Well, sound like Michael Hudson was right:
"... Foreign countries are beginning to treat dollars as “hot potatoes,” trying to get rid of them as fast as they can.
But how can they all do this? China is using its new dollar inflows to try and buy up foreign raw materials assets, land and other assets needed for its long-term growth. And some Middle Eastern countries are buying long-term supply agreements for food and raw materials produced abroad."
From Reuters:
BEIJING, Dec 29 (Reuters) - China plans to use the fall in global energy demand to boost its fledgling oil reserves against future supply shocks, as it speeds up development of nuclear and wind power and cuts reliance on coal, a top energy official said.
Setting out the nation's policy responses to the global economic crisis in an unusually detailed exposition of its energy strategy, Zhang Guobao, head of the National Energy Administration, said:
"The severity of the economic downturn has brought a marked decline in demand for oil and unprecedented pressure on prices. The amount of crude oil on the international market still far exceeds global demand."
In his article published on Monday in the official People's Daily newspaper, Zhang wrote that the global downturn had posed serious challenges to China's energy sector but also brought a rare chance to make adjustments.
Among the plans, China will push ahead with building the second phase of its strategic oil reserves, having largely completed the first, Zhang said.
That could increase import demand and help global crude oil prices to get into forward gear, having been stuck in reverse since hitting a record high in July.
The government has not disclosed if it has fully filled the first phase of tank farms, which were set up in four locations and can hold 102 million barrels, equivalent to 29 days of crude imports, based on average net trade so far this year.
The first two bases, at Zhenhai and Zhoushan, were up and running more than a year ago. Construction of the Dalian facility, the fourth base, was due for completion by year-end.
Although it was unclear if "completion" referred to building or filling tanks, Zhang's words lent credence to signs that China had at least started filling its third base, at Huangdao.(...)
A GLIMPSE OF STOCKING
China has completed planning of the second phase of government storage facilities that could hold up to 26.8 million cubic metres of oil, or some 170 million barrels, but has not disclosed where the facilities are or whether construction has begun.
The size of China's storage will still be a fraction of the U.S. Strategic Petroleum Reserve(!!), the world's largest emergency oil stockpile, which holds 700 million barrels of crude.
But China is second only to the United States as a consumer of oil and its rapid stockpiling effort, begun only two years ago, has the potential to soak up a lot of surplus crude oil.
China is also shopping for strategic metals such as aluminium and indium and is supporting farmers by buying up crops. But officials have said little about buying oil, aside from vague remarks that China could buy up "resources and materials".
(...) The country would also encourage its oil firms to use spare storage capacity to increase commercial stockpiling of oil resources, Zhang said.
Last week top state oil firm PetroChina began filling its new Shanshan facility in the northwestern Xinjiang region with Kazakh oil, while its rival Sinopec finished building tanks in the coastal Zhejiang province.
Private fuel traders, long living under the shadow of the oil duopoly because they are short of independent fuel supplies, have also indicated they are interested in storing government oil, state media has reported.
Zhang also said China would push on with plans for pipelines from Kazakhstan and Myanmar, though he did not mention increasing imports from Russia, which wants to build oil and gas pipelines from East Siberia and is locked in talks with PetroChina's parent CNPC about a loans-for-oil deal.
Among its other plans to push for energy development, China will start building four nuclear power stations next year -- two in Shandong, one in Zhejiang and one in Guangdong, Zhang said.
Two stations are supposed to adopt technologies from U.S.-based, Japanese-owned Westinghouse and one from France's Areva, earlier plans showed.
Here IbnBattuta: to say that China oil storage will be a fraction of U.S. Strategic Petroleum Reserve is misleading(at best).
The important thing about reserves is how many days of oil consumption they represent.
US reserves(727 million barrels) = 70 days
China reserves(272 millions) = 77 days
miércoles, 31 de diciembre de 2008
Extremism in the defense of liberty is no vice.... Moderation in the pursuit of justice is no virtue.
Asylum seekers tripled in Italy in the last three years(here the link, only in Italian) and there are no reasons whatsoever to expect it to be an Italian prerogative.
I cannot prove it but it seems unlikely that such a spike will not be matched by an increase in economis migrants.
More and more people, in the EU especially, worries about the deterioration in welfare's qualitity as a consequence of migration, too few seems to be concerned about civil liberties and democracy, not only in the EU but also in the US(here's a paper from CIS -Center for Immigration Studies).
Asylum seeker are not the only migrants that comes from illiberal, undemocratic if not openly repressive regimes. It's a lot harder to get out of poverty without an decently open society(although the meteoric ascent of China may have lead us to forget it).
These people are not reaching vibrant thriving and vital democracies.
They are reaching fragile systems, where political parties(the true intermediaries between institutions and citizens) have been loosing the critical mass of militans that either controls them and provide them a meaningfull feedback. Too many people never came to appreciate what use they could eventually give to many of those civil liberties.
Here is a scheme that illustrate the principal patterns of international migrations included the brain drain problems that face Europe.
Democracy is built unto small daily choices, not great battles once in a while.
It's a use-it-or-loose-it process. A process that begin within each and any individual.
We cannot prove that religion is indispensable to democracy(let alone Western Monotheism) what we certainly know is that our ancestors used the idea of men created equals as an image of God to get rid of some economic privileges that had been there for centuries.
Since then we have experienced democracy in the form of a sense of entitlement, of collective ownership, in a moral way but also in according to private law, with different degrees of intensity according to the cultures and traditions.
The transparency and the openness, the shared belief that informations are there to be shared for public interest and not hidden and exploited for cliental purposes.
And yet it's yesterday news that the Mob in Italy use the constructors workers that they hire to influence the internal life of political parties wherever they bring them to work.
NeverEnding National Corruption Tour.
But that again is possible only because citizens spiritual strength has been weakened and their common sense of purpose wiped out.
The terms anomy has since long been a pathetic euphemism, a jargon for mandarin that hiddens more than it reveals.
Again that is typical of a society that is getting old.
I'm not being ageist. I agree with the African proverb. when an old man died a library is burnt.
But if we are all library, who will take the dust away from the books, who will read it, and, most important, who will write the new one?
The coming years of sluggish growth(here's Stephen Roach most recent outlook) are likely to further increase that historical migration trend.
A rapidly ageing population(median age above 40, fertility rate between 1.22 and 1.7, population growth rate 0.11) is likely to perceive it as a threat and not only accept but call for a kind of moratory in some individual liberties in exchange for an increased sense of security.
Again, an ageing society may not find especially bothersome that the government meddles in his sexual life, especially if they no longer have one.
Here's is an article about Section 63 of the Criminal Justice and Immigration Act.
I've never thought I'll see the day in which I'd have spoken out in favour of Britain's BDSM (bondage, domination and sado-masochism) community.
For a person that chose IbnBattuta as a pseudonym it's quite an astonishing call, isn'it?
