What the Recession Will Bring...

There's a chap in the FT whose column is buried way back in the paper - page 10 - and who doesn't write all that often. But Luke Johnson's column in today's FT is worth considering, especially in light of what I've already written here previously.

Let me comment on what he says. I'm only going to point out the most important things he says, please go read the rest. It's not long.
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It is clear that as a society we must learn something painful and radical – how to live within our means – because the credit just is not there any more. The easy money is all gone, and there will be no more for a long time.

Bingo. This is good to see, because it is also accurate. The days of wine and roses are over: I'll take the sentiment one step further, and point out that this has some rather significant political impacts as well: living within our means also implies that the monies for extravagant social programs and financing silly pet projects that have no interest outside of some academic squabblers will simply not be there anymore, and the louder the protests are that such fripperies are no longer being funded, the larger the number of people who will say "good riddance" as well. Maybe not at first - it will take far too long for this realization to trickle down to the politicians - but within the next two years we should see a significant return to classic conservatism. The problem is that before that happens, much will happen that will make the backlash even worse and make things more difficult to get out of: give folks like ACORN a few billion - which is the boondoggle up before Congress - and you have created a monster that must first be slain.

Previous assumptions simply do not apply. Homeowners should forget about houses going up in value – all that is history. They are places to live in. So cut back on your outgoings. Pay rises are off the agenda. Wholesale pay cuts may yet become common. Put some cash aside if you possibly can; you might lose your job. I fear most citizens' plans for the future must be put on hold. This is not something happening to other people – we are all in trouble.

I have yet to see a more accurate assessment of the implications of the ... whatever it is we are going to call this crisis. In some ways I'd like to call this the Stupidity Crisis, because a lot of people who thought they were being awfully clever have, in fact, been rather stupid about this. But back to Johnson: he's right.

I don't own a house. I could, but I've chosen not to. Instead, I found a place to rent because I did not believe, as did so many of my colleagues, that I would get a decent return on any investment in housing besides speculative profits: given the demographics of where I live - Germany - I also recognized that when I might want to sell, it would be to a buyer's market, as German demographics argue against speculative success for all but the most desirable bits of real estate. A house is never an investment, unless you are renting it out: one of the problems we have created in the past is that people called speculative purchases "investments" instead of calling them what they were, i.e. speculative purchases with the hope of appreciation. An investment, a right and proper investment, generates a cash flow. Buying stocks isn't an investment, unless you are buying stocks for their dividends: buying a bond is an investment when you clip the coupons and take your profits. Anything that doesn't generate a cash flow is speculative: you're buying something in the hope that you can sell it for more than what you paid for it. If you want to do that, fine: just don't call it an investment. It's speculation, and only fools speculate when they should be investing.

What Johnson is pointing out isn't that the world is coming to an end: instead, he is pointing out that the old rules, the rules of your grandparents and your parents, never really went away. They were the boring rules, of living within your means, of saving before consuming, of deferred pleasures. You know what?

They were right. But the speculators, the banks, the loan companies, all gamed the system, denigrating the safe path in ways subtle and seductive, and then we all wonder why things suck so bad.

Business must adjust to the idea that this stagnation could last for many years. The age of free money from mad lenders is finished. The growth game is over. Whole swathes of industry are on life support. The banks are in desperate straits. If their management cannot see that, then they are even more incompetent than they are portrayed.

The banks are indeed in desperate straights because of the abject failure of risk management. The banks are what makes the economy actually work: anything else is barter (which has its place, but not here). The age of free money isn't actually over: the age of mad lenders is. Money, given the extremely low interest rates, remains basically free (and may show negative interest rates when you look at real exchange rates), but the banks aren't lending to anyone. That's the problem, and the reason is simple: it's because after 15 years of ignoring risk, all that the banks now see is risk. Of course, mark-to-market - the greatest crime that accounting has foisted on the public since mark-to-model - makes it virtually impossible for banks to take on any risks whatsoever.

Indeed, too many of us still fail to see just how severe conditions are, and how horrible things are likely to get. This is not a correction, a brief hiatus until the upward march once more resumes. At some point, the Japanese, Chinese and Saudi buyers of US and European government bonds will see just what miserable value they offer. Then governments may have to stop all the runaway state spending and bail-outs, and even put up interest rates.

Good point. But what are the alternatives? This is where I think that Johnson is too gloomy. The problem that the Japanese, Chinese and Saudi buyers have is that they have the dollars - and will continue to have them. Unless, of course, they start buying things with those dollars, things that can be used where they are (buying US real estate and US companies changes nothing about their dollar dependency, but simply prolongs any possible day of reckoning, if there is to be one).

Plenty of observers, including me, have criticised the media for being too gloomy. I am now beginning to believe that they have not been gloomy enough, if they want to reflect the true consequences of our profligacy and past conceit.

Here I think the writer is too British, too European: he fails to see how the US is really a developing country in many ways, and that the will to succeed - as opposed to the will to not work hard - is still alive and kicking. It is in England as well, but generally exorcised at an early age so that no challenge ever appears to the nanny state and to established interests. You simply can't invent an industry in the garage in the UK and Europe any more: they'd slap you with regulations that drive you out of business before you could even start.

After all, who wants to face up to the bleak reality that confronts us? The experts say we will not suffer a repeat of the 1930s slump. Indeed, we have to contend with fresh issues. Like the fact that there are 1.5bn recent additions to the capitalist workforce in China and India – hard-working, increasingly well-educated people, all keen to better themselves. Meanwhile, modern logistics and communications mean trade and production can take place almost anywhere if it makes economic sense.

Bingo. This should be put up in giant Hollywood letters, with bright blinking lights and a laser show to draw attention. At some point - and while we haven't reached this point quite yet, it really isn't that far off - it really does make no difference where something is made, and the critical point will be reached when local designs - MP3 players, for instance, that are completely designed in India - have exactly the same attributes and panache that a California design house can achieve. We're quite a ways off from that point, yet the distinctions are shrinking as local markets become more sophisticated, and the day will come when the next great product, the next iPod, the next cell phone best-seller, the next consumer gotta-have, comes from Bombay, Shanghai or, horror of horrors, Cairo.

On the other hand, the world is not a zero-sum game. Human creativity in one place doesn't rule it out elsewhere, so that the developing countries, once they have developed a middle class - which I define as that group of people who have the ability to actually save meaningful amounts of money such that they can start to invest, instead of being condemned to consume everything they earn - that can finance new developments and consume high value-added items, can become industrialized countries. It has happened: Switzerland was once the poorhouse of Europe, with the lowest wages around for skilled workers; South Korea was an economic ruin and its people lived in abject poverty; China and India are coming out of this stage now.

However, Johnson's fundamental point has to be understood: countries like China and India don't need the West as markets. They need only to get their own populations out of the poverty trap in order to become economic powerhouses. China is getting close, but may fail due to its abysmal, self-inflicted demographics, which point to a major downswing in the number of Chinese just when they need those consumers to make it to the big times; India must transcend its bureaucracy and failure to overcome the prison of the caste system to achieve the same results. The point, however, remains: the challenge to manufacturing and services in the UK, for instance, isn't from Belgium or France, but from Pakistan, Egypt, China and India. The world is growing up, and while the older brothers and sisters - the developed world - have had their good times and their successes, the younger siblings are starting to wonder why they can't be the same.

So why should industrious Asians earn a tiny fraction of what citizens in the west earn? Especially when they have so much of the cash and productive resources, while we have deficits, high costs and poor demographics.

It's not so much that Asians earn only a tiny fraction of what workers in the West earn: it's much more that they also have significantly lower costs. Prices are, however, low because wages are so low as well: this is what has kept many countries in a low-wage universe. This changes with increasing skills sets for one reason only: because the demand for skilled labor outstrips supply. What we will see in countries like China and India isn't the creation of a services-industry-driven middle class as we know it in the West, but rather the recognition that the lowly factory worker will be the middle class in these countries, which is, after all, how the middle class developed in the West.

Prepare for a wrenching, unstoppable redistribution of wealth – and I am not talking about domestic taxes. For too long it has been more profitable in the west to finance consumption rather than production. That cannot continue. I am afraid that the west's credibility – and luck – has run out.

Here is perhaps where Johnson and I part paths. The world is not a zero-sum game, where if Indians are to become wealthy, that wealth must come at the cost of the West. Creation of wealth is the key, not the redistribution: if that were the case, then the Oil Arabs would have the strongest and most vibrant economies around, instead of some of the weakest (and places like Dubai don't count: those economies are only vibrant because of the consumption of capital at enormous rates, and I have yet to see the business model that can be sustained there).

