Tuesday, February 24, 2009
Tell Me Now if You Want Me to Stay, It Don't Matter, 'Cause I'd Stay Here Anyway
It seems to me that by vowing to get out of Iraq in 16 months, President Obama is not departing from the mistakes of George Bush, but repeating them. That is, Bush was persistently overoptimistic about Iraq. His original war plan assumed that the United States would get down to 30,000 troops in Iraq by the fall of 2003. Instead, here we are more than five years later with more than four times that number of troops mired in Iraq. I hope we can stop planning for Iraq only on best-case assumptions.
I echo Ricks' point. The assumption that somehow the Iraq war is over seems very cocky and premature to me. I still do not see how we can disengage meaningfully without triggering a sectarian blood-bath. The surge, in retrospect, my come to be seen as the moment that the Iraq imperial venture became part of our lives and a drain on our wallets for ever. You watch what happens if Obama actually does what he has promised. Empire has its vested interests - and they will resist.
First, we agree that the Iraq was is not over. US soldiers are still being killed at a rate of one every other day - which is an improvement as experienced over the past eight months or so. However, in the opposite direction is a trend upward of suicides committed by soldiers - a phenomenon that even Admiral Mullen concedes is likely exacerbated by the lengthy and repeated tours required by our ongoing presence in Iraq. Similarly, Iraqi civilian and security forces deaths from political violence have dropped to the still horrific average of about 300 a month over the same eight month period (with even steeper drops in January and, thus far, February). So, no, the war is not over as much as it's been brought to a lower level of intensity in many regions of the country (less so in the increasingly volatile north).
We also agree that the vested interests of empire will resist efforts made by Obama to disentangle our involvement in Iraq, yet Sullivan is remiss by failing to point out that Tom Ricks - whose words he excerpts to make his point - recently penned a book that is effusive in its praise of a couple of empire's champions (at least in this context:) General Odierno and General Petraeus.
Over the past several weeks, Odierno and Petraeus have been waging a rather unseemly media battle against the ostensible Commander in Chief over the future of US policy vis-a-vis Iraq. In Ricks' book, and subsequently, he echoes the Odierno/Petraeus line that we need to maintain 30-40,000 troops in Iraq until at least 2015, and that we can't risk pulling out sooner. Sullivan, for his part, seems resigned to this timeline - and its extension indefinitely into the future - despite the "drain on our wallets."
However, what Petraeus, Odierno, Ricks and (to a lesser degree) Sullivan seem to be ignoring is that certain Status of Forces Agreement (SOFA) entered into by the US and Iraqi governments this past summer, which committed the US to remove all troops from Iraq by the end of 2011 (with an earlier timeline for removing troops from Iraq's cities). Further, their discussion of alternative timelines completely ignores the national referendum to be held on the SOFA in Iraq in July of this year (the referendum is thought to have been required by Grand Ayatollah Sistani, who insisted that the SOFA must have broad support to receive his ultimate blessing). If Iraqi voters reject the SOFA in the referendum, US forces would have a twelve month timeline for withdrawal starting from that date.
Which brings me to the political context of this talk of timelines that range beyond the parameters set forth in the SOFA. As many commenters, including myself, noted, the recent Iraqi elections signified positive trends in the direction of nationalism/centralization and away from sectarianism/federalism. Prime Minister Maliki's party was able to capitalize on its increasingly nationalistic rhetoric (and policies) to garner considerable gains in many Shiite regions, as well as Baghdad (though the latter has largely been converted into a Shiite stronghold via sectarian cleansing regardless).
In fact, Maliki's turn to nationalism enabled his party to increase its stake at the expense of the Sadrists, who had previously been the strongest voice on such matters. One such nationalist position that cemented Maliki's nationalist bona fides was his hard bargaining on the SOFA, during which he demanded a firm timeline for withdrawal. Maliki's strong showing - and the poor performance of the most committed sectarian parties (ISCI) - was touted as a victory for the US and Iraqi interests in almost every major periodical, from the New York Times to the Washington Post. In terms of the trends mentioned above, it certainly was a welcome development.
Now back to all this loose talk about keeping troops in Iraq beyond the SOFA's imposed deadline. Again, there is a national referendum on the SOFA scheduled for July, and such statements from high ranking officials (and media figures) suggesting that the US would - or even could - simply ignore the obligations set forth in the SOFA could tilt the vote against approving that agreement. Such a "no" vote would trigger a twelve month timeline for withdrawal, adhering to which require a more harried and expensive pace than that required by the full duration of the SOFA.