Again, a society of old tech-illiterate, the kind of controls on the web that Labour recently tried to implement are likely to be tolerable and even urgent. Here's the FT techblog
The recent arrest of MP Damien Green, shadow immigration minister was also unprecedent.
William Buiter makes clear points here, and have another important post here(sleepwalking into a police state)
As that great conservative, Barry Goldwater said:
Extremism in the defense of liberty is no vice.... Moderation in the pursuit of justice is no virtue.
I cannot prove it but it seems unlikely that such a spike will not be matched by an increase in economis migrants.
More and more people, in the EU especially, worries about the deterioration in welfare's qualitity as a consequence of migration, too few seems to be concerned about civil liberties and democracy, not only in the EU but also in the US(here's a paper from CIS -Center for Immigration Studies).
Asylum seeker are not the only migrants that comes from illiberal, undemocratic if not openly repressive regimes. It's a lot harder to get out of poverty without an decently open society(although the meteoric ascent of China may have lead us to forget it).
These people are not reaching vibrant thriving and vital democracies.
They are reaching fragile systems, where political parties(the true intermediaries between institutions and citizens) have been loosing the critical mass of militans that either controls them and provide them a meaningfull feedback. Too many people never came to appreciate what use they could eventually give to many of those civil liberties.
Here is a scheme that illustrate the principal patterns of international migrations included the brain drain problems that face Europe.
Democracy is built unto small daily choices, not great battles once in a while.
It's a use-it-or-loose-it process. A process that begin within each and any individual.
We cannot prove that religion is indispensable to democracy(let alone Western Monotheism) what we certainly know is that our ancestors used the idea of men created equals as an image of God to get rid of some economic privileges that had been there for centuries.
Since then we have experienced democracy in the form of a sense of entitlement, of collective ownership, in a moral way but also in according to private law, with different degrees of intensity according to the cultures and traditions.
The transparency and the openness, the shared belief that informations are there to be shared for public interest and not hidden and exploited for cliental purposes.
And yet it's yesterday news that the Mob in Italy use the constructors workers that they hire to influence the internal life of political parties wherever they bring them to work.
NeverEnding National Corruption Tour.
But that again is possible only because citizens spiritual strength has been weakened and their common sense of purpose wiped out.
The terms anomy has since long been a pathetic euphemism, a jargon for mandarin that hiddens more than it reveals.
Again that is typical of a society that is getting old.
I'm not being ageist. I agree with the African proverb. when an old man died a library is burnt.
But if we are all library, who will take the dust away from the books, who will read it, and, most important, who will write the new one?
The coming years of sluggish growth(here's Stephen Roach most recent outlook) are likely to further increase that historical migration trend.
A rapidly ageing population(median age above 40, fertility rate between 1.22 and 1.7, population growth rate 0.11) is likely to perceive it as a threat and not only accept but call for a kind of moratory in some individual liberties in exchange for an increased sense of security.
Again, an ageing society may not find especially bothersome that the government meddles in his sexual life, especially if they no longer have one.
Here's is an article about Section 63 of the Criminal Justice and Immigration Act.
I've never thought I'll see the day in which I'd have spoken out in favour of Britain's BDSM (bondage, domination and sado-masochism) community.
For a person that chose IbnBattuta as a pseudonym it's quite an astonishing call, isn'it?
Again, a society of old tech-illiterate, the kind of controls on the web that Labour recently tried to implement are likely to be tolerable and even urgent. Here's the FT techblog
The recent arrest of MP Damien Green, shadow immigration minister was also unprecedent.
William Buiter makes clear points here, and have another important post here(sleepwalking into a police state)
As that great conservative, Barry Goldwater said:
Extremism in the defense of liberty is no vice.... Moderation in the pursuit of justice is no virtue.
martes, 30 de diciembre de 2008
Stephen Roach interviewed by Caijing
#1 (youtube link)
-Shape of the recession: a flat U
-American consumers: weakest most fragile states we have seen in the post war.
-Early stages of a multi year ajustment for american consumers
-Sluggish global growth for 3 to 5 years
-No Great Depression, Great Stagnation instead
#2 (youtube link)
-American consumers too far, too fast, for too long - limited recovery at best
-Consume less, create incentive to save more and reinvest in infrastructures
-TARP isn't working
#3 (youtube link)
-Inflation vs. Deflation outlook for 2009
-Reasons why china is buying US treasuries
-Falling chinese export
-The need for a safety net in China.
Ecuador: Judge could order Chevron Corp., which now owns Texaco, to pay as much as $27 billion in damages.
Here's a (slightly edited)abstract from a Bloomberg very exhaustive article:
"About 230,000 people live in Ecuador’s northeastern rain forest side by side with oil wells and pools of drilling waste. A gasolinelike smell hangs in the sweltering jungle air. The mess is a remnant of oil drilling in a 120-mile-long swath of the tropical jungle in northeastern Ecuador where Texaco Inc. and Ecuador’s state-run oil company, PetroEcuador, have pumped billions of barrels of crude from the ground during the past 40 years.
That ruined land is part of one of the worst environmental and human health disasters in the Amazon basin, which stretches across nine countries and, at 1.9 billion acres (800 million hectares), is about the size of Australia.
Depending on how an Ecuadorean judge rules in a lawsuit over the pollution, it may become the costliest corporate ecological catastrophe in world history.
If the judge follows the recommendation of a court- appointed panel of experts, he could order Chevron Corp., which now owns Texaco, to pay as much as $27 billion in damages.
Chevron says Texaco had completely cleaned up its mess by 1998. PetroEcuador, which took over Texaco’s operations in 1990 -- and not Texaco -- is to blame for today’s pollution, Chevron says.
From 1990 until 2007, government-owned PetroEcuador released wastewater into the environment, says Fausto Meja, a spokesman for PetroEcuador. He says the company has spent the past 16 years cleaning up, decreasing its dumping each year. It stopped releasing waste entirely by 2008, he says.
The case will be decided in an old concrete building in the Amazonian oil town of Lago Agrio, 37 miles (60 kilometers) north of Cevallos’s former home. With a shoe store, a T-shirt shop and a beauty salon on the street level, the building, which has no elevator, also houses a provincial courthouse.
Here's a Gregg Palast interview with Ecuador's President, Rafael Correa (Ph.D. in Economics at the University of Illinois at Urbana-Champaign). Please take cultural differences into accout, otherwise President Correa over the top boby language will make his country's claim an hard sell. Here's part1 and part2 of Gregg Palast Ecuador Rumble in the Jungle.
Benny Morris and Tariq Alí
Benny Morris' op-ed from NYT, here some abstracts:
"MANY Israelis feel that the walls — and history — are closing in on their 60-year-old state, much as they felt in early June 1967, just before Israel launched the Six-Day War and destroyed the Egyptian, Jordanian and Syrian armies in Sinai, the West Bank and the Golan Heights.
