Samstag, April 25, 2009

On Understanding Nuances...and On Thinking About the Unthinkable...

Lot of posts out there in the blogosphere on torture.

Largely because President Obama has deemed it fit to be publicly discussed, via his disclosures about US policy and changes to such, there's a lot of discussion out there, usually about how the US shouldn't be torturing people and what defines torture, as well as the rather generic statement that it doesn't work.

As usual, the real question is being ignored. And I dare say that most readers will find this cold-blooded and more than a little disturbing: for a normal civilized person, it should be. More on that later.

You see, there's "torture" and then there's torture. One is something the US is accused of, which sullies us, the other is what the other guy actually does.

Further, there is little or no understanding of who we are really dealing with: instead, there is a lot of anguished ignorance out there.

First of all, let's talk about what real torture is about: it's not about information. It's everything about breaking the person who is being tortured, of breaking their will. Will to resist, will to believe, will to be who they are, will to anything. That all depends on the circumstances: the aviator tortured by the North Vietnamese was being broken for propaganda purposes and to punish them for their audacity and, to no small extent, to punish them for being so damned effective. Torture here is systematic, with physical abuse coupled with psychological pressure: physical abuse weakens resolve, weakens the ability to argue, makes clear to the one being tortured that there is no doubt, none whatsoever, of the relationship between the torturer and the tortured. This relationship is one of power, that the torturer can inflict debilitating physical pain at will, coupled with detention that is arbitrary and irrational.

On this basis, the psychological deconstruction of the torture victim can start. Get them to the point where they automatically flinch when a torturer enters a room, where they can do nothing else besides acknowledge the superiority of the torturer by abasing themselves to avoid torture. This happens to anyone being tortured at some point: everyone breaks, Hollywood films to the contrary.

Torture maims, permanently damaging someone. It might be a gouged-out eye. It might be broken bones that don't properly reset. It might be permanent neurological damage to parts of the body, such as Senator McCain got when he was tortured. What is harder to see is the psychological damage when someone breaks, when they are broken and are willing to do anything to stop the pain. And the psychological damage when it becomes clear to them that even after they have broken, the torturers are just getting started.

Torture has everything to do with destruction: of psychologically destroying the person deemed worthy of torture. Be they a dissident, be they a political opponent, be they part of an unfriendly tribe or family, be they the wrong color, gender or sexual orientation. Makes no difference: they share a common characteristic: they cannot be allowed to further exist as they do, but must be humiliated, forced to undergo extreme pain at someone else's pleasure, and most of all: they must be made to suffer.

Now, I'm not extolling the virtues of torture. Quite the contrary. Torture is the sign of extreme weakness, a sign of incompetence, a sign of desperation. It is a sign of fundamental inability to come to an understanding that political/ethnic/moral opponents even have a right to existence, let alone a right to not be tortured.

Real torture also doesn't limit itself to torn fingernails or gouged eyes. It's one thing to sacrifice your own physical well-being, it's another thing entirely to have that inflicted upon your loved ones because you refuse to break. That never works, and if the torturers are out for revenge, are out for psychological destruction, are out to destroy personalities, then there is no better way to do that than to make the target victim sit and watch his mother, his wife, his daughters being raped and violated, and then for them to watch him being tortured at length.

Now, the standard answer to torture is that it doesn't work, which makes it useless and hence something that shouldn't be considered, even in hypothetical situations.

This is where everyone I've read so far goes wrong.

First and foremost, torture isn't about getting information, it's about destroying the opponent, the one that you have captured. This is what the airmen shot down and captured went through: everyone broke in one way or another. Some faster than others, but everyone broke or died during torture. In any case, the goal wasn't information - at least this wasn't the primary goal - but rather the torturers aim at destroying an enemy.

Second: don't pretend that torture doesn't work. It does. The torturer isn't necessarily interested in one particular bit of information, but rather in tearing that person apart in order to ruin them. Information is a useful adjunct and flows when torture breaks a man. Sure, people tell lies to stop the pain: that works briefly until the torturer starts up again.

Third: those who torture don't give a shit about conventions or any other such bourgeois notions.

So, what does this have to do with the US?

Nothing. And that is my point.

What the liberals are calling "torture" - and the use of quotes is quite deliberate - isn't torture. I think I've covered what torture really is in quite some detail, and by no means exhaustive.

There's a world of difference, not merely semantic but fundamental, between getting information from reluctant prisoners and torturing them. Not even waterboarding, the newest of the supposed vices of the US, is torture, since the goal is not destruction of personality, but of extreme discomfort.

But not torture.

Now, what is the point of the public discussion about torture?

It is aimed squarely at destroying US institutions in order to weaken them. If CIA operatives no longer believe that they can aggressively question prisoners without ending up in jail themselves, then those questions won't be asked. The chilling effect here is already visible.

It is aimed at creating the illusion that the US is evil: that is, after all, what our opponents believe anyway, and the greater publicity about this, the better it is for those aimed at making this the accepted position.

It is aimed at destroying the credibility of the US and western Allies.

It is not aimed at actually stopping torture.

Mittwoch, April 22, 2009

This Is What Appeasement Looks Like...


The world gone mad.

This in the original, this is the translation via Watching America.

Someone by the name of Andrea Nüsse is arguing that the West must attend the Anti-Racism Conference of the UN because...


...we have to listen to other opinions.

The argument is that we should go to these conferences, sit there through the hate tirades and the absurdities, the search for scapegoats, the demand for massive monies for slights real but largely imagined, because...otherwise there is no dialogue.