Further, there are national elections scheduled for December this year, and undercutting Maliki just as his political coalition - one that our leaders claim to support - is gaining momentum by pushing for prolonged occupation outside the scope of the mutual agreement between ostensible sovereigns would only empower more hostile elements in Iraq's political firmament (such as the Sadrists whose support Maliki preempted by tacking toward the nationalist side).
Rather than delaying the commencement of withdrawal under the theory that we can, or should, ignore the SOFA, the US should put a downpayment on withdrawal by beginning the pullout now as suggested by Marc Lynch for the following reasons: (1) it would reassure the Iraqi people of our intention to leave Iraq, which would make the SOFA more palatable; (2) it would strengthen Maliki's hand, and the hand of those advocating nationalism/centralism without giving in to the extremist of some of the Sadrist elements; and (3) even if such overtures do not convince the Iraqi people to endorse the SOFA, withdrawal over 12 months will be easier to accomplish if we've already begun to pull out some of our forces.But this notion that we can talk beyond the Iraqi government and Iraqi people, and act as if they are bit players in our drama whose autonomy and sovereignty is to be considered only in passing, were the real "big mistakes" of the Bush administration - to use Ricks' words.
Friday, February 20, 2009
How to Disappear Completely
Speaking of those lesser sleights of hand, Michael Ledeen is probably the most prolific in terms of comical self contradiction. As I've documented over the past few years, Ledeen has a peculiar tic whereby he pens impassioned calls for military confrontation with Iran, but then claims- with a straight face - that he opposes any such use of force. Perhaps emboldened by his own perceived success in terms of Iran-related duplicity, Ledeen took it one step further and actually claimed, against the weight of the evidence, that back in 2002 he opposed the invasion of Iraq! The audacity of that attempt alone secures his status as my favorite hawk in dove's feathers.
The attempts to conceal their policy proposals - and identities - are understandable on some level. The total war agenda outlined in prominent neoconservative texts such as Norman Podhoretz's dream of World War IV, and Richard Perle and David Frum's An End to Evil: How to Win the War on Terror, is shocking in its unrestrained bellicosity - each advocating for a series of wars with Iraq being just the first, brief pit stop. Further, when their ideology has been put in practice under the stewardship of its practitioners, as in Iraq, the results have been so utterly disastrous that one can appreciate the desire to create distance. If I were a neocon, I'd sure want to pretend I wasn't.
If Richard Perle's recent statements are any indicator, the desperation in the neoconservatives camp is palpable. Perle, it seems, is returning to the David Brooks playbook: trying to, again, convince the world that there's no such thing as a neoconservative. Dana Millbank (via Steve Benen):
"There is no such thing as a neoconservative foreign policy," Perle informed the gathering, hosted by National Interest magazine. "It is a left critique of what is believed by the commentator to be a right-wing policy."
So what about the 1996 report he co-authored that is widely seen as the cornerstone of neoconservative foreign policy? "My name was on it because I signed up for the study group," Perle explained. "I didn't approve it. I didn't read it."
Mm-hmm. And the two letters to the president, signed by Perle, giving a "moral" basis to Middle East policy and demanding military means to remove Saddam Hussein? "I don't have the letters in front of me," Perle replied.
Right. And the Bush administration National Security Strategy, enshrining the neoconservative themes of preemptive war and using American power to spread freedom? "I don't know whether President Bush ever read any of those statements," Perle maintained. "My guess is he didn't."
It was apparently quite a performance, which literally drew laughter when Perle insisted, "I've never advocated attacking Iran." He added that he doesn't "accept" the notion that there's even a "neoconservative school of thought," and said his book, "An End to Evil," is actually a text devoted to realism.
Not even a "neoconservative school of thought"? Maybe Perle should consult with Irving Kristol, whose 1995 book is entitled, Neo-Conservatism: The Autobiography of an Idea. Or maybe The Neoconservative Imagination: Essays in Honor of Irving Kristol, a compilation edited by William Kristol, another non-neo-con. Or NeoConservatism: Why We Need It and The Neocon Reader. Or Joshua Muravchik who wrote an essay a few years back on how to save a school of thought that is...apparently a figment of our collective imaginations?
Oh, and give Muravchik credit for openness:
But don't be surprised when at some point in the future he confidently assures the reader of his longstanding - and well known - opposition to bombing Iran.
Make no mistake, President Bush will need to bomb Iran’s nuclear facilities before leaving office.