(...)
Israelis, or rather, Israeli Jews, are beginning to feel much the way their parents did in those apocalyptic days. Israel is a much more powerful and prosperous state today. In 1967 there were only some 2 million Jews in the country — today there are about 5.5 million — and the military did not have nuclear weapons. But the bulk of the population looks to the future with deep foreboding.
The foreboding has two general sources and four specific causes. The general problems are simple. First, the Arab and wider Islamic worlds, despite Israeli hopes since 1948 and notwithstanding the peace treaties signed by Egypt and Jordan in 1979 and 1994, have never truly accepted the legitimacy of Israel’s creation and continue to oppose its existence.
Second, public opinion in the West (and in democracies, governments can’t be far behind) is gradually reducing its support for Israel as the West looks askance at the Jewish state’s treatment of its Palestinian neighbors and wards. The Holocaust is increasingly becoming a faint and ineffectual memory and the Arab states are increasingly powerful and assertive.
More specifically, Israel faces a combination of dire threats.
To the east, Iran is frantically advancing its nuclear project.
To the north, the Lebanese fundamentalist organization Hezbollah, which also vows to destroy Israel and functions as an Iranian proxy, has thoroughly rearmed since its war with Israel in 2006. According to Israeli intelligence estimates, Hezbollah now has an arsenal of 30,000 to 40,000 Russian-made rockets, supplied by Syria and Iran — twice the number it possessed in 2006. Some of the rockets can reach Tel Aviv and Dimona, where Israel’s nuclear production facility is located. If there is war between Israel and Iran, Hezbollah can be expected to join in
To the south, Israel faces the Islamist Hamas movement, which controls the Gaza Strip and whose charter promises to destroy Israel and bring every inch of Palestine under Islamic rule and law. Hamas today has an army of thousands.
(...)But the attack will not solve the basic problem posed by a Gaza Strip populated by 1.5 million impoverished, desperate Palestinians who are ruled by a fanatic regime and are tightly hemmed in by fences and by border crossings controlled by Israel and Egypt.
The fourth immediate threat to Israel’s existence is internal.
It is posed by the country’s Arab minority. Over the past two decades, Israel’s 1.3 million Arab citizens have been radicalized, with many openly avowing a Palestinian identity and embracing Palestinian national aims.
(...) Demography, if not Arab victory in battle, offers the recipe for such a dissolution. The birth rates for Israeli Arabs are among the highest in the world, with 4 or 5 children per family (as opposed to the 2 or 3 children per family among Israeli Jews).
If present trends persist, Arabs could constitute the majority of Israel’s citizens by 2040 or 2050.
What is common to these specific threats is their unconventionality. Between 1948 and 1982 Israel coped relatively well with the threat from conventional Arab armies. Indeed, it repeatedly trounced them. But Iran’s nuclear threat, the rise of organizations like Hamas and Hezbollah that operate from across international borders and from the midst of dense civilian populations, and Israeli Arabs’ growing disaffection with the state and their identification with its enemies, offer a completely different set of challenges. And they are challenges that Israel’s leaders and public, bound by Western democratic and liberal norms of behavior, appear to find particularly difficult to counter.
Israel’s sense of the walls closing in on it has this past week led to one violent reaction. Given the new realities, it would not be surprising if more powerful explosions were to follow.
And Tariq Alí, from Counterpunch:
The assault on the Gaza Ghetto, planned over six months and executed with perfect timing was designed largely to help the incumbent parties triumph in the forthcoming Israeli elections. The dead Palestinians are little more than election fodder in a cynical contest between the Right and the Far Right in Israel. Washington and its EU allies, perfectly aware that Gaza was about to be assaulted, as in the case of Lebanon a few years, sit back and watch. Washington, as is its wont, blames the pro-Hamas Palestinians, with Obama and Bush singing from the same AIPAC hymn sheet.
The EU politicians, having observed the build-up, the siege, the collective punishment inflicted on Gaza, the targeting of civilians, etc [See Harvard scholar Sara Roy’s chilling essay in the latest LRB] were convinced that it was the rocket attacks that had ‘provoked’ Israel but called on both sides to end the violence, with nil effect. The moth-eaten Mubarik dictatorship in Egypt and NATO’s favourite Islamists in Ankara, failed to even register a symbolic protest by recalling their Ambassadors from Israel. China and Russia did not convene a meeting of the UNSC to discuss the crisis.
As result of official apathy, one outcome of this latest attack will be to inflame Muslim communities throughout the world and swell the ranks of those very organisations that the West claims it is combating in the ‘war against terror’.
The bloodshed in Gaza raises broader strategic questions for both sides, issues related to recent history. One fact that needs to be recognised is that there is no Palestinian Authority. There never was one. The Oslo Accords were an unmitigated disaster for the Palestinians, creating a set of disconnected and shrivelled Palestinian ghettoes under the permanent watch of a brutal enforcer.
The PLO, once the repository of Palestinian hope, became little more than a supplicant for EU money. Western enthusiasm for democracy stops when those opposed to its policies are elected to office. The West and Israel tried everything to secure a Fatah victory: Palestinian voters rebuffed the concerted threats and bribes of the ‘international community’ in a campaign that saw Hamas members and other oppositionists routinely detained or assaulted by the IDF, their posters confiscated or destroyed, us and EU funds channelled into the Fatah campaign, and US Congressmen announcing that Hamas should not be allowed to run. Even the timing of the election was set by the determination to rig the outcome. Scheduled for the summer of 2005, it was delayed till January 2006 to give Abbas time to distribute assets in Gaza—in the words of an Egyptian intelligence officer: ‘the public will then support the Authority against Hamas’. Popular desire for a clean broom after ten years of corruption, bullying and bluster under Fatah proved stronger than all of this.
Hamas’s electoral triumph was treated as an ominous sign of rising fundamentalism, and a fearsome blow to the prospects of peace with Israel, by rulers and journalists across the Atlantic world. Immediate financial and diplomatic pressures were applied to force Hamas to adopt the same policies as those whom it defeated at the polls.Uncompromised by the Palestinian
Authority’s combination of greed and dependency, the self-enrichment of its servile spokesmen and policemen, and their acquiescence in a ‘peace process’ that has brought only further expropriation and misery to the population under them, Hamas offered the alternative of a simple example. Without any of the resources of its rival, it set up clinics, schools, hospitals, vocational training and welfare programmes for the poor. Its leaders and cadres lived frugally, within reach of ordinary people. It is this response to everyday needs that has won Hamas the broad basis of its support, not daily recitation of verses from the Koran.