This is what appeasement, modern appeasement looks like. The UN Anti-Racism Conference is a Kafkaesque farce, a picture-perfect example of turning something on its head: those in charge are the worst offenders.

In her words, Ms. Nüsse shows she doesn't understand this: she thinks that such a conference can actually have meaning.

It can't.

This conference is a complete and total farce: by insisting that it is wrong not to be there, not to lend legitimacy to the proceedings, means nothing less than the belief that this conference is real and the resolutions are in some way an actual expression of the UN's opinion.

This is the modern face of appeasement: of giving virulent Jew haters a platform to spew their poisonous diatribes, legitimizing them with the false tale of "we need to listen to their opinions" because if we don't, then the resolutions will be harsh.

I say: let them be harsh, let them condemn Israel for crimes imagined and imaginary. Let them rant and rave, let them de-legitimize the UN as a functioning organization.

Because it's not. The UN is a joke, a bad one, where barbarians play at being statesmen, where murderous thugs pat each other on the back and say it's their victims fault because they failed to give in to their perfectly fair demands.

I'm not one who wants to shut the UN down: it has its uses, largely for diplomatic communication, for getting statistical offices to agree on classification systems, for decent population forecasts.

But we need to hold up the clowns at the UN - which is about 90% of the diplomats there - for public ridicule and for tearing away the facade of legitimacy that gives a collection of thugs and thieves who are able to wrap themselves in the mantle of failed countries somehow the same status as legitimate governments, supported by their population and supportive of those who they govern.

Remember, the art of diplomacy is saying "Nice Dog" while finding a big stick.

Appeasement is hoping the dog just wants to play, that he won't do anything, that you can tell, even though his teeth are bared and he is growling, he's really just friendly because his tail is wagging. He's not vicious, he just wants to play.

Some animals do play with their food before killing it.

Too bad that so many seem to want to go along with this playing.

There's no place for dialog here, just as there is no place for a dialog with a pack of animals intent on dinner. This Conference was excised from the UN a number of years ago because the worst evil-doers ended up running it: the current incarnation is no better. Cancel the conference entirely and bring it back next year, but this time as a vehicle to humiliate the loonies.

Otherwise, it's a complete and total waste of time. There is no opinion there to listen to: there are no facts, there are no legitimate grievances, there are no right and proper discussions: there is only rantings, there is only abuse, there is only manifestations of evil.

Appease that?

The mind boggles.

Montag, April 20, 2009

The Face Of Corruption... America today is here.

The guy who is apparently set to become the AutoCzar is a fix-it-up kinda guy, it seems: the problem is that he fixes things so that he benefits.

This is the face of modern corruption in the US: it is the face of Chicago.

Let's review classic Chicago corruption. As the Socialist Worker puts it (I know, I couldn't resist using them...), Chicago is corruption king because, basically, two of the three pillars of government have been subverted: the executive and the judiciary, with representatives coming much closer (but given as they are produced by the system, perhaps the probability of someone not being corrupt just doesn't enter into the realm of the possible.

When judges are in collusion, not so much to put innocents away but much more to prevent the guilty from ever being sentenced, then you've got an enormous uphill battle that simply can't be won unless you can toss out all the judges - the good with the bad - and start anew with judges who want to put people behind bars.

Corruption is part and parcel of Chicago: there really isn't anyone who can meaningfully deny this. As one writer put it, cleaning up Chicago politics is like trying to clean grease off something using a sponge loaded with Crisco. Chicago has been corrupt for so long that no one can remember it not being corrupt.

The corruption we see here is both divide-and-conquer and the following shakedown. Divide & conquer means you divide neighborhoods up into ethnic/socio-economic ghettos in order to play one group off the other for financial and political gain: the key term here is "ward heeler", who would implant themselves into an ethnic enclave and then parlay government jobs and largesse into political power, aka votes. This subverts, of course, the idea of an independent voter choosing the best candidate for the job: when you know that your local politician got the money for your job, the chances of you voting him or her out are slim to none.

Now, one of the classic corruption forms is the shakedown: if someone wants to do business with the government, they have to "pay-to-play", make the right campaign contribution, hire the right people to "facilitate" business, buy their inputs from the right folks, and generally become part of the corrupt system. For some companies, it's just a way of doing business.

Now they're going after the public pensions.

New York Attorney General Andrew Cuomo and the Securities and Exchange Commission allege that investment firms paid politically connected "placement agents" in return for a piece of New York's $122 billion pension fund. The AG has indicted three politicos for kickbacks, but the media have focused on the private firms that hired some of these political agents. Thus the attention on Mr. Rattner, who as co-founder of the Quadrangle investment firm met with a consultant about paying a finder's fee for pension cash.

In other words, Chicago is expanding. It's now in New York.

For the record, it isn't illegal for investment firms to hire "placement agents." Hedge funds and private equity firms have long outsourced their marketing to companies whose job it is to reach out to potential investors and arrange roadshows. These placement agents are typically paid a percentage of the money raised.

In New York, however, the agents were also major political players. Hank Morris is a noted Democratic strategist and was a top adviser and chief fundraiser for Mr. Hevesi; Mr. Cuomo has indicted him for money laundering and bribery. Former Liberal Party boss Raymond Harding had aided in Mr. Hevesi's election. When men like these come knocking on investment-house doors, the message is pay to play.

Morris and others made $30mn providing access to sell investments to the New York public pension funds.