What does run out is the idea that the West is somehow better suited or more clever than the emerging economies of Asia. The myth of brilliant financiers and advanced services compensating for the lack of manufacturing and the abandonment of the blue collar worker is exactly that: a myth.

The West will have to relearn the values of an honest day's work, will have to relearn the merits of thrift, will have to relearn fiscal and financial responsibility, and above all will have to relearn how to deal with risk. You can't manipulate risk off of your balance sheets, regardless of how clever you might think you are: systemic risks cannot be avoided, and anyone telling you that you can somehow magically game the system should be exposed for the feather merchants and frauds they are.

This vast reordering of our economic system has only just begun. We shall have to cancel all the self-indulgence of endless welfare spending and cultivate rather more of a work ethic and a sense of self-sufficiency. Expectations must be modified and attitudes altered profoundly. Expect years of negligible growth, permanent high unemployment, declining property prices, higher taxes, crumbling currencies and falling living standards.

This is true as well. Unless, of course, we see a major re-alignment that returns people to work by making those goods that were exported to China just as easily made back in the UK, the US or France. After all, the argument that goods can be made anywhere applies to the West as well: the problem is that these will not pay the same kind of wages that people want to be paid.

Failure to understand that is what will result in years of negligible growth, permanent strong unemployment, declining property prices, higher taxes and the rest. Simply put: if you want high levels of employment and decent growth, you cannot gut your manufacturing base. You have to create the jobs for yobs, so to speak, and most importantly you have to make living off the dole so onerous and so culturally unacceptable that you get people back to work voluntarily. This is the problem of the welfare state: it has destroyed the manufacturing base, it has destroyed the lower middle class, reducing them to utter dependence on the largesse of their betters (who are paying taxes and financing them). You have to restore the dignity of labor: without that, you have no chance to turn things around.

We shall look back on the last decade and think: we never realised what we had until it was gone.

I think that there will also be a political backlash: that our children and grandchildren will look at us and blame us for having been so incredibly stupid. Baby boomers, if you think that your children will pay for your stupidity, think again. You should have contemplated a retirement eating cheese sandwiches and rationed health care before you took on debt burdens that required miracles to come true. If you didn't, then your fate is richly deserved. There's this parable about the ant and the grasshopper...

Understanding The Economy ... Or Maybe Not

I'm an economist, have been one for over 20 years. We do several things: we try to understand how the economy works, and our fundamental truth is that goods are scarce, that all needs cannot be met by simply deciding who gets what. I'm a business economist, which means that I work in the real world, not academia. I do more in a month than some colleagues in academia do in a year, but that's because I'm not a scientist: I work in the real world, and while I use scientific methods and approaches, I don't have time or the inclination to turn each product into a PhD thesis. I've been a professional forecaster for close to 20 years, forecasting industries and their development, and recently, for my sins, have branched into demographics. I've saved clients literally millions of dollars by providing risk analysis for their model portfolios and simply getting things right. I don't have a PhD: I decided that was, at best and pun intended, an academic exercise at best.

Now, over at Shrinkedwrapped, a discussion has started up about Moore's Law, Information Economy and Socialism.

Let me add to this discussion.

The economy is best understood as structure and mechanism. Any economy, and I am deliberately including the gamut from the most primitive and the most advanced economies on this planet, has three sides. This isn't usually taught in your basic Econ 101 courses, because it's not all that simple, and the point of any introductory econ course should be - but often isn't - to introduce the new student to how economics works (the mindset) and understanding the basics of modern economics, the National Income and Production Accounts (aka NIPA).

And please do understand that I am simplifying enormously. Getting into detail is what I do every day in my job, and I work with enormous data sets, long time periods and more computer models than most can shake a stick at.

These three sides of the economy are demand, supply and wages.

Demand we understand well: that's consumption, investment, trade, inventories. That's what makes up GDP.

Supply is a tad more complicated: it's where the value is added. It covers the entire production side of the economy, where things are made and services rendered, where food is grown and people are buried. In the parlance of one classification system, it's from A to O, from agriculture to personal services, excluding only things that are very difficult to capture, such as the production of services in private households (the value of ironing and sweeping floors, of raising children and mowing the lawn yourself) and the "value" of production in supranational organizations like the UN or the IMF in the individual countries covered.

Wages are not simply wages, but also transfer income and wealth effects.

The fundamental thing to understand is that the separation of the economy into these three areas is an intellectual construct, because in reality they are different approaches to and different aspects of one and the same thing: the economy, the sum of what we all do each and every day to earn money and pay the bills, and more often than that every night as well, where we spend the money we've made.

Now, economics generally teaches that the first part of this triad is the most important thing, but that is simply not the case. It's just that it's the easiest one to understand, the easiest to teach and the easiest to see changes in.

A well functioning economy needs to have all three aspects of the economy working well. If an economy has imbalances in any single aspect, the results will show up in the other two, but because of the indirect effects, causality will be very poorly understood. This is very important, since someone who only know one aspect of the economy well - most economists, as there is enough there to generate literally thousands of PhD theses - will seek the causality of problems where they feel comfortable doing so. Like the drunk looking for keys under the street lamp, instead of in the darkness across the street where he lost them, he simply is unable to look in the right place.

The supply side of the economy is where really good economists live (okay, I'M biased, it's where I call home...). They're the ones who understand the minutiae of the economy, where value is actually added, and understand all the businesses that make up the economy, how they operate, what makes them possible (and profitable!), what they actually do (sometimes easier said than done...), and what is important to them in terms of laws, regulations and, most fundamentally, how they react. This is where Greenspan was at home, where he made his reputation.

You see, it's not enough to see how consumption changes, how private households change their consumption behaviors under changing circumstances, but you also need to see what that means for those who supply the goods and services consumed.

But let's get back to the third aspect, wages and income. This is the realm of labor economists, who more often then not are employed by unions and the like and have thus a certain taint, unjustly deserved (except for those whose partisanship has trumped their profession). This is also the most difficult of areas, since you have to know the government programs for transfer income quite well, as well as wealth effects for the upper income levels that can be several multiples of actual wages and salaries. This is also covered under NIPA, but getting into the details can be a complex exercise in accounting and an even more complex one in terms of corporate profits, bond yields and the wild and woolly world of private equity.

These three aspects of the economy are tied together by mechanisms. There are, of course, literally millions of such mechanisms, which is all about how the economy actually works, and these mechanisms, be they channels of information, operating parameters, or the way that goods and services are exchanged or performed.

My basic analogy - and bear with me, since I want to take you along a difficult path and I am simplifying this enormously - is that of a mechanical watch (I collect vintage watches and moderate the Vintage & Pocket Watch Forum at Watchuseek, aka WUS, the largest watch forum on the Internet, with over 40 thousand members and 1.5+ mn posts).

Consider how a mechanical watch works: a mainspring drives a gear train that is controlled by a balance that controls the gear train to show the time accurately.

I'm not going to bore you with details - join us over at WUS for that - but suffice to say that this is an analogy of also how the economy works: the driving force behind the working of the economy is demand, but without the gear train - supply - and the escapement - wages - the thing simply doesn't work, and the accuracy ot how the movement keeps time tells you how the economy is working efficiently. Get anything wrong in the design of the movement and you'll never get the rest right (the problem of command economies is that you can't simply tell the hands to move); if you've got the right design, but keep on fiddling with the gear train, replacing this wheel with that one, the actual work doesn't get done; if you've got the design right and the gear train is working smoothly, but the balance wheel has too much or too little amplitude, then the watch is going to tell lousy time.

This is a simplistic anology (and needs a lot of work before it's right: it's something I've been thinking about for a while, but never have really put into so many words), but it's a clear one: if you don't have all aspects of the economy down right, things are not going to work as planned. If the movement/economy is not efficient, you'll find yourself winding up the mainpsring a lot, but doing more work than you really need to; if the gear train is missing teeth or if the ratios are wrong, then timekeeping won't work well; if things get dirty and gummed up, then the watch slows down and stops, and if you keep on using the movement when it is dirty and inefficient, you can actually destroy the movement as the oils and lubricants pick up dirt and change from lubricants to cutting agents. And perhaps most importantly, little problems left unattended can ruin the movement, but it may take, literally, years of use before the movement freezes up and must be either completely rebuilt or simply replaced. Of course, this applies to the economy as well, with one major caveat: you can't simply replace the economy, and rebuilding because of negligence - and its bad cousin, deliberate and willful negligence - turns out to be more expensive for the economy than it is for the watch owner. Most importantly: a properly designed movement can, with the right maintenance, run over 100 years or longer (and there are literally hundreds of thousands of such movements our there) without losing its time-keeping qualities.

