as the Arab-Israeli conflict or the Anglo-American-led war on Iraq.
4. Police brutality and political oppression at the local level in many Arab-Asian countries (the birthplace of Al-Qaeda was both Afghanistan and the prisons of Egypt).
5. Occasional external and mostly Western stimuli to those who see themselves fighting a defensive jihad to protect both the honor and the physical existence of the threatened Islamic umma, such as the Danish cartoons, Pope Benedict's speech in August 2006, virulently anti-Islamic movies and books, and a tendency by leading politicians (such as John McCain and Sarah Palin today) to repeatedly speak of an undefined "Islamic radicalism" as a great threat to Western civilization that must be fought for decades, if not lifetimes.
The combination of these five factors has slowly but persistently fomented several generations of Islamist activists who have mostly joined peaceful movements like the Muslim Brotherhood. Small numbers have split off and embraced fringe militant and terrorist groups.
Much debate swirls around the condition and status of Al-Qaeda these days, which has clearly suffered operational setbacks with the loss of its Afghan bases, but seems to have regrouped in the northwestern frontier areas of Pakistan where it has widespread support among Taliban-friendly communities. While Al-Qaeda has been disrupted, other similar, smaller Salafist militant groups have sprung to life in Iraq, Somalia, Lebanon, Yemen and Algeria.
An important recent development has seen some of the founding fathers of contemporary jihadist militancy (such as Karam Zuhdi, Mohammed Derbala, and Sayyed Imam Abdelaziz Al Sharif, aka Dr Fadl) recant and reject their former embrace of Al-Qaeda-type terror attacks. (Interestingly, many did so in the same Egyptian jails where they were first radicalized…hmmm, perhaps closing many Arab jails and tempering Arab autocracy would be the fastest way to fight terrorism?).
Any militant movement that endures for 20 years and spurs dozens of smaller clones is not only a consequence of its own organizational prowess. It reflects the persistence of enabling conditions that breed militants and militancy. If we don't want to go through this again 20 years from now, we would do well to grasp and change the wider degrading conditions that feed recruits into terror movements, including Arab jails, socio-economic disparity and abuse of power, Israeli occupations, Anglo-American wars and Western Islamophobia.
by Rami G. Khouri
17 Sep 2008
BEIRUT -- It was almost exactly 20 years ago this month that Al-Qaeda was born in Afghanistan, as a movement of zealous holy warriors that was prepared to fight and die to protect the Islamic umma, or community, from foreign assault. The Russian occupation of Afghanistan was the immediate catalyst that sparked its creation, though the formative motivations sending thousands of young men from Arab and Asian lands to join the jihad were usually anchored in local events and personal experiences.
The several phenomena that Al-Qaeda represents -- defensive jihad, militant self-assertion, a puritanical interpretation of religious doctrine, cosmic theological battle, and political struggle to purify tainted Islamic societies -- appeal to a wide variety of individuals who gravitate to its call in the same manner that zealots join any other such movement of true believers.
Coming to grips with the phenomena it represents -- especially the continuing threat of terrorism -- requires grasping the combination of social, economic and political conditions in local societies from which Al-Qaeda recruits emanate -- mainly in the Arab World, South Asia, and immigrant quarters of urban Europe.
Al-Qaeda 's 20th anniversary is an appropriate moment to do this, and the 20-year analytical frame is much more useful than the shorter time context commemorating the September 11, 2001 attack against the United States that has been Al-Qaeda 's hallmark signature event. Over the past two decades, Al-Qaeda seems to have evolved in line with trends impacting the wider world of Islamist movements, including local crackdowns in many countries, and the American-led "global war on terror" that has been defined heavily, but not exclusively, by the wars in Afghanistan and Iraq.
These pressures to disrupt Al-Qaeda have been offset by a continuation of the stressful conditions at local and national levels in many Arab-Asian societies that nourish these Salafist jihadi movements in the first place. So a more useful question than "What is Al-Qaeda 's condition today?" concerns the wider trends in Arab-Asian societies that bolster Islamist radicalism by spurring five related forces:
1. The slow political fragmentation and fraying at the edges of once centralized nation-states like Pakistan, Iraq, Somalia, Lebanon, Sudan, Afghanistan and Algeria, creating vacuums of authority that Islamists and others quickly fill.
2. The continued sharp disparities in local delivery of basic social services, job opportunities and security throughout much of the Arab-Asian region, creating urgent needs that Islamists are very good at meeting.
3. The impact of major nationalist issues such as the Arab-Israeli conflict or the Anglo-American-led war on Iraq.
4. Police brutality and political oppression at the local level in many Arab-Asian countries (the birthplace of Al-Qaeda was both Afghanistan and the prisons of Egypt).
5. Occasional external and mostly Western stimuli to those who see themselves fighting a defensive jihad to protect both the honor and the physical existence of the threatened Islamic umma, such as the Danish cartoons, Pope Benedict's speech in August 2006, virulently anti-Islamic movies and books, and a tendency by leading politicians (such as John McCain and Sarah Palin today) to repeatedly speak of an undefined "Islamic radicalism" as a great threat to Western civilization that must be fought for decades, if not lifetimes.
The combination of these five factors has slowly but persistently fomented several generations of Islamist activists who have mostly joined peaceful movements like the Muslim Brotherhood. Small numbers have split off and embraced fringe militant and terrorist groups.
Much debate swirls around the condition and status of Al-Qaeda these days, which has clearly suffered operational setbacks with the loss of its Afghan bases, but seems to have regrouped in the northwestern frontier areas of Pakistan where it has widespread support among Taliban-friendly communities. While Al-Qaeda has been disrupted, other similar, smaller Salafist militant groups have sprung to life in Iraq, Somalia, Lebanon, Yemen and Algeria.
An important recent development has seen some of the founding fathers of contemporary jihadist militancy (such as Karam Zuhdi, Mohammed Derbala, and Sayyed Imam Abdelaziz Al Sharif, aka Dr Fadl) recant and reject their former embrace of Al-Qaeda-type terror attacks. (Interestingly, many did so in the same Egyptian jails where they were first radicalized…hmmm, perhaps closing many Arab jails and tempering Arab autocracy would be the fastest way to fight terrorism?).
Any militant movement that endures for 20 years and spurs dozens of smaller clones is not only a consequence of its own organizational prowess. It reflects the persistence of enabling conditions that breed militants and militancy. If we don't want to go through this again 20 years from now, we would do well to grasp and change the wider degrading conditions that feed recruits into terror movements, including Arab jails, socio-economic disparity and abuse of power, Israeli occupations, Anglo-American wars and Western Islamophobia.
Original Sin and the Fall of Free-Market Capitalism William Pfaff
Original Sin and the Fall of Free-Market Capitalism
William Pfaff
Paris, 16 September, 2008 – Karl Marx, were he still about, would surely be interested in the report that unregulated free-market capitalism has died in a flash, by its own hand; whereas it took 70 years and a cold war to bring down the Marxist economy established in the Soviet Union following the Bolshevik Revolution.
The Marxist economy died of its internal contradictions. This was the fate Marxism (or Marxism-Leninism) had predicted for capitalism, not for itself. Unregulated free-market capitalism may be said to have killed itself by greed, vanity and excess, all amply evident before and at the death-scene, but the ultimate guilt must be attributed to the vacuity and perversity of market ideology, which contradicts human nature.
In this, it exactly resembles the American national foreign affairs ideology, that democracy will always eventually triumph over all else.
Regrettably, this is an illusion, clung to in American government, political, and to a considerable degree, academic circles. It is stubbornly adhered to because everyone would like to think it true, since it is very reassuring to Americans, and an uplifting idea.
Both market and democracy ideologies rest on a belief in the essential goodness of mankind, admittedly blocked from time to time by institutional or intellectual obstructions, which have only to be removed for harmony to be restored.
Market capitalism rests on the observation that, all things being equal, a free market is the most perfect known mechanism for setting priorities in an economic system manufacturing goods or providing services.
It declares that in free market conditions everyone will make, sell, and buy within an equilibrium established by the coincidence of their true interests. People will buy what they need or want according to the value they place on the good or service, and manufacturers or service providers will meet these needs according to whether the value offered incites them to do so, rather than to do something else.
It also is assumed that the employer will pay the true value of the employee's work, since otherwise the worker will go to an employer who will do so, who naturally will understand that paying a higher wage is in his competitive interest vis-à-vis his competitor. Owners and managers will be rewarded according to the true value of what each contributes to the common interest. Otherwise they will lose business and fail.
Those last two clauses demonstrate how artificial this theory is. That artificiality – that remoteness from how the real world functions – is why the market has to be regulated, a lesson last learned in the United States 80 years ago in the Great Depression, and progressively disregarded or discarded during the Reagan, Clinton and George W. Bush administrations.
What is this perfect and all-wise free market composed of? Legitimate actors with legitimate goals, plus speculators, swindlers, confidence men, guys trafficking in inside information, and criminal actors. Yes, the defenders of the market say, but it all averages out in the end. So we see, as the market today destroys global credit and global value. Everyone currently acts as if all this happens as the result of an act of God, or the will of the law of averages, or is the result of forgivable miscalculations. President George W. Bush said it's all been very simple. They built too many houses.
Of course 'they' didn't build too many houses. 'They' swindled too many people who had bought those houses, or wanted to buy them, by giving them the money to buy them, or to refinance them in order to have a cash gain, with mortgages or second mortgages which these people could not responsibly be expected to repay. That is where it started.
The subsequent manipulation of the funds, so as to bundle bad debt with good debt and pass it off on the international financial market as "securitized" good debt, has had more than enough discussion since the crisis blew up this summer.
The financiers, as Joseph Stiglitz has observed (in a recent CNN interview), were doing what the system demanded of them. They were assured generous rewards for managing risk and allocating capital so as to improve the efficiency of the economy enough to justify their generous compensation. "But they misallocated capital; they mismanaged risk – they created risk. They did what their incentive structures were designed to do: focusing on short-term profits and encouraging excessive risk-taking."
And this does not take account of an Iraq war financed by debt, and the unconscionable Bush tax cuts to the wealthy, the president's perverse punishment of the very working- and middle-class voters who had elected him.
As Stiglitz says, the first measures in recovering from the disaster must be to reconstruct the system of corporate incentives to serve the public interest rather than private interests.
Prior to that, however, is to reconstruct public policy on the basis of an historical understanding of how people actually behave rather than on theories about how they might be presumed to behave in the world of abstractions.
This understanding is called realism, and in American public affairs during the past two decades it has been scorned. However one good thing about realism is that being realistic it eventually turns out to be right. The distinguished Protestant theologian and political philosopher Reinhold Niebhur once remarked that of all the doctrines of the Christian religion, only one is invariably self-validating: the doctrine of Original Sin.
© Copyright 2008 by Tribune Media Services International. All Rights Reserved.
This article comes from William PFAFF
http://www.williampfaff.com
The URL for this article is:
http://www.williampfaff.com/article.php?storyid=343
William Pfaff
Paris, 16 September, 2008 – Karl Marx, were he still about, would surely be interested in the report that unregulated free-market capitalism has died in a flash, by its own hand; whereas it took 70 years and a cold war to bring down the Marxist economy established in the Soviet Union following the Bolshevik Revolution.
The Marxist economy died of its internal contradictions. This was the fate Marxism (or Marxism-Leninism) had predicted for capitalism, not for itself. Unregulated free-market capitalism may be said to have killed itself by greed, vanity and excess, all amply evident before and at the death-scene, but the ultimate guilt must be attributed to the vacuity and perversity of market ideology, which contradicts human nature.
In this, it exactly resembles the American national foreign affairs ideology, that democracy will always eventually triumph over all else.
Regrettably, this is an illusion, clung to in American government, political, and to a considerable degree, academic circles. It is stubbornly adhered to because everyone would like to think it true, since it is very reassuring to Americans, and an uplifting idea.
Both market and democracy ideologies rest on a belief in the essential goodness of mankind, admittedly blocked from time to time by institutional or intellectual obstructions, which have only to be removed for harmony to be restored.
Market capitalism rests on the observation that, all things being equal, a free market is the most perfect known mechanism for setting priorities in an economic system manufacturing goods or providing services.
It declares that in free market conditions everyone will make, sell, and buy within an equilibrium established by the coincidence of their true interests. People will buy what they need or want according to the value they place on the good or service, and manufacturers or service providers will meet these needs according to whether the value offered incites them to do so, rather than to do something else.
It also is assumed that the employer will pay the true value of the employee's work, since otherwise the worker will go to an employer who will do so, who naturally will understand that paying a higher wage is in his competitive interest vis-à-vis his competitor. Owners and managers will be rewarded according to the true value of what each contributes to the common interest. Otherwise they will lose business and fail.
Those last two clauses demonstrate how artificial this theory is. That artificiality – that remoteness from how the real world functions – is why the market has to be regulated, a lesson last learned in the United States 80 years ago in the Great Depression, and progressively disregarded or discarded during the Reagan, Clinton and George W. Bush administrations.
What is this perfect and all-wise free market composed of? Legitimate actors with legitimate goals, plus speculators, swindlers, confidence men, guys trafficking in inside information, and criminal actors. Yes, the defenders of the market say, but it all averages out in the end. So we see, as the market today destroys global credit and global value. Everyone currently acts as if all this happens as the result of an act of God, or the will of the law of averages, or is the result of forgivable miscalculations. President George W. Bush said it's all been very simple. They built too many houses.
Of course 'they' didn't build too many houses. 'They' swindled too many people who had bought those houses, or wanted to buy them, by giving them the money to buy them, or to refinance them in order to have a cash gain, with mortgages or second mortgages which these people could not responsibly be expected to repay. That is where it started.
The subsequent manipulation of the funds, so as to bundle bad debt with good debt and pass it off on the international financial market as "securitized" good debt, has had more than enough discussion since the crisis blew up this summer.
The financiers, as Joseph Stiglitz has observed (in a recent CNN interview), were doing what the system demanded of them. They were assured generous rewards for managing risk and allocating capital so as to improve the efficiency of the economy enough to justify their generous compensation. "But they misallocated capital; they mismanaged risk – they created risk. They did what their incentive structures were designed to do: focusing on short-term profits and encouraging excessive risk-taking."
And this does not take account of an Iraq war financed by debt, and the unconscionable Bush tax cuts to the wealthy, the president's perverse punishment of the very working- and middle-class voters who had elected him.
As Stiglitz says, the first measures in recovering from the disaster must be to reconstruct the system of corporate incentives to serve the public interest rather than private interests.
Prior to that, however, is to reconstruct public policy on the basis of an historical understanding of how people actually behave rather than on theories about how they might be presumed to behave in the world of abstractions.
This understanding is called realism, and in American public affairs during the past two decades it has been scorned. However one good thing about realism is that being realistic it eventually turns out to be right. The distinguished Protestant theologian and political philosopher Reinhold Niebhur once remarked that of all the doctrines of the Christian religion, only one is invariably self-validating: the doctrine of Original Sin.
© Copyright 2008 by Tribune Media Services International. All Rights Reserved.
This article comes from William PFAFF
http://www.williampfaff.com
The URL for this article is:
http://www.williampfaff.com/article.php?storyid=343
Free World Colossus In the new Cold War, the U.S. is the revolutionary force. By Lee Congdon
Free World Colossus
In the new Cold War, the U.S. is the revolutionary force.