Wednesday, February 18, 2009
Whatever Gets You Through the Fight
Whether we call the flower in question "pre-privatization," "temporary receivership" or good old-fashioned "nationalization," the endemic aroma remains sage. It is unfortunate that such creative nomenclature is necessary due to Americans' knee-jerk opposition to anything even reminiscent of socialism - despite the reality of our mixed economy and the fact that our government regularly nationalizes unhealthy banks via the FDIC (as Atrios is wont to point out ad nauseam to littel avail). But if tweaking the name facilitates the adoption of good policy, so be it.
Refreshingly, some Republicans, such as Lindsay Graham, are starting to come around - even using the dreaded "N" word - despite intense pressure from within the GOP ranks. Graham recently offered this zinger:
The truth is we’ve put more money into the Bank of America than it’s worth,” Graham said. “That’s not nationalization. That’s just stupid.”
He followed that up with even more GOP heresy: an appeal to pragmatism and empiricism, regardless of the underlying ideological preference. It's..it's...it's almost as if he is making an evidenced-based argument!:
“We should be focusing on what works,” Lindsey Graham, a Republican senator from South Carolina, told the FT. “We cannot keep pouring good money after bad.” He added, “If nationalisation is what works, then we should do it.”
Strange days indeed. Alan Greenspan, too, has weighed in on the side of wisdom, without resorting to any of that newfangled parlance of our times:
In an interview, Mr Greenspan, who for decades was regarded as the high priest of laisser-faire capitalism, said nationalisation could be the least bad option left for policymakers.
”It may be necessary to temporarily nationalise some banks in order to facilitate a swift and orderly restructuring,” he said. “I understand that once in a hundred years this is what you do.”
Joining this unexpected tandem are economists with slightly better track records in terms of prognostication and reliance on sound models (to go along like Stiglitz, Krugman, DeLong, etc). Nouriel Roubini and Matthew Richardson in the Washington Post over the weekend:
As free-market economists teaching at a business school in the heart of the world's financial capital, we feel downright blasphemous proposing an all-out government takeover of the banking system. But the U.S. financial system has reached such a dangerous tipping point that little choice remains. And while Treasury Secretary Timothy Geithner's recent plan to save it has many of the right elements, it's basically too late. [...]
Last year we predicted that losses by U.S. financial institutions would hit $1 trillion and possibly go as high as $2 trillion. We were accused of exaggerating. But since then, write-downs by U.S. banks have passed the $1 trillion mark, and now institutions such as the International Monetary Fund and Goldman Sachs predict losses of more than $2 trillion.
But if you think that $2 trillion is high, consider our latest estimates at the financial Web site RGE Monitor: They suggest that total losses on loans made by U.S. banks and the fall in the market value of the assets they are holding will reach about $3.6 trillion. The U.S. banking sector is exposed to half that figure, or $1.8 trillion. Even with the original federal bailout funds from last fall, the capital backing the banks' assets was only $1.4 trillion, leaving the U.S. banking system about $400 billion in the hole. [...]
But unfortunately, the [Geithner] plan won't solve our financial woes, because it assumes that the system is solvent. If implemented fairly for current taxpayers (i.e., no more freebies in the form of underpriced equity, preferred shares, loan guarantees or insurance on assets), it will just confirm how bad things really are.
Nationalization is the only option that would permit us to solve the problem of toxic assets in an orderly fashion and finally allow lending to resume. Of course, the economy would still stink, but the death spiral we are in would end.
Nationalization -- call it "receivership" if that sounds more palatable -- won't be easy, but here is a set of principles for the government to go by:...
This is the best way forward, and the sooner Tim Geithner gets it/accepts it, the better. And if he doesn't, then it's incumbent upon Obama to assert himself.Go read the rest for some very sensible proposed guidelines.
Tuesday, February 10, 2009
From the Sovereign State of the Have-Nots
Today, invoking the "two-state" mantra allows moderates to sound reasonable and true to the ideals of democracy and self-determination; but it doesn't force them to actually do anything to bring that goal about. Indeed, defending the two-state solution has become a recipe for inaction, a fig-leaf that leaders can utter at press conferences while ignoring the expanding settlements and road networks on the West Bank that are rendering it impossible. Outgoing Prime Minister Ehud Olmert is a perfect illustration: he has lately become an eloquent voice in favor of two states, warning of the perilsthat Israel will face if the two-state option is not adopted. Yet his own government continued to expand the settlements and undermine Palestinian moderates, thereby putting the solution Olmert supposedly favors further away than ever, and maybe even making it unworkable.