The real story here is ... the growing evidence of corruption by officials who use their power over public pension funds to shake down private companies. This is the same political class that has been blaming banks for "greed" in the financial crisis. The pension fund scandal exposes the myth of the superior virtue of the public and nonprofit worlds. Greed is universal. And the opportunity for corruption is enormous when political discretion is tied to vast sums of public money.

Let's reiterate that: the same poltical class that has been blaming the banks for being greedy is directly tied to corrupt practices in managing one of the holiest of holies in the US: the public pension funds.

The mechanism of corruption?

The indictment says Mr. Morris was aided by former deputy comptroller David Loglisci, who made clear to investment firms that they should hire Mr. Morris and who signed off on the subsequent pension fund investments.

In other words, pay to play: want to do business with us, you need to do us a ... few favors.

This scandal is only one example of how political actors leverage pension-fund cash for personal gain. The most routine and pervasive practice is the way officials like Mr. Hevesi tap hedge funds and private equity firms for campaign contributions. The Wall Street crowd knows that to refuse to pony up would limit their access to pension money.

This is direct abuse of power, aimed not so entirely at personal gain (indirectly of course), but much more trying to ensure that your party remains in power: failure to finance these folks means no business from the government pension funds.

It has also become routine for politicians to inject their pension funds into partisan debates that have nothing to do with the sound management of retiree money. Mr. Hevesi once used a pension-fund investment to threaten Sinclair Broadcasting into taking off the air a documentary critical of Senator John Kerry. Calpers, the California public pension fund, tried to bludgeon Safeway into capitulating to a striking union. The then-chairman of Calpers was executive director of the same food worker union that was striking. Safeway held firm.

This is the face of corruption in the US today.

Such misuse of pension dollars is increasing, and it was inevitable that it would lead to pay-to-play schemes. New York Governor David Paterson says he wants to end his state's practice of giving the comptroller sole control over the pension fund, and to move toward the system in which a board oversees the money. But as Calpers makes clear, any political board can also abuse its power. The real problem is the huge political temptation and leverage these public pensions create. The solution is to take these assets and the pension investment decisions away from political actors.


So, the man involved at the heart of this scandal, Steven Rattner, is now going to be the AutoCzar for government intervention into the Automobile industry.

Great. Just what that industry needs: pay-to-play for the auto industry. Want to survive as a parts supplier? Make sure that your union employees are happy. Want to survive as a parts suppler? Make sure that your political contributions are up to snuff. Want to survive as a parts supplier? Make sure that you support whatever it is your ward heeler wants.

Insidious, destructive and degredating.

Corruption is "impairment of integrity, virtue or moral principle; depravity, decay, and/or an inducement to wrong by improper or unlawful means, a departure from the original or from what is pure or correct, and/or an agency or influence that corrupts", according to Wikipedia.

Welcome to Chicagoland. President Obama is about as made a politician as you will find on this planet. Not necessarily the Italians, but most definitely the Chicagoans. What does a made politician do?

He steers things the way that his makers want him to. Push the country into massive deficits to benefit a few (we still don't know where the monies are going); don't let anyone get out of the deal when they realize what is happening (those silly banks, wanting to pay the money bank...the government decides when you're able to pay that money back, no one else); make sure that your backers get their payback (unions and pensions, the perfect marriage); above all, make sure that the monies keep on coming, pay to play.

Of course, when the entire economy turns that way, it's a tad hard to avoid beating it.

That's the face of corruption in America today: it's Chicago, the made men and those whe sent them...

Freitag, April 17, 2009

If You're Not Part Of The Solution...

...then you're part of the problem.

There's a man out there who is definitely part of the problem, and he is dedicated to making things worse. He simply doesn't comprehend economics, and is increasingly dangerous: not dangerous to his opponents, but dangerous to everyone.

His name?

Barney Frank.

Mr. Frank believes state and local governments are paying too much when they issue debt because rating agencies don't give them the ratings Mr. Frank feels they deserve. So last year he pushed a bill to effectively force Standard &Poor's, Moody's and Fitch to raise their ratings on municipal bonds, but the legislation got sidetracked amid the financial turmoil. Now Mr. Frank is back, bigger than ever.

Mr. Frank's problem is that he fails to understand that you can't change the world to make it fit your expectations. He tried that with the subprimes, we know how that turned out: he is trying now to do it with risks.

He'd like to create what he calls an FDIC-like federal insurance program for municipal bonds. Jurisdictions issuing debt would pay premiums into the insurance fund, and in return the federal government would guarantee the debt against default. Private companies already insure municipal bonds -- companies such as MBIA, Ambac and Berkshire Hathaway. And you may recall that last year the big bond insurers caused considerable angst when their exposure to mortgage-related debt called into question their ability to meet their muni-bond obligations. MBIA, in response, recently fenced off its muni-bond business from its other obligations.

What's the problem with that, my liberal friends might say? We're just leveling the field, allowing local governments to compete "fairly". The problem is that there's a reason why state and local governments "overpay" for their insurance: they are, fundamentally, a higher risk.

If Mr. Frank really believes that state and local governments have been forced to overpay for this insurance, one has to assume his federal program would charge lower premiums and so undercut its private-sector competitors. The government can charge low premiums without putting taxpayers on the hook, he argues, because the risk of default is so low.

Just like the default rate for subprime mortgages was so low, right? Mr. Frank is trying to legislate away risk: that is what is insanity.