By Lee Congdon
The Bush administration’s angry reaction to Russia’s intervention in South Ossetia was of a piece with its harsh criticism of Vladimir Putin, the popular leader who has brought a measure of order and stability to a country that endured 74 years of communist misrule. The president and his secretary of state, Condoleezza Rice, are clearly offended by Putin’s scarcely disguised view that democracy in Russia cannot mean what it has come to mean in the United States and Europe. It disturbs them that he exercises a personal authority greater than that which is his by virtue of his offices—that he bears, as a political figure, some resemblance to Charles de Gaulle, never a hero to democrats.
One should note that it was precisely the semi-authoritarianism of the Putin government that enlisted the support of the late Aleksandr Solzhenitsyn. “It is not authoritarianism itself that is intolerable,” the courageous Russian wrote in his 1973 Letter to the Soviet Leaders, “but the ideological lies that are daily foisted upon us.” Not authoritarianism, then, but ideological tyranny was the enemy.
Americans, of course, also spurned communist ideology and feared that it might succeed in dominating the world, including the United States. They seemed not to notice that they themselves were in thrall to a political religion; recently, in fact, Yale professor David Gelernter described “Americanism”—that is, American democracy—as the fourth great Western religion. No doubt he cheered when President Bush, in his second inaugural address, declared it to be “the policy of the United States to seek and support the growth of democratic movements and institutions in every nation and culture, with the ultimate goal of ending tyranny in our world.” In practice, this imperial ambition, for that is what it is, has meant constant meddling in the affairs of governments the U.S. considers to be insufficiently democratic.
There is no doubt, for example, that the National Endowment for Democracy played a significant role in Georgia’s 2003 Rose Revolution and Ukraine’s Orange Revolution in 2004-05. In 1999, the NED initiated the World Movement for Democracy, “which presupposes the universality of the democratic idea” and the inevitability of “democratic transition,” even in a Middle East that lacks democratic traditions. One of the least convincing reasons for waging war on Iraq was to plant the seeds of democracy, with the expectation that they would germinate and grow throughout the region.
Such visions should come as no surprise. America has always prided itself on being the world’s last best hope, a shining city upon a hill. But Woodrow Wilson’s call for a world made safe for democracy focused and intensified that missionary zeal. Most Americans believe democracy to be the only legitimate form of government and the U.S., as the leading democratic nation, to be duty bound to evangelize the world. American officials are quick to lecture leaders of sovereign states who violate one or another of democracy’s commandments, and few of them question their right to impose our system, by military force if necessary, upon those who resist conversion. They would be puzzled by the question once posed by Edmund Burke: “Is it then a truth so universally acknowledged that a pure democracy is the only tolerable form into which human society can be thrown, that a man is not permitted to hesitate about its merits, without the suspicion of being a friend to tyranny, that is, of being a foe to mankind?”
It is a truth acknowledged by neoconservatives, many of whom have the president’s ear. Irving Kristol, the godfather of neoconservatism, has written that “large nations, whose identity is ideological, like the Soviet Union of yesteryear and the United States of today, inevitably have ideological interests in addition to more material concerns. Barring extraordinary events, the United States will always feel obliged to defend, if possible, a democratic nation under attack from nondemocratic forces, external or internal.” (The word “internal” here is particularly revealing of an interventionist mentality.) That being so, “democratic” Georgia must, at all costs, be defended against “autocratic” Russia.
It is not without interest that Kristol is an ex-Trotskyite. Like him, most of his followers have a leftist past, and that accounts for the fact that they are attracted to ideological movements. If communism did not save the world, perhaps democracy will. One can see something of the same instinct in the ex-communists who gathered around the old National Review. Frank Meyer was a former member of the Communist Party of Great Britain. Max Eastman translated several works by Trotsky. James Burnham, another ex-Trotskyite, argued that a new “managerial class” would replace the old capitalist class; different class, but the same structure of analysis.
There is something to Burnham’s argument, but it testifies to a cast of mind, one that predisposed him to a crusading internationalism. In a book-length pamphlet of 1953, he called for the “liberation” of Eastern Europe and dismissed mere “containment” of the Soviet Union as a sign of weakness. For him, as for so many ex-communists, anticommunism had replaced communism as a motivating ideology. One cannot help but sense that, without quite saying so, he, like many at National Review, including the late William F. Buckley Jr., wanted the West to wage hot war against Russia.
Leftists differ with neoconservatives on a number of important matters, particularly relating to culture, but they share the neoconservative enthusiasm for democratic revolution around the world. Why, one wonders, is this so? The answer, again, can be found in their predilection for ideology. Even before the Soviet Union and its Eastern Europe satellites collapsed, leftists had begun to distance themselves from real existing socialism, yet they were less embarrassed by the record of communist regimes in power than by their manifest failure.
Communism having been exposed as unfit by its inability to survive, leftists went in search of another ideology and soon hit upon democracy. For them, however, “democracy” does not simply mean universal suffrage and equal opportunity; they have redefined it to refer to political-social radicalism in general. To spread democracy, then, means to promote feminism, multiculturalism, homosexual rights, environmentalism—and socialism.
In the postwar era, those who raised their voices in opposition to America’s ideological foreign policy have been political realists such as Hans Morgenthau, Reinhold Niebuhr, Walter Lippmann, Henry Kissinger, and, above all, George Kennan. Burnham’s attack on the policy of containment was aimed directly at Kennan, its architect but also a probing critic of the manner in which Americans conducted foreign policy. Kennan was able to draw upon his vast experience as a Russian-speaking expert and diplomat in the USSR and, unlike so many of his generation, he was never tempted by communist, or any other, ideology, most of which espoused an egalitarianism that was foreign to his nature. “I am,” he told one interviewer, “very much opposed to egalitarian tendencies of all sorts in governmental life and in other walks of life.”
Naturally, then, Kennan never believed that the export of democracy was a semi-religious imperative. Forms of government and society, he knew, grow out of the historical experience of a people, and historical experiences differ greatly. “Our national experience,” he insisted “was never shared by any country and will never be shared by any country in the future.” We ought not to be surprised, therefore, to find that other peoples resent being told how they must order their public and private lives.
In general, Kennan, in the tradition of Plato and Tocqueville, preferred authoritarian, nonideological systems of rule. As a result of having observed Kurt Schuschnigg’s government in 1930s Austria, he concluded that while ideological tyranny was responsible for more evil than democracy, benevolent authoritarianism offered greater possibilities for good. He admired the semi-authoritarian system presided over by German Chancellor Otto von Bismarck not only because of the realism with which the Iron Chancellor conducted foreign policy but because of his antipathy to mass political enthusiasms.
Such enthusiasms make it difficult to conduct a foreign policy based upon the national interest. The American people like to think that their government is pursuing moral goals, that it is striving to create a better world. Thus foreign policy makers defend their decisions in moral terms. Those like Kennan, Niebuhr, and Morgenthau, who defended the national interest, believe that those entrusted with the conduct of foreign policy must take the world as it is, not as they would like it to be. They must recognize realities of power and not be led astray by a legalistic-moralistic approach to world affairs. According to Kennan, such an approach, “rooted as it unquestionably is in a desire to do away with war and violence, makes violence more enduring, more terrible, and more destructive to political stability than did the older motives of national interest. A war fought in the name of high moral principle finds no early end short of some form of total domination.”
The legalistic-moralistic approach, with its lack of restraint, is precisely what America’s foreign-policy establishment has adopted. The United States’ determination to foment democratic revolution in every region of the world can only mean interventions without end and, inevitably, conflict with states unimpressed by democratic dogma. It has seriously damaged relations with Russia, which remains a proud, nuclear-armed power—and one now mercifully free of ideology. Had Georgia been a member of NATO, as the Bush administration insists it must, we would now, as Pat Buchanan has put it, “be eyeball to eyeball with Russia, facing war in the Caucasus” over a matter that does no harm to our interests. We ought by now to have learned the lesson of 1914—that nations can awake to find themselves in unnecessary wars that threaten the very foundations of civilized life.
__________________________
Lee Congdon is the author, most recently, of George Kennan: A Writing Life.
http://www.amconmag.com/article/2008/sep/22/00011/
In the new Cold War, the U.S. is the revolutionary force.
By Lee Congdon
The Bush administration’s angry reaction to Russia’s intervention in South Ossetia was of a piece with its harsh criticism of Vladimir Putin, the popular leader who has brought a measure of order and stability to a country that endured 74 years of communist misrule. The president and his secretary of state, Condoleezza Rice, are clearly offended by Putin’s scarcely disguised view that democracy in Russia cannot mean what it has come to mean in the United States and Europe. It disturbs them that he exercises a personal authority greater than that which is his by virtue of his offices—that he bears, as a political figure, some resemblance to Charles de Gaulle, never a hero to democrats.
One should note that it was precisely the semi-authoritarianism of the Putin government that enlisted the support of the late Aleksandr Solzhenitsyn. “It is not authoritarianism itself that is intolerable,” the courageous Russian wrote in his 1973 Letter to the Soviet Leaders, “but the ideological lies that are daily foisted upon us.” Not authoritarianism, then, but ideological tyranny was the enemy.
Americans, of course, also spurned communist ideology and feared that it might succeed in dominating the world, including the United States. They seemed not to notice that they themselves were in thrall to a political religion; recently, in fact, Yale professor David Gelernter described “Americanism”—that is, American democracy—as the fourth great Western religion. No doubt he cheered when President Bush, in his second inaugural address, declared it to be “the policy of the United States to seek and support the growth of democratic movements and institutions in every nation and culture, with the ultimate goal of ending tyranny in our world.” In practice, this imperial ambition, for that is what it is, has meant constant meddling in the affairs of governments the U.S. considers to be insufficiently democratic.
There is no doubt, for example, that the National Endowment for Democracy played a significant role in Georgia’s 2003 Rose Revolution and Ukraine’s Orange Revolution in 2004-05. In 1999, the NED initiated the World Movement for Democracy, “which presupposes the universality of the democratic idea” and the inevitability of “democratic transition,” even in a Middle East that lacks democratic traditions. One of the least convincing reasons for waging war on Iraq was to plant the seeds of democracy, with the expectation that they would germinate and grow throughout the region.
Such visions should come as no surprise. America has always prided itself on being the world’s last best hope, a shining city upon a hill. But Woodrow Wilson’s call for a world made safe for democracy focused and intensified that missionary zeal. Most Americans believe democracy to be the only legitimate form of government and the U.S., as the leading democratic nation, to be duty bound to evangelize the world. American officials are quick to lecture leaders of sovereign states who violate one or another of democracy’s commandments, and few of them question their right to impose our system, by military force if necessary, upon those who resist conversion. They would be puzzled by the question once posed by Edmund Burke: “Is it then a truth so universally acknowledged that a pure democracy is the only tolerable form into which human society can be thrown, that a man is not permitted to hesitate about its merits, without the suspicion of being a friend to tyranny, that is, of being a foe to mankind?”
It is a truth acknowledged by neoconservatives, many of whom have the president’s ear. Irving Kristol, the godfather of neoconservatism, has written that “large nations, whose identity is ideological, like the Soviet Union of yesteryear and the United States of today, inevitably have ideological interests in addition to more material concerns. Barring extraordinary events, the United States will always feel obliged to defend, if possible, a democratic nation under attack from nondemocratic forces, external or internal.” (The word “internal” here is particularly revealing of an interventionist mentality.) That being so, “democratic” Georgia must, at all costs, be defended against “autocratic” Russia.
It is not without interest that Kristol is an ex-Trotskyite. Like him, most of his followers have a leftist past, and that accounts for the fact that they are attracted to ideological movements. If communism did not save the world, perhaps democracy will. One can see something of the same instinct in the ex-communists who gathered around the old National Review. Frank Meyer was a former member of the Communist Party of Great Britain. Max Eastman translated several works by Trotsky. James Burnham, another ex-Trotskyite, argued that a new “managerial class” would replace the old capitalist class; different class, but the same structure of analysis.
There is something to Burnham’s argument, but it testifies to a cast of mind, one that predisposed him to a crusading internationalism. In a book-length pamphlet of 1953, he called for the “liberation” of Eastern Europe and dismissed mere “containment” of the Soviet Union as a sign of weakness. For him, as for so many ex-communists, anticommunism had replaced communism as a motivating ideology. One cannot help but sense that, without quite saying so, he, like many at National Review, including the late William F. Buckley Jr., wanted the West to wage hot war against Russia.
Leftists differ with neoconservatives on a number of important matters, particularly relating to culture, but they share the neoconservative enthusiasm for democratic revolution around the world. Why, one wonders, is this so? The answer, again, can be found in their predilection for ideology. Even before the Soviet Union and its Eastern Europe satellites collapsed, leftists had begun to distance themselves from real existing socialism, yet they were less embarrassed by the record of communist regimes in power than by their manifest failure.
Communism having been exposed as unfit by its inability to survive, leftists went in search of another ideology and soon hit upon democracy. For them, however, “democracy” does not simply mean universal suffrage and equal opportunity; they have redefined it to refer to political-social radicalism in general. To spread democracy, then, means to promote feminism, multiculturalism, homosexual rights, environmentalism—and socialism.
In the postwar era, those who raised their voices in opposition to America’s ideological foreign policy have been political realists such as Hans Morgenthau, Reinhold Niebuhr, Walter Lippmann, Henry Kissinger, and, above all, George Kennan. Burnham’s attack on the policy of containment was aimed directly at Kennan, its architect but also a probing critic of the manner in which Americans conducted foreign policy. Kennan was able to draw upon his vast experience as a Russian-speaking expert and diplomat in the USSR and, unlike so many of his generation, he was never tempted by communist, or any other, ideology, most of which espoused an egalitarianism that was foreign to his nature. “I am,” he told one interviewer, “very much opposed to egalitarian tendencies of all sorts in governmental life and in other walks of life.”
Naturally, then, Kennan never believed that the export of democracy was a semi-religious imperative. Forms of government and society, he knew, grow out of the historical experience of a people, and historical experiences differ greatly. “Our national experience,” he insisted “was never shared by any country and will never be shared by any country in the future.” We ought not to be surprised, therefore, to find that other peoples resent being told how they must order their public and private lives.
In general, Kennan, in the tradition of Plato and Tocqueville, preferred authoritarian, nonideological systems of rule. As a result of having observed Kurt Schuschnigg’s government in 1930s Austria, he concluded that while ideological tyranny was responsible for more evil than democracy, benevolent authoritarianism offered greater possibilities for good. He admired the semi-authoritarian system presided over by German Chancellor Otto von Bismarck not only because of the realism with which the Iron Chancellor conducted foreign policy but because of his antipathy to mass political enthusiasms.
Such enthusiasms make it difficult to conduct a foreign policy based upon the national interest. The American people like to think that their government is pursuing moral goals, that it is striving to create a better world. Thus foreign policy makers defend their decisions in moral terms. Those like Kennan, Niebuhr, and Morgenthau, who defended the national interest, believe that those entrusted with the conduct of foreign policy must take the world as it is, not as they would like it to be. They must recognize realities of power and not be led astray by a legalistic-moralistic approach to world affairs. According to Kennan, such an approach, “rooted as it unquestionably is in a desire to do away with war and violence, makes violence more enduring, more terrible, and more destructive to political stability than did the older motives of national interest. A war fought in the name of high moral principle finds no early end short of some form of total domination.”