No economy works perfectly and without friction. The mechanisms for transferrence of money, work, and products are manifold, to use an obscure meaning of that word, and are impacted in ways both clear and immediate and obscure and slow. Causality in the economy is never simple and the law of unintended consequences was really invented for economics.

I guess what I am trying to say is that it's not easy to understand the economy as a whole. Classic economists, those whose bread and butter are the arcane minutae of the NIPA, show no small disdain for the supply-side economists, and indeed a great deal of disdain has been dumped on these poor souls for daring to point out that it might be simpler and more efficient to look at the supply side of the economy than it is to try  to get the balance, to use my anology, to change amplitude by working on the mainspring (which, if you're curious, simply can't happen) by changing structures by trying to shunt demand in one direction or another.

What is perhaps easier to understand is what sort of damage can be done by not understanding the mechanisms by which the economy works. The fundamental mechanism is that of markets, which in the real world are ruthlessley efficient and work in ways that even the best economists can not say with great accuracy (not that they don't say it with authority). Fiddling with market mechanisms is foolhardy at best and downright ignorant at worst: market mechanisms have a proven track record of defeating attempts to change their fundamental workings, and every attempt to by-pass them simply doesn't work. To put it in the vernacular: Markets rule.

Unfortunately, this is what has happened. In the deeply misguided attempt to make poor people rich - by letting them buy houses that they can't afford without them, well, stop being poor - the government meddled with the market mechanisms by turning off risk. This alone is an enormous moral hazard, and has failed abjectly. It's the fundamental cause of the destruction of literally trillions of dollars, and unfortunately for us all the lunatics are not only in charge of the asylum, they're now working on making insanity the norm, rather than the exception.

So bear in mind when discussing the economy: it's one hell of a lot more complex than you can imagine and it always finds a new path of getting supply to demand. The market mechanisms are ruthless and broke no competition, not because there are no other ways, but rather because efficiency is everything to an economy. The law of unintended consequences is the ruling law of the economy, and it's not so much that you can't anticipate what they will be - they'd then be anticipated consequences, after all - but rather they will be in areas completely unexpected and more likely than not result in the nullification of what you wanted, especially if you are trying to do something dumb.

And for the folks over at Shrinkwrapped discussing the information economy: it's not that simple.

Bipartisanship and Reality...

This will perhaps come as a surprise to some readers, but if you've ever spent any length of time in DC, it's not.

Bipartisanship has two meanings. One if you're a Democrat, another if you're a Republican.

For a Republican it can be best exemplified by what John McCain represents: someone who is willing to make compromises for the good of the country, to get things done while accepting sometimes unpleasant agreements. Of working out a quid pro quo, funding something your opponent wants while getting something important done that you want.

That's the normal business of Washington. Scratch my back, I'll scratch yours. Of course, in the process you may be manipulated by small movements into giving in on bigger items, and you might find that after you've scratched someone else's back, they simply keep on going and you realize that your side of the deal is that you've been screwed. Sometimes you can recover, sometimes you can't.

But now we see what President Obama and the Democratic Party mean by bipartisanship, and to be honest: duh. This is something I've seen over the decades I've lived in and watched DC, and it is apparent to me that this is what is fundamentally wrong with the Democratic Party as well.

After less than a week in office, Mr Obama's presidency is already encountering the very partisan bickering he had pledged to stamp out during his first 100 days.

He faces mounting criticism over his $825 billion economic stimulus plan, from Republican leaders who say the legislation has been drawn up without the input which Mr Obama had promised to allow them.

The president responded with a clear signal that he is prepared to ram the bill through without the bipartisan consensus he promised to construct, telling Republican leaders from the House of Representatives: "I won. I'm the president."

He then told them to break free of the confrontational mindset epitomised by Mr Limbaugh, the highest paid talk show host in America. "You can't just listen to Rush Limbaugh and get things done," Mr Obama said.

See the pattern? This is one that we will see repeated and repeated.

The pattern is that bipartisanship for the Democrats means that the Republicans go along with them in order to avoid a confrontation. They are to be subservient, the only thing that counts is that they had better toe the line or nothing that they want will be ever considered.

That's the Democratic position on bipartisanship in reality. Anything else is fantasy.

President Obama himself will provide the greatest impetus for the Republican Party to return to its roots in Ripon

Russians and Continuity...

This, hat tip to this chap, deserves a quick review and placing of it into perspective.

Vienna, January 21 – Having discovered that economic power does not immediately translate into political influence and may in fact alienate those it is supposed to attract, the Russian government needs to identify new ways to influence the West but finding that its options are not nearly as good as many in Moscow had thought, according to a Russian analyst.

Interesting way of putting it. While each and every country out there pursues its own national interest, it's the way this is formulated: to influence the West.

And the most effective way to do that, Andrey Pronin writes in an essay posted today on a Moscow State University portal that has often served as a source of foreign policy ideas for the Russian government, is for Russia to deploy what he calls its "soft force" against American "soft power".

This is what drove me to choose the title. This isn't anything new, but rather it is the continuation of what the Soviets did from the very start of the Soviet state, to influence their neighbors via indirect action. It's not so much that this isn't legitimate - it is - but rather it's the way the Soviets did this, not by having Soviet spokespersons talking and trying to influence public opinion, but rather by recruiting Soviet sympathizers and helping them into positions of influence - and power if possible - using all the tools of the trade - money, honey pots, even secret Soviet citizenship - to suborn the naive and corrupt the discussion. People who got involved in this because they believed the Soviet propaganda ended up active agents of influence, spreading not so much anything identifiable as the party line, but much more fomenting and supporting attacks on the West.

That will not be easy, he argues, because "at the present moment, Russia does not have those cultural forms which can be exported to the West and converted into political influence." As a result, Russia needs "a new national project," that that would promote Russia as an intellectual center where "new social initiatives and humanitarian technologies" are promoted.

Ouch. Back during the Soviet days this would have led the writer to a long term in the Gulag: it is a direct admittance that Russian society is, simply put, unattractive to the West, and that there are major intellectual deficits.

To that end, he argues, Russia should not try to match the Americans militarily – the U.S. is simply too strong in that sector – or make the mistake of focusing on keeping "in its orbit" the former Soviet states. Instead, Moscow must "focus on the United States" and deploy an ideological agenda that will undercut Washington's influence.

It's an interesting development: a recognition that there will never be a return to the conventional forces that the Soviets had, and that there is no chance to re-create the new Russian military in a form where there could be a challenge. That's realistic, especially when one considers the extensive combat experience the US armed forces now have, whereas the Russian military remains firmly entrenched in a transitionary period where Soviet influence remains dominant.

Further, the Russians here have recognized a truth - that in order to undercut any attempt to undermine the control it wants to have over the former Soviet states it must come up with an alternative - but also reveals a fundamental lack of understanding of why they have the problems they do with the Ukraine, the Baltic states and other former Soviet states. The Russians apparently sincerely believe that their former vassals would gladly be back in the fold if it weren't for foreign interference, instead of trying to understand how many sincerely want nothing to do with the Russians because of this blindness to the effects of Russian influence, such as corruption, crime and economic exploitation. Here is where the Russians show how much of Soviet behavior wasn't uniquely Soviet, but fundamentally Russian, and fail to understand that throwing off the Soviet veneer hasn't changed the fundamentally imperial nature of Russian society.

Russia should present the US with "an ideological challenge," by forming "a new international with the most educated groups in the West." Such an approach, Pronin says, would allow Russia to "repeat the success of the USSR which was able to ideologically split the West and find for itself numerous allies" within the latter.

In other words, a new Internationale. The Russians are looking to re-create the situation in the West during the 1920s and 1930s, where Soviet agents of influence either helped run countries in the West or were major cultural influences.

"In the 1940s and 1950s," the Moscow analyst continues, "a significant part of the most respectable Western intelligentsia held leftist views and openly sympathized with the USSR, and English aristocrats worked for Soviet intelligence services on the basis of their convictions in this regard."

See what I mean? This is, for the Russians, the ideal status of dealing with the West: infiltrate, seduce, suborn, and dominate, rather than have an open discussion of ideas.

Today, he says, Russia needs to find "allies interested in itself within America" and to "form a pro-Russian lobby, a circle of influential people who respect and support Russia and who will exert an ever greater pressure on the political establishment of the United States" on behalf of Moscow.

In other words, create a Fifth Column. I'm sure that MoveOn is available. Woops, they're probably already in their pocket.