How far its conduct in the second Intifada has given it an additional degree of credibility is less clear. Its armed attacks on Israel, like those of Fatah’s Al-Aqsa Martyrs’ Brigade or Islamic Jihad, have been retaliations against an occupation far more deadly than any actions it has ever undertaken. Measured on the scale of IDF killings, Palestinian strikes have been few and far between. The asymmetry was starkly exposed during Hamas’s unilateral ceasefire, begun in June 2003, and maintained throughout the summer despite the Israeli campaign of raids and mass arrests, which followed, in which some three hundred Hamas cadres were seized from the West Bank. On 19 August 2003 a self-proclaimed ‘Hamas’ cell from Hebron, disowned and denounced by the official leadership, blew up a bus in West Jerusalem, upon which Israel promptly assassinated the Hamas ceasefire’s negotiator, Ismail Abu Shanab. Hamas in turn responded. In return, the Palestinian Authority and Arab states cut funding to its charities and, in September 2003, the EU declared the whole Hamas movement to be a terrorist organization—a long-standing demand of Tel Aviv.
What has actually distinguished Hamas in a hopelessly unequal combat is not dispatch of suicide bombers, to which a range of competing groups resorted, but its superior discipline—demonstrated by its ability to enforce a self-declared ceasefire against Israel over the past year. All civilian deaths are to be condemned, but since Israel is their principal practitioner, Euro-American cant serves only to expose those who utter it. Overwhelmingly, the boot of murder is on the other foot, ruthlessly stamped into Palestine by a modern army equipped with jets, tanks and missiles in the longest armed oppression of modern history. ‘Nobody can reject or condemn the revolt of a people that has been suffering under military occupation for forty-five years against occupation force’: the words of General Shlomo Gazit, former chief of Israeli military intelligence, in 1993.
The real grievance of the EU and US against Hamas is that it refused to accept the capitulation of the Oslo Accords, and has rejected every subsequent effort, from Taba to Geneva, to pass off their calamities on the Palestinians. The West’s priority ever since was to break this resistance. Cutting off funding to the Palestinian Authority is an obvious weapon with which to bludgeon Hamas into submission. Boosting the presidential powers of Abbas—as publicly picked for his post by Washington, as was Karzai in Kabul—at the expense of the Legislative Council is another.
No serious efforts were made to negotiate with the elected Palestinian leadership. I doubt if Hamas could have been rapidly suborned to Western and Israel but it would not have been unprecedented. Hamas’s programmatic heritage remains mortgaged to the most fatal weakness of Palestinian nationalism: the belief that the political choices before it are either rejection of the existence of Israel altogether, or acceptance of the dismembered remnants of a fifth of the country. From the fantasy maximalism of the first to the pathetic minimalism of the second, the path is all too short, as the history of Fatah has shown. The test for Hamas is not whether it can be house-trained to the satisfaction of Western opinion, but whether it can break with this crippling tradition. Soon after the Hamas victory I was asked in public by a Palestinian what I would do in their place. ‘Dissolve the Palestinian Authority’, was my response and end the make-belief. To do so would situate the Palestinian national cause on its proper basis, with the demand that the country and its resources be divided equitably, in proportion to two populations that are equal in size—not 80 per cent to one and 20 per cent to the other, a dispossession of such iniquity that no self-respecting people will ever submit to it in the long run. The only acceptable alternative is a single state for Jews and Palestinians alike, in which the exactions of Zionism are repaired.
"MANY Israelis feel that the walls — and history — are closing in on their 60-year-old state, much as they felt in early June 1967, just before Israel launched the Six-Day War and destroyed the Egyptian, Jordanian and Syrian armies in Sinai, the West Bank and the Golan Heights.
(...)
Israelis, or rather, Israeli Jews, are beginning to feel much the way their parents did in those apocalyptic days. Israel is a much more powerful and prosperous state today. In 1967 there were only some 2 million Jews in the country — today there are about 5.5 million — and the military did not have nuclear weapons. But the bulk of the population looks to the future with deep foreboding.
The foreboding has two general sources and four specific causes. The general problems are simple. First, the Arab and wider Islamic worlds, despite Israeli hopes since 1948 and notwithstanding the peace treaties signed by Egypt and Jordan in 1979 and 1994, have never truly accepted the legitimacy of Israel’s creation and continue to oppose its existence.
Second, public opinion in the West (and in democracies, governments can’t be far behind) is gradually reducing its support for Israel as the West looks askance at the Jewish state’s treatment of its Palestinian neighbors and wards. The Holocaust is increasingly becoming a faint and ineffectual memory and the Arab states are increasingly powerful and assertive.
More specifically, Israel faces a combination of dire threats.
To the east, Iran is frantically advancing its nuclear project.
To the north, the Lebanese fundamentalist organization Hezbollah, which also vows to destroy Israel and functions as an Iranian proxy, has thoroughly rearmed since its war with Israel in 2006. According to Israeli intelligence estimates, Hezbollah now has an arsenal of 30,000 to 40,000 Russian-made rockets, supplied by Syria and Iran — twice the number it possessed in 2006. Some of the rockets can reach Tel Aviv and Dimona, where Israel’s nuclear production facility is located. If there is war between Israel and Iran, Hezbollah can be expected to join in
To the south, Israel faces the Islamist Hamas movement, which controls the Gaza Strip and whose charter promises to destroy Israel and bring every inch of Palestine under Islamic rule and law. Hamas today has an army of thousands.
(...)But the attack will not solve the basic problem posed by a Gaza Strip populated by 1.5 million impoverished, desperate Palestinians who are ruled by a fanatic regime and are tightly hemmed in by fences and by border crossings controlled by Israel and Egypt.
The fourth immediate threat to Israel’s existence is internal.
It is posed by the country’s Arab minority. Over the past two decades, Israel’s 1.3 million Arab citizens have been radicalized, with many openly avowing a Palestinian identity and embracing Palestinian national aims.
(...) Demography, if not Arab victory in battle, offers the recipe for such a dissolution. The birth rates for Israeli Arabs are among the highest in the world, with 4 or 5 children per family (as opposed to the 2 or 3 children per family among Israeli Jews).
If present trends persist, Arabs could constitute the majority of Israel’s citizens by 2040 or 2050.
What is common to these specific threats is their unconventionality. Between 1948 and 1982 Israel coped relatively well with the threat from conventional Arab armies. Indeed, it repeatedly trounced them. But Iran’s nuclear threat, the rise of organizations like Hamas and Hezbollah that operate from across international borders and from the midst of dense civilian populations, and Israeli Arabs’ growing disaffection with the state and their identification with its enemies, offer a completely different set of challenges. And they are challenges that Israel’s leaders and public, bound by Western democratic and liberal norms of behavior, appear to find particularly difficult to counter.
Israel’s sense of the walls closing in on it has this past week led to one violent reaction. Given the new realities, it would not be surprising if more powerful explosions were to follow.