The legalistic-moralistic approach, with its lack of restraint, is precisely what America’s foreign-policy establishment has adopted. The United States’ determination to foment democratic revolution in every region of the world can only mean interventions without end and, inevitably, conflict with states unimpressed by democratic dogma. It has seriously damaged relations with Russia, which remains a proud, nuclear-armed power—and one now mercifully free of ideology. Had Georgia been a member of NATO, as the Bush administration insists it must, we would now, as Pat Buchanan has put it, “be eyeball to eyeball with Russia, facing war in the Caucasus” over a matter that does no harm to our interests. We ought by now to have learned the lesson of 1914—that nations can awake to find themselves in unnecessary wars that threaten the very foundations of civilized life.
__________________________
Lee Congdon is the author, most recently, of George Kennan: A Writing Life.
http://www.amconmag.com/article/2008/sep/22/00011/
What Russia Wants Moscow is not bent on world domination, just regional influence. By Ted Galen Carpenter
What Russia Wants
Moscow is not bent on world domination, just regional influence.
By Ted Galen Carpenter
Russia’s military intervention in Georgia has provoked a storm of negative reactions in the United States and Europe. To most Americans—and apparently to spluttering Bush administration officials—Moscow’s actions came as an unpleasant surprise. Pundits and policy experts immediately began to speculate about the Kremlin’s motives in Georgia and beyond.
To Russophobes the answer is clear: the evil empire has been reborn and is on the march. They issued shrill warnings that Moscow’s dust-up with Georgia was just like the Soviet Union’s invasions of Hungary in 1956 and Czechoslovakia in 1968. Some even invoked the threadbare 1930s analogy, with Russia playing the role of Nazi Germany. According to that logic, Moscow’s actions had little to do with the obscure territorial disputes between Georgia and its secessionist regions of South Ossetia and Abkhazia. Rather, Russia cannot abide the proliferation of democratic, pro-Western governments in neighboring countries. If the United States and its NATO allies do not repel Moscow’s aggression in Georgia, hawks warn, Ukraine and the Baltic Republics will be the next targets.
The argument that Russia is a malignantly expansionist power is now common fare across the political spectrum. The perspective of the Washington Post and such Democratic luminaries as Madeleine Albright and Zbigniew Brzezinski is not substantially different from the views of neoconservatives such as William Kristol and Robert Kagan—or GOP presidential nominee John McCain.
Contrary to such alarmism, it is more likely that Russia’s strategic aims are modest, largely confined to its own neighborhood, and typical for a major power. Moscow’s actions also appear to be more defensive than offensive—a belated reaction to clumsy, arrogant policies that the United States and its NATO allies have pursued for more than a decade.
One key aspect of the Georgia conflict is that Russia’s position on Abkhazia and South Ossetia is nothing new. Those regions, with Moscow’s backing, achieved political autonomy—actually, de facto independence—by defeating Georgian military forces in the months following the breakup of the Soviet Union in December 1991. Russian “peacekeepers” established a presence in both regions during the presidency of Boris Yeltsin, not Vladimir Putin.
Moscow’s policy appears to include ethnic, security, and economic factors. Following the demise of the Soviet Union, the Kremlin’s relations with a newly independent Georgia were contentious. It was tempting for Russian leaders to exploit tensions between Tbilisi and ethnic groups in Abkhazia and South Ossetia to weaken what was fast emerging as a hostile neighboring state. It was also an easy target, since those tensions had existed for generations. Indeed, the inclusion of Abkhazia and South Ossetia as part of Georgia was an arbitrary edict that the Soviet government made under Josef Stalin. (A similar decision that Moscow made under Nikita Khrushchev added the Russian-inhabited Crimea to Ukraine—another ethnic time bomb that bears watching.) Most Abkhazians and South Ossetians have never been happy being governed by Tbilisi.
Georgia’s periodic attempts to re-establish sovereignty over those regions created tensions and instability on Russia’s southern flank—developments that would ignite security concerns for any country.
Russian leaders are especially nervous about the prospect of turmoil in the Caucasus in light of the smoldering conflict in their own territory of Chechnya. Moscow had warned both current Georgian president Mikheil Saakashvili and his predecessor, Eduard Shevardnadze, not to disrupt the status quo. When Saakashvili ordered an artillery barrage on the South Ossetian capital in early August, Russian forces were ready—and probably eager —to teach Tbilisi a lesson.
Important economic considerations reinforce ethnic and security concerns. There has been speculation in the United States and Europe that Russia’s coercion of Georgia is part of a plot to gain control of the oil pipeline that runs from Baku in Azerbaijan to the Turkish port of Ceyhan, going through Georgia and passing near Tbilisi. The pipeline power-grab thesis is probably too simplistic. But there is little doubt that Russia wants to gain more influence over the potentially vast oil riches of the Caspian Basin. The Baku-Ceyhan pipeline is a significant part of the policy mosaic. Once again, though, the motives may be as much defensive as offensive—an effort to counter the growing Western economic presence in that region.
Russia’s actions in Georgia are not much different from the typical conduct of other great powers—including the United States—in their neighborhoods. A few weeks before the onset of the fighting, Secretary of State Condoleezza Rice asserted that the notion of “spheres of influence” in world affairs was obsolete. That argument was either naïve or hypocritical. Certainly, Washington’s conduct in the Western Hemisphere suggests that U.S. officials have not abandoned their belief in an American sphere of influence. Since World War II, the United States has invaded and occupied the Dominican Republic, Grenada, Panama, and Haiti. Washington orchestrated a successful coup against the government of Guatemala and tried to do the same both to Fidel Castro’s regime in Cuba and the Sandinista government in Nicaragua. It is a bit much for American leaders to admonish the Russians not to molest small, hostile neighbors.
Moscow is also increasingly angry at the West’s repeated disdain for Russian policy preferences—indeed, core Russian interests—in Europe. The insensitivity of the United States and its allies was already apparent in the mid-1990s, with the effort to expand NATO by adding Poland, Hungary, and the Czech Republic. That move violated assurances given to the Kremlin when Mikhail Gorbachev’s government agreed to the reunification of Germany and continued German membership in NATO. Secretary of State James Baker assured Russian officials that the alliance would not expand eastward from Germany.
Not content with that provocation, in 2004 the U.S. pushed through NATO’s incorporation of Latvia, Estonia, and Lithuania, entities that had been part of the Soviet Union. And NATO expansion is not the only manifestation of contempt for Russia’s interests. So is Western policy in the Balkans, traditionally a key region for Moscow. In 1995, NATO forces intervened in Bosnia’s civil war to undermine the Serbs, Russia’s coreligionists and longstanding political allies. Then in 1999, the United States and its allies waged an air war against Serbia, ultimately wrenching away its province of Kosovo. They bypassed the UN Security Council to do so, thereby evading a Russian veto.
Although Russia’s political leaders fumed at such treatment, they could do little except issue meaningless complaints. The country was too weak, with both its economy and military in disarray. But that situation has changed. As a leading exporter of oil and natural gas, Russia has benefited enormously from the decade-long boom in the prices of commodities. With oil at $110 a barrel—to say nothing of the price earlier this year of $145 a barrel—the country is in a fundamentally different bargaining position than it was in the mid and late 1990s, when oil was mired in the $10 to $20 a barrel range. The Kremlin has also used some of the revenue from that boom to refurbish and modernize its military.
Today Russia is much stronger than it was in the 1990s, and Moscow has begun to push back. One indicator came earlier this year when Kremlin leaders warned that NATO membership for Georgia and Ukraine would cross a bright red line and not be tolerated. The vehemence of Moscow’s reaction was one factor that led France, Germany, and other key NATO members to oppose the U.S. lobbying effort.
But Washington remains tone deaf in its policy toward Russia. In addition to the campaign to admit Georgia and Ukraine to NATO, the Bush administration has made plans to deploy missile defenses in Poland and the Czech Republic a high priority. In response, Russia has warned Warsaw and Prague that it will target both countries for retaliation in the event of war.
Washington’s Balkan policy has also blundered ahead, dismissing Moscow’s objections. In February, the United States and its leading European allies again bypassed the UN Security Council (and Russia’s veto) to grant Kosovo independence. Russian foreign minister Sergei Lavrov warned that such a step set a dangerous international precedent that would encourage secessionist movements around the world. America, he said, had “opened a Pandora’s box.” Ominously, he noted specifically that the Kosovo precedent would seem to apply to South Ossetia and Abkhazia.
At least in part, Russia’s actions in Georgia amount to payback for the West’s refusal to respect even the most basic Russian interests and an emphatic reassertion of its sphere of influence. Moscow appears to want two things: pre-eminence in its own region and treatment by the United States and NATO as a serious power whose wishes must be respected. Using military force as it did in Georgia is a crude way to make those points, but they were made effectively. The Bush administration’s vocal support for Saakashvili proved to be devoid of substance. Moscow demonstrated that it could coerce a small U.S. ally on its border, and Washington’s response was impotent. The response of NATO and the European Union reflected the same reality. For all the verbal bluster of those organizations, the Europeans, cognizant of their dependence on Russia for energy supplies (among other considerations), do not want a hostile relationship with Moscow.
The Georgia episode underscores the limits of Washington’s deterrence capabilities, and it should send a warning about a dangerous defect in U.S. foreign policy. The reality is that the United States can do little to protect vulnerable client states in Russia’s neighborhood—unless Washington is willing to risk a military confrontation with nuclear implications. That remains true even for clients such as the Baltic states, which are formal members of NATO.
At the same time, Russia must be careful not to overplay its hand. That possibility arose in late August when Moscow sought an endorsement from the Shanghai Cooperation Organization—the association of Russia, China, and the Central Asian republics—for military intervention in Georgia and the subsequent recognition of independence for South Ossetia and Abkhazia. Much to the dismay of Russian officials, the SCO refused to give its imprimatur. Indeed, the SCO statement expressed the importance of respecting the territorial integrity of countries. That should not have come as a surprise to Moscow. Several of the Central Asian countries have their own secessionist problems and do not wish to see the Kosovo and South Ossetia precedents spread. Even more important, China vehemently opposes secessionism, given its problems with Tibet, Xinjiang, and Taiwan. The SCO summit was a test of will between Moscow and Beijing—and Russia lost.
That result illustrates the limits of Moscow’s power. Russia may be capable of establishing a modest sphere of influence along its perimeter, but it does not have the strength to reconstitute the Soviet empire—much less pose an expansionist threat to the heart of Europe as the USSR did during the Cold War. American opinion leaders need to curb their alarmism. Moscow’s conduct in Georgia may have been brutal, but it is not out of the norm for a great power to discipline an upstart small neighbor. There is no credible evidence that Moscow has massive expansionist impulses. And even if it did, Russia lacks the power to achieve such goals. Russia is not the Soviet Union, and it certainly is not the equivalent of Nazi Germany. U.S. policymakers need to take a deep breath, accept that Russia has returned to the ranks of major powers, and realize that Washington can no longer ignore, much less trample on, core Russian interests. The sooner they make that course correction, the better.
__________________________________________
Ted Galen Carpenter, vice president for defense and foreign policy studies at the Cato Institute, is the author of eight books on international affairs, including Smart Power: Toward a Prudent Foreign Policy for America.
http://www.amconmag.com/article/2008/sep/22/00006/
Moscow is not bent on world domination, just regional influence.
By Ted Galen Carpenter
Russia’s military intervention in Georgia has provoked a storm of negative reactions in the United States and Europe. To most Americans—and apparently to spluttering Bush administration officials—Moscow’s actions came as an unpleasant surprise. Pundits and policy experts immediately began to speculate about the Kremlin’s motives in Georgia and beyond.
To Russophobes the answer is clear: the evil empire has been reborn and is on the march. They issued shrill warnings that Moscow’s dust-up with Georgia was just like the Soviet Union’s invasions of Hungary in 1956 and Czechoslovakia in 1968. Some even invoked the threadbare 1930s analogy, with Russia playing the role of Nazi Germany. According to that logic, Moscow’s actions had little to do with the obscure territorial disputes between Georgia and its secessionist regions of South Ossetia and Abkhazia. Rather, Russia cannot abide the proliferation of democratic, pro-Western governments in neighboring countries. If the United States and its NATO allies do not repel Moscow’s aggression in Georgia, hawks warn, Ukraine and the Baltic Republics will be the next targets.
The argument that Russia is a malignantly expansionist power is now common fare across the political spectrum. The perspective of the Washington Post and such Democratic luminaries as Madeleine Albright and Zbigniew Brzezinski is not substantially different from the views of neoconservatives such as William Kristol and Robert Kagan—or GOP presidential nominee John McCain.
Contrary to such alarmism, it is more likely that Russia’s strategic aims are modest, largely confined to its own neighborhood, and typical for a major power. Moscow’s actions also appear to be more defensive than offensive—a belated reaction to clumsy, arrogant policies that the United States and its NATO allies have pursued for more than a decade.
One key aspect of the Georgia conflict is that Russia’s position on Abkhazia and South Ossetia is nothing new. Those regions, with Moscow’s backing, achieved political autonomy—actually, de facto independence—by defeating Georgian military forces in the months following the breakup of the Soviet Union in December 1991. Russian “peacekeepers” established a presence in both regions during the presidency of Boris Yeltsin, not Vladimir Putin.
Moscow’s policy appears to include ethnic, security, and economic factors. Following the demise of the Soviet Union, the Kremlin’s relations with a newly independent Georgia were contentious. It was tempting for Russian leaders to exploit tensions between Tbilisi and ethnic groups in Abkhazia and South Ossetia to weaken what was fast emerging as a hostile neighboring state. It was also an easy target, since those tensions had existed for generations. Indeed, the inclusion of Abkhazia and South Ossetia as part of Georgia was an arbitrary edict that the Soviet government made under Josef Stalin. (A similar decision that Moscow made under Nikita Khrushchev added the Russian-inhabited Crimea to Ukraine—another ethnic time bomb that bears watching.) Most Abkhazians and South Ossetians have never been happy being governed by Tbilisi.
Georgia’s periodic attempts to re-establish sovereignty over those regions created tensions and instability on Russia’s southern flank—developments that would ignite security concerns for any country.
Russian leaders are especially nervous about the prospect of turmoil in the Caucasus in light of the smoldering conflict in their own territory of Chechnya. Moscow had warned both current Georgian president Mikheil Saakashvili and his predecessor, Eduard Shevardnadze, not to disrupt the status quo. When Saakashvili ordered an artillery barrage on the South Ossetian capital in early August, Russian forces were ready—and probably eager —to teach Tbilisi a lesson.
Important economic considerations reinforce ethnic and security concerns. There has been speculation in the United States and Europe that Russia’s coercion of Georgia is part of a plot to gain control of the oil pipeline that runs from Baku in Azerbaijan to the Turkish port of Ceyhan, going through Georgia and passing near Tbilisi. The pipeline power-grab thesis is probably too simplistic. But there is little doubt that Russia wants to gain more influence over the potentially vast oil riches of the Caspian Basin. The Baku-Ceyhan pipeline is a significant part of the policy mosaic. Once again, though, the motives may be as much defensive as offensive—an effort to counter the growing Western economic presence in that region.