In Soviet times, Moscow allied itself with the West's "outsiders." But now, Pronin suggests, Russia must take advantage of the opportunity it has to "form a union with the most educated part of Western society, the scientific and artistic avant garde of America" and thus to promote "a reformation of the United States."

In other words: infiltrate, seduce, suborn and dominate.

That won't be accomplished simply by media programs directed at Western and especially American audiences, Pronin says. It will occur only if the Russian Federation can transform itself into a center of innovation where scholars can share ideas on how to "humanize" globalization and satisfy the very real but currently unsatisfied spiritual strivings of Western intellectuals.

In other words, don't seduce them, steal their souls. I fear that the Russians here are projecting their own domestic problems.

Given the problems the West is now experiencing – and Pronin argues that "the US today in many ways recalls the USSR of the period of Brezhnev's stagnation – Russia has "a chance to do so by providing a "new global project in place of neo-liberal globalization which has discredited itself."

Interesting that they see their opportunities only as zero-sum games, i.e. they can provide an alternative only when the West weakens. Does not speak well for Russian society. Further, they continue to apparently see the world as a reflection of their own history, as the fairly absurd comparison with the stagnation under Brehznev shows.

If Russia is able to promote such an agenda, he continues, Moscow "can win the sympathy of American intellectuals" and thus advance its political agenda by recruiting them as allies. But unfortunately, "contemporary Russia does not have sufficient possibilities for the realization of this project" on its own.

Heck, if anyone comes up with an alternative to capitalism, they'll be the darlings of not only American, but all western intellectuals, everyone in the intellectual world who doesn't really want to work for a living. It's not so much that contemporary Russia doesn't have the resources to do this on its own, it's that there simply isn't any alternative.

Moscow needs allies, and the two most obvious ones are India and China, neither of whom Pronin suggests is comfortable with American-style globalization. If such a "union of the three giants" is formed, he concludes, Russia will occupy the leading role of a scientific and innovative center and the developer of humanitarian technologies and standards."

Again, projection: this is more wishful thinking that anything else. We know the long history of conflict between Russia and China - which will increase as the Russians decline in number and Siberia starts looking better and better to the Chinese - and it has been long a Soviet fantasy to turn India into a Russian vassal state. What Pronin is describing is exactly the view that the Soviet elite held: the Soviet Union as the leader in science and innovation, the center of humanitarian development, blah blah. Reality intruded, but that doesn't mean the dream is dead.

But it does show the great continuity between Soviet and Russian goals.

Both the sources of Pronin's argument – the past of the Soviet Union – and the problems with it – Russia is unlikely to be able to present itself in the way that he advocates or gain the allies he hopes for – are obvious. But that such arguments are being offered and in such a respectable place suggests that at least some in the Russian government may be listening to them.

Um, I think that this article didn't appear by accident or by happenstance, but rather is deliberate and a clear statement of intent by the current Russian government that they will be returning to the old days of the KGB.

If they are and if some Russian officials do in fact try to act as Pronin suggests, that could pose serious challenges for the United States in particular and the West more generally, especially if most commentators in the West assume that what he is saying is not only absurd but completely impossible.

I belong to that latter group: but rather than dismiss this out of hand - otherwise I wouldn't be writing this - I'd say instead that we will face a resurrected and revitalized KGB campaign of infiltration, seduction and suborning of people of influence. This will, in my judgement, primarily take place in the disaffected of the Democratic Party, who after successfully electing Obama in the hope of some magic progressive transformation will see him turn, basically, into Bush III. Disillusion is the first necessary step for the future agent of influence and spy, driven by disappointment that the world can't be as one wishes it to be, that realpolitik is sometimes unpleasant, that innocents die when people make mistakes, that American interests may handle local interests roughly, and that you won't become rich merely on your merits, but instead have to work unreasonably hard. These are the core characteristics that have driven Americans, for instance, to become spies for the Soviets back during the Cold War, rather than "merely" disaffected.

Who knows what mischief the Russians are planning. But here is great continuity between the Soviets and Russians, more than most believe possible. Putin is, after all, a stone cold KGB man.

It's Not Limited To The US...

Stupidity, that is.

This is mind-boggling. Sorry that it's only available in German, but such is life.

Basically, the Austrians are planning on doing something that will result, one day, in a true tragedy of the commons.

They are requiring investment companies (there are 256 such companies in Austria) to pay into a fund. The monies from this fund are to be invested with an insurance company to ensure that the capital will increase over time. This includes, as well, companies that "merely" provide portfolio management.

What for?

To pay investors who have lost money in investments.

Making things vastly worse - mind-boggling, this - the government of Austria will pick up the tab above and beyond what the fund can pay, up to €20 000 per investor (again, not €20 000 total, but that sum in government payments). Further, the investment companies that have paid into this fund may be tapped for further funds for extraordinary developments.


Words almost fail me.

This is mind-boggling. It's not something like FDIC insurance, but rather is aimed at investment companies, meaning that if I invest with company ABC into a portfolio, and that portfolio was extremely risky and as a result paid high returns, but goes tits up, then I don't carry the risk.

If this is fully implemented, I can all but guarantee the next crisis in European banking. It will be in Austria and will happen when extremely risky investments - if anything, the riskier the better! - go bad on a big scale, taking down not merely the fund, but also the company behind it and forcing the government to pay money as well. It is rewarding extreme risk takers by taking a goodly portion of their risk away and putting it with the taxpayer.

This isn't merely a bad idea: it shows that stupidity is not limited to the US.

Ye gods.

Banks, Bad Banks, Bad Bad Banks, Good Bad Banks, Congress and Chinese Banks...

Three bits in the WSJ today that make more sense together.

This one first: that a good bad bank is needed.

Then this on the fallacies that lie behind the idea that government spending is going to get us out of the recession: surprise, it's going to make things worse.

These tie in with this: if you think we have some bad banks, wait to you see what China has to offer.

So, let's start: the banking system is screwed. Not merely screwed, not merely "facing serious problems", but, and please pardon the vernacular, the banking system is truly fucked.

No one within the banking system (and in their right mind) wants to admit how badly the banking system has been damaged by the excesses of lending that Congress, in its infinite wisdom and ability to wreak carnage, made not only possible, but encouraged. The WSJ is pointing towards $800 bn in bad loans right now, I'd take that 50% higher if they were really being honest.

Banks are in the business of managing money, of being "financial intermediation", as the technical title puts it. They get money from savers and lend it to borrowers, and live off the difference between savings interest rates and loan interest rates. This differential, however, must be calculated to cover the one thing that banks are supposed to do well: risk management.

Well, the banks fucked up that one right and proper. Of course, they had help: the rating agencies were corrupted and the lonely controllers and loan portfolio managers who said "wait a second..." were stampeded by their colleagues heading out the door to make loans. That's because ways were found to move bank income from that interest rate differential (minus the risk management costs) to fees, with the loans sold off to avoid having to face the problems. In some ways the banks are not to blame: the government, after all, was telling them it would guarantee the loans (that's the reason for Fannie Mae/Freddie Mac's existence, after all) and gave them the opportunities to create financial instruments to sell these off.

By screwing up their risk management, banks forfeited their moral right to be saved. No bank out there - none whatsoever - is some sort of innocent victim of the subprime meltdown: all were negligent in their risk management. Period. Really, there are no exceptions.

So we have bad banks out there, banks that are bankrupt in all but name. What does bankrupt mean? The word was first recorded in 1533 and is latin-based, banca rotta: literally "broken bench", with banca, the bench, being the moneylender's shop, and rotta meaning "broken, defeated, interrupted", from the latin rupta, the feminine past participle of rumpere, to break. It became a verb in 1552.

A bankrupt bank is a broken bank, a bank that can no longer operate. It's a bank where the differential between savings interest rates and loan interest rates isn't enough. It's where fees fail to cover costs. It's a bank where the risk management strategy (such that there was one) has completely failed to prevent the catastrophic loss of value in the assets that made up the bank's securities.

So, what is to be done?

Here I agree with the WSJ (surprise, that, eh?). We need a good bad bank.

The principle is simple: we have a huge mess and we need to start cleaning it up, rather than letting the pile sit and fester. It's not a dry mess, some sort of heap that can be safely ignored, but rather it's a wet mess, one that has already started to stink, and the weather is getting warmer. If we don't want to have the financial equivalent of the garbage crisis that has made the Italian city of Naples almost literally unlivable, this has got to be cleaned up, dried up and deodorized. That is why we need the good bad bank, the bank that will deal with the problems, that will lay the sump dry, that will pump out the financial septic tank of the subprimes and stop the flooding.