And Tariq Alí, from Counterpunch:
The assault on the Gaza Ghetto, planned over six months and executed with perfect timing was designed largely to help the incumbent parties triumph in the forthcoming Israeli elections. The dead Palestinians are little more than election fodder in a cynical contest between the Right and the Far Right in Israel. Washington and its EU allies, perfectly aware that Gaza was about to be assaulted, as in the case of Lebanon a few years, sit back and watch. Washington, as is its wont, blames the pro-Hamas Palestinians, with Obama and Bush singing from the same AIPAC hymn sheet.
The EU politicians, having observed the build-up, the siege, the collective punishment inflicted on Gaza, the targeting of civilians, etc [See Harvard scholar Sara Roy’s chilling essay in the latest LRB] were convinced that it was the rocket attacks that had ‘provoked’ Israel but called on both sides to end the violence, with nil effect. The moth-eaten Mubarik dictatorship in Egypt and NATO’s favourite Islamists in Ankara, failed to even register a symbolic protest by recalling their Ambassadors from Israel. China and Russia did not convene a meeting of the UNSC to discuss the crisis.
As result of official apathy, one outcome of this latest attack will be to inflame Muslim communities throughout the world and swell the ranks of those very organisations that the West claims it is combating in the ‘war against terror’.
The bloodshed in Gaza raises broader strategic questions for both sides, issues related to recent history. One fact that needs to be recognised is that there is no Palestinian Authority. There never was one. The Oslo Accords were an unmitigated disaster for the Palestinians, creating a set of disconnected and shrivelled Palestinian ghettoes under the permanent watch of a brutal enforcer.
The PLO, once the repository of Palestinian hope, became little more than a supplicant for EU money. Western enthusiasm for democracy stops when those opposed to its policies are elected to office. The West and Israel tried everything to secure a Fatah victory: Palestinian voters rebuffed the concerted threats and bribes of the ‘international community’ in a campaign that saw Hamas members and other oppositionists routinely detained or assaulted by the IDF, their posters confiscated or destroyed, us and EU funds channelled into the Fatah campaign, and US Congressmen announcing that Hamas should not be allowed to run. Even the timing of the election was set by the determination to rig the outcome. Scheduled for the summer of 2005, it was delayed till January 2006 to give Abbas time to distribute assets in Gaza—in the words of an Egyptian intelligence officer: ‘the public will then support the Authority against Hamas’. Popular desire for a clean broom after ten years of corruption, bullying and bluster under Fatah proved stronger than all of this.
Hamas’s electoral triumph was treated as an ominous sign of rising fundamentalism, and a fearsome blow to the prospects of peace with Israel, by rulers and journalists across the Atlantic world. Immediate financial and diplomatic pressures were applied to force Hamas to adopt the same policies as those whom it defeated at the polls.Uncompromised by the Palestinian
Authority’s combination of greed and dependency, the self-enrichment of its servile spokesmen and policemen, and their acquiescence in a ‘peace process’ that has brought only further expropriation and misery to the population under them, Hamas offered the alternative of a simple example. Without any of the resources of its rival, it set up clinics, schools, hospitals, vocational training and welfare programmes for the poor. Its leaders and cadres lived frugally, within reach of ordinary people. It is this response to everyday needs that has won Hamas the broad basis of its support, not daily recitation of verses from the Koran.
How far its conduct in the second Intifada has given it an additional degree of credibility is less clear. Its armed attacks on Israel, like those of Fatah’s Al-Aqsa Martyrs’ Brigade or Islamic Jihad, have been retaliations against an occupation far more deadly than any actions it has ever undertaken. Measured on the scale of IDF killings, Palestinian strikes have been few and far between. The asymmetry was starkly exposed during Hamas’s unilateral ceasefire, begun in June 2003, and maintained throughout the summer despite the Israeli campaign of raids and mass arrests, which followed, in which some three hundred Hamas cadres were seized from the West Bank. On 19 August 2003 a self-proclaimed ‘Hamas’ cell from Hebron, disowned and denounced by the official leadership, blew up a bus in West Jerusalem, upon which Israel promptly assassinated the Hamas ceasefire’s negotiator, Ismail Abu Shanab. Hamas in turn responded. In return, the Palestinian Authority and Arab states cut funding to its charities and, in September 2003, the EU declared the whole Hamas movement to be a terrorist organization—a long-standing demand of Tel Aviv.
What has actually distinguished Hamas in a hopelessly unequal combat is not dispatch of suicide bombers, to which a range of competing groups resorted, but its superior discipline—demonstrated by its ability to enforce a self-declared ceasefire against Israel over the past year. All civilian deaths are to be condemned, but since Israel is their principal practitioner, Euro-American cant serves only to expose those who utter it. Overwhelmingly, the boot of murder is on the other foot, ruthlessly stamped into Palestine by a modern army equipped with jets, tanks and missiles in the longest armed oppression of modern history. ‘Nobody can reject or condemn the revolt of a people that has been suffering under military occupation for forty-five years against occupation force’: the words of General Shlomo Gazit, former chief of Israeli military intelligence, in 1993.
The real grievance of the EU and US against Hamas is that it refused to accept the capitulation of the Oslo Accords, and has rejected every subsequent effort, from Taba to Geneva, to pass off their calamities on the Palestinians. The West’s priority ever since was to break this resistance. Cutting off funding to the Palestinian Authority is an obvious weapon with which to bludgeon Hamas into submission. Boosting the presidential powers of Abbas—as publicly picked for his post by Washington, as was Karzai in Kabul—at the expense of the Legislative Council is another.
No serious efforts were made to negotiate with the elected Palestinian leadership. I doubt if Hamas could have been rapidly suborned to Western and Israel but it would not have been unprecedented. Hamas’s programmatic heritage remains mortgaged to the most fatal weakness of Palestinian nationalism: the belief that the political choices before it are either rejection of the existence of Israel altogether, or acceptance of the dismembered remnants of a fifth of the country. From the fantasy maximalism of the first to the pathetic minimalism of the second, the path is all too short, as the history of Fatah has shown. The test for Hamas is not whether it can be house-trained to the satisfaction of Western opinion, but whether it can break with this crippling tradition. Soon after the Hamas victory I was asked in public by a Palestinian what I would do in their place. ‘Dissolve the Palestinian Authority’, was my response and end the make-belief. To do so would situate the Palestinian national cause on its proper basis, with the demand that the country and its resources be divided equitably, in proportion to two populations that are equal in size—not 80 per cent to one and 20 per cent to the other, a dispossession of such iniquity that no self-respecting people will ever submit to it in the long run. The only acceptable alternative is a single state for Jews and Palestinians alike, in which the exactions of Zionism are repaired.
The Instrumental Value of Religion - Simone Weil use to blame Pascal for his wager...
From NYT:
Michael McCullough and a fellow psychologist at the University of Miami, Brian Willoughby, have reviewed eight decades of research and concluded that religious belief and piety promote self-control.
(...)Dr. McCullough has no evangelical motives. He confesses to not being much of a devotee himself. “When it comes to religion,” he said, “professionally, I’m a fan, but personally, I don’t get down on the field much.”