Russia’s actions in Georgia are not much different from the typical conduct of other great powers—including the United States—in their neighborhoods. A few weeks before the onset of the fighting, Secretary of State Condoleezza Rice asserted that the notion of “spheres of influence” in world affairs was obsolete. That argument was either naïve or hypocritical. Certainly, Washington’s conduct in the Western Hemisphere suggests that U.S. officials have not abandoned their belief in an American sphere of influence. Since World War II, the United States has invaded and occupied the Dominican Republic, Grenada, Panama, and Haiti. Washington orchestrated a successful coup against the government of Guatemala and tried to do the same both to Fidel Castro’s regime in Cuba and the Sandinista government in Nicaragua. It is a bit much for American leaders to admonish the Russians not to molest small, hostile neighbors.
Moscow is also increasingly angry at the West’s repeated disdain for Russian policy preferences—indeed, core Russian interests—in Europe. The insensitivity of the United States and its allies was already apparent in the mid-1990s, with the effort to expand NATO by adding Poland, Hungary, and the Czech Republic. That move violated assurances given to the Kremlin when Mikhail Gorbachev’s government agreed to the reunification of Germany and continued German membership in NATO. Secretary of State James Baker assured Russian officials that the alliance would not expand eastward from Germany.
Not content with that provocation, in 2004 the U.S. pushed through NATO’s incorporation of Latvia, Estonia, and Lithuania, entities that had been part of the Soviet Union. And NATO expansion is not the only manifestation of contempt for Russia’s interests. So is Western policy in the Balkans, traditionally a key region for Moscow. In 1995, NATO forces intervened in Bosnia’s civil war to undermine the Serbs, Russia’s coreligionists and longstanding political allies. Then in 1999, the United States and its allies waged an air war against Serbia, ultimately wrenching away its province of Kosovo. They bypassed the UN Security Council to do so, thereby evading a Russian veto.
Although Russia’s political leaders fumed at such treatment, they could do little except issue meaningless complaints. The country was too weak, with both its economy and military in disarray. But that situation has changed. As a leading exporter of oil and natural gas, Russia has benefited enormously from the decade-long boom in the prices of commodities. With oil at $110 a barrel—to say nothing of the price earlier this year of $145 a barrel—the country is in a fundamentally different bargaining position than it was in the mid and late 1990s, when oil was mired in the $10 to $20 a barrel range. The Kremlin has also used some of the revenue from that boom to refurbish and modernize its military.
Today Russia is much stronger than it was in the 1990s, and Moscow has begun to push back. One indicator came earlier this year when Kremlin leaders warned that NATO membership for Georgia and Ukraine would cross a bright red line and not be tolerated. The vehemence of Moscow’s reaction was one factor that led France, Germany, and other key NATO members to oppose the U.S. lobbying effort.
But Washington remains tone deaf in its policy toward Russia. In addition to the campaign to admit Georgia and Ukraine to NATO, the Bush administration has made plans to deploy missile defenses in Poland and the Czech Republic a high priority. In response, Russia has warned Warsaw and Prague that it will target both countries for retaliation in the event of war.
Washington’s Balkan policy has also blundered ahead, dismissing Moscow’s objections. In February, the United States and its leading European allies again bypassed the UN Security Council (and Russia’s veto) to grant Kosovo independence. Russian foreign minister Sergei Lavrov warned that such a step set a dangerous international precedent that would encourage secessionist movements around the world. America, he said, had “opened a Pandora’s box.” Ominously, he noted specifically that the Kosovo precedent would seem to apply to South Ossetia and Abkhazia.
At least in part, Russia’s actions in Georgia amount to payback for the West’s refusal to respect even the most basic Russian interests and an emphatic reassertion of its sphere of influence. Moscow appears to want two things: pre-eminence in its own region and treatment by the United States and NATO as a serious power whose wishes must be respected. Using military force as it did in Georgia is a crude way to make those points, but they were made effectively. The Bush administration’s vocal support for Saakashvili proved to be devoid of substance. Moscow demonstrated that it could coerce a small U.S. ally on its border, and Washington’s response was impotent. The response of NATO and the European Union reflected the same reality. For all the verbal bluster of those organizations, the Europeans, cognizant of their dependence on Russia for energy supplies (among other considerations), do not want a hostile relationship with Moscow.
The Georgia episode underscores the limits of Washington’s deterrence capabilities, and it should send a warning about a dangerous defect in U.S. foreign policy. The reality is that the United States can do little to protect vulnerable client states in Russia’s neighborhood—unless Washington is willing to risk a military confrontation with nuclear implications. That remains true even for clients such as the Baltic states, which are formal members of NATO.
At the same time, Russia must be careful not to overplay its hand. That possibility arose in late August when Moscow sought an endorsement from the Shanghai Cooperation Organization—the association of Russia, China, and the Central Asian republics—for military intervention in Georgia and the subsequent recognition of independence for South Ossetia and Abkhazia. Much to the dismay of Russian officials, the SCO refused to give its imprimatur. Indeed, the SCO statement expressed the importance of respecting the territorial integrity of countries. That should not have come as a surprise to Moscow. Several of the Central Asian countries have their own secessionist problems and do not wish to see the Kosovo and South Ossetia precedents spread. Even more important, China vehemently opposes secessionism, given its problems with Tibet, Xinjiang, and Taiwan. The SCO summit was a test of will between Moscow and Beijing—and Russia lost.
That result illustrates the limits of Moscow’s power. Russia may be capable of establishing a modest sphere of influence along its perimeter, but it does not have the strength to reconstitute the Soviet empire—much less pose an expansionist threat to the heart of Europe as the USSR did during the Cold War. American opinion leaders need to curb their alarmism. Moscow’s conduct in Georgia may have been brutal, but it is not out of the norm for a great power to discipline an upstart small neighbor. There is no credible evidence that Moscow has massive expansionist impulses. And even if it did, Russia lacks the power to achieve such goals. Russia is not the Soviet Union, and it certainly is not the equivalent of Nazi Germany. U.S. policymakers need to take a deep breath, accept that Russia has returned to the ranks of major powers, and realize that Washington can no longer ignore, much less trample on, core Russian interests. The sooner they make that course correction, the better.
__________________________________________
Ted Galen Carpenter, vice president for defense and foreign policy studies at the Cato Institute, is the author of eight books on international affairs, including Smart Power: Toward a Prudent Foreign Policy for America.
http://www.amconmag.com/article/2008/sep/22/00006/
How to Stay in Iraq for 1,000 Years by Frida Berrigan, 9/19/2008
How to Stay in Iraq for 1,000 Years by Frida Berrigan, 9/19/2008
http://www.motherjones.com/news/feature/2008/09/iraq-sofas.html
http://www.motherjones.com/news/feature/2008/09/iraq-sofas.html
Settlements make Palestinian state impossible: Arab League
Tehran Times
September 20, 2008
Settlements make Palestinian state impossible: Arab League
CAIRO (AFP) -- Israel's policy of Jewish settlement building on Palestinian land in the occupied West Bank is making a future Palestinian state impossible, Arab League chief Amr Mussa said.
Mussa said he would take the matter to the United Nations Security Council in New York and also ask for the Middle East peace quartet of the European Union, Russia, United Nations and United States to discuss the matter.
""Settlements not only change the demographic and geographic composition of the occupied territories but make ... the establishment of a Palestinian state impossible,"" Egypt's official MENA news agency quoted Mussa as saying.
He said Saudi Foreign Minister Prince Saud al-Faisal had already contacted the Burkina Faso president of the Security Council, Michel Kafando, with a view to the council holding an extraordinary ministerial meeting.
Prince Saud called on September 8 for the Security Council to hold a meeting on Israeli settlements.
Israel is ""undermining the conditions of the peace process by intensifying the construction of settlements to change the situation on the ground,"" Saud said, adding that Palestinian leader Mahmud Abbas backs the request.
Settlements activity will be discussed at a meeting of Arab foreign ministers in New York on September 24 and when the Middle East peace quartet and the UN's Arab group meet at around the same time.
""Settlement activity can eliminate all the conditions necessary for the foundation of a Palestinian state and will necessarily lead to the abandoning of the choice of founding a state,"" Mussa said.
Israel and the Palestinians have been holding formal U.S.-backed peace talks since November 2007 aimed at resolving their decades-old conflict by the time U.S. President George W. Bush leaves office in January 2009.
The construction of Jewish settlements -- viewed as a major obstacle to reaching a peace deal -- has nearly doubled since 2007, the Israeli watchdog Peace Now said last month.
The Israeli housing ministry ""initiated 433 new housing units during the period of January to May 2008, compared to just 240 units during the period January to May 2007,"" Peace Now said.
The number of tenders for construction in the settlements increased by a massive 550 percent, from 417 housing units compared to 65 units in the same period last year.
In Arab east Beit-ul-MOqaddas, occupied and annexed by Israel following the 1967 Six-Day War, the number of tenders has increased by a factor of 38, the group said, from 46 units in 2007 to 1,761 in 2008.
The international community considers all settlement projects in the Israeli-occupied territories to be illegal.
September 20, 2008
Settlements make Palestinian state impossible: Arab League
CAIRO (AFP) -- Israel's policy of Jewish settlement building on Palestinian land in the occupied West Bank is making a future Palestinian state impossible, Arab League chief Amr Mussa said.
Mussa said he would take the matter to the United Nations Security Council in New York and also ask for the Middle East peace quartet of the European Union, Russia, United Nations and United States to discuss the matter.
""Settlements not only change the demographic and geographic composition of the occupied territories but make ... the establishment of a Palestinian state impossible,"" Egypt's official MENA news agency quoted Mussa as saying.
He said Saudi Foreign Minister Prince Saud al-Faisal had already contacted the Burkina Faso president of the Security Council, Michel Kafando, with a view to the council holding an extraordinary ministerial meeting.
Prince Saud called on September 8 for the Security Council to hold a meeting on Israeli settlements.
Israel is ""undermining the conditions of the peace process by intensifying the construction of settlements to change the situation on the ground,"" Saud said, adding that Palestinian leader Mahmud Abbas backs the request.
Settlements activity will be discussed at a meeting of Arab foreign ministers in New York on September 24 and when the Middle East peace quartet and the UN's Arab group meet at around the same time.
""Settlement activity can eliminate all the conditions necessary for the foundation of a Palestinian state and will necessarily lead to the abandoning of the choice of founding a state,"" Mussa said.
Israel and the Palestinians have been holding formal U.S.-backed peace talks since November 2007 aimed at resolving their decades-old conflict by the time U.S. President George W. Bush leaves office in January 2009.
The construction of Jewish settlements -- viewed as a major obstacle to reaching a peace deal -- has nearly doubled since 2007, the Israeli watchdog Peace Now said last month.
The Israeli housing ministry ""initiated 433 new housing units during the period of January to May 2008, compared to just 240 units during the period January to May 2007,"" Peace Now said.
The number of tenders for construction in the settlements increased by a massive 550 percent, from 417 housing units compared to 65 units in the same period last year.
In Arab east Beit-ul-MOqaddas, occupied and annexed by Israel following the 1967 Six-Day War, the number of tenders has increased by a factor of 38, the group said, from 46 units in 2007 to 1,761 in 2008.
The international community considers all settlement projects in the Israeli-occupied territories to be illegal.
Commentary: Losing Afghanistan?
Friday, September 19, 2008
Commentary: Losing Afghanistan?
By ARNAUD DE BORCHGRAVE, UPI Editor at Large
WASHINGTON, Sept. 19 (UPI) -- Is NATO losing the Afghan war, as the Soviet Union did in the 1980s and the British Empire in the 19th century? Notwithstanding NATO and U.S. denials, the answer is affirmative. And abundant evidence is provided in a detailed 113-page report released by the Center for Strategic and International Studies. The author is Anthony Cordesman, CSIS' senior strategic thinker.
The situation in Afghanistan, Cordesman writes, has been deteriorating for the past five years "and is now reaching a crisis level." Both Defense Secretary Robert Gates and Chairman of the Joint Chiefs Adm. Mike Mullen have acknowledged that it is now an Afghan-Pakistani conflict "and one lacking in both military and civilian resources. It is also becoming increasingly more deadly for civilians, aid workers, and U.S. and NATO forces."
Resurgent Taliban, the report says, "have turned much of Afghanistan into 'no-go' zones for aid workers and civilians."
The Bush administration reached the conclusion in August to deny Taliban the safe havens they have long enjoyed in Pakistan's tribal belt that abuts the unmarked, mountainous Afghan border for hundreds of miles. But the first raid by Navy Seals into Pakistan's Federally Administered Tribal Areas left several dead civilians -- and provoked a stinging rebuke from Pakistan's new civilian government and the army chief Gen. Ashfaq Kayani.
Promoted by President Bush to the ranks of "major non-NATO ally," Pakistan has made clear its army alone would dismantle Taliban's FATA bases. But the Pakistani army is not welcome in FATA and despite its 130,000-strong presence has not made much of a dent in the Taliban's infrastructure. But the Taliban have inflicted heavy casualties on the army (1,400 killed, 4,000 injured).
The CSIS report also said Taliban guerrillas, "benefiting from a rise in poppy cultivation and safe havens in (Pakistan), are steadily expanding their capabilities and geographic reach."
Titled "Losing the Afghan-Pakistan War? The Rising Threat," the CSIS report documents "changes in the character of the threat and the rise in Afghan and allied casualties." U.N. and declassified U.S. intelligence maps detail the steady expansion of threat influence and the regions that are unsafe for aid workers. Other data show how Afghan drug growing has steadily moved south "and become a major source of financing for the Taliban."
The CSIS report shows that the next U.S. president will "face a critical challenge with a war that is probably being lost at the political and strategic level, and is not being won at the tactical level." It is clear why the senior U.S. and NATO commanders in Afghanistan are calling for substantially more troops than Bush decided to deploy this September, and the problems in this briefing are compounded by critical problems in Afghan and Pakistani governance and economic development.
Regardless of the focus of the current U.S. political campaign, says Cordesman, "these neglected challenges will have to take center stage in the first few months of the next administration. Both John McCain and Barack Obama have advocated moving substantial numbers of troops from Iraq to Afghanistan, prompting pessimist commentators to suggest this could be either presidential candidate's "Vietnam."
A harsh winter followed by a drought across much of Afghanistan, a poor harvest and rising food prices have left some 9 million Afghans facing critical food shortages. In 30 years of almost continuous warfare, farmers in Bamian province say they have never seen anything this bad.
The Maldon Institute in a report on "Sympathy for Taliban in Pakistan" says Tehrek-e-Taliban, the umbrella organization for Pakistan's multiple Taliban movements, "seeks to spread its strict Deobandi interpretation of Islam to all of Pakistan."
Maldon quotes Ayesha Jalal, a prominent historian of Pakistan who recently wrote a book on the history of jihad in South Asia: "They don't just want to control FATA, but want to control the entire country." But these extremists are backed by less than 15 percent of the population, and there is zero chance they can achieve national control. But they can keep Pakistan destabilized for the indefinite future while security forces chase them up and down from Peshawar to Islamabad to Lahore to Karachi.