Of course, that means that the problem has to be acknowledged and accepted, and Congress, in its infinite wisdom, steadfastly refuses to do so. They can't, politically: they caused the problem and are desperately seeking ways to deny that they smacked the collective banking system upside its head with a 2x4, after encouraging it to take off all the safety gear.

That leads us to Congress and the new budget from Team Obama.

The idea that government spending is connected somehow with a multiplier, that government spending can get us out of a recession, is based on a fundamentally mistaken view of how the economy works. If it were really true that government spending has a multiplier effect greater than 1, then all we ever need to do is have the government spend money. Private spending isn't needed, since you can generate growth simply by having the government spend, and by applying the growth rate of government spending to the multiplier, you can fine-tune the growth of the economy.

Nice try. Doesn't work in the real world. Why?

Because government doesn't add value in any sort of meaningful way. What we economists measure when deciding growth is value added in production, and GDP is nothing more than the value added to the economy. It's what is left over after everything has been sold, bought and paid for: fundamentally, it is the profits of the country.

Government spending has to be funded: it is done via taxes and bonds, with the occasional sale of assets. Both are taken out of profits, but given the fact that businessmen aren't dumb, these are factored into prices in such a way that the maximum amount of taxes and other financial costs - which government bonds affect - is carried by the customer, not the company. This can't be done completely - competition prevents this - but this is fundamental.

Hence government spending may have some beneficial effects as companies sell the government goods and services, but the government isn't spending "it's" money: it is always, always spending someone else's money.

Now, of course, this becomes political: can the government spend money in a meaningful way? My basic position, borne not merely out of political persuasion, but also years of living in DC, is that government spending is always sub-optimal when compared to private spending. There is simply no pressing need for government spending to be as effective as possible, which is always present in private spending.

Hence the multiplier effect on the economy will severely disappoint, as it always has in the past (and will always do so in the future). Professor Barro puts the multiplier at 0.8 at best, and that is for military spending alone.

In other words, Team Obama is trying to get us out of the worst recession since the 1930s by turning to solutions from the 1930s. That's not just dumb, that is stuck on stupid, seriously stuck on stupid. The greatest stimulus that the US economy could have would be to cut corporate taxes as low as possible - but not lower than zero - so that any spending is done efficiently, and not by the government.

And it remains, for me, simply flabbergasting that anyone could believe that governments spend money efficiently and productively in comparison to the private sector. Simply not true, as anyone who has ever worked for government will admit, if they are honest.

And it is efficiency that brings us to the third article: Chinese banking, which I fear will be the nail in the coffin of the current world economic system.

Chinese banks have a countercyclical pattern of lending: in boom times lending drops, in bust times lending increases. Normally bank loans increase during a boom and decrease during a bust period, reflecting demand for capital in an efficient system (called the market).

Banks in China remain firmly under control of the government there. The danger now mounting are the signs that China will generate a new credit bubble, one that they will not be able to control, as the non-performing loans are already large (and well hidden within the Chinese banking system), they will climb to the point where the Chinese banks, just as the rest of the world is starting to climb out of the hole that Congress dug, will have to take massive write-offs that will effectively break the Chinese banking system, just as the banking system in the US, Europe and, to a significantly lesser effect, Japan starts to climb out of that hole.

That would bring about a complete renewal of the crisis of the banking system at a time when recovery resources are exhausted.

We need a good bad bank, we need Congress to spend all of its time squabbling about ... anything, as long as they don't actually try to do anything, we need Team Obama to start actually listening to economists like Professor Barro, and we need the Chinese to clean up their banking system before it breaks.

In other words, we need a lot of miracles.

The best quote from the inauguration

This from Andrew Breitbart.

He's right.

Good luck, President Obama. The rest of you can go to hell.

I can only agree. God bless the President, he is my president as well.

But the rest of the Democratic party and the rest of the Left?

I agree with Andrew.

Propaganda, Naiveté & The Boston Globe

This is an interesting piece.

Eric Calderwood, an otherwise unidentified Harvard grad student in Syria - I say that because we do not really know why he is there, and a cursory check on the web fails to reveal much more than the article in question (there are too many Eric Calderwoods out there) - writes about how he feels after watching the Violence Network, Al-Jazeera, and its coverage of the Gaza fighting. He's there to study Christian-Muslim relations in the Middle Ages, according to the article.

It's obvious that Al-Jazeera is propaganda: Calderwood states as much. Let's take a closer look.

DAMASCUS - This morning, while I made my coffee and eggs, I tuned in to the best show on television. When I went next door to buy my milk, the owner of the Rawda Grocery Store was already watching it, and down in the Sha'alan neighborhood, at the restaurant where I ate breakfast yesterday, customers are sitting over their bowls of fava bean soup, eyes glued to the screen. Millions across the region are following it along with us.

First off: the best show on television. Everyone watching it, eyes glued to the screen. This is the key to the whole problem of propaganda in the Middle East: of the failure to make a differentiation between reality and manipulated reality. This plays extremely well to the Arab public, which for all of its sophisticated political analyses - no one loves political speculation more than the Arabs - is extremely naive in understanding how they are manipulated by what has become an alternative reality.

I'm not going to quote this all - go read the article - but will highlight some items and claims to show how this propaganda has its effects, and why propaganda is inherently damaging, not merely to the political process, but in preventing people from being confronted with true reality, as opposed to a manipulated and manufactured reality held up for inspection.

It is openly partisan, almost never showing Israeli deaths or injuries. It is also provocative and upsetting in a way that looks nothing like news in the West. Their broadcasts routinely feature mutilated corpses being pulled from the scene of an explosion, or hospital interviews with maimed children, who bemoan the loss of their siblings or their parents - often killed in front of their eyes. Al-Jazeera splices archival footage into the live shots, weaving interviews and expertly produced montages into a devastating narrative you can follow from the comfort of your own home.

In other words, it is not only openly partisan, it is also deliberatively manipulative in a way that the mainstream media in the US and Europe, for all their faults, steadfastly refuse to follow.

This is news without even the pretense of impartiality. After several days of following the Al-Jazeera coverage of Gaza, I've never seen a live interview with an Israeli, neither a politician nor a civilian. In the Al-Jazeera version, the Gaza conflict has only two participants: the Israeli army - an impersonal force represented as tanks and planes on the map - and the Palestinian civilians, often shown entering the hospital on makeshift stretchers. There are few Hamas rockets and no Israeli families. It's not hard to see why Al-Jazeera is accused of deliberately inflaming regional enmity and instability.

This is typical double-speak: Al-Jazeera isn't merely accused of deliberately inflaming emotions - as if that was needed - it deliberately does so. This is the typical fear of naming what needs to be named.

But in a larger sense, Al-Jazeera's graphic response to CNN-style "bloodless war journalism" is a stinging rebuke to the way we now see and talk about war in the United States. It suggests that bloodless coverage of war is the privilege of a country far from conflict. Al-Jazeera's brand of news - you could call it "blood journalism" - takes war for what it is: a brutal loss of human life. The images they show put you in visceral contact with the violence of war in a way statistics never could.

Oh goodness gracious. This is what prompted me to post: this is where Calderwood goes completely wrong.

CNN doesn't show blood because it is blood that incites. The role of CNN and others - this is how they understand themselves, the bias that they often show is another discussion - is not to incite, but to inform. Nothing more, nothing less: by showing blood it then becomes a race for the bloodiest pictures to get the best ratings, and that will do nothing but lose them viewers in the civilized world. Al-Jazeera isn't a stinging rebuke for the lack of CNN showing blood, but rather is the example of why CNN doesn't do that: to do so means taking sides, of becoming a propagandist outlet.

War is of course bloody and people get killed. They don't just get killed: their bodies get torn apart by explosions, limbs removed from torsos; bullets tear off limbs and turn people into ground meat; they burn to death, screaming their lungs out; they bleed to death, slowly and in great pain; they lose their minds from shock; war is hell. I don't think that anyone at CNN and elsewhere doesn't know this, or is simply too "civilized" to show the results of war.

Rather, they know that it is a bad thing to do so: it inflames the emotions, it creates more anger and more fear, it makes the situation worse.

For an American, to watch Al-Jazeera's coverage of Gaza is to realize that you've become alienated not just from war, but even from the representation of war as a real thing. As Americans, we're used to hearing the sound of heavy artillery, machine guns, and bombs in action films and video games. Yet here on the news, they seem strangely out of place. You could argue that Al-Jazeera uses images of civilian violence to foment public outrage against Israel. This might well be true. At the same time, these images acknowledge human suffering and civilian death and stand strongly against them - and in doing so, foment outrage against war itself.