The same can be said for the Bush administration, which made frequent appeal to the abstraction, but refused to push Israel in that direction - actually taking action to undermine Palestinian moderates in its own right (read: the isolation of Arafat and, the weakening of his Fatah movement). The window of opportunity is closing, unfortunately:
There are two trends at play that threaten to undermine the two-state option. The first is the continued expansion of Israel settlements in the land that is supposed to be reserved for the Palestinians. There are now about 290,000 settlers living in the West Bank. There are another 185,000 settlers in East Jerusalem. Most of the settlers are subsidized directly or indirectly by the Israeli government. It is increasingly hard to imagine Israel evicting nearly half a million people (about seven percent of its population) from their homes. Although in theory one can imagine a peace deal that keeps most of the settlers within Israel's final borders (with the new Palestinian state receiving land of equal value as compensation), at some point the settlers' efforts to "create facts" will make it practically impossible to establish a viable Palestinian state.
The second trend is the growing extremism on both sides. Time is running out on a two-state solution, and its main opponents -- the Likud Party and its allies in Israel and Hamas among the Palestinians -- are becoming more popular. The rising popularity of Avigdor Lieberman's overtly racist Yisrael Beiteinuparty is ample evidence of this trend. And it's not as though Kadima or Labor have been pushing hard to bring it about. According to Gideon Rachman of the Financial Times:The result is that the next Israeli government, left to its own devices, is likely to opt for the status quo with the Palestinians - continued occupation of the West Bank, desultory peace talks, steadily expanding settlements and military force in response to Palestinian rockets or bombs. The long-term pursuit of a two-state solution will be brushed aside, with the argument that the Palestinians are too divided and dangerous to be negotiating partners."
Worse still, the alternatives are all considerably worse - though to varying degree:
One does not need to look far down the road to see the point where a two-state solution will no longer be a practical possibility. What will the United States do then? What will American policy be when it makes no sense to talk about a two-state solution, because Israel effectively controls all of what we used to call Mandate Palestine? What vision will President Obama and Secretary Clinton have for the Palestinians and for Israel when they can no longer invoke the two-state mantra?
There are only three alternative options at that point. First, Israel could drive most or all of the 2.5 million Palestinians out of the West Bank by force, thereby preserving "greater Israel" as a Jewish state through an overt act of ethnic cleansing. The Palestinians would surely resist, and it would be a crime against humanity, conducted in full view of a horrified world. No American government could support such a step, and no true friend of Israel could endorse that solution.
Second, Israel could retain control of the West Bank but allow the Palestinians limited autonomy in a set of disconnected enclaves, while it controlled access in-and-out, their water supplies, and the airspace above them. This appears to have been Ariel Sharon's strategy before he was incapacitated, and Bibi Netanyahu's proposal for "economic peace" without a Palestinian state seems to envision a similar outcome. In short, the Palestinians would not get a viable state of their own, and would not enjoy full political rights. This is the solution that many people -- including Prime Minister Olmert -- compare to the apartheid regime in South Africa. It is hard to imagine the United States supporting this outcome over the long term, and Olmert has said as much. Denying the Palestinians' their own national aspirations is also not going to end the conflict.
Which brings me to the third option. The Israeli government could maintain its physical control over "greater Israel" and grant the Palestinians full democratic rights within this territory. This option has been proposed by a handful of Israeli Jews and a growing number of Palestinians. But there are formidable objections to this outcome: it would mean abandoning the Zionist dream of an independent Jewish state and binational states of this sort do not have an encouraging track record, especially when the two parties have waged a bitter conflict across several generations. This is why I prefer the two-state alternative.
In summation: settlement policy needs to be reversed in order to preserve the possibility of a two state solution, which is far more preferable to the alternatives. Halting the construction of new settlements, curtailing the expansion of existing settlements and dismantling others is politically unpopular in Israel. That's why the United States, as a committed friend of Israel, needs to step up in order to shift the calculus for Israeli voters. All things being equal with the United States, those Israeli voters are unlikely to countenance any such action on settlements.That's why all things can't remain equal. We must step up rhetorical pressure, and even begin to discuss withholding certain aid. The situation is beyond dire.
However, there is little to suggest that pre-privatization (temporary nationalization, then privatization) of troubled banks is the wrong approach, coupled with strict limitations on executive pay. That is why it is extremely disturbing to read this (which seems to confirm my fears):
In the end, Mr. Geithner largely prevailed in opposing tougher conditions on financial institutions that were sought by presidential aides, including David Axelrod, a senior adviser to the president, according to administration and Congressional officials.
Mr. Geithner, who will announce the broad outlines of the plan on Tuesday, successfully fought against more severe limits on executive pay for companies receiving government aid.