The nuclear power's new democratic government, backed by the military, looks on the Taliban as a greater threat to Pakistan proper than to FATA and Afghanistan. But the two fronts are inextricably linked. And the sooner Pakistan and U.S. intelligence can work together to pinpoint Taliban and al-Qaida targets in FATA, and Pakistani troops are given adequate helicopter lift capability, the sooner tables can be turned on the Taliban. As long as the United States continues unilateral strikes in Pakistan that kill civilians, the battle for hearts and minds will be lost. But there is a major stumbling block to close cooperation -- the U.S. intelligence community's lack of confidence in Pakistan's Inter-Services Intelligence.
Back in the early 1990s the creation of the Taliban (student jihadis) was inspired by ISI to put an end to the civil war that followed the Soviet Union's withdrawal from Afghanistan in 1989. U.S. electronic surveillance has convinced the Pentagon and the CIA that either ISI or former ISI operatives are working with Taliban against the United States.
A still more ominous note was sounded by Russian Ambassador in Afghanistan Zamir Kabulov. In an interview with the BBC, he said either NATO countries stop criticizing Russia over Georgia and refrain from advocating NATO membership for the tiny country, or NATO would lose its air rights over Russia to resupply its forces in Afghanistan.
U.S. and NATO forces in Afghanistan now number 71,000. France is suggesting the no-fighting restrictions imposed by national parliaments should now be lifted. For the British, Dutch, Canadians and Americans doing the fighting, it won't be a moment too soon. But passage is doubtful.
--
Copyright 2008 by United Press International.
All rights reserved.
--
http://www.washtimes.com/news/2008/sep/18/bandit-capitalism/
Commentary: Losing Afghanistan?
By ARNAUD DE BORCHGRAVE, UPI Editor at Large
WASHINGTON, Sept. 19 (UPI) -- Is NATO losing the Afghan war, as the Soviet Union did in the 1980s and the British Empire in the 19th century? Notwithstanding NATO and U.S. denials, the answer is affirmative. And abundant evidence is provided in a detailed 113-page report released by the Center for Strategic and International Studies. The author is Anthony Cordesman, CSIS' senior strategic thinker.
The situation in Afghanistan, Cordesman writes, has been deteriorating for the past five years "and is now reaching a crisis level." Both Defense Secretary Robert Gates and Chairman of the Joint Chiefs Adm. Mike Mullen have acknowledged that it is now an Afghan-Pakistani conflict "and one lacking in both military and civilian resources. It is also becoming increasingly more deadly for civilians, aid workers, and U.S. and NATO forces."
Resurgent Taliban, the report says, "have turned much of Afghanistan into 'no-go' zones for aid workers and civilians."
The Bush administration reached the conclusion in August to deny Taliban the safe havens they have long enjoyed in Pakistan's tribal belt that abuts the unmarked, mountainous Afghan border for hundreds of miles. But the first raid by Navy Seals into Pakistan's Federally Administered Tribal Areas left several dead civilians -- and provoked a stinging rebuke from Pakistan's new civilian government and the army chief Gen. Ashfaq Kayani.
Promoted by President Bush to the ranks of "major non-NATO ally," Pakistan has made clear its army alone would dismantle Taliban's FATA bases. But the Pakistani army is not welcome in FATA and despite its 130,000-strong presence has not made much of a dent in the Taliban's infrastructure. But the Taliban have inflicted heavy casualties on the army (1,400 killed, 4,000 injured).
The CSIS report also said Taliban guerrillas, "benefiting from a rise in poppy cultivation and safe havens in (Pakistan), are steadily expanding their capabilities and geographic reach."
Titled "Losing the Afghan-Pakistan War? The Rising Threat," the CSIS report documents "changes in the character of the threat and the rise in Afghan and allied casualties." U.N. and declassified U.S. intelligence maps detail the steady expansion of threat influence and the regions that are unsafe for aid workers. Other data show how Afghan drug growing has steadily moved south "and become a major source of financing for the Taliban."
The CSIS report shows that the next U.S. president will "face a critical challenge with a war that is probably being lost at the political and strategic level, and is not being won at the tactical level." It is clear why the senior U.S. and NATO commanders in Afghanistan are calling for substantially more troops than Bush decided to deploy this September, and the problems in this briefing are compounded by critical problems in Afghan and Pakistani governance and economic development.
Regardless of the focus of the current U.S. political campaign, says Cordesman, "these neglected challenges will have to take center stage in the first few months of the next administration. Both John McCain and Barack Obama have advocated moving substantial numbers of troops from Iraq to Afghanistan, prompting pessimist commentators to suggest this could be either presidential candidate's "Vietnam."
A harsh winter followed by a drought across much of Afghanistan, a poor harvest and rising food prices have left some 9 million Afghans facing critical food shortages. In 30 years of almost continuous warfare, farmers in Bamian province say they have never seen anything this bad.
The Maldon Institute in a report on "Sympathy for Taliban in Pakistan" says Tehrek-e-Taliban, the umbrella organization for Pakistan's multiple Taliban movements, "seeks to spread its strict Deobandi interpretation of Islam to all of Pakistan."
Maldon quotes Ayesha Jalal, a prominent historian of Pakistan who recently wrote a book on the history of jihad in South Asia: "They don't just want to control FATA, but want to control the entire country." But these extremists are backed by less than 15 percent of the population, and there is zero chance they can achieve national control. But they can keep Pakistan destabilized for the indefinite future while security forces chase them up and down from Peshawar to Islamabad to Lahore to Karachi.
The nuclear power's new democratic government, backed by the military, looks on the Taliban as a greater threat to Pakistan proper than to FATA and Afghanistan. But the two fronts are inextricably linked. And the sooner Pakistan and U.S. intelligence can work together to pinpoint Taliban and al-Qaida targets in FATA, and Pakistani troops are given adequate helicopter lift capability, the sooner tables can be turned on the Taliban. As long as the United States continues unilateral strikes in Pakistan that kill civilians, the battle for hearts and minds will be lost. But there is a major stumbling block to close cooperation -- the U.S. intelligence community's lack of confidence in Pakistan's Inter-Services Intelligence.
Back in the early 1990s the creation of the Taliban (student jihadis) was inspired by ISI to put an end to the civil war that followed the Soviet Union's withdrawal from Afghanistan in 1989. U.S. electronic surveillance has convinced the Pentagon and the CIA that either ISI or former ISI operatives are working with Taliban against the United States.
A still more ominous note was sounded by Russian Ambassador in Afghanistan Zamir Kabulov. In an interview with the BBC, he said either NATO countries stop criticizing Russia over Georgia and refrain from advocating NATO membership for the tiny country, or NATO would lose its air rights over Russia to resupply its forces in Afghanistan.
U.S. and NATO forces in Afghanistan now number 71,000. France is suggesting the no-fighting restrictions imposed by national parliaments should now be lifted. For the British, Dutch, Canadians and Americans doing the fighting, it won't be a moment too soon. But passage is doubtful.
--
Copyright 2008 by United Press International.
All rights reserved.
--
http://www.washtimes.com/news/2008/sep/18/bandit-capitalism/
Citing Grave Financial Threats, Officials Ready Massive Rescue Lawmakers Work With Fed, Treasury To Try to Restore The Flow of Money
Citing Grave Financial Threats, Officials Ready Massive Rescue
Lawmakers Work With Fed, Treasury To Try to Restore The Flow of Money
The Bush administration is urgently preparing a massive intervention to revive the U.S. financial system, including a plan to sweep away the unpaid loans that are choking banks and blocking the flow of money to borrowers.
http://www.washingtonpost.com/wp-dyn/conte...ml?hpid=topnews
Lawmakers Work With Fed, Treasury To Try to Restore The Flow of Money
The Bush administration is urgently preparing a massive intervention to revive the U.S. financial system, including a plan to sweep away the unpaid loans that are choking banks and blocking the flow of money to borrowers.
http://www.washingtonpost.com/wp-dyn/conte...ml?hpid=topnews
Thursday, September 18, 2008
RGE MONITOR 9/17/08 Sidelined sovereign wealth… Rachel Ziemba
RGE MONITOR
9/17/08
Sidelined sovereign wealth…
Rachel Ziemba
In the midst of the financial meltdown, many people have been wondering where the sovereign wealth funds are or rather what their long-term role might be in providing capital. The financial sector has been a major focus for sovereign investors in part because such investments dovetailed with domestic financial development goals – and investing in asset managers was also a conduit to other investments. As some people have noted, only nine months ago, sovereign wealth funds were first on the scene to recapitalize the banking system, taking a series of stakes in Merrill, Morgan Stanley, Citi, UBS – it added up to about $42 billion within the space of a few months or just under half the capital raised in the Q4 of 2007 and Q1 of 2008. (a list of all sovereign fund recaps in major global banks). However, overall capital from sovereign funds now makes up less than a fifth of the total capital raised by U.S. Institutions in the last year. It also pales in comparison to the funds provided by central banks in the period.
However since before Bear Stearns blew up sovereign funds have been pretty non-existent in the recapitalization business– especially in the U.S. market. Qatar's involvement in the Barclay's rights issue was a notable exception, but that was the U.K. The only notable stake in a U.S. financial institution this summer was Temasek's decision to increase its stake in Merrill by putting in an additional 0.9% after also converting its previous holdings into the newly issued common stock – It and other sovereign investors are likely rather worried about the implications of the BoA takeover and the conversion rates, though some reports suggest that the premium BoA will pay on Merrill stocks could mean a slight profit for the sovereign investors. Now instead of foreign capital, the U.S. government is stepping in to bailout AIG, as it did with Bear Stearns. So what's driving sovereign capital and why have they stepped back from financing?
There could be a number of explanations – and odds are it's a combination. And first a caveat, its very hard to talk about sovereign funds in aggregate – they vary greatly. So much of the discussion below concerns a group of the more active funds.
[Note, most of the links point to related RGE spotlight issues which can be accessed through blog registration.]
1. Licking their wounds. Since the large recapitalizations have lost money so far (if the holdings they have are marked to market, which they may not be), funds might be reluctant to get back in the water. In other words, they might have invested too much too soon. While it is hard to calculate losses given that many of the investments were in preferred shares, its not hard to assume that sovereign funds hoped for better pay off now and in the future. Even the high coupon payments they negotiated fail to offset the fall in share prices - and may have assumed falling prices. Furthermore, some were smart enough to require compensation if the institution issued more common stock (KIA, KIC and Temasek with Merrill) The jury is still out though. Many of the high profile investments in equities in the financial and non-financial sectors have fallen over the past year. Furthermore if sovereign funds probably weren't immune to asset market losses. Take the GCC as an example. if the funds held an indexed portfolio, their losses on equity and alternative assets may have offset any gains from new transfers from expensive oil.
2. Pricing issues – in the current climate, pricing the value of securities and underlying companies is very difficult. And pricers have been consistently, over optimistic. And a pervasive buyers strike has set in, some of the sovereign funds and other may wish they had been more sanguine. If we are far from the bottom – an assuming the persistence of toxic waste and other unpriceable assets on the balance sheets of many financial institutions, many investors are in wait and see mode – or sell before losses increase. Either way it is a hard time to do due diligence. The sovereign funds may not want to get weighed down with companies that have a lot of bad debts, especially given paper losses. Especially if the purchasees want more for their assets than the buyers want to pay (eg Lehman). The uncertainty about the value of assets may mean that sovereign funds are among those pools of capital waiting for the bottom. And that could still be far off – and despite their long-term focus they might prefer more liquid assets.
3. Overexposed to the financial sector? Seeking new Partnerships?– as a group, sovereign funds have a large exposure to the financial sector. Temasek alone has 38% of its portfolio in financial institutions. Some may have already gained the exposure to the international banking system they sought. In a survey of the direct investments of GCC funds, I found that financial sector captured over half the identifiable stakes taken by the funds in 2007. This concentration matches with policy objectives of the sponsoring countries, many of which have financial development as a key policy goal. Many have stakes in both local and international conventional and Islamic financial institutions. Yet other sectors are also being targeted for partnership, Abu Dhabi's Mubadala (which incidentally got its first ratings yesterday) which suggested it was giving financial institutions a wide berth, has targeted energy (GE linkup), aerospace, metals and several others . Overall more countries are seeking out foreign investments that benefit domestic economy or co-investments (joint ventures). In contrast the financial sector might be more trouble and cost than it is worth. However, it is also a reflection that different institutions target different sectors, other entities in Abu Dhabi, from ADIA or the Investment council might be more focused on banks than Mubadala. At the same time many companies are looking for the kind of guarantee business that investment from a sovereign government might bring.
4. Not quite so much money – most estimates of sovereign wealth emphasize the stock not the flow (new capital) of funds. While sovereign funds have a lot of assets under management – well over $2 trillion, that doesn't mean that all that capital is available. Odds are new capital available last year was more in the neighbourhood of $300 billion and slightly more this year given higher oil prices and persistent surpluses in many Asian countries.
5. Small stakes aren't enough for the financial woes- In a climate like this, its not just about the money. Lots of money has been injected into the system but that the issue is that misallocations still exist. For the most part, at least in the US and EU, sovereign funds still tend to take small stakes (under 5% in most cases) and the risk for an institution like a faltering broker dealer is its role in the financial system and interaction with its counterparties. Research from the IMF and ECB suggest that sovereign capital injections had a positive effect in the short term, leading to a price bump and reduction of credit risk on the given securities, but it was short-lived. This indicates that sovereign capital (or rather the ability of flailing banks to announce new capital as they announced losses) helped a bit but it wasn't enough to banish fears that worse was to come. In a sense accepting those large stakes just drew attention to the underlying weaknesses.
6. Control issues Given all of the above, to take on more risk (especially unknown contingent liabilities) sovereign funds might want more control, that regulators might not want to give. Already, Qatar has faced issues with its partner three delta which it bought out..It didn't want more exposure without more control. But that poses a series of issues in the financial sector. Sovereign funds are not really set up to take more control. Sovereign fund investments tend to be supportive of management especially if they give up their management rights as most of the recaps involved. Its not as if a sovereign fund could take over one of these institutions – not only are there regulatory hurdles (too large a stake in a bank would turn a sovereign fund into a bank holding company, placing restrictions on its other assets) but equally importantly they might not want to take it on. Sovereign funds have been scaling up managers quickly as they absorb new assets, but they may not have the capacity for such management – leaving aside the regulatory requirements. For them, a good return might involve finding and supporting a good manager - a hard thing to discern in the current climate. While some sovereign investors are active managers, voting their shares and sometimes having board seats, often these roles are not played in the financial sector given concerns about conflict of interest. So if financial institutions are facing such dire defaults that could weaken a string of other financial linkages, then sovereign capital might not be enough.