Or is it? The payment history of municipal bonds seems to support Mr. Frank. But then the triple-A ratings assigned to many mortgage-backed securities were also based on backward-looking models that failed to anticipate today's housing bust. The muni-bond performance record is also mostly the history of uninsured bonds. But the very existence of insurance can change the behavior of the policyholder or beneficiary -- watch Barbara Stanwyck and Fred MacMurray in the 1944 classic "Double Indemnity." If a state or locality knows someone else will make bondholders whole, they are far more likely to default than an uninsured issuer would be.

Bingo. This is Mr. Frank's attempt to help states and localities that have run up huge pension and health-care obligations that they cannot afford, which will destroy their finances. But rather than cut back on the obligations - which is the only economically and financially sensible thing to do - he wants to make the taxpayer in general liable, and remove the risk from the state and local entities who made the promises. In other words, the removal of risk from the equation, most fundamentally: political risk for those who made these promises. Who are, to be certain, virtually all Democrats. Mr. Frank wants to have the US taxpayer foot the bill for the incompetence of his party, and that is all this is aimed at: saving the Democratic Party from its apparent innate incompetence and stupidity when it comes to factors financial and economic.

Many states and localities have run up huge pension and health-care obligations to retirees that will come due over the next few decades. And many of those obligations were underfunded even before the bottom fell out of the stock market. When those bills hit, cities will have to choose among raising taxes, cutting benefits or stiffing bondholders. In some states, such as New York, retiree benefits are constitutionally protected, and taxes are already chokingly high. So stiffing the bond insurers will look pretty attractive.

Muni bonds are tax-free, which were considered to make them attractive enough when they were aimed at paying for investments. But now, if they are being used to pay operative costs, the obvious risk that they will not be paid back - with what? - makes them highly unattractive. So Mr. Frank wants to eliminate the risks involved by shifting the risks to the US taxpayer.

None other than Warren Buffett devoted several pages in his latest Berkshire Hathaway shareholder letter to precisely this kind of risk: "When faced with large revenue shortfalls, communities that have all of their bonds insured will be more prone to develop 'solutions' less favorable to bondholders than those communities that have uninsured bonds held by local banks and residents."

This is right: the fetish with insuring everything means, at the end of the day, that there is no risk for those communities, or more exactly, no risk for the administrators and elected officials of those communities. By removing their risk, they have no incentive to be responsible: they're being invited to be irresponsible.

He continues: "Losses in the tax-exempt arena, when they come, are also likely to be highly correlated among issuers. If a few communities stiff their creditors and get away with it, the chance that others will follow in their footsteps will grow. What mayor or city council is going to choose pain to local citizens in the form of major tax increases over pain to a far-away bond insurer?" This goes double if the insurer is Uncle Sugar.

Snow ball effect: Mr. Buffett is absolutely correct.

Mr. Buffett concludes: "Insuring tax-exempts, therefore, has the look today of a dangerous business -- one with similarities, in fact, to the insuring of natural catastrophes. In both cases, a string of loss-free years can be followed by a devastating experience that more than wipes out all earlier profits."

It's not just a bad idea: it's stupid.

The difference, in this case, is that bond insurance, and especially federal bond insurance, would have helped create the "natural" catastrophe by encouraging jurisdictions to rack up obligations that taxpayers would be forced to make good on down the road. As for Mr. Frank's contention that muni-bond insurance is too expensive, Berkshire Hathaway is charging two and three times historical rates -- and Mr. Buffett is still worried.

Let me state this plainly: you can't legislate risk away. You can insure risk, but ultimately, once the insurer understands what he is doing, that risk insurance will eat your profits away entirely, removing all incentive to insure against all possible problems.

One Fannie Mae debacle ought to be enough for any career, but Mr. Frank wants taxpayers to double down on his political guarantees. There are currently some $1.7 trillion in municipal bonds held by the public, and Barney thinks we can insure them at "zero cost." Considering the source, and the potential size of the bill, someone in Congress needs to sound the alarm.

If anything, Congressman Barney Frank is the best argument for term limits that this nation has seen since Franklin Delano Roosevelt. Of course, at this point Congress may just think "So what? That's only a couple of trillion".

Dangerous times. If you're not part of the solution...

Carter Redux...

This is a development that doesn't surprise me at all.

I saw the news reports this morning on TV and just rolled my eyes.

President Obama's belief in his "commitment to transparency" overrides "the sanctity of covert operations", "keeping faith with the people who do them, and the impact on national security".

So, national security, covert operations are sacrificed on the altar of "transparency"; further, those involved are being given a blanket amnesty - gee, that went over really well with the opponents of US covert operations - because they "acted in good faith".

One could despair that any Democratic President will ever understand the nature of covert operation, the necessity of secrecy, and understanding even the basic fundamentals of international relations. This is, bluntly, a complete and total muck up: most of all, this is not something to be done in the glare of public scrutiny.

And here's the ... rest of the story:

It was a weighty decision," Axelrod said. "As with so many issues, there are competing points of view that flow from very genuine interests and concerns that are to be respected. And then the president has to synthesize all of it and make a decision that's in the broad national interest. He's been thinking about this for four weeks, really.

If he's been thinking about this for four weeks, then we have significantly more serious problems than we think: this is a decision of no more than five minutes. It is also not the job of the President of the US to synthesize conflicting interests and make a decision that is in the "broad" national interest: it's the job of the President of the US to understand US national interests and get that across. This is tantamount to saying that there is no understanding of what US national interests are, and that the President decides, on a case-by-case basis, after weighing all the differing view points, create a synthesis solution that makes no one happy and doesn't reflect fundamental US policies?