He resisted those who wanted to dictate how banks would spend their rescue money. And he prevailed over top administration aides who wanted to replace bank executives and wipe out shareholders at institutions receiving aid.
Because of the internal debate, some of the most contentious issues remain unresolved.
My homey Yves Smith gets the mic:
...[H]ere we have another scowling Treasury secretary, with a bit more hair than his predecessor, serving up the same fatally flawed approach as before: let's just throw money at the banks and hope they get better. This is tantamount to using antibiotics to treat gangrene. You waste good medicine and the progression of the rot threatens to kill the patient.
In fact, the state of affairs may be even worse that I thought. I had grumbled about the fact that the earlier leaks of this plan, like the MLEC and the TARP, seemed little more than a sketch, when its success or failure founder on key details.
The elephant in the room is how do we solve the heretofore insurmountable problem that the market price of the bad assets is well below what the banks are willing to sell them for? Paulson was unable to find a way to finesse the problem to get private investors to pick up even a cherry-picked portion of the junk in the MLEC incarnation; in TARP, he (presumably) planned to have Uncle Sam buy the paper at a price the banks would find acceptable but somehow camouflage the subsidy. He abandoned that course of action quickly, perhaps because the magnitude of the payment over market prices would be so large as to be politically explosive were the bagholder taxpayer ever to find out.
There is no evidence in the various elements leaked that this impediment has been overcome, which raises the real possibility of a Paulson-like seemingly bold advance followed by an equally hasty retreat. Inviting investors in with you on the buy side does not address the issue of the pricing gap, unless the deal with the investors is intended to help obfuscate the overpayment to the banks.
Note I have no objection to equity infusions if accompanied by sufficient ownership, controls, and a methodology for the goners, say taking over or putting into receivership. No private equity investor would put 20% into a company without getting lots of goodies, such as veto rights, antidilution provisions, a board seat, etc.
Now in fairness, Geithner may treat the banks more consistently than Paulson & Co. did. But that is cold cheer if the basic approach is still fatally flawed.
In fact, the present course is the worst of all possible worlds. AIG has demonstrated that a player deemed to by systemically important has a blank check. Not only did they get additional dough with few questions asked, they got improved terms on their initial loans. Let me stress, for those not familiar with the ways of deal-land: if you ask investors for money and maintain it is enough to achieve X (get you to break even, get your first product launched) and then come back not having done what you said you promised, the next round is on MUCH more punitive terms. Having a party that badly underestimated its needs come back, get more dough, and get relief on its inital loan is from an alternative reality.
In addition, AIG had given large numbers of staff very large retention bonuses. This is when the loans per employee are $1.4 million. Now the retention bonuses may very selectively be warranted, but they have been handed out like candy, and AIG is know for generous pay, so even if extra comp might have been necessary, query whether at this level. Given the less than rosy hiring conditions in the insurance industry, a lot of these payments appear flat out unnecessary and were thus effectively looting right under the government's nose.
Thus, the banks get funding on an open-ended basis, with no requirement to write down or sell the dreck. And even if some miraculously does get unloaded via this process, we wonder how far it will get to really cleaning up the banks. Ken Rogoff estimates US credit losses at $2.0 trillion; this plan appears likely to fall far short of that, which means we still have a lot of sick banks, just somewhat less so. (We'll need to wait to see how this unfolds, but since the banks have no reason to part with bad assets and take a writedown, this is the scenario they are trying to avoid, we still have crappy assets being funded at fictive prices, but this time by you and me rather than by Citigroup). The failure to clean up the banks and write down bad assets was a big contributor to Japan's lost decade.
This is just terrible. Much worse than the Nelson-Collins-Snowe-Lieberman "compromise." Much worse than any defect in the stimulus plan.
Really, we didn't need the Obama administration for this dreck. This is vintage Bush/Cheney.
Monday, February 09, 2009
Rejecting the Politics of Fear?
Iran's former President, the soft-spoken Mohammad Khatami, ended months of speculations and revealed his bid to challenge the current Iranian President - the not-so-soft-spoken Mahmoud Ahmadinejad - in the upcoming Presidential elections in June.
"I declare that I will stand for the next elections," Khatami told reporters on Sunday, according to Iran's state-run news agency, IRNA.
With Khatami officially in the race, the Iranian presidential campaigns will begin in earnest. Never before has an incumbent Iranian president faced such a serious challenge. But in spite of Ahmadinejad's abysmal handling of the economy, he is far from defeated. The Iranian presidential elections will not be democratic by Western standards, but they won't lack excitement or fierce competitiveness.