7. Spending more at home – the governments of sovereign funds are spending more now than they were two years ago on both current and capital spending (though savings are still high). This trend is most noticeable in the commodity exporters who account for around 70%+ of the sovereign funds, but even China might start spending more. The funds themselves may also come under pressure to invest more at home too. Several months ago, booming domestic and regional markets might have seemed attractive. In recent days, officials in both Kuwait and Russia suggested deploying revenues to stem the declines of domestic equity markets. With Russia's RTS falling 17% yesterday and over 50% year to date, the prospect that Russia will spend some of the wealth fund assets at home seems more and more likely. However, doing so might only worsen investors fears about the Russian markets. Asian countries might do the same. And Australia's future fund and the Kazakh fund already provided support to the banking system. Governments trying to maintain domestic liquidity may not
8. Not quite so rich Growth in sovereign wealth funds was based on two trends, the rising in savings of emerging economies (mainly from commodity revenues or accumulated trade surpluses in other goods.) Oil-rich sovereign funds still save a lot even with an oil price of $90 a barrel , but fall in the oil price may mean less money available for investment abroad. Even with spending rising at a fast clip, we are far away from eroding the surpluses but the new funds available may be lower than some commentators imagined. Furthermore, the lending environment is quite different than it was a year ago. These funds too have faced lending issues and like private equity have found it difficult to conclude deals where they need financing . So too the funds they invest in may increasingly be reliant on expensive financing (the recent IMF working group suggest that at least 20% of the 20-some sovereign funds (or 4-5) surveyed participate in leveraged funds. In other words the investment model is changing with higher credit costs, another reason to wait it out, and perhaps take a more defensive approach.
Finally funds are still seeking out other markets. Over the last year, investments in Asia and the middle east are on the rise from all funds. All sort of investors are targetting Asia, and some sovereign funds may start turning their attention to Latin America. Finally GCC governments as a whole are seeking out land to offset their domestic agricultural shortfalls. This means the U.S. and EU may receive a smaller share of sovereign funds.
However, swfs relative absence from the financial sector doesn't mean they are gone. They still have a lot to invest – GCC funds likely have $150 billion to invest in 2008 – more than in 2007 (and that doesn't even include Saudi Arabia. But they may not be stabilizing per se. Norway may be among the rare funds which must rebalance their assets to maintain a set asset allocation - others may have more flexibility and may be accentuating market moves, shifting away from higher risk assets. But others have been buying property, even in the likely to fall markets of New York and London. Sovereign funds though are among the investors that could return – and they still have a lot of money to place. But they could be reinforcing trends rather than offsetting others losses.
Some may be investing indirectly, by providing capital to a range of asset managers (an example is the joint venture between CIC and JC Flowers which was suggested as a possible capital source for BoA in a possible takeover of Lehman. Doing so might provide some political cover at home or abroad and hopefully some asset management expertise – or that is probably the hope. Others might choose to take small stakes, that may be below disclosure requirements. The FT recently provided a list of the equity holdings of the Chinese State Administration of foreign exchange (SAFE) – it included small stakes in a number of UK-based banks. And SAFE may also have small stakes in U.S. equities also. SAFE once aimed to have as much as 5% of its portfolio in equities. That would be $90 billion - or the amount of CIC's initial capital that it plans to invest abroad in equity and fixed income - or more than the equity holdings of the Swiss National bank, the Hong Kong Monetary Authority, many pension funds, and probably the Saudi Arabian monetary agency.
However, the bottom line is that large scale direct investments from sovereign funds may be a thing of the past, particularly given the scale of the shakeup in the financial sector.–Other aquisitions may be more attractive in other sectors as more and more countries create institutions that are sectorally focused and targeted towards partnership with domestic goals.
In fact, in terms of funds, the assets plowed into the US government debt market by sovereign investors are much higher than those that went into recapitalizing the financial institutions. Thus while sovereign funds were on the sidelines – sovereign investors as a whole were not, and contributed to upporting the U.S. financial system. They contributed in particular to the flow of funds into the U.S. treasury and until recently U.S. treasury markets.
Drawing on the TIC data released Sep 16 by the U.S. treasury, total capital flows from China were almost $160 billion in the year ending July 2008 and inflows from Oil exporters in the emerging world were about $150 billion, roughly split between Asian oil exporters (the GCC, which had some equity purchases including the investments in the banks) and Russia. Such inflows might actually be higher as the TIC data regularly understates the investments made by official institutions (mainly because many are made through intermediaries). These inflows, not just the smaller component characterized by the sovereign investments in the banks flowed into the U.S. There is such evidence that such flows may be subsiding somewhat.
The capital flow data (TIC) shows that sovereign investors (and others) finally started to stampede out of U.S. agency bonds in July – with net reductions in holding by private and official investors at least $50 billion. This may be old news given the preliminary data both of the custodial holdings of foreign governments at the federal reserve bank of new York - and from the yields demanded at the August auctions of the GSE's debt.
Furthermore – global reserve growth (a driver of US treasury demand) is slowing. A lower oil price will mean less savings by Saudi Arabia and evidence suggests the hot money inflows into countries like China are slowing (though China's record trade surplus may still point to a significant reserve growth in Q3). Even the GCC which had record reserve growth in 2007 and early in 2008, are no longer attracting speculative capital. Capital inflows to some of the large emerging markets like Russia and Brazil are also reversing. But imbalances won't disappear overnight – and a fall in the oil price could actually pose a reacceleration of China's surplus. Yet oil at $90 still means a lot of savings – somewhat more than in 2007 – and that money still needs to go somewhere. Since it would overwhelm some domestic markets, for now it still might make its way to the U.S. despite the financial turmoil.
9/17/08
Sidelined sovereign wealth…
Rachel Ziemba
In the midst of the financial meltdown, many people have been wondering where the sovereign wealth funds are or rather what their long-term role might be in providing capital. The financial sector has been a major focus for sovereign investors in part because such investments dovetailed with domestic financial development goals – and investing in asset managers was also a conduit to other investments. As some people have noted, only nine months ago, sovereign wealth funds were first on the scene to recapitalize the banking system, taking a series of stakes in Merrill, Morgan Stanley, Citi, UBS – it added up to about $42 billion within the space of a few months or just under half the capital raised in the Q4 of 2007 and Q1 of 2008. (a list of all sovereign fund recaps in major global banks). However, overall capital from sovereign funds now makes up less than a fifth of the total capital raised by U.S. Institutions in the last year. It also pales in comparison to the funds provided by central banks in the period.
However since before Bear Stearns blew up sovereign funds have been pretty non-existent in the recapitalization business– especially in the U.S. market. Qatar's involvement in the Barclay's rights issue was a notable exception, but that was the U.K. The only notable stake in a U.S. financial institution this summer was Temasek's decision to increase its stake in Merrill by putting in an additional 0.9% after also converting its previous holdings into the newly issued common stock – It and other sovereign investors are likely rather worried about the implications of the BoA takeover and the conversion rates, though some reports suggest that the premium BoA will pay on Merrill stocks could mean a slight profit for the sovereign investors. Now instead of foreign capital, the U.S. government is stepping in to bailout AIG, as it did with Bear Stearns. So what's driving sovereign capital and why have they stepped back from financing?
There could be a number of explanations – and odds are it's a combination. And first a caveat, its very hard to talk about sovereign funds in aggregate – they vary greatly. So much of the discussion below concerns a group of the more active funds.
[Note, most of the links point to related RGE spotlight issues which can be accessed through blog registration.]
1. Licking their wounds. Since the large recapitalizations have lost money so far (if the holdings they have are marked to market, which they may not be), funds might be reluctant to get back in the water. In other words, they might have invested too much too soon. While it is hard to calculate losses given that many of the investments were in preferred shares, its not hard to assume that sovereign funds hoped for better pay off now and in the future. Even the high coupon payments they negotiated fail to offset the fall in share prices - and may have assumed falling prices. Furthermore, some were smart enough to require compensation if the institution issued more common stock (KIA, KIC and Temasek with Merrill) The jury is still out though. Many of the high profile investments in equities in the financial and non-financial sectors have fallen over the past year. Furthermore if sovereign funds probably weren't immune to asset market losses. Take the GCC as an example. if the funds held an indexed portfolio, their losses on equity and alternative assets may have offset any gains from new transfers from expensive oil.
2. Pricing issues – in the current climate, pricing the value of securities and underlying companies is very difficult. And pricers have been consistently, over optimistic. And a pervasive buyers strike has set in, some of the sovereign funds and other may wish they had been more sanguine. If we are far from the bottom – an assuming the persistence of toxic waste and other unpriceable assets on the balance sheets of many financial institutions, many investors are in wait and see mode – or sell before losses increase. Either way it is a hard time to do due diligence. The sovereign funds may not want to get weighed down with companies that have a lot of bad debts, especially given paper losses. Especially if the purchasees want more for their assets than the buyers want to pay (eg Lehman). The uncertainty about the value of assets may mean that sovereign funds are among those pools of capital waiting for the bottom. And that could still be far off – and despite their long-term focus they might prefer more liquid assets.
3. Overexposed to the financial sector? Seeking new Partnerships?– as a group, sovereign funds have a large exposure to the financial sector. Temasek alone has 38% of its portfolio in financial institutions. Some may have already gained the exposure to the international banking system they sought. In a survey of the direct investments of GCC funds, I found that financial sector captured over half the identifiable stakes taken by the funds in 2007. This concentration matches with policy objectives of the sponsoring countries, many of which have financial development as a key policy goal. Many have stakes in both local and international conventional and Islamic financial institutions. Yet other sectors are also being targeted for partnership, Abu Dhabi's Mubadala (which incidentally got its first ratings yesterday) which suggested it was giving financial institutions a wide berth, has targeted energy (GE linkup), aerospace, metals and several others . Overall more countries are seeking out foreign investments that benefit domestic economy or co-investments (joint ventures). In contrast the financial sector might be more trouble and cost than it is worth. However, it is also a reflection that different institutions target different sectors, other entities in Abu Dhabi, from ADIA or the Investment council might be more focused on banks than Mubadala. At the same time many companies are looking for the kind of guarantee business that investment from a sovereign government might bring.
4. Not quite so much money – most estimates of sovereign wealth emphasize the stock not the flow (new capital) of funds. While sovereign funds have a lot of assets under management – well over $2 trillion, that doesn't mean that all that capital is available. Odds are new capital available last year was more in the neighbourhood of $300 billion and slightly more this year given higher oil prices and persistent surpluses in many Asian countries.
5. Small stakes aren't enough for the financial woes- In a climate like this, its not just about the money. Lots of money has been injected into the system but that the issue is that misallocations still exist. For the most part, at least in the US and EU, sovereign funds still tend to take small stakes (under 5% in most cases) and the risk for an institution like a faltering broker dealer is its role in the financial system and interaction with its counterparties. Research from the IMF and ECB suggest that sovereign capital injections had a positive effect in the short term, leading to a price bump and reduction of credit risk on the given securities, but it was short-lived. This indicates that sovereign capital (or rather the ability of flailing banks to announce new capital as they announced losses) helped a bit but it wasn't enough to banish fears that worse was to come. In a sense accepting those large stakes just drew attention to the underlying weaknesses.
6. Control issues Given all of the above, to take on more risk (especially unknown contingent liabilities) sovereign funds might want more control, that regulators might not want to give. Already, Qatar has faced issues with its partner three delta which it bought out..It didn't want more exposure without more control. But that poses a series of issues in the financial sector. Sovereign funds are not really set up to take more control. Sovereign fund investments tend to be supportive of management especially if they give up their management rights as most of the recaps involved. Its not as if a sovereign fund could take over one of these institutions – not only are there regulatory hurdles (too large a stake in a bank would turn a sovereign fund into a bank holding company, placing restrictions on its other assets) but equally importantly they might not want to take it on. Sovereign funds have been scaling up managers quickly as they absorb new assets, but they may not have the capacity for such management – leaving aside the regulatory requirements. For them, a good return might involve finding and supporting a good manager - a hard thing to discern in the current climate. While some sovereign investors are active managers, voting their shares and sometimes having board seats, often these roles are not played in the financial sector given concerns about conflict of interest. So if financial institutions are facing such dire defaults that could weaken a string of other financial linkages, then sovereign capital might not be enough.
7. Spending more at home – the governments of sovereign funds are spending more now than they were two years ago on both current and capital spending (though savings are still high). This trend is most noticeable in the commodity exporters who account for around 70%+ of the sovereign funds, but even China might start spending more. The funds themselves may also come under pressure to invest more at home too. Several months ago, booming domestic and regional markets might have seemed attractive. In recent days, officials in both Kuwait and Russia suggested deploying revenues to stem the declines of domestic equity markets. With Russia's RTS falling 17% yesterday and over 50% year to date, the prospect that Russia will spend some of the wealth fund assets at home seems more and more likely. However, doing so might only worsen investors fears about the Russian markets. Asian countries might do the same. And Australia's future fund and the Kazakh fund already provided support to the banking system. Governments trying to maintain domestic liquidity may not
8. Not quite so rich Growth in sovereign wealth funds was based on two trends, the rising in savings of emerging economies (mainly from commodity revenues or accumulated trade surpluses in other goods.) Oil-rich sovereign funds still save a lot even with an oil price of $90 a barrel , but fall in the oil price may mean less money available for investment abroad. Even with spending rising at a fast clip, we are far away from eroding the surpluses but the new funds available may be lower than some commentators imagined. Furthermore, the lending environment is quite different than it was a year ago. These funds too have faced lending issues and like private equity have found it difficult to conclude deals where they need financing . So too the funds they invest in may increasingly be reliant on expensive financing (the recent IMF working group suggest that at least 20% of the 20-some sovereign funds (or 4-5) surveyed participate in leveraged funds. In other words the investment model is changing with higher credit costs, another reason to wait it out, and perhaps take a more defensive approach.
Finally funds are still seeking out other markets. Over the last year, investments in Asia and the middle east are on the rise from all funds. All sort of investors are targetting Asia, and some sovereign funds may start turning their attention to Latin America. Finally GCC governments as a whole are seeking out land to offset their domestic agricultural shortfalls. This means the U.S. and EU may receive a smaller share of sovereign funds.
However, swfs relative absence from the financial sector doesn't mean they are gone. They still have a lot to invest – GCC funds likely have $150 billion to invest in 2008 – more than in 2007 (and that doesn't even include Saudi Arabia. But they may not be stabilizing per se. Norway may be among the rare funds which must rebalance their assets to maintain a set asset allocation - others may have more flexibility and may be accentuating market moves, shifting away from higher risk assets. But others have been buying property, even in the likely to fall markets of New York and London. Sovereign funds though are among the investors that could return – and they still have a lot of money to place. But they could be reinforcing trends rather than offsetting others losses.
Some may be investing indirectly, by providing capital to a range of asset managers (an example is the joint venture between CIC and JC Flowers which was suggested as a possible capital source for BoA in a possible takeover of Lehman. Doing so might provide some political cover at home or abroad and hopefully some asset management expertise – or that is probably the hope. Others might choose to take small stakes, that may be below disclosure requirements. The FT recently provided a list of the equity holdings of the Chinese State Administration of foreign exchange (SAFE) – it included small stakes in a number of UK-based banks. And SAFE may also have small stakes in U.S. equities also. SAFE once aimed to have as much as 5% of its portfolio in equities. That would be $90 billion - or the amount of CIC's initial capital that it plans to invest abroad in equity and fixed income - or more than the equity holdings of the Swiss National bank, the Hong Kong Monetary Authority, many pension funds, and probably the Saudi Arabian monetary agency.