What will President Obama then do when push comes to shove somewhere? Contemplate understanding the motives of someone who is butchering innocents or our allies somewhere and then deciding, ex post facto, that we should have helped, but that we needed to understand the issues first?

This allows any and all enemies to get inside our reaction loop and do to the US, politically, what the US military did to the Iraqi Army during the invasion of Iraq. Getting inside the reaction loop means nothing less than forcing your enemy to only react to your moves, never allowing them to show initiative and start their own strategy.

President Obama has a lot to learn, and he is not doing a good job on issues like this. All he's done is destroy morale at the CIA - gee, Democratic Presidents seem to have a long, long history of doing this regularly - and made those who want Bush officials frog-marched off to show trials angry and insistent for more.

That really worked out well.

What should he have done?

If he is opposed to the position laid out in the memoranda, then he cancels those as ruling legal opinion and implements his own. You do this very quietly and internally. You tell those demanding publicity that there are things that gentlemen do not talk about, and you tell them to back off: the policy has been changed and that is all they are going to get: trying to prosecute CIA officers and others for "torture" is not in the interest of the US, never will be, and that if they continue to press this, they will lose all contacts and influence in the White House, which places national security interests above the desire of political pressure groups to achieve their political goals.

Instead we have this muddle.

Folks, this is Carter redux. It's gonna be a long 4 years...

Mittwoch, April 15, 2009

It takes an expert...

French politics are, if anything, guided by a supreme understanding of French national interests. It's the truly annoying thing about the French: they are, amongst the West, probably the country least susceptible to those periods of time when the US tries to bully or bullshit.

This is today's Times is an excellent reminder of this.

France has been cooing along with everyone else over the arrival of Bo Obama at the White House, but the master of America's new First Dog is no longer in good odour with President Sarkozy.

Mr Sarkozy is pouring cold water on President Obama's efforts to recast American leadership on the world stage, depicting them as unoriginal, unsubstantial and overrated. Behind leaks and briefings from the Elysée Palace lies Mr Sarkozy's irritation at the rock-star welcome that Europe gave Mr Obama on his Europan tour earlier this month.

My. That's a tad ... disappointing: President Obama as unoriginal, unsubstantial and overrated. Got give Sarkozy credit: he calls 'em real good. That's got to be a major disappointment for all the policy wonks (and wankers) who desperately want the French to like them, who think they can play the game the way the French do, who at the end of the day are completely and totally clueless about how the world really works (here's a hint: if you listen to academics, you've lost).

The American President's call "to free the world of the menace of a nuclear nightmare" was hot air, Mr Sarkozy's diplomatic staff told him in a report. "It was rhetoric – not a speech on American security policy but an export model aimed at improving the image of the United States," they said. Most of Mr Obama's proposals had already been made by the Bush administration and Washington was dragging its feet on disarmament and treaties against nuclear proliferation, the leaked report said.

You see, the French understand what the Germans call Realpolitik, the policy of naked and clear, real national interests. This is something that oh so many in the US think they know all about, but whose severely misinformed academic understanding of Realpolitik makes it seem like some sort of political game to be played. To use a phrase from Q: Au contraire, moin Capitan!

This is Presidnet Obama underneath the charm, charisma and smoke and mirrors: this is calling his bullshit.

Personal pique and French politics are also behind the souring of Mr Sarkozy's self-promoted honeymoon with the United States. On the personal side, the French President is needled by the adulation for an unproven US leader whose stardom has eclipsed what he sees as his established record as a world troubleshooter. "The President is annoyed by what he sees as the naivety and the herd mentality of the media," said a journalist who is privy to Elysée thinking.

Man's got a point: the Obama Presidency is, already, in many ways a farce extraordinaire.

Mr Sarkozy has put out a version of the proceedings at the London G20 economic summit which casts him as hero, in the classic French role of intransigent defender of principle in the face of the American steamroller. This is to counter last week's reports of Mr Obama saving the day by persuading President Hu of China to accept Mr Sarkozy's demands for naming tax havens.

Well, the French would say that, wouldn't they? Of course President Obama has spun this the way he wants history to remember the G20, he wouldn't want it any other way.

According to the leaks, Mr Sarkozy shamed Mr Obama into intervening: "You were elected to build a new world. Tax havens are the embodiment of the old world," he is quoted as saying. He also reprimanded Mr Obama for setting US goals for climate change that were inferior to Europe's, according to his staff.

Well, that's called setting your ambtions low as to not get disappointed.

Again, according to the Sarkozy version, at the Nato summit in Strasbourg, Mr Obama was meekly yielding to Turkey's refusal to endorse Anders Fogh Rasmussen as the alliance's new Secretary-General. It took pressure from Mr Sarkozy and Chancellor Merkel of Germany to stiffen him up and change his mind, say the French.

Great. Carter III (much of Clinton's foreign policy in its naivete deserves the name Carter II). I think we'll see some reports not too far off about how good Bush actually comparison.

Mr Obama's favour for Ankara has irked but also helped Mr Sarkozy as his Union for a Popular Movement campaigns for European Parliament elections in June. Mr Sarkozy slapped down the US President on French TV after he publicly called for Turkish entry to the European Union.

This is also appropriate: think how well it would go over if France started giving advice to the US on how to deal with Mexican immigration, publically and without prior discussion. Some thing here...

Permanent refusal of Turkish membership is one of Mr Sarkozy's policy planks and one of his most popular with voters. Mr Obama's venture into EU affairs has enabled Mr Sarkozy to make political capital. He has shown that France can still stand up to the United States despite rejoining the Nato command last week.