This is where the deliberate use of war victims as propaganda comes into play, but only in the West. This is the call for pacifist reactions, the deliberate appeal to the western viewer of how horrible this is, done deliberately to generate sympathy and a call for cessation of conflict. But generating these images and generating this emotion is a deliberate act, aimed at sapping the willingness of opponents to continue the fight. That is, after all, one of the prime goals of propaganda. It's not just about whipping up the emotions of your own followers, it's also about attacking the will of your opponents to resist you, it's attacking the supporters of your opponents to deny your enemy their support.

Whether you are a fan or a critic of the network's presentation of the news, it's hard to deny that Al-Jazeera is, first and foremost, excellent television. The network's command of the form is one reason why it has resisted being marginalized, and even gained in prestige, despite acrimonious criticism from the American government and from many Western media sources. Watching its sounds and images, day after day, has a powerful effect totally outside the framework of the conflict it's covering.

Wrong, wrong, wrong: here Calderwood is mistaking professional quality television production with excellent television: more exactly, he is discovering how powerful professional propaganda can become. But professional propaganda is not excellent television.

Al-Jazeera choreographs its Gaza coverage with a sophistication that goes well beyond the dramatic representation of violence. To watch the war on Al-Jazeera is to be captured in a new rendering of time, and to become part of an "imagined community" defined by it. The network uses a ticker-tape format, with a constant flow of text underneath the main image. To the left is a small box that counts the days of the war in red and white fonts. Thus, while watching the news, you're introduced to a new calendar, in which the beginning of the war is the beginning of time. The ticker tape at the bottom of the screen includes a running count of the human cost of the war, steadily tolling the number of wounded and dead.

The key word here is choreography. It is sophisticated, but it's not good TV. It's professional propaganda, aimed largely at the Arab world, designed to be heart-rendering. That's not excellent television.

The network's producers seem to have learned a lot from American reality television, where real footage is crafted and spliced into a compelling narrative with characters, personal conflict, and a dramatic arc. Each day, viewers here in Syria and across the Arab world tune into a new "episode." Each day, the war's narrative builds and folds back on itself, reinforcing the audience's familiarity with the cast of characters: Hamas, the scrappy rebel; Israel, the regional bully; the civilians of Gaza - and, in particular, the wounded children - caught in the middle of the conflict. The "international community" is a bloviating model of inefficacy, tied up in innumerable committees and summits. Through it all stride the Al-Jazeera correspondents, decked out in blue bulletproof vests.

In other words, it's all about the show. The images are deliberately manipulated - real footage spliced with something that isn't real - to create an emotional response.

Al-Jazeera often goes live to the correspondent in Gaza City right at the beginning of the daily three-hour cease-fire, when the Israeli army is supposed to put down its arms to allow the entry of humanitarian aid into Gaza. During this shot, the correspondent inevitably "catches" live footage of the Israelis continuing to bomb well into the cease-fire period, and inevitably expresses surprise and dismay at what he is seeing, even though he is essentially replaying a scene he framed the same way the day before, and the day before that.

Again: manipulated reality. This is where the MSM in the US is increasingly headed, with its "faked but true" tendencies to be liberal with lies when it serves the greater cause. This is where media turns into propaganda, this is where the fine line is crossed between reporting the news and manufacturing it.

The staged suspense, the protestations of surprise - they smack of cynical theater. But it's hard to argue with the footage itself: There have been several independent reports of Israeli attacks and raids during the daily cease-fire. However they choose to frame it, Al-Jazeera correspondents are capturing events that other networks cannot. At that basic level, what they're doing is irreplaceable as journalism.

It is cynical theater: it is revolutionary street theater, it is the shameless manipulation of truth with manufactured reality. It is propaganda. it is not as "irreplaceable as journalism", they are raping journalism in the name of the greater cause, they are abusing and destroying journalism. They are not capturing events: they are staging the events, they are manipulating the events, they are showing a single side of the events.

It is not excellent television

As perverse as it may sound, Al-Jazeera's coverage of the war satisfies, in the same way that a sitcom or serialized drama satisfies. It's not so much surprise that keeps bringing you back, but rather your familiarity with the characters' flaws and faults. And you know that your experience of the drama is not individual but rather collective. Walk into any cafe, grocery store, or dry cleaner in Damascus, and you are almost certain to find a TV tuned to Al-Jazeera's around-the-clock coverage of the war in Gaza. There is solidarity and also a certain comfort in watching the grim reality of war en masse.

Again, this underscores how Al-Jazeera is the tool of choice for the modern propagandist: the reality of the war would be so unsatisfying without their changes to reality, to adjust reality - or more exactly the perception of reality - to meet their needs, but failing in the core fundamental of journalism, of actually reporting what happens. Al-Jazeera is propaganda, not journalism.

It is impossible for me to imagine American viewers caring this much about a war they were not fighting themselves, especially one presented CNN-style, as an intermittent report of statistics, diplomacy, and military briefings. Al-Jazeera's critics would argue that the network has a lot to learn from the objectivity prized and upheld by well-regarded Western media outlets. But the American media has something to learn, too: Showing the actual violence of war is how you get the public to grasp the nature of war. Our networks' squeamishness about violence lets us keep human death and suffering at a distance, an abstract consequence of policy. If what you are worried about is individuals, then to look away from violence is not a neutral position.

Network's "squeamishness" about violence has nothing to do with keeping death and suffering at a distance, but rather it is because the emotions instigated by such displays leads to wars. The Spanish-American War was created by Hearst and the other Yellow Journalists of the day.

Or put it this way: would not the American viewing population during the attack on 9/11, if they had been shown the people leaping from the burning towers, showing how they impacted, crushed into bloody pulp and left lying there so cruelly, have been inflamed, would not they have cried out for justice, for revenge, nuke them till they glow? The hijackers came from Saudi Arabia and were Muslim? Nuke Mecca. Feel the rage, feel the anger, until it overcomes reason and lashes out. That is exactly what bin Laden wanted, what he expected, and where he was so completely and totally wrong.

Don't try to deny that this wouldn't have happened: for this reason the civilized world has sensibilities, does not appeal to raw emotions, demands stepping back and understanding what has happened. After all, the greatest bloodletting on European soil, WW I, was a war of emotions, without sense or meaning, driven by propaganda on both sides. The development of western civilization is, in many ways, the triumph of reason and sensibility over resentment in its many forms.

Propaganda is the sign of weakness, of the need to manipulate and deny, to lie and hide the truth.

...

That word "Holocaust" on that poster (in Arabic, mihraqa) is also a provocation, and it's only part of the very deliberate lexicon used on Al-Jazeera to describe the Gaza War: "aggression" ('udwan), "occupation" (ihtilal), and "genocide" (ibada). If objectivity is your yardstick, the entire way the network's newscasters discuss the war disqualifies them as journalists. But this is also how my Syrian neighbors see American journalism, which lumps any number of Arabs and Islamists and political rebels together as "terrorists."

Again: the deliberate provocation, the deliberate lexicon of words designed to generate emotions. The fact that his Syrian neighbors are unable to discriminate does not deny the fact that Al-Jazeera have disqualified themselves as journalists: they are propagandists.

Here in Damascus the ethical stakes of this war of words are very real. Yesterday, I went down to a popular shopping district a few blocks south of my house to buy groceries. On the main commercial strip, I noticed that a number of the stores had put up anti-Israeli propaganda posters. Many of them featured a burning American flag with a Star of David and a swastika in the middle. On many thresholds, shop owners had painted the Israeli flag so that their customers could step on it. In one storefront, the owner had placed a poster that said: "Americans not welcome." Ironically, this shop owner is also the landlord of some of my best American friends in Damascus.

This has nothing to do with "ethical stakes": this shows the desired results of propaganda and state-run news, designed to manipulate a population that is more than willing to go along with the propaganda story. Offer any one of those folks a green card and you'd see how thin that veneer of hate would be...

I can understand why many people strongly believe that Al-Jazeera itself contributes to these regional hatreds. But after months of watching the network intensely, I can honestly say that I've never heard their newscasters frame an argument or a story in anti-Semitic or anti-American terms.

Here the title of this post comes into play: the naiveté here is extraordinary. If you have studied propaganda methods at all, you know that the best ones are the ones that take control of the logical thought processes, where the target population is manipulated into coming to the desired conclusion that one must hate Americans or that the Jew is evil. This is not the mark of a lack of anti-Americanism, but vastly more the mark of a well-trained propagandist. Take the words of those you want to vilify and present the listener with a pre-made, readily digested matrix to interpret those stories: remove them from the need to think, and your job is partially done.