However, the bottom line is that large scale direct investments from sovereign funds may be a thing of the past, particularly given the scale of the shakeup in the financial sector.–Other aquisitions may be more attractive in other sectors as more and more countries create institutions that are sectorally focused and targeted towards partnership with domestic goals.
In fact, in terms of funds, the assets plowed into the US government debt market by sovereign investors are much higher than those that went into recapitalizing the financial institutions. Thus while sovereign funds were on the sidelines – sovereign investors as a whole were not, and contributed to upporting the U.S. financial system. They contributed in particular to the flow of funds into the U.S. treasury and until recently U.S. treasury markets.
Drawing on the TIC data released Sep 16 by the U.S. treasury, total capital flows from China were almost $160 billion in the year ending July 2008 and inflows from Oil exporters in the emerging world were about $150 billion, roughly split between Asian oil exporters (the GCC, which had some equity purchases including the investments in the banks) and Russia. Such inflows might actually be higher as the TIC data regularly understates the investments made by official institutions (mainly because many are made through intermediaries). These inflows, not just the smaller component characterized by the sovereign investments in the banks flowed into the U.S. There is such evidence that such flows may be subsiding somewhat.
The capital flow data (TIC) shows that sovereign investors (and others) finally started to stampede out of U.S. agency bonds in July – with net reductions in holding by private and official investors at least $50 billion. This may be old news given the preliminary data both of the custodial holdings of foreign governments at the federal reserve bank of new York - and from the yields demanded at the August auctions of the GSE's debt.
Furthermore – global reserve growth (a driver of US treasury demand) is slowing. A lower oil price will mean less savings by Saudi Arabia and evidence suggests the hot money inflows into countries like China are slowing (though China's record trade surplus may still point to a significant reserve growth in Q3). Even the GCC which had record reserve growth in 2007 and early in 2008, are no longer attracting speculative capital. Capital inflows to some of the large emerging markets like Russia and Brazil are also reversing. But imbalances won't disappear overnight – and a fall in the oil price could actually pose a reacceleration of China's surplus. Yet oil at $90 still means a lot of savings – somewhat more than in 2007 – and that money still needs to go somewhere. Since it would overwhelm some domestic markets, for now it still might make its way to the U.S. despite the financial turmoil.
Islamic Science Makes a Comeback Jim Al-Khalili
ISLAM'S ADVANCE
9/12/08
Islamic Science Makes a Comeback
Jim Al-Khalili
For many, Iran conjures up images of angry ayatollahs and scientist bent on acquiring nuclear weapons. But physics professor and author Jim Khalili sees another side to Iran, one where Islamic teachings and science have propelled the country to the forefront of stem cell research. Islamic science - often seen at odds with Islam despite the religion's history of medieval innovation - is making a come-back.
Jim Al-Khalili
Many areas of scientific research in the West seem these days to be mine fields of ethical and moral dilemmas. When such research is carried out in countries regarded as enemies of the West, such as Iran, the alarm bells not surprisingly ring even more loudly. But while the U.S., Israel and others agonize over what to do about Iran's fast-developing nuclear program, another area of research altogether seems to be quite unexpectedly flourishing there.
On a recent visit to Iran with a BBC film crew while making a television documentary series, I was allowed unrestricted access to a thoroughly modern research laboratory. The Royan Institute in Tehran is a place that is carrying out, by any sensible measure, world-class work in genetics, infertility treatment, stem cell research and animal cloning, all in an atmosphere of openness that was quite dramatically at odds with my expectations.
What struck me most was the way the state authorities overseeing the research - for it is certainly closely watched - seem to have dealt with the ethical minefields of parts of the work, in stark contrast to the vociferous opposition to it from some quarters in the West.
While at the Royan, I spoke with one of the imams who sits on their ethics committee. He explained that every research project proposed must be justified to and vetted by his committee to ensure that it does not conflict with Islamic teaching. Thus, while issues such as abortion are still restricted in Iran (it is allowed only when the mother's life is in danger), research on human embryos is encouraged.
I was certainly taken aback when he quite rightly pointed out that the only thing produced in embryonic stem cell research is a clump of cells, which is far from what could be defined as a human fetus.
The fundamental question here, as it is in the rest of the world, is: What defines life? Many, but by no means all, Christians believe that human life begins at the moment of fertilization -- a notion not shared in Islam or Judaism. The Christian argument is based on the idea that the fertilized egg contains everything that is needed to replicate and grow and that this is sufficient. But is the "potential" of becoming a human being really enough?
This is more than just a metaphysical issue. From a purely scientific perspective, an embryo just a few days old is no more than a bundle of homogeneous cells in the same membrane that do not function in a coordinated way to regulate and preserve a single life. So while each individual cell is "alive", it only becomes part of a human organism when there is substantial cell differentiation and coordination, which occurs around two weeks after fertilization. Therefore a more sensible definition of the beginning of life is that it takes place gradually during the fetus's development, long after the embryonic stem cells stage where there is only a "potential" for life.
According to Islamic teaching, I discovered, the fetus becomes a full human being only when it is "ensouled". This takes place anywhere between 40 and 120 days after conception, depending on various interpretations of the Qur'an. So the research at Royan is not seen as playing God, since it takes place long before the soul has entered the body of the unborn fetus.
There is much that the West finds unpalatable about life under Islamic rule in Iran. But when it comes to the controversial subject of genetics, Iranian scientists don't let religious doctrine hold them back.
Jim Al-Khalili is a professor of physics, author and broadcaster in the UK where he teaches and carries out his research in theoretical nuclear physics. He is currently working on a new series for the BBC called Science and Islam and is writing a book on medieval Arabic science.
9/12/08
Islamic Science Makes a Comeback
Jim Al-Khalili
For many, Iran conjures up images of angry ayatollahs and scientist bent on acquiring nuclear weapons. But physics professor and author Jim Khalili sees another side to Iran, one where Islamic teachings and science have propelled the country to the forefront of stem cell research. Islamic science - often seen at odds with Islam despite the religion's history of medieval innovation - is making a come-back.
Jim Al-Khalili
Many areas of scientific research in the West seem these days to be mine fields of ethical and moral dilemmas. When such research is carried out in countries regarded as enemies of the West, such as Iran, the alarm bells not surprisingly ring even more loudly. But while the U.S., Israel and others agonize over what to do about Iran's fast-developing nuclear program, another area of research altogether seems to be quite unexpectedly flourishing there.
On a recent visit to Iran with a BBC film crew while making a television documentary series, I was allowed unrestricted access to a thoroughly modern research laboratory. The Royan Institute in Tehran is a place that is carrying out, by any sensible measure, world-class work in genetics, infertility treatment, stem cell research and animal cloning, all in an atmosphere of openness that was quite dramatically at odds with my expectations.
What struck me most was the way the state authorities overseeing the research - for it is certainly closely watched - seem to have dealt with the ethical minefields of parts of the work, in stark contrast to the vociferous opposition to it from some quarters in the West.
While at the Royan, I spoke with one of the imams who sits on their ethics committee. He explained that every research project proposed must be justified to and vetted by his committee to ensure that it does not conflict with Islamic teaching. Thus, while issues such as abortion are still restricted in Iran (it is allowed only when the mother's life is in danger), research on human embryos is encouraged.
I was certainly taken aback when he quite rightly pointed out that the only thing produced in embryonic stem cell research is a clump of cells, which is far from what could be defined as a human fetus.
The fundamental question here, as it is in the rest of the world, is: What defines life? Many, but by no means all, Christians believe that human life begins at the moment of fertilization -- a notion not shared in Islam or Judaism. The Christian argument is based on the idea that the fertilized egg contains everything that is needed to replicate and grow and that this is sufficient. But is the "potential" of becoming a human being really enough?
This is more than just a metaphysical issue. From a purely scientific perspective, an embryo just a few days old is no more than a bundle of homogeneous cells in the same membrane that do not function in a coordinated way to regulate and preserve a single life. So while each individual cell is "alive", it only becomes part of a human organism when there is substantial cell differentiation and coordination, which occurs around two weeks after fertilization. Therefore a more sensible definition of the beginning of life is that it takes place gradually during the fetus's development, long after the embryonic stem cells stage where there is only a "potential" for life.
According to Islamic teaching, I discovered, the fetus becomes a full human being only when it is "ensouled". This takes place anywhere between 40 and 120 days after conception, depending on various interpretations of the Qur'an. So the research at Royan is not seen as playing God, since it takes place long before the soul has entered the body of the unborn fetus.
There is much that the West finds unpalatable about life under Islamic rule in Iran. But when it comes to the controversial subject of genetics, Iranian scientists don't let religious doctrine hold them back.
Jim Al-Khalili is a professor of physics, author and broadcaster in the UK where he teaches and carries out his research in theoretical nuclear physics. He is currently working on a new series for the BBC called Science and Islam and is writing a book on medieval Arabic science.
Bitter Lemons Middle East Roundtable September 18. 2008: Syria-Lebanaon: a new relationship?
bitterlemons-international.org
Middle East Roundtable
Edition 37 Volume 6 - September 18, 2008
Syria-Lebanon: a new relationship?
• A new vision for good neighbors - Nizar Abdel-Kader
Many analysts believe the Syrian leadership does not really intend to change its behavior toward its smaller neighbor.
• As Syria watches, Lebanon changes - Rime Allaf
The passion seems to have gone out of the Syrian-Lebanese relationship.
• Border complications promise long dispute - Nicholas Blanford
It is hard to imagine that the Lebanon-Syria border will be fully delineated until unresolved questions affecting it are answered.
• On a new path - Eyal Zisser
The improvement in relations and Syria's improved status internationally are perceived in Israel as negative developments.
A new vision for good neighbors
Nizar Abdel-Kader
Many observers saw the visit of President Michel Suleiman to Damascus on August 13-14 as a starting point for better relations. The visit was the first between the two heads of state since Syria withdrew its troops from Lebanon in April 2005, ending three decades of domination of Lebanon.
The agenda of the visit featured important issues such as border demarcation, a review of a long-standing treaty and accords, Lebanese detainees and prisoners in Syria, the opening of embassies and the presence of pro-Syrian Palestinian groups in Lebanon.
Considering the optimistic atmosphere that surrounded Suleiman and Syrian President Bashar Assad's earlier meeting in Paris on July 13, it was hoped that the visit to Damascus would yield good relations between the two nations. One encouraging sign came from Syria's state-owned newspaper Tishrin, which saw in Suleiman's visit to Syria a chance to overcome past mistakes by establishing good relations based on mutual respect.
Damascus has been under pressure from the United States and many other governments, including major European powers, to treat Lebanon more as a sovereign state by taking diplomatic steps such as demarcating borders and exchanging ambassadors. For the first time since the two countries gained their independence, their leaders announced the opening of diplomatic relations; this announcement came as a result of Syria's need to come in from the cold and alleviate the isolation caused by its incrimination in the assassination of former prime minister Rafiq Hariri on February 14, 2005.
Yet the main and only meaningful outcome of the Damascus summit was the decision to instruct foreign ministers Walid Muallem and Fawzi Salloukh to take the necessary steps to establish diplomatic ties and exchange ambassadors. All the other issues of great importance to Lebanon, such as border demarcation, Lebanese detainees and prisoners and the pro-Syrian Palestinian armed presence in Lebanon were left to be discussed later. This outcome left many analysts with the feeling that the Syrian leadership does not really intend to change its behavior toward its smaller neighbor.
Still, many Lebanese wanted to believe there was good news from Damascus. A great number saw in the summit's modest outcome a significant achievement, one awaited since 1943. But for many others it came too late: the joy of seeing Syria recognizing the independence of Lebanon could not wipe away 30 years of domination, interference and suffering. The experience of the recent past has already taught the Lebanese to be skeptical about the magic wand of the Doha agreement and Syrian cooperation in facilitating the election of Suleiman and the formation of a national unity government. It is understood that Damascus does not have the will to give free gifts to others, even to friends as close as Suleiman.
The March 14 movement is skeptical about Syria's intentions toward Lebanon. It has expressed its fear that there is a hidden Syrian agenda to use Damascus' gains from the Doha agreement to change the political balance in two ways: first, by creating instability in areas known for their support for the Future movement and its allies, such as Tripoli and the Akkar; and second, by preparing the ground for its allies to gain a parliamentary majority in the next election, scheduled for May 2009. In addition, there are clear indications that Syria is still attached to the terminology of "privileged relations" with Lebanon and to reviving the treaty of fraternity and cooperation that was imposed on Lebanon in 1991. The treaty stipulated the highest degree of coordination in the fields of politics, economics, security and defense.
President Assad warned during a press conference with the French, Qatari and Turkish leaders on September 4 that Lebanon was still in a fragile state. He added that he was worried about "foreign-backed extremist forces fomenting instability in Tripoli". His comments have drawn sharp rebukes from Saad Hariri and other leaders of the March 14 movement. They left many Lebanese politicians with no illusions that Syria might exploit future developments to restore its influence in Lebanon, and appeared to reflect a significant lack of political trust between the two countries. Reestablishing that trust will depend to a great extent on the development of Syria's relations with the United States--relations that have been frozen since the assassination of Rafiq Hariri in 2005--as well as on the outcome of the proceedings of the special international tribunal that is looking into the Hariri assassination.
Assad knows that the road to Washington remains closed for the time being. But that does not stop him from using Lebanon, alongside the indirect peace talks with Israel, as tools to re-establish Syria's role as an important regional player.
Reconciliation and repair of relations between Lebanon and Syria depend on Syria's ability to recognize all the developments that have occurred in Lebanon since the Hariri assassination and to acknowledge the international position regarding Lebanon's stability and sovereignty. There is a great need for a new Syrian political vision toward Lebanon: recognition of Lebanon as a sovereign, independent state and realization that Syria's ongoing attempts to foment instability will have negative consequences for both countries.- Published 18/9/2008 © bitterlemons-international.org
Nizar Abdel-Kader is a researcher and political analyst/columnist at Ad-Diyar newspaper in Beirut.
As Syria watches, Lebanon changes
Rime Allaf
The passion seems to have gone out of the Syrian-Lebanese relationship, and the intermittent sparks that flare every now and then hardly cause a ripple. Moreover, for the moment neither side seems to care about rekindling the flame. Or so it seems.
On the Syrian side, no matter which way one looks at it, there is a definite sense of "Lebanon fatigue" overtaking official and popular circles, rendered lethargic by the avalanche of accusations coming their way courtesy of the March 14 movement and their allies. For several years every single crime, assassination, strike, parliamentarian deadlock, economic slump or political stalemate was blamed solely on "Syria". No Lebanese politician or leader, apparently, might have had any role to play in any such bad, negative or destructive incidents--no Lebanese party, that is, apart from Hizballah and other "pro-Syrian" parties, of course.
Even events in Syria itself, such as the assassination of Hizballah official Imad Mughniyeh in the middle of Damascus were seen by several Lebanese experts (who don't seem to read self-congratulatory pieces in Israeli newspapers) as being the work of a Syrian regime that apparently had a long list of reasons for wanting to commit such an action.
According to this simplistic discourse, Lebanon had become a simple case of us versus them, of pro-democracy versus pro-Syria, of life-loving versus death-glorifying. In other words, it translated into March 14 versus all those who opposed it, including Syria and its allies. These, consequently, had to be shunned and punished for their long list of alleged crimes, their flouting of Security Council resolutions (a point on which Israel always agrees without a hint of irony) and their ultimate agenda to come back to Lebanon by hook or by crook.