Trifecta for Sarkozy: make President Obama look like a fool, keep the Turks out of the EU and garner points with the classic basis for political power in France, reflexive old order anti-americanism. He must be a happy camper....

It sounded like old Franco-American business as usual this morning when Bruno Le Maire, Mr Sarkozy's Europe Minister, accused Washington of backing the northern and eastern EU members by wanting to turn the union into a mere free-trade zone. France and Germany are sticking to their vision of the "political" Europe that others do not want, he said.

Like I said, the French are nothing if not consistent...

Behind the policy argument, it is easy to detect disappointment over Mr Obama's failure to respond to the Sarkozy charm offensive that began when he befriended the junior senator on a visit to Washington in 2006. Mr Obama showered compliments on France's "hyper-president" in Strasbourg, but the one that has stuck was double-edged: "He is courageous on so many fronts, it's sometimes hard to keep up with him."

President Obama appears to have a natural talent for playing someone who he really doesn't think he is. He believes he is suave, sophisticated, cocktails-and-cigarette-cool, but at the end of the day he's nothing more than a made man, a product of the Chicago political machine that has made him to be their front boy.

If he actually knew anything of French politics, and was actually interested in getting the French on his side, then you wouldn't have seen these sort of mistakes being made. You wouldn't actually see much of any interaction between the two, but what you would see - if you could see it - would be the bodies of common enemies being quietly buried, of bank accounts being quetly divvied up, of dreadful accidents happening to people who desperately deserve them. You think the CIA is completely ruthless, capable of torture and murder? They're pikers compared to the French.

Just remember what happened to a Greenpeace ship when it got in the way.

That's what Realpolitik, after all, is really about: it's about really getting your way without being caught, without being hauled up in front of Congress and having your dirty laundry shown to the world. The French are, if anything, and this deserves repeating, masters of Realpolitik.

As President Obama and the United States are due to find out once again. The French will respect the US when US politicians start behaving like they know what they're doing.

It's going to be a very, very long first term.

Dienstag, April 07, 2009

Worth Watching...

This is worth your attention: not the least for the introduction by the always entertaining Tom Wolfe.

P.J. O'Rourke rocks.

Montag, April 06, 2009

The Story Of Two Currencies...

Ben Simpendorfer, Chief China Economist at the RBS, had a comment in today's WSJ that deserves some expansion and some thought about what the global reserve currency actually does and means.

First and foremost, let's not forget what a currency -  or money, I will use the two interchangeably, as they are the same thing for the purpose of this analysis - is: it is a means of exchange. Nothing more, nothing less: the devil is in the details. I will admit I don't know monetary theory like I know input-output or industrial stochastics and asymmetric equations, but what I do know is that money is first and foremost a matter of trust, of believing in money, rather than having money backed by something tangible, such as gold. Our entire world economy is based on this, based on what the monetarists call "fiat" money, i.e. money that is backed by governments. While the gold freaks see this as the incarnation of the devil - they would now, wouldn't they - it really isn't, as properly done can provide great stability and increases in wealth, both real and monetary.

The problem is when it's not done right.

The US dollar is the key currency world-wide. It's not so because some secret cabal decided that it should be so, nor because an open cabal decided: it became the world currency, replacing the pound sterling, because the pound sterling could no longer fulfill the role needed. The country with sovereignity - the country whose currency is the measuring stick for all others - has enormous advantages for the financial health of that country: after all, it no longer really needs to worry about balance of trade and foreign reserves to ensure that it has adequate access to the world currency to trade with.

But that really isn't the case, is it? Sovereignity is a wonderful thing to have, but you can lose it. The balance of trade is of critical importance in terms of keeping sovereignity and all its benefits, and is really the reason why even with sovereignity you need to watch your current account and trade balance: long-term inequalities here point to a country that may lose its sovereignity rights.


Because other nations lose trust in that currency. Nothing more, nothing less.

This doesn't happen overnight, it doesn't happen behind closed doors, it doesn't happen in open discussions, it most certainyl doesn't happen because lone bloggers say it's so.

It happens because of the ruthlessness of markets, who don't care about the importance of sovereignity, but rather where demand meets supply.

China is playing a growing role in discussions over solutions to current economic problems. Much of the talk has focused on money -- whether Premier Wen Jiabao's concerns about the value of China's U.S. treasury investments, or the People's Bank of China's paper floating the idea of a de-dollarized international monetary system. Up to now, one limit to China's ability to contribute to global monetary reform has been its own currency policy, particularly the fact that the yuan is not convertible. However, now there are tentative signs that's starting to change.

It's changing not because China wants it to: it's changing because people are losing confidence in the US dollar, which is happening because people are losing confidence in the US. More specifically, they're losing confidence in the US financial community, which is being (ab)used by the Obama administration as a national whipping boy, doing exactly the opposite of what is needed to maintain confidence, let alone reinstate it.

Beijing has signed currency swap agreements with six central banks: Hong Kong, Indonesia, Korea, Malaysia, Belarus and most recently Argentina. These swaps permit those central banks to sell yuan to local importers in those countries who want to buy Chinese goods. This is particularly useful for importers struggling to obtain trade finance as a result of the financial crisis. As such, it's consistent with China's desire to participate in the Group of 20's efforts to support trade financing.

This has everything to do about trade. That's all this is about.

China has long wanted its currency to play a more important role in the global financial system. These swap arrangements come in the context of that broader policy aim. The broader policy goal also has a more practical function in reducing currency exposure and transaction costs for Chinese exporters. The rise in the yuan's value relative to the dollar in early 2008 was a reason why some Chinese exporters went bankrupt. The ability to settle trade in yuan would reduce this risk in the future.