...

In a way, that's the paradox of Al-Jazeera's war journalism: It is flagrantly political, but accompanied by a real curiosity about other perspectives. It also makes me wish for something else: A TV network with the bravery to show the war imagery you can see on Al-Jazeera, but the integrity to do it in the service of peace, rather than the service of a side. Its violent imagery, however unpleasant, would be a strong stand for the individual against violence, and for human compassion against easily fanned hatreds.

This is not a real curiosity: the other perspectives are presented in such a way that they must appear incredulous, incapable of being believed. Calderwood has been in Syria too long: he has started to assimilate the constant stream of propaganda, of perceiving the world the way that the propagandists want it to be seen. The rest of the propagandists' job is to seduce the credulous, turning them into the true believers that the propagandist wants and needs.

The idea that propagandizing the news, of deliberately showing the evil necessities of war, can be done in the name of peace is accepting the fundamental story of the propagandist, that their story is true, and because it is true, peace can only happen when the violence stops. Calderwood has been in Syria too long: he is starting to believe that white is black, that 2 +  2 is indeed 5. Violent imagery serves only to enrage and horrify: presenting it must walk the fine line between inciting more resistance and destroying resistance by horrifying it.

After all, the perfect war is the one where the enemy, due to propaganda, falls without a single act of violence. This was the goal of Soviet propagandists, and the Syrians learned from the true masters of this trade.

Powell & The Real Message...

Colin Powell is a man who deserves respect. He dedicated decades of his life to his country, both in the military and as a political appointee at the State Department.

He writes in the WSJ here.

His message is that service  to your country is an honorable thing, something that everyone can perform, and you don't have to do it on the front lines. Mentoring, volunteering, all can play a role.

He's right.

But what is the real message that Powell is also sending?

This:

While government has a role to play in restoring the American dream at home and rekindling the dream that is America abroad, there are limits to its ability to restore our sense of purpose as a nation.

This is why Powell, for all his foibles, is still a Republican, and not one in name only.

The real message is that no matter what the Democratic Party says, no matter what the pundits pontificate, no matter what the rabble claims, government is not the answer.

That's the real message: government is not the answer.

The problem, of course, is that government doesn't believe this. The next few years will show this: we'll see the debt balloon, we'll see major expansion of both government spending and a major expansion of entitlements - the greatest error of the Obama presidency will be the attempt to create a health insurance system that will end up creating entitlements to health care that will effectively put the country in an economic strait jacket if not modified - that will need to be changed and rolled back in order to save the country from a permanent and onerous tax burden that will effectively kill economic expansion for decades.

This is where the Republican Party should be reborn: a return to Reaganesque politics of small government and greater control over spending. The Democratic Party, after achieving the trifecta of American politics (House, Senate and the Presidency), will try to realize their misbegotten goals and will do what Democrats always do: ignore economics and fall flat on their collective faces when it comes time to pay the bills. The War on Poverty failed abjectly; the "Moral Equivalent of War" or MEoW of Carter failed abjectly; health care reform under Clinton failed abjectly; the welfare state had to be repealed (with Clinton led there by a Republican Congress) before the economic boom of the 1990s and in the first years of this century could take off.

Republicans should concentrate on three things: grass roots, governorships and taking the high road of loyal opposition and call for a mea culpa by the party for the error of their ways. The corruption and big-spending habits - odd, how those two go hand-in-hand - should be replaced by a clear dedication of opposing pork, of making earmarks and corruption of the Democratic Party the core theme of the next 2 years. A new "Contract With America" would help, but only if it is actually kept. America, despite what the Democratic pundits think (and they are going to be severely disappointed with Obama because he won't dance to their tune), is and remains fundamentally a conservative country, with a deep and abiding interest in the American Dream of following your own path to success and prosperity.

That's the real message in Powell's article.

Smart & Stuck On Stupid...

I wish that more people would realize that being smart doesn't mean you can't do stupid things.

What we are seeing from Congress has got to qualify as the biggest CYA event since ... I can't think of any that comes nearly as close, perhaps the CYA events after 9/11.

Barney Frank wants subsidies to provide "overstretched borrowers" with cash-flow relief.

This has got to be probably the most expensive way of dealing with the subprime crisis and the one that most benefits his party. Duh on that last point.

What Frank wants is for the US taxpayers to subsidize those who, under the institutions and laws that he made possible, were able to get loans that they could never repay, with the explicit goal of keeping those folks in their houses.

Look, mistakes were made, mistakes that the Democrats are desperately trying to paper over. The mistake was concentrating on a single metric - private house ownership - while suppressing the fundamental fact that you can't have people buying houses who can't afford them. The political, as it so often does, trumped the economics of the situation, and hence the subprime was born.

Those are the facts: you can't deny them (as much as some apologists have tried and tried).

How do you deal with this problem?

Well, you can simply let those who bought houses without the means to pay for them lose their houses and have the owners of the mortgages own them. This is the simplest solution, but leaves the various real estate funds holding massive amounts of real estate that they would not have chosen to acquire (they bought the cash flow on the mortgages, not the mortgages themselves), and not a few of such funds would go tits up. This is what the bailouts are designed to avoid.

What Frank et al want is to take those poor doomed souls that made the mistake of buying something that they couldn't afford (except under the special circumstances of strong price growth allowing equity to be "created" that covered their costs) and make sure that they suffer no effects of what basically amounts to their own stupidity.

This is the most expensive way of dealing with the problem. Those mortgages are too large for the property's value, now that prices have started their downwards adjustments - and prices will continue to go downhill for quite a while yet - which means that Frank's plan will have the US taxpayer not merely subsidize the mortgages, but also an inflated value of those houses.

The only ones benefiting from this are the banks - happy to get their cash flow back on inflated values - and the tenants.

What makes it worse is that this will work against market correction of housing prices, since houses will not enter the market, reducing the supply. This doesn't change the fundamental problem of housing prices as of right now, which is that they must fall to meet demand in a day where risk considerations are back in force.

The best way to lose money is to try to support an indefensible price for something. Paying subsidies to keep prices artificially high works as long as the pockets of those paying the subsidies are deep: in this case, the Federal Government.

So what's the problem with that, you (Democrats) ask?

The problem is that this is being done not to achieve the most economical solution - which should be of paramount importance when we're talking subsidies that start to take up a significant portion of new debt (i.e. debt for consumption purposes: didn't we have some problems with that?) - but it's being done to save political careers and to prevent people from realizing that the Democratic Party, fundamentally in at least this aspect - is stuck on stupid.

It's not that they're dumb - assuming that may be what is euphemistically called a heroic assumption, but they deserve the benefit of the doubt - but much more they are desperately trying to avoid ownership of the disaster.

Let's make it clear: the subprime fiasco, the collapse of markets, the billions now probably being misspent, all happened under control of the Democrats, as part of Democratic party principles and with full knowledge of those involved.

So you can be smart, but still be stuck on stupid.

California Dreamin' ...

If despair were not a sin, I would despair.

Lawyers exist to advise people on the law. They create nothing on their own, but provide such services to those who actually are out there making things and creating value.

The problem is when lawyers get a tad ... ambitious. Ambulance-chasing has become not merely honorable, it seems.

But it's worse than that. When they work for the government, lawyers also make rules. That's fine: that's why they're there. The problem arises when lawyers and politicians get together - or are indeed one and the same - and the rules are designed to do by bureaucracy what the legislator wouldn't dare do in a public process. Like close down manufacturing companies because they use icky chemicals. Because they don't do it according to "standards".

This is what happens. Yes, it's a link to Surfer Magazine. Never thought I'd ever do that, but it has to do with someone who was innovative, who set up a successful business, who is now facing the loss of his business, massive fines, financial ruin and maybe even some jail time.

Because he set standards. When the regulatory people came, they demanded compliance with "standards". The problem? His standards - and he created his own industry - weren't "the" standards, and indeed there were no standards except for his standards. But by not being in compliance with "standards", he faces massive punitive fines and the elimination of his business.

And the ironic bit: he gave the interest group behind the legislation that is putting him out of business their start-up money.

Talk about biting the hand that feeds ya...

Oh, and a hat tip to Chicago Boyz via InstaPundit...

True Colors...

The House Democrats are showing their true colors: the colors of people who don't want discussion and debate, who don't want to hear from anyone dissenting, who are more than happy to true to bitch-slap the Republicans in the House.