While the elections will be dominated, in large part, by economic concerns for obvious reasons, they will also be - at least to some extent - a referendum on Ahmadinejad's belligerent, confrontational posture vis-a-visthe West, as well as his conservative religious policies domestically. Khatami faces some obstacles in terms of convincing the Iranian population to give him another shot and, if so entrusted, must make tangible gains:
Khatami's challenge now is to make sure that he can convince the Iranian populace three things. First, that he will show greater strength and willingness to challenge the political boundaries of the Islamic Republic. During his eight years as President, Khatami disappointed large segments of the population by being too timid and too unwilling to push the envelope to deliver on his promise of greater freedoms and reforms. [...]
Second, Khatami must be able to mobilize his base - the more educated classes in Iran - and make sure that they vote. This may prove a difficult task. Khatami's base has grown disillusioned with the political system in Iran and their low turn-out in the 2005 elections is believed to have enabled Ahmadinejad to snatch the presidency.
Finally, and perhaps most importantly, if elected, Khatami must show the courage to ruffle some feathers to implement his program. He has been given an undeserved second chance, an unexpected opportunity to run once more, which is largely due to the way Ahmadinejad's poor performances has created nostalgia about Khatami. He won't be given a third chance.
The fact that he's running itself may signal a softening of the resistance among certain hardliner factions. Consider this bit from Parsi:
Khatami had earlier declared that he would only run if he was given guarantees by Iran's Supreme Leader, Ali Khamenei, that his candidacy wouldn't be rejected by the Guardian Council, the body that vets candidates, and that he would be able to govern if elected.
His decision to run is not proof that he received such assurances, but there is cause for cautious optimism. Just as Ahmadinejad lacks ultimate authority on key aspects of foreign policy (and with respect to certain crucial domestic areas as well), so too will Khatami be checked by the Supreme Leader. But Khamenei's seeming willingness to countenance a run by Khatami (and possible behind the scenes guarantees) could indicate a slight opening from Iran's clerical establishment. If victorious, Khatami could be given a bit more leeway in terms of pushing for greater freedoms at home, and better relations abroad.
Further, the removal of Ahmadinejad - and his reckless and incendiary rhetoric - from the scene could remove at least a symbolic impediment to the pursuit of diplomatic engagement, while tamping down the overall anxiety in the Gulf regarding Iran's long-term intentions. If so, Parsi's conclusion is spot on:
Change we can believe in.
If Khatami is elected and an opening is found between the US and Iran, Washington must make sure it breaks its bad habit of punishing moderates in the Middle East. The Bush administration ignored several attempts by the Khatami government to reach out to the US, and it put Iran in the Axis of Evil in 2002 only weeks after Washington and Tehran had worked closely together in Afghanistan to topple the Taliban and institute a new constitution in Afghanistan. The failure of the reformist to reap any rewards for their more moderate and constructive foreign policy directly contributed to the ascent of Iran's foreign policy hawks.
Khatami is still a long way from becoming Iran's comeback kid. But if he does, both he and Washington must learn from their mistakes in order to make the comeback worthwhile.
Friday, February 06, 2009
The Election Biden Lost
The results announced yesterday showed Prime Minister Nouri al-Maliki's nationalist, rule-of-law allies swept to victory over Shiite religious parties in a major endorsement of his crackdown on terrorism.
While some Shiite religious parties did quite poorly - particularly ISCI which only managed to muster a paltry 10% of the vote in the southern regions that it had dominated in the 2005 elections - it is important to remember that Maliki's Dawa party is itself a religious Shiite party! Juan Cole is right about this:
The big story here is that the Shiite religious parties (and yes, the Da'wa or Islamic Mission Party is among them) again swept the Shiite south. However, those Shiite parties that won out this time want a strong central government, not a Shiite mini-state. [...]
Contrary to what a lot of observers are saying, the Da'wa Party is not secular and it is not anti-Iran. It is Iraq's oldest Shiite fundamentalist party, founded in the late 1950s, and it explicitly works for an Islamic republic. Its leaders consult with and tend to defer to Grand Ayatollah Ali Sistani.
While Maliki and Dawa did make an effort to tone down the Islamist rhetoric, the success of his list had more to do with its emphasis on supporting the centralist/nationalistic positions (demanding a firm withdrawal date for US forces, pushing for a strong central government and resisting Kurdish/ISCI attempts to devolve more power to federal regions) than some phantom embrace of secularism.