(...)
"We simply asked if there was good evidence that people who are more religious have more self-control,” Dr. McCullough. “For a long time it wasn’t cool for social scientists to study religion, but some researchers were quietly chugging along for decades. When you add it all up, it turns out there are remarkably consistent findings that religiosity correlates with higher self-control.”
In one personality study, strongly religious people were compared with people who subscribed to more general spiritual notions, like the idea that their lives were “directed by a spiritual force greater than any human being” or that they felt “a spiritual connection to other people.” The religious people scored relatively high in conscientiousness and self-control, whereas the spiritual people tended to score relatively low.
“Thinking about the oneness of humanity and the unity of nature doesn’t seem to be related to self-control,” Dr. McCullough said. “The self-control effect seems to come from being engaged in religious institutions and behaviors.”
(...)
Personality studies have identified a difference between true believers and others who attend services for extrinsic reasons, like wanting to impress people or make social connections. The intrinsically religious people have higher self-control, but the extrinsically religious do not.
(...)
Religious people, he said, are self-controlled not simply because they fear God’s wrath, but because they’ve absorbed the ideals of their religion into their own system of values, and have thereby given their personal goals an aura of sacredness.
Michael McCullough and a fellow psychologist at the University of Miami, Brian Willoughby, have reviewed eight decades of research and concluded that religious belief and piety promote self-control.
(...)Dr. McCullough has no evangelical motives. He confesses to not being much of a devotee himself. “When it comes to religion,” he said, “professionally, I’m a fan, but personally, I don’t get down on the field much.”
(...)
"We simply asked if there was good evidence that people who are more religious have more self-control,” Dr. McCullough. “For a long time it wasn’t cool for social scientists to study religion, but some researchers were quietly chugging along for decades. When you add it all up, it turns out there are remarkably consistent findings that religiosity correlates with higher self-control.”
In one personality study, strongly religious people were compared with people who subscribed to more general spiritual notions, like the idea that their lives were “directed by a spiritual force greater than any human being” or that they felt “a spiritual connection to other people.” The religious people scored relatively high in conscientiousness and self-control, whereas the spiritual people tended to score relatively low.
“Thinking about the oneness of humanity and the unity of nature doesn’t seem to be related to self-control,” Dr. McCullough said. “The self-control effect seems to come from being engaged in religious institutions and behaviors.”
(...)
Personality studies have identified a difference between true believers and others who attend services for extrinsic reasons, like wanting to impress people or make social connections. The intrinsically religious people have higher self-control, but the extrinsically religious do not.
(...)
Religious people, he said, are self-controlled not simply because they fear God’s wrath, but because they’ve absorbed the ideals of their religion into their own system of values, and have thereby given their personal goals an aura of sacredness.
domingo, 28 de diciembre de 2008
Russian(inevitable?) Nationalism
From BBC News:
Russia's biggest television stations Rossiya has been conducting a nationwide poll for much of this year.
From an original list of 500 candidates now there are just 12 names left from which viewers can select their all-time hero.
(...)
More than 3.5 million people have already voted and Stalin - born an ethnic Georgian - has been riding high for many months.
(...)
Many in Russia do still revere Stalin for his role during World War II when the Soviet Union defeated the forces of Nazi Germany.
But now there is a much broader campaign to rehabilitate Stalin and it seems to be coming from the highest levels of government.
The primary evidence comes in the form of a new manual for history teachers in the country's schools, which says Stalin acted "entirely rationally".
Stalin's profile on the poll's website does not shy away from his crimes
"[The initiative] came from the very top," says the editor of the manual, historian Alexander Danilov.
"I believe it was the idea of former president, now prime minister, Vladimir Putin.
"It fits completely with the political course we have had for the last eight years, which is dedicated to the unity of society."
But the campaign goes further than reinterpreting history for schoolchildren. It is also physical.
Earlier this month, riot police raided the St Petersburg office of one of Russia's best-known human rights organisations, Memorial.
Claiming a possible link with an "extremist" article published in a local newspaper, the police took away 12 computer hard-drives containing the entire digital archive of the atrocities committed under Stalin.
Memorial's St Petersburg office specialises in researching the crimes committed by the Soviet regime.
"It's a huge blow to our organisation," says Irina Flige, the office director.
"This was 20 years' work. We'd been making a universally accessible database with hundreds of thousands of names.
"Maybe this was a warning to scare us?"
Irina Flige believes they were targeted because they are now on the wrong side of a new ideological divide.
(...)
It seems Russians are to be proud of their history, not ashamed, and so those investigating and cataloguing the atrocities of the past are no longer welcome.
"The official line now is that Stalin and the Soviet regime were successful in creating a great country," says Irina Flige.
"And if the terror of Stalin is justified, then the government today can do what it wants to achieve its aims."
The outrage at what has happened to the Memorial archive spreads beyond Russia's borders.
The British historian Orlando Figes worked with Memorial when he was researching his latest book The Whisperers: Private Lives in Stalin's Russia.
(...)
"What we have now [in Russia] effectively is the KGB in power," he adds.
"Opposition forces and awkward historians reminding the Russian population of what the KGB did 50 years ago is inconvenient for these people."
So it seems whoever is voted the country's greatest citizen on Sunday, it is Joseph Stalin who is the biggest winner this year as he is rehabilitated in Russia's brave new world.
That to me create a link to a couple of old Spengler's essays. From AsianTimes:
Putin has the requisite tough-mindedness, with only one important deficiency: he is a nasty piece of work. His youth movement, Nashi (Ours) should frighten anyone who knows the political history of the 20th century. Then again, nobody's perfect. Russia is no country for nice men. But Putin's personal nastiness is beside the point. (...) No Russian leader could survive without doing more or less what Putin has done.
While his predecessor Boris Yeltsin led Russia into bankruptcy and chaos, Putin restored Russia's economy and global stature on the strength of one insight: the Russian people were the problem. After centuries of Tsarist brutality and three generations of communist terror, the Russian people had become a passive rabble incapable of defending their interests. Yeltsin allowed a locust-swarm to steal what remained of the Russian economy.
By harsh and extra-legal means, Putin reclaimed Russia's economy for the state".
Also from AsianTimes:
Russia's biggest television stations Rossiya has been conducting a nationwide poll for much of this year.
From an original list of 500 candidates now there are just 12 names left from which viewers can select their all-time hero.
(...)
More than 3.5 million people have already voted and Stalin - born an ethnic Georgian - has been riding high for many months.
(...)
Many in Russia do still revere Stalin for his role during World War II when the Soviet Union defeated the forces of Nazi Germany.
But now there is a much broader campaign to rehabilitate Stalin and it seems to be coming from the highest levels of government.
The primary evidence comes in the form of a new manual for history teachers in the country's schools, which says Stalin acted "entirely rationally".