The markets are even more ruthless than the Gods of the Copybook Headings, and always will be...

Certainly the swaps should not be mistaken for full yuan convertibility. Details are scarce, but it appears the yuan cannot be sold for other currencies, in particular, the dollar. Neither can they be used by the other countries as part of their reserves to defend their own currencies, unlike the recent swap agreements several countries have signed with the United States Federal Reserve. In large part this is because the yuan is not fully convertible. Hong Kong remains the only place where it is possible to open yuan deposit accounts, and even there daily deposits and withdrawals are capped.

Hong Kong, Indonesia, Korea, Malaysia, Belarus and ... Argentina. The last is perhaps more political than anything else, but indicates who China wants to trade with...

Yet while the swap arrangements do not signal full convertibility, they are an important step in that direction. Even better, the Chinese authorities appear to have accelerated the reform schedule in recent months to suggest that the prospect of partial convertibility, especially between China and its major regional trading partners, may be closer than many believe.

In other words, the shift is underway: this will be, bluntly, devastating for the US. Losing sovereignity over the international currency is basic super-power trappings. Even the threat of losing it will create a seismic break in US politics, which would be a good thing: the Gods of the Copybook Headings are about to speak.

China's State Council announced its intention in December to permit businesses in specific provinces to settle international trade-related transactions in yuan with specific trading partners. Guangdong province can settle in yuan with Hong Kong and Macau, while Guangxi and Yunnan provinces can settle in yuan with members of the Association of Southeast Asian Nations.

Here the Chinese are, as always, practical: they're not going to even try to fight the markets, but rather go with them...


The transformation of the yuan into a global currency has begun. It will not be an overnight change, but the change may take place faster than expected. The economic crisis has provided China with a window of opportunity to leverage its relative stability and status as a trade surplus country to extend yuan credit to deficit countries globally.

This is how global currencies are born and die: demand for them. Nothing more, nothing less. The US dollar is increasingly on the verge of tipping over, exacerbated by the hugely irresponsible spending of the Obama Administration and the apparent desire to castrate the Financial sector in order to dominate it and force policy changes through that the market does not want.

Chicago politics at its best.

The implications are, as I've said, huge and devastating for the US: without sovereignty, the US will have to accumulate currency reserves and get its house in order. Expect this to be the greatest challenge to the US since probably the Civil War, as it will force the US to live within its means. Given the degree of parasitical infestation...

Mittwoch, April 01, 2009


I just gotta post this one, from Bloom County, as it shows that some things never change:


That strip is from ... wait for it ... I think it's 1982. Hard to read exactly, but that sounds about right...

Risks, Risks and Risks...

Today's FT has a commentary from Yu Qiao, who is a professor of economics at the School of Public Policy and Management, Tsinghau University, Beijing. Link here.

But before getting to Professor Qiao's article, let's talk about risks.

You have the risks you know about, quantifiable ones. These are risks like the risk of flying, of driving a car, of not wearing your seatbelt, of falling in the home, all those risks which are statistically identifiable and can be compensated for. Worried about the risk of accidents when driving? Get insurance, buy a safe car designed to protect you in an accident, wear your seatbelt, learn how to drive defensively, etc.

You have the risks that you don't know about, unquantifiable ones. Is your sexual partner lying about diseases and sexual partners, if there is paperwork, is it up-to-date? Are your bosses stripping the company in order to dump it? Are your children doing what they say they are doing when they're out with friends? Is your accountant really putting that money into those accounts? These are aspects that can't be insured against, but have to do with trust and the catastrophic results of a breach of that trust: ruined health, lost jobs, destroyed families, fraud and theft.

Then there are the more subtle risks, ones where intangibles are involved. Fudge too much on your expense account and you'll be considered untrustworthy; get caught cheating on your partner and she or he will never want to have anything to do with you again; get caught being ... economical with the truth and no one will want to do business with you; get your data and models wrong and no one will want your services. These risks are subtle, because there is no causal chain that says you can lie 6 times and get caught on number 7, or that you can sleep around as long as your partner doesn't know the people, or that you can screw up a forecast 4 times and on the fifth people notice.

The first series of risks can be insured against and prepared for. The second happens to you passively: you need to learn how to cope and develop your skills of discovering deceit, fraud and untruthfulness. The third...

Ah, the third group of risks. These are the ones that destroy you, force you to move to another town and hope you can live it down. What makes these risks especially dangerous is that you're the one ultimately responsible.

Back to the article: How Asia Can Protect Itself From A Dollar Default.

Not could, not may have to: can.

Remember the Asian virtues, the virtues of thrift, savings and deferred consumption until goals were reached. These are the virtues of the Gods of the Copybook Headings, the laws of physics, of logic, of economics, of business, of banking and investment.

What Professor Qiao is telling us - the readers of the FT and indirectly the Western world - is that China and the other Asian countries don't have to continue to play the game we've been playing:

President Barack Obama is set to urge leaders to boost government spending to save the world economy. European Union countries are expected to focus on fixing lax financial regulatory systems. For Asian countries, however, the key agenda issue is the safety of their assets denominated in dollars, as they look ahead to a devalued dollar from rising US sovereign debt.

This is now the risk facing the US and, indirectly, the rest of the West: that Asia will decide to do what it damn well prefers to do, rationally and emotionless, based on its own interests. More on what that implies later.