However, an increasing number of observers, analysts and governments around the world were not convinced that this was true--or, at least, that this was the only truth--and began to communicate with Damascus again over Lebanon and over issues bigger than Lebanon. With this, they earned themselves the ire of the March 14 movement and their Saudi-owned media supporters, and became the new target of incredible contempt.
Thus, the presidents of France and Russia and the foreign minister of Spain, to name but a few recent recipients of indignant reprimands, have been unwisely criticized, to the point of ridicule, for basically not conducting their respective countries' affairs around the agenda of the March 14 movement. They are being lectured as if they were adolescents who embarked on a stormy affair without having considered the consequences, harassed for daring to make high profile official visits and being seen in public together and scolded for not understanding that Syria's only interest is escaping isolation.
Most of these critics have not noticed that the so-called isolation had never been a serious hindrance, that Syria was never really entirely "out" of Lebanon (although it borders on the pathetic to imagine that Syrian commandos this week "invaded" and "occupied" Lebanon through Tripoli), and that the likelihood of UNSC Resolution 1559 being implemented (or of the UN's international tribunal being invested) was small and depended on a lot more than meets the eye.
The agitation of the last few years, and especially the last few months following the showdown with Hizballah in Beirut, seems to have come full circle with the apparent crisis within March 14 itself. In recent days and weeks, key figures of the majority are sending out signals, presumably to Damascus, about potential changes in their position, and making open overtures to parties they had hitherto blamed for most of Lebanon's ills. Walid Jumblatt's recent statements, for instance, are indicators of serious problems within March 14 and of a possible timid nod toward Damascus (even when accounting for his legendary habit to effect a swift volte-face whenever his position becomes untenable).
No matter how its media supporters spin it, there is no escaping the fact that March 14 is nowhere near achieving its goals (declared or undeclared), and that a variety of issues and troublemakers (not least of which the sectarian clashes in Tripoli, a fire on which Hariri's media continues to throw fuel) will continue to immobilize the reconciliation process that was imposed on all factions last May in Doha. The adjournment of the dialogue for seven weeks--until November 5, one day after the Americans will have elected their next president--speaks volumes about the involvement, for good or bad, of players other than Syria. Even the visit of the Lebanese president to Washington D.C., just before Tehran, is failing to excite most people as they wait for things to heat up again, probably before the May election circus begins in earnest.
It is perhaps a sign of the maturity of the Syrian regime that its schadenfreude is not being paraded (indeed, Syrian official reactions have practically reached a point of indifference) and that official statements have so far remained civil, indicating that all Lebanese leaders were welcome in Damascus. Perhaps it is easy to play the dignified, more mature partner in this relationship while moving in more prestigious circles and mixing with leaders who have real political weight around the world. Indeed, with an increasing number of friends in high places, there are no longer any signs of Syria's obsession with maintaining an ostentatious presence in Lebanon or even of continuing to micro-manage the affairs of its allies. For the time being, the Syrian leadership seems confident that Lebanese factions are more than capable by themselves of ruining any chance for real independence, while the bigger issues on the table (including the status of Hizballah) are left simmering on the back burner.
Unfortunately for March 14, there is no escaping the fact that plus ca change, plus c'est la meme chose.- Published 18/9/2008 © bitterlemons-international.org
Rime Allaf is an associate fellow at Britain's Chatham House.
Border complications promise long dispute
Nicholas Blanford
When Lebanon's new president, Michel Suleiman, and his Syrian counterpart, Bashar al-Assad held a landmark meeting in Damascus last month, one of the agreements reached between them was to delineate and demarcate the 320-kilometer border between their two countries. Although the announcement was widely welcomed, progress is likely to be slow as political realities in Lebanon weigh heavily on what should be a straightforward technical survey and joint agreement between Beirut and Damascus.
Complications are many and varied. The border remains disputed in numerous places, Syrian troops remain deployed on Lebanese soil in several spots, it is a transit route for weapons to Hizballah, home to small military bases manned by pro-Damascus Palestinian groups, and it is an economic lifeline for residents of east Lebanon, long ignored by the state, who survive on commercial smuggling. Defining, demarcating and securing the Lebanon-Syria border, as called for by UN Security Council Resolution 1701, threaten this status quo.
Borders can only be agreed upon with the goodwill of both neighboring countries. It takes mutually agreed maps and documents regis
Middle East Roundtable
Edition 37 Volume 6 - September 18, 2008
Syria-Lebanon: a new relationship?
• A new vision for good neighbors - Nizar Abdel-Kader
Many analysts believe the Syrian leadership does not really intend to change its behavior toward its smaller neighbor.
• As Syria watches, Lebanon changes - Rime Allaf
The passion seems to have gone out of the Syrian-Lebanese relationship.
• Border complications promise long dispute - Nicholas Blanford
It is hard to imagine that the Lebanon-Syria border will be fully delineated until unresolved questions affecting it are answered.
• On a new path - Eyal Zisser
The improvement in relations and Syria's improved status internationally are perceived in Israel as negative developments.
A new vision for good neighbors
Nizar Abdel-Kader
Many observers saw the visit of President Michel Suleiman to Damascus on August 13-14 as a starting point for better relations. The visit was the first between the two heads of state since Syria withdrew its troops from Lebanon in April 2005, ending three decades of domination of Lebanon.
The agenda of the visit featured important issues such as border demarcation, a review of a long-standing treaty and accords, Lebanese detainees and prisoners in Syria, the opening of embassies and the presence of pro-Syrian Palestinian groups in Lebanon.
Considering the optimistic atmosphere that surrounded Suleiman and Syrian President Bashar Assad's earlier meeting in Paris on July 13, it was hoped that the visit to Damascus would yield good relations between the two nations. One encouraging sign came from Syria's state-owned newspaper Tishrin, which saw in Suleiman's visit to Syria a chance to overcome past mistakes by establishing good relations based on mutual respect.
Damascus has been under pressure from the United States and many other governments, including major European powers, to treat Lebanon more as a sovereign state by taking diplomatic steps such as demarcating borders and exchanging ambassadors. For the first time since the two countries gained their independence, their leaders announced the opening of diplomatic relations; this announcement came as a result of Syria's need to come in from the cold and alleviate the isolation caused by its incrimination in the assassination of former prime minister Rafiq Hariri on February 14, 2005.
Yet the main and only meaningful outcome of the Damascus summit was the decision to instruct foreign ministers Walid Muallem and Fawzi Salloukh to take the necessary steps to establish diplomatic ties and exchange ambassadors. All the other issues of great importance to Lebanon, such as border demarcation, Lebanese detainees and prisoners and the pro-Syrian Palestinian armed presence in Lebanon were left to be discussed later. This outcome left many analysts with the feeling that the Syrian leadership does not really intend to change its behavior toward its smaller neighbor.
Still, many Lebanese wanted to believe there was good news from Damascus. A great number saw in the summit's modest outcome a significant achievement, one awaited since 1943. But for many others it came too late: the joy of seeing Syria recognizing the independence of Lebanon could not wipe away 30 years of domination, interference and suffering. The experience of the recent past has already taught the Lebanese to be skeptical about the magic wand of the Doha agreement and Syrian cooperation in facilitating the election of Suleiman and the formation of a national unity government. It is understood that Damascus does not have the will to give free gifts to others, even to friends as close as Suleiman.
The March 14 movement is skeptical about Syria's intentions toward Lebanon. It has expressed its fear that there is a hidden Syrian agenda to use Damascus' gains from the Doha agreement to change the political balance in two ways: first, by creating instability in areas known for their support for the Future movement and its allies, such as Tripoli and the Akkar; and second, by preparing the ground for its allies to gain a parliamentary majority in the next election, scheduled for May 2009. In addition, there are clear indications that Syria is still attached to the terminology of "privileged relations" with Lebanon and to reviving the treaty of fraternity and cooperation that was imposed on Lebanon in 1991. The treaty stipulated the highest degree of coordination in the fields of politics, economics, security and defense.
President Assad warned during a press conference with the French, Qatari and Turkish leaders on September 4 that Lebanon was still in a fragile state. He added that he was worried about "foreign-backed extremist forces fomenting instability in Tripoli". His comments have drawn sharp rebukes from Saad Hariri and other leaders of the March 14 movement. They left many Lebanese politicians with no illusions that Syria might exploit future developments to restore its influence in Lebanon, and appeared to reflect a significant lack of political trust between the two countries. Reestablishing that trust will depend to a great extent on the development of Syria's relations with the United States--relations that have been frozen since the assassination of Rafiq Hariri in 2005--as well as on the outcome of the proceedings of the special international tribunal that is looking into the Hariri assassination.
Assad knows that the road to Washington remains closed for the time being. But that does not stop him from using Lebanon, alongside the indirect peace talks with Israel, as tools to re-establish Syria's role as an important regional player.
Reconciliation and repair of relations between Lebanon and Syria depend on Syria's ability to recognize all the developments that have occurred in Lebanon since the Hariri assassination and to acknowledge the international position regarding Lebanon's stability and sovereignty. There is a great need for a new Syrian political vision toward Lebanon: recognition of Lebanon as a sovereign, independent state and realization that Syria's ongoing attempts to foment instability will have negative consequences for both countries.- Published 18/9/2008 © bitterlemons-international.org
Nizar Abdel-Kader is a researcher and political analyst/columnist at Ad-Diyar newspaper in Beirut.
As Syria watches, Lebanon changes
Rime Allaf
The passion seems to have gone out of the Syrian-Lebanese relationship, and the intermittent sparks that flare every now and then hardly cause a ripple. Moreover, for the moment neither side seems to care about rekindling the flame. Or so it seems.
On the Syrian side, no matter which way one looks at it, there is a definite sense of "Lebanon fatigue" overtaking official and popular circles, rendered lethargic by the avalanche of accusations coming their way courtesy of the March 14 movement and their allies. For several years every single crime, assassination, strike, parliamentarian deadlock, economic slump or political stalemate was blamed solely on "Syria". No Lebanese politician or leader, apparently, might have had any role to play in any such bad, negative or destructive incidents--no Lebanese party, that is, apart from Hizballah and other "pro-Syrian" parties, of course.
Even events in Syria itself, such as the assassination of Hizballah official Imad Mughniyeh in the middle of Damascus were seen by several Lebanese experts (who don't seem to read self-congratulatory pieces in Israeli newspapers) as being the work of a Syrian regime that apparently had a long list of reasons for wanting to commit such an action.
According to this simplistic discourse, Lebanon had become a simple case of us versus them, of pro-democracy versus pro-Syria, of life-loving versus death-glorifying. In other words, it translated into March 14 versus all those who opposed it, including Syria and its allies. These, consequently, had to be shunned and punished for their long list of alleged crimes, their flouting of Security Council resolutions (a point on which Israel always agrees without a hint of irony) and their ultimate agenda to come back to Lebanon by hook or by crook.
However, an increasing number of observers, analysts and governments around the world were not convinced that this was true--or, at least, that this was the only truth--and began to communicate with Damascus again over Lebanon and over issues bigger than Lebanon. With this, they earned themselves the ire of the March 14 movement and their Saudi-owned media supporters, and became the new target of incredible contempt.
Thus, the presidents of France and Russia and the foreign minister of Spain, to name but a few recent recipients of indignant reprimands, have been unwisely criticized, to the point of ridicule, for basically not conducting their respective countries' affairs around the agenda of the March 14 movement. They are being lectured as if they were adolescents who embarked on a stormy affair without having considered the consequences, harassed for daring to make high profile official visits and being seen in public together and scolded for not understanding that Syria's only interest is escaping isolation.
Most of these critics have not noticed that the so-called isolation had never been a serious hindrance, that Syria was never really entirely "out" of Lebanon (although it borders on the pathetic to imagine that Syrian commandos this week "invaded" and "occupied" Lebanon through Tripoli), and that the likelihood of UNSC Resolution 1559 being implemented (or of the UN's international tribunal being invested) was small and depended on a lot more than meets the eye.
The agitation of the last few years, and especially the last few months following the showdown with Hizballah in Beirut, seems to have come full circle with the apparent crisis within March 14 itself. In recent days and weeks, key figures of the majority are sending out signals, presumably to Damascus, about potential changes in their position, and making open overtures to parties they had hitherto blamed for most of Lebanon's ills. Walid Jumblatt's recent statements, for instance, are indicators of serious problems within March 14 and of a possible timid nod toward Damascus (even when accounting for his legendary habit to effect a swift volte-face whenever his position becomes untenable).
No matter how its media supporters spin it, there is no escaping the fact that March 14 is nowhere near achieving its goals (declared or undeclared), and that a variety of issues and troublemakers (not least of which the sectarian clashes in Tripoli, a fire on which Hariri's media continues to throw fuel) will continue to immobilize the reconciliation process that was imposed on all factions last May in Doha. The adjournment of the dialogue for seven weeks--until November 5, one day after the Americans will have elected their next president--speaks volumes about the involvement, for good or bad, of players other than Syria. Even the visit of the Lebanese president to Washington D.C., just before Tehran, is failing to excite most people as they wait for things to heat up again, probably before the May election circus begins in earnest.
It is perhaps a sign of the maturity of the Syrian regime that its schadenfreude is not being paraded (indeed, Syrian official reactions have practically reached a point of indifference) and that official statements have so far remained civil, indicating that all Lebanese leaders were welcome in Damascus. Perhaps it is easy to play the dignified, more mature partner in this relationship while moving in more prestigious circles and mixing with leaders who have real political weight around the world. Indeed, with an increasing number of friends in high places, there are no longer any signs of Syria's obsession with maintaining an ostentatious presence in Lebanon or even of continuing to micro-manage the affairs of its allies. For the time being, the Syrian leadership seems confident that Lebanese factions are more than capable by themselves of ruining any chance for real independence, while the bigger issues on the table (including the status of Hizballah) are left simmering on the back burner.
Unfortunately for March 14, there is no escaping the fact that plus ca change, plus c'est la meme chose.- Published 18/9/2008 © bitterlemons-international.org
Rime Allaf is an associate fellow at Britain's Chatham House.
Border complications promise long dispute
Nicholas Blanford
When Lebanon's new president, Michel Suleiman, and his Syrian counterpart, Bashar al-Assad held a landmark meeting in Damascus last month, one of the agreements reached between them was to delineate and demarcate the 320-kilometer border between their two countries. Although the announcement was widely welcomed, progress is likely to be slow as political realities in Lebanon weigh heavily on what should be a straightforward technical survey and joint agreement between Beirut and Damascus.
Complications are many and varied. The border remains disputed in numerous places, Syrian troops remain deployed on Lebanese soil in several spots, it is a transit route for weapons to Hizballah, home to small military bases manned by pro-Damascus Palestinian groups, and it is an economic lifeline for residents of east Lebanon, long ignored by the state, who survive on commercial smuggling. Defining, demarcating and securing the Lebanon-Syria border, as called for by UN Security Council Resolution 1701, threaten this status quo.
Borders can only be agreed upon with the goodwill of both neighboring countries. It takes mutually agreed maps and documents regis