Stalin's profile on the poll's website does not shy away from his crimes
"[The initiative] came from the very top," says the editor of the manual, historian Alexander Danilov.
"I believe it was the idea of former president, now prime minister, Vladimir Putin.
"It fits completely with the political course we have had for the last eight years, which is dedicated to the unity of society."
But the campaign goes further than reinterpreting history for schoolchildren. It is also physical.
Earlier this month, riot police raided the St Petersburg office of one of Russia's best-known human rights organisations, Memorial.
Claiming a possible link with an "extremist" article published in a local newspaper, the police took away 12 computer hard-drives containing the entire digital archive of the atrocities committed under Stalin.
Memorial's St Petersburg office specialises in researching the crimes committed by the Soviet regime.
"It's a huge blow to our organisation," says Irina Flige, the office director.
"This was 20 years' work. We'd been making a universally accessible database with hundreds of thousands of names.
"Maybe this was a warning to scare us?"
Irina Flige believes they were targeted because they are now on the wrong side of a new ideological divide.
(...)
It seems Russians are to be proud of their history, not ashamed, and so those investigating and cataloguing the atrocities of the past are no longer welcome.
"The official line now is that Stalin and the Soviet regime were successful in creating a great country," says Irina Flige.
"And if the terror of Stalin is justified, then the government today can do what it wants to achieve its aims."
The outrage at what has happened to the Memorial archive spreads beyond Russia's borders.
The British historian Orlando Figes worked with Memorial when he was researching his latest book The Whisperers: Private Lives in Stalin's Russia.
(...)
"What we have now [in Russia] effectively is the KGB in power," he adds.
"Opposition forces and awkward historians reminding the Russian population of what the KGB did 50 years ago is inconvenient for these people."
So it seems whoever is voted the country's greatest citizen on Sunday, it is Joseph Stalin who is the biggest winner this year as he is rehabilitated in Russia's brave new world.
That to me create a link to a couple of old Spengler's essays. From AsianTimes:
Putin has the requisite tough-mindedness, with only one important deficiency: he is a nasty piece of work. His youth movement, Nashi (Ours) should frighten anyone who knows the political history of the 20th century. Then again, nobody's perfect. Russia is no country for nice men. But Putin's personal nastiness is beside the point. (...) No Russian leader could survive without doing more or less what Putin has done.
While his predecessor Boris Yeltsin led Russia into bankruptcy and chaos, Putin restored Russia's economy and global stature on the strength of one insight: the Russian people were the problem. After centuries of Tsarist brutality and three generations of communist terror, the Russian people had become a passive rabble incapable of defending their interests. Yeltsin allowed a locust-swarm to steal what remained of the Russian economy.
By harsh and extra-legal means, Putin reclaimed Russia's economy for the state".
Also from AsianTimes:
"Russia is fighting for its survival, against a catastrophic decline in population and the likelihood of a Muslim majority by mid-century. The Russian Federation's scarcest resource is people.
(...)
The United Nations publishes population projections for Russia up to 2050, and I have extended these to 2100. If the UN demographers are correct, Russia's adult population will fall from about 90 million today to only 20 million by the end of the century. Russia is the only country where abortions are more numerous than live births, a devastating gauge of national despair.
Under Putin, the Russian government introduced an ambitious natalist program to encourage Russian women to have children. As he warned in his 2006 state of the union address, "You know that our country's population is declining by an average of almost 700,000 people a year. We have raised this issue on many occasions but have for the most part done very little to address it ... First, we need to lower the death rate. Second, we need an effective migration policy. And third, we need to increase the birth rate."
Russia's birth rate has risen slightly during the past several years, perhaps in response to Putin's natalism, but demographers observe that the number of Russian women of childbearing age is about to fall off a cliff. No matter how much the birth rate improves, the sharp fall in the number of prospective mothers will depress the number of births. UN forecasts show the number of Russians aged 20-29 falling from 25 million today to only 10 million by 2040.
(...)
Part of Russia's response is to encourage migration of Russians left outside the borders of the federation after the collapse of communism in 1991. An estimated 6.5 million Russians from the former Soviet Union now work in Russia as undocumented aliens, and a new law will regularize their status. Only 20,000 Russian "compatriots" living abroad, however, have applied for immigration to the federation under a new law designed to draw Russians back. (that is the all thing!)
That leaves the 9.5 million citizens of Belarus, a relic of the Soviet era that persists in a semi-formal union with the Russian Federation, as well as the Russians of the Western Ukraine and Kazakhstan. More than 15 million ethnic Russians reside in those three countries, and they represent a critical strategic resource.
Even with migration and annexation of former Russian territory that was lost in the fracture of the USSR, however, Russia will not win its end-game against demographic decline and the relative growth of Muslim populations. The key to Russian survival is Russification, that is, the imposition of Russian culture and Russian law on ethnicities at the periphery of the federation. That might sound harsh, but that has been Russian nature from its origins.
Russia is not an ethnicity but an empire, the outcome of hundreds of years of Russification. That Russification has been brutal is an understatement, but it is what created Russia out of the ethnic morass around the Volga river basin. One of the best accounts of Russia's character comes from Eugene Rosenstock-Huessey (Franz Rosenzweig's cousin and sometime collaborator) in his 1938 book Out of Revolution. Russia's territory tripled between the 16th and 18th centuries, he observes, and the agency of its expansion was a unique Russian type. The Russian peasant, Rosenstock-Huessey observed, "was no stable freeholder of the Western type but much more a nomad, a pedlar, a craftsman and a soldier. His capacity for expansion was tremendous."
In 1581 Asiatic Russia was opened. Russian expansion, extending even in the eighteenth century as far as the Russian River in Northern California, was by no means Czaristic only. The "Moujik", the Russian peasant, because he is not a "Bauer" or a "farmer", or a "laborer", but a "Moujik", wanders and stays, ready to migrate again eventually year after year.
Personally I found Spengler view of History too Top-down to be realistic.
But when I see this video I find myself thinking that he may be unto something:
The video is about Nashi, a government funded Russian youth movement (Here's the youtube link)
viernes, 26 de diciembre de 2008
Greek Parliament on TV: Aesthetical Sabotage?
Please, look at the shot at the 25'' in the video (or, for a bigger screen, here).
What is that supposed to be anyway? A reverse shot? The fake subjective point of view of the prime minister? Looks like one of those cheap tv show in the 70s, when the digital camaras start to allow more Rec Time for less money.
People in power still ignores that if you mix the formats people respect you for the format you sell them? Or should we consider it an aesthetical sabotage? The ultimate anti-Leni Riefenstahl? Because if that is the case, the success could have hardly been greater.
In the famous interview Orson Welles teach Peter Bogdanovich an important lesson.
The less we understand an actor language the easiest it is to assess his talent.