So much for working on a bi-partisan basis. This is an ugly power grab, nothing less.

What's involved?

Let's quote the Republican Minority's letter to Madam Pelosi:

President Obama has pledged to lead a government that is open and transparent. With that in mind, we are deeply troubled by media reports indicating that the Democratic leadership is poised to repeal reforms put in place in 1995 that were intended to help restore Americans' trust and confidence in the People's House. Specifically, these reports note that the Majority, as part of its rules package governing the new Congress, will end six-year term limits for Committee chairs and further restrict the opportunity for all members to offer alternative legislation. This does not represent change; it is reverting back to the undemocratic one-party rule and backroom deals that the American people rejected more than a decade ago. And it has grave implications for the American people and their freedom, coming at a time when an unprecedented expansion of federal power and spending is being hastily planned by a single party behind closed doors. Republicans will vigorously oppose repealing these reforms if they are brought to a vote on the House floor.

This is the true face of the Democratic Party, it seems. One-party rule, backroom deals, and opportunities galore. For corruption, that is.

The American people also stand to pay a price if the Majority further shuts down free and open debate on the House floor by refusing to allow all members the opportunity to offer substantive alternatives to important legislation -- the same opportunities that Republicans guaranteed to Democrats as motions to recommit during their 12 years in the Minority. The Majority's record in the last Congress was the worst in history when it came to having a free and open debate on the issues.

The Democratic Party is more terrified of actually having to discuss their political plans, it seems, and desperately wants to relegate the House Republicans to the sidelines in order to force their agenda through Congress with as little interference as possible.

They can do it. To the victor belongs the spoils.

But there's no need to pretend any further: the Democratic Party has turned extremely anti-democratic and doesn't want to work with the Republicans. They apparently seriously believe that they have a mandate for "change" and fuck those who are in their way: they also know, deep in what is left of their souls, that this is their one and only chance to put forward their bankrupt agenda.

Watch for late-night legislature sessions, watch for strange legislation pushed through quickly and with no dissent allowed. The Democratic Party is apparently afraid that those who voted for them will actually wake up and start paying attention.

And they're right. No debate, no minority consultation or moderation, no observers. This is the subversion of the legislative process.

But the Democrats don't care, and are throwing out rules that helped them enormously when they were in the minority.

Stupid Republicans, I guess: willing to be bipartisan when that really meant giving in to the Democrats; willing to respect the need for allowing minorities a say; willing to work together.

Fool me once: shame on you; fool me twice, shame on me.

Let's hope that this becomes an object lesson for future generations on what not to do when you're in power. So much for the Pelosi promise of the most honest, open and ethical Congress in history. Yet another Big Lie. True colors...

Corruption, Vultures & A Letter...

This is interesting.

The more sophisticated examples of corruption hide the causality of action nicely, with kickbacks heading not to those who want to profit directly, but indirectly to benefit those who the corrupt officials want to benefit. This can mean financing a political group who attacks his opponent, for instance, without being paid for directly, or getting something lobbied that the politician wants.

The key to the corruption is, however, the quid pro quo: the deal. Finding the deal is the hard part.

This deal appears to be clear: for no good reason - or has anyone found one? - Charles Shumer bad-mouthed IndyMac and caused the bank run that was the death blow to that bank.

Now it is being bought at what is called a "distressed" price, meaning that they will be paying a few cents on the dollar.

Shumer is Democratic Senator from New York. He's not merely any senator, but is in the Democratic Leadership Team.

Soros and his fellow investors are key financiers to the Democratic Party.

This is a classic case of corruption: essentially an impairment of integrity, virtue or moral principle; an inducement to wrong by improper or unlawful means.

In this case, the US taxpayer is paying. IndyMac probably wouldn't have gone under if Shumer hadn't bad-mouthed it (by publicly saying that the bank was in trouble when it wasn't), and now his financiers are apparently buying assets worth in excess of $200 bn for only around $1.5 bn, with the US taxpayer covering around $10bn in losses.

Again, remember that Shumer is Democratic Senator from New York, not any senator, but one that sits on the committees that have oversight of the banking system. He made the letter public.

Interestingly enough, IndyMac was completely apolitical, and gave no contributions to any campaigns. That is apparently a part of the problem: Shumer collected hundreds of thousands in campaign contributions from companies that have gone as badly as IndyMac, but where he didn't make it public.

Given that he sits on these committees, you'd have thought that he'd know that it is reckless and grossly irresponsible for him to question the liquidity of a bank publicly unless he actually wanted the bank to collapse.

His comments lead the stock to lose 25% of its worth and saw bank customers withdraw $1.3bn in 10 days, effectively ruining the bank.

Some 10 mn shares were shorted.

Now, IndyMac had problems, problems from the structural mistakes that have led to the financial crisis.

But they were trying to deal with them, and while they might have ended up in Chapter 11, they'd have remained at least a going concern.

Shumer's actions led them to file Chapter 7 instead, which abandons the idea of keeping the company alive and simply closes it down. Assets are disposed of with the hope of getting something for them, but this usually turns out only to be profitable for vulture funds and the like.


Now we know who else.

On Hamas and The Laws of War...

This is the key Article in the Geneva Convention for the conflict between Israel and Hamas:

It is Article 28:

The presence of a protected person may not be used to render certain points or areas immune from military operations.

Violation of this is a war crime.

Period.

The Swedish Diakonia says this:

The use of civilians to protect the military is an illegal method of warfare misusing their vulnerability and protected status by forcing them to take part in the hostilities. The involvement of civilians puts them under jeopardy and in fact strips them of their protection.

Hence Hamas is engaging deliberately and with full knowledge illegal methods of warfare, i.e. war crimes.

How so?

This:

GC 1 Art. 50.

Grave breaches to which the preceding Article relates shall be those involving any of the following acts, if committed against persons or property protected by the Convention: wilful killing, torture or inhuman treatment, including biological experiments, wilfully causing great suffering or serious injury to body or health, and extensive destruction and appropriation of property, not justified by military necessity and carried out unlawfully and wantonly.

Hamas is willfully causing great suffering, extensive destruction not justified by military necessity, carried out unlawfully and wantonly. By deliberately using the presence of civilians - i.e. protected persons - to attempt to render certain points or areas immune from military operations, they are the ones committing the war crimes.

Still not convinced?

See this:

AP 1 Article 85 - Repression of breaches of this Protocol

[...]

3. In addition to the grave breaches defined in Article 11, the following acts shall be regarded as grave breaches of this Protocol, when committed wilfully, in violation of the relevant provisions of this Protocol, and causing death or serious injury to body or health:

(a) making the civilian population or individual civilians the object of attack;

(b) launching an indiscriminate attack affecting the civilian population or civilian objects in the knowledge that such attack will cause excessive loss of life, injury to civilians or damage to civilian objects, as defined in Article 57, paragraph 2 (a)(iii);

(c) launching an attack against works or installations containing dangerous forces in the knowledge that such attack will cause excessive loss of life, injury to civilians or damage to civilian objects, as defined in Article 57, paragraph 2 (a)(iii);

(d) making non-defended localities and demilitarized zones the object of attack;

(e) making a person the object of attack in the knowledge that he is hors de combat;

(f) the perfidious use, in violation of Article 37, of the distinctive emblem of the red cross, red crescent or red lion and sun or of other protective signs recognized by the Conventions or this Protocol.

[...]

4. In addition to the grave breaches defined in the preceding paragraphs and in the Conventions, the following shall be regarded as grave breaches of this Protocol, when committed wilfully and in violation of the Conventions or the Protocol:

[...]

(d) making the clearly-recognized historic monuments, works of art or places of worship which constitute the cultural or spiritual heritage of peoples and to which special protection has been given by special arrangement, for example, within the framework of a competent international organization, the object of attack, causing as a result extensive destruction thereof, where there is no evidence of the violation by the adverse Party of Article 53, subparagraph (b), and when such historic monuments, works of art and places of worship are not located in the immediate proximity of military objectives;

In other words, by hiding amongst the civilian population, by firing their rockets towards Israel with the deliberate aim of causing civilian causalties, by making civilians targets, by using mosques as weapons dumps and to house combatants, Hamas is committing war crimes.

The last point - 4 (d) - looks to be the weakest of the arguments, but for that critical point: where there is no evidence of the violation or abuse of these areas. Given the way secondary explosions have occurred, that appears not to be the case.

The ones in this current conflict who need to worry about violating the Laws of Warfare as laid out in the Geneva Conventions are Hamas. Israel obeys these rules. Hamas does not.