Getting back to the claim in the title of the Postarticle, to suggest that the elections represented a victory for a "US ally" obscures the fact that the elections also represented a defeat for a US ally: namely ISCI. Oddly enough, to the extent that Max Boot was correct that Iran suffered a setback in the elections because its preferred partner, ISCI, was trounced, it is also the case that the US suffered a setback because it, like Iran, had primarily backed ISCI as its preferred partner. Maliki has received the support of the US, but not to the same extent that ISCI has. Hopefully, that will change.
As usual, Reidar Visser is on the money:
Regardless of Maliki's follow through, the Obama administration would do well to distance itself from ISCI and, instead, recognize that - contra the Biden plan - Iraq's stability would be better served by fostering Iraqi nationalism, even if that means less willingness to tolerate permanent bases and the like. Elections have consequences.
Beyond the numbers, these elections have several implications for the overall atmosphere of Iraqi politics. One is that they to some extent mark a rejection of sectarian identity politics. The cleavage between ISCI and Daawa during the elections campaign ran precisely along these lines: Maliki tried to emphasise Iraqi nationalism; ISCI tried to emphasise sectarian Shiism. Maliki won. Secondly, the results clearly signify the triumph of centralism over pro-federal sentiments. Again, Maliki very explicitly emphasised this contrast between himself as favouring control by Baghdad and ISCI as the party of radical decentralisation...
Overall, this should serve as a wake-up call to the outside world, which tirelessly has sought to comply with the sectarian logic embraced by ISCI – in terms of ethno-sectarian quotas, sectarian variants of federalism, and the retrograde concept of “disputed areas”. It is high time that Western politicians realise that the party they have been considering as the key to Iraq’s Shiite community (and sometimes have singled out as the likely provider of the next Iraqi premier) actually commands less than 10% support in the constituency it purports to represent. In other words, for much of the period since 2003, America’s policy in Iraq has probably not enjoyed the support of more than 25% of the country’s politicians (the two Kurdish parties and ISCI). Yet, still today, Iraqis continue to be the prisoners of the ethno-sectarian system of government that emerged in this period and was designed by the two Kurdish parties and ISCI. Even the UN special representative in Iraq, Staffan de Mistura, seems to miss the point when he in a recent Washington Post op-ed claimed there is a need for “greater willingness to seek national reconciliation at all levels and among all major groups: Sunni-Shiite, Shiite-Shiite, Sunni-Sunni, Arab-Kurd and Kurd-Kurd.” What these elections go some way to show is that Iraqis are tired of these labels as such.
There are big tests ahead for Maliki’s “centralism” or even “Iraqi nationalism” (it was these two features, rather than a sometimes-trumpeted “secularism”, that dominated the campaign of his party). At the local level, will the Daawa engage in bold coalition-building outside the Shiite Islamist camp, or will it give in to advances from ISCI? And what about the parliamentary situation and the next speaker – will the Daawa think in terms of a “Sunni quota” or will it switch allegiance to the 22 July parties and the idea of a “nationalist” speaker of whatever sect? Finally, the next parliamentary elections scheduled for December: will Maliki now seek to convert all his nice words about centralism into specific proposals for constitutional reform? Only then will the positive tendencies seen in this election create an enduring result for the long term. The ”No Injuries Reported in Iraqi Elections”, as per a recent New York Times headline, is in itself without much significance in the absence of true political reform.
Monday, February 02, 2009
...And I Will Advertise It
America's recession is moving into its second year, with the situation only worsening.
The hope that President Obama will be able to get us out of the mess is tempered by the reality that throwing hundreds of billions of dollars at the banks has failed to restore them to health, or even to resuscitate the flow of lending.
Every day brings further evidence that the losses are greater than had been expected and more and more money will be required.
The question is at last being raised: Perhaps the entire strategy is flawed? Perhaps what is needed is a fundamental rethinking. The Paulson-Bernanke-Geithner strategy was based on the realization that maintaining the flow of credit was essential for the economy. But it was also based on a failure to grasp some of the fundamental changes in our financial sector since the Great Depression, and even in the last two decades.
For a while, there was hope that simply lowering interest rates enough, flooding the economy with money, would suffice; but three quarters of a century ago, Keynes explained why, in a downturn such as this, monetary policy is likely to be ineffective. It is like pushing on a string.
Then there was the hope that if the government stood ready to help the banks with enough money -- and enough was a lot -- confidence would be restored, and with the restoration of confidence, asset prices would increase and lending would be restored.
Remarkably, Bush administration Treasury Secretary Henry Paulson and company simply didn't understand that the banks had made bad loans and engaged in reckless gambling. There had been a bubble, and the bubble had broken. No amount of talking would change these realities.