Most of Mr Obama's stimulus spending is devoted to social programmes rather than growth promotion, which may exacerbate America's over-consumption problem and delay sustainable recovery. On top of this, the unprecedented fiscal stimulus, with the Federal Reserve's move to inject money into credit markets, contains self-destructive seeds. The US risks ending the dollar's role as the reserve currency, especially considering there is already $10,000bn (€7,535bn, £7,009bn) in US Treasury debt, and much more in liabilities from the costs of social security, healthcare and financial institution bail-outs.

Here we have the nexus, the core of the problem: the plans of the Obama administration and the democratic Congress are not making things better, since what we need is growth, not more of the same.

The provision of stable, reliable and viable dollars may be subordinated to short-term US interests, posing a risk to global monetary stability. In the long term, America may seek to resolve its economic mess by devaluing the dollar at best and a default at worst. This is depicted in a Chinese proverb: "Drinking poisonous liquid to quench thirst". History points to examples such as the collapse of the Bretton Woods system in the early 1970s. It is the foreign holders of US obligations denominated in dollars that would end up paying.

And those foreign holders are increasingly unwilling, if you'll excuse the expression, to be butt-fucked at the whim of the US. Which has happened in the past, obviously, and what is at stake is nothing less than the credibility of the US government to actually do something without fucking it up. Seriously:this is the core threat that the Obama administration apparently fails to even be able to percieve, let alone act to prevent. US credibility is at stake. Not US credibility as a military power, but rather US credibility to do the right thing when it needs to be done.

Analysts have warned of the dangers of the US Treasury bond bubble that developed in late 2008. Although insurance against sovereign debt default may reduce credit risk, it is unable to safeguard the real value of dollar-denominated securities. If this bubble burst, east Asians would be victims. Their economies directly hold more than $1,600bn of US sovereign debt, or 25 per cent of the total held by the public. Including direct holdings, Asians may hold half of the outstanding public-owned Treasury bonds. China, by some estimates, directly and indirectly holds more than $1,200bn of US Treasury bonds. If the dollar collapsed, the consequences would devastate Asians' hard-earned wealth and terminate economic globalisation.

Let's make this clear: the Obama administration isn't just playing with taxpayer monies, they are playing with Asian savings, and most fundamentally they are playing with US credibility.

No other international monetary system offers a viable alternative. However, we can make the main reserve currency power more accountable by creating an instrument to help manage the global crisis.

This is the demand: be accountable. This is the voice of Asia, as it were, demanding that we behave responsibly. Ignore it at your peril, or, more exactly, the US can ill afford to ignore it. The arrogance of the Obama administration in playing games with US credibility is, bluntly, directly attributable to President Obama and the Congress: political expediency and, foremost, political survival of the guilty has vastly greater priority than getting the US household back in order.

The basic idea is to turn Asian savings, China's in particular, into real business investments rather than let them be used to support US over-consumption. While fixed-income securities are vulnerable to any fall in the value of the dollar, equity claims on sound corporations and infrastructure projects are at less risk from a currency default. But Asians do not want to bear the risk of this investment because of market turbulence and a lack of knowledge of cultural, legal and regulatory issues in US businesses. However if a guarantee scheme were created, Asian savers could be willing to invest directly in capital-hungry US industries.

You know what? These are not unreasonable demands. Seriously: how stupid does the Obama administration think the Chinese are? Obviously fairly stupid, given the increasing inability of this administration to take actions that are both credible and are actually aimed at dealing with the problem.

First, Asian countries could negotiate with the US government to create a crisis relief facility. The CRF would be used alongside US federal efforts to stabilise the banking system and to invest in capital-intensive infrastructure projects such as a high-speed railway from Boston to Washington DC.

I think that the operative word isn't "negotiate", but rather demand.

Second, Asians could pool a proportion of their holdings of Treasury bonds under the CRF umbrella to convert sovereign debt into equity investment. Any CRF funds, earmarked for industrial commitment, would still be owned and managed by their respective countries. In return, Asians would hold minor equity shares that would, like preferred stock, be convertible .

This is a fundamental shift. Normally if people want equity, they buy into companies, usually on the stock market. You only see bonds and other financial instruments turned into equity when ... companies can no longer pay their bills and have entered into such debt-for-equity swaps in order to avoid insolvency.

Thanks, Congress and the Obama administration: your greatest debt holders outside of the US are making contingency plans for US bankruptcy.

Third, the US government would act as the guarantor, providing a sovereign guarantee scheme to assure the investment principal of the CRF against possible default of targeted companies or projects. Fourth, the Fed would set up a special account with the US government to supply liquidity that the CRF requires to swap sovereign debt into industrial investment in the US.

The CRF would lessen Asians' concern about implicit default of sovereign debts caused by a collapsing dollar. It would cost little and help the US by channelling funds to business investment. Conventional Keynesian policies – fiscal and monetary expansion on a national basis – cannot solve the problem but will make it worse.

Two last points: Professor Qiao is right, conventional Keynesian policies are making things worse and not better; second, a debt-for-equity swap may end up with the Chinese owning more of American industry than anyone in Washington would be comfortable with.

These are the risks that the Obama administration is now taking with US credibility. With luck, he can pull them off.

But be very, very afraid of the destruction of the illusion that the US government is capable of doing anything besides screwing things up.

The Democrats and the left - sorry, I repeat myself - were fond of claiming that the Bush administration was effectively undermining US credibility.

We may be seeing them, instead, actually do it. The impact of the collapse of US credibility would change the world, and it is a world thereafter where the word of the US government is not worth the paper it is written on...