It soon became clear that just saying that we were ready to spend the money would not suffice. We actually had to get it into the banks. The question was how. At first, the architects of the bailout argued (with complete and utter confidence) that the best way to do this was buying the toxic assets (those in the financial market didn't like the pejorative term, so they used the term "troubled assets") -- the assets that no one in the private sector would touch with a 10-foot pole.
It should have been obvious that this could not be done in a quick way; it took a few weeks for this crushing reality to dawn on them. Besides, there was a fundamental problem: how to value the assets. And if we valued them correctly, it was clear that there would still be a big hole in banks' balance sheets, impeding their ability to lend.
Then came the idea of equity injection, without strings, so that as we poured money into the banks, they poured out money, to their executives in the form of bonuses, to their shareholders in the form of dividends.
Some of what they had left over they used to buy other banks -- to pursue strategic goals for which they could not have found private finance. The last thing in their mind was to restart lending.
The underlying problem is simple: Even in the heyday of finance, there was a huge gap between private rewards and social returns. The bank managers have taken home huge paychecks, even though, over the past five years, the net profits of many of the banks have (in total) been negative.
And the social returns have even been less -- the financial sector is supposed to allocate capital and manage risk, and it did neither well. Our economy is paying the price for these failures -- to the tune of hundreds of billions of dollars.
But this ever-present problem has now grown worse. In effect, the American taxpayers are the major provider of finance to the banks. In some cases, the value of our equity injection, guarantees, and other forms of assistance dwarf the value of the "private" sector's equity contribution; yet we have no voice in how the banks are run.
This helps us understand the reason why banks have not started to lend again. Put yourself in the position of a bank manager, trying to get through this mess. At this juncture, in spite of the massive government cash injections, he sees his equity dwindling. The banks -- who prided themselves on being risk managers -- finally, and a little too late -- seem to have recognized the risk that they have taken on in the past five years.
After raising and shooting down the "bad bank" option, Stiglitz offers a way forward:
What's the alternative? Sweden (and several other countries) have shown that there is an alternative -- the government takes over those banks that cannot assemble enough capital through private sources to survive without government assistance.
It is standard practice to shut down banks failing to meet basic requirements on capital, but we almost certainly have been too gentle in enforcing these requirements. (There has been too little transparency in this and every other aspect of government intervention in the financial system.)
To be sure, shareholders and bondholders will lose out, but their gains under the current regime come at the expense of taxpayers. In the good years, they were rewarded for their risk taking. Ownership cannot be a one-sided bet.
Of course, most of the employees will remain, and even much of the management. What then is the difference? The difference is that now, the incentives of the banks can be aligned better with those of the country. And it is in the national interest that prudent lending be restarted.
There are several other marked advantages. One of the problems today is that the banks potentially owe large amounts to each other (through complicated derivatives). With government owning many of the banks, sorting through those obligations ("netting them out," in the jargon) will be far easier.
Inevitably, American taxpayers are going to pick up much of the tab for the banks' failures. The question facing us is, to what extent do we participate in the upside return?
Eventually, America's economy will recover. Eventually, our financial sector will be functioning -- and profitable -- once again, though hopefully, it will focus its attention more on doing what it is supposed to do. When things turn around, we can once again privatize the now-failed banks, and the returns we get can help write down the massive increase in the national debt that has been brought upon us by our financial markets.
While shareholders will hurt under this plan, as Stiglitz said, "ownership can't be a one-sided bet" - and if one group has to be on the short end of the stick, it should be the people that volunteered to assume the risk. Of course, for many in the cult of the free market, this type of shareholder pain just seems so uncivilized. Despite the protests, it's completely necessary in order to incentivize better management practices in the future.
Speaking of which, at least some of the recent recklessness surrounding risk-management in terms of lending practices stems from a departure from the days when management were also the major stakeholders in these banks. By taking the banks public, management began to become more divorced from ownership, and more focused on pumping up the value of shares now traded on public exchanges. Thus, the incentive was to take bigger risks and pursue riskier strategies that could increase share value in the short term, but that could lead to long term downside. From management's perspective, in the long run, they'd all be dead, so to speak, so why not gamble on ventures that could lead to huge payoffs in the now.
The underlying reality is a human one: it's easier to risk other people's capital, especially when you are guaranteed to get paid huge sums of money either way - more money, in fact, if short term schemes to boost share value work out even if only during that limited time span.
That is one of the reasons why nationalization makes a lot more sense than multi-trillion dollar giveaways without any strings attached - measures that not only fail to address this conflict of interest, but in fact reinforce it.Nationalize it. It's not an ideal solution, just the best available.