Clearly Costas Karamanlis is a poor rhetorician. But thank to that reverse shot(and to the lack of production values) we can appreciate MPs for what they really are. The payed audience of a talk show. And not thanks to somebody's words(that may fail to appear or reach a broad public) but through images that speaks for themselves.
When it comes to words few people have spoken clearer than Adam Shatz fron LRB:
The week that followed(the killing of Alexis Grigoropoulos) saw mass demonstrations culminating in a general strike, the occupation of universities throughout the country, the torching of public buildings, the firebombing of police stations and the destruction and pillaging of hundreds of shops, with damages estimated at a billion euros. No one in Greece seems very surprised by the scale of the response. Patience had been wearing thin with the government, with the police, and with a state of affairs in which the country’s new rich shop in the stores (now trashed) in downtown Athens while educated Greeks work as taxi drivers and bartenders. Only a martyr was needed. Grigoropoulos was perfect for the role: young, sweet-faced, from a good family. He was also Greek, unlike most of the victims of recent police violence, whose deaths were barely noticed.
(...)
Their protests struck a chord among students in other European countries dismayed by their dim economic prospects and unresponsive leaders. There have been demonstrations of support in Italy, Spain, France and Germany; in a sombre speech on 15 December, Dominique Strauss-Kahn warned that unless other European governments move quickly to boost their economies, they may find themselves facing similar unrest.
(...)
There’s a sense among Greeks that nothing is sacred any more: not with a government that failed to prevent the spread of forest fires in 2007, in which dozens of people died, and then cut deals with developers afterwards; and not with politicians like Karamanlis’s friend Christos Zachopoulos, the former secretary general of the Culture Ministry and chairman of the Central Archaeological Council, who approved a grant to a reforestation project that his own advisers told him would damage Byzantine monuments. (That’s just one of the offences that came to light after Zachopoulos, threatened with blackmail by his former assistant and mistress, jumped off his balcony to avoid disgrace. He survived the fall.) Greece doesn’t brutalise its citizens to the degree that it did under the Colonels, but neither is it providing them with a future, or even a secure present. No wonder a recent survey found Greeks to be the most pessimistic people in Europe.
(...)
Greece now has a higher percentage of students abroad than any other country in the EU. A fifth of the population lives below the poverty line, youth unemployment is 25 per cent, and the minimum wage is half the EU average. The anarchists believe the solution is a ‘total rejection of work’, but most of the protesters would be happy with more work, at a better rate of pay".
Takis Michas from openDemocracy(also quoted in LRB article) makes other important points:
"What was unique about these Greek events - as opposed to, say, the riots in the banlieues of Paris in late 2005 - was the total withdrawal of the government and the security forces from the scene. Civil society was left alone and unarmed to fend off the violent attacks on their property by the hordes of predators. On 9 December, one of the worst nights of rioting, more than 400 shops were attacked in Athens: some were torched, others looted and seriously damaged.
All of this took place while the security forces simply stood by and watched the disaster unfold. They were following the explicit orders of their political masters to assume a "defensive posture" - which in effect meant that they did not try to prevent the orgy of destruction.
Anyone watching this absurd scene could be excused for concluding that a secret deal had been struck between the government and the rioters: we let you torch and plunder to your heart's content, and you let us continue pretending that we are in charge".
...More on the extent of New Democracy Government's failure here.
What is that supposed to be anyway? A reverse shot? The fake subjective point of view of the prime minister? Looks like one of those cheap tv show in the 70s, when the digital camaras start to allow more Rec Time for less money.
People in power still ignores that if you mix the formats people respect you for the format you sell them? Or should we consider it an aesthetical sabotage? The ultimate anti-Leni Riefenstahl? Because if that is the case, the success could have hardly been greater.
In the famous interview Orson Welles teach Peter Bogdanovich an important lesson.
The less we understand an actor language the easiest it is to assess his talent.
Clearly Costas Karamanlis is a poor rhetorician. But thank to that reverse shot(and to the lack of production values) we can appreciate MPs for what they really are. The payed audience of a talk show. And not thanks to somebody's words(that may fail to appear or reach a broad public) but through images that speaks for themselves.
When it comes to words few people have spoken clearer than Adam Shatz fron LRB:
The week that followed(the killing of Alexis Grigoropoulos) saw mass demonstrations culminating in a general strike, the occupation of universities throughout the country, the torching of public buildings, the firebombing of police stations and the destruction and pillaging of hundreds of shops, with damages estimated at a billion euros. No one in Greece seems very surprised by the scale of the response. Patience had been wearing thin with the government, with the police, and with a state of affairs in which the country’s new rich shop in the stores (now trashed) in downtown Athens while educated Greeks work as taxi drivers and bartenders. Only a martyr was needed. Grigoropoulos was perfect for the role: young, sweet-faced, from a good family. He was also Greek, unlike most of the victims of recent police violence, whose deaths were barely noticed.
(...)
Their protests struck a chord among students in other European countries dismayed by their dim economic prospects and unresponsive leaders. There have been demonstrations of support in Italy, Spain, France and Germany; in a sombre speech on 15 December, Dominique Strauss-Kahn warned that unless other European governments move quickly to boost their economies, they may find themselves facing similar unrest.
(...)
There’s a sense among Greeks that nothing is sacred any more: not with a government that failed to prevent the spread of forest fires in 2007, in which dozens of people died, and then cut deals with developers afterwards; and not with politicians like Karamanlis’s friend Christos Zachopoulos, the former secretary general of the Culture Ministry and chairman of the Central Archaeological Council, who approved a grant to a reforestation project that his own advisers told him would damage Byzantine monuments. (That’s just one of the offences that came to light after Zachopoulos, threatened with blackmail by his former assistant and mistress, jumped off his balcony to avoid disgrace. He survived the fall.) Greece doesn’t brutalise its citizens to the degree that it did under the Colonels, but neither is it providing them with a future, or even a secure present. No wonder a recent survey found Greeks to be the most pessimistic people in Europe.
(...)
Greece now has a higher percentage of students abroad than any other country in the EU. A fifth of the population lives below the poverty line, youth unemployment is 25 per cent, and the minimum wage is half the EU average. The anarchists believe the solution is a ‘total rejection of work’, but most of the protesters would be happy with more work, at a better rate of pay".
Takis Michas from openDemocracy(also quoted in LRB article) makes other important points:
"What was unique about these Greek events - as opposed to, say, the riots in the banlieues of Paris in late 2005 - was the total withdrawal of the government and the security forces from the scene. Civil society was left alone and unarmed to fend off the violent attacks on their property by the hordes of predators. On 9 December, one of the worst nights of rioting, more than 400 shops were attacked in Athens: some were torched, others looted and seriously damaged.
All of this took place while the security forces simply stood by and watched the disaster unfold. They were following the explicit orders of their political masters to assume a "defensive posture" - which in effect meant that they did not try to prevent the orgy of destruction.
Anyone watching this absurd scene could be excused for concluding that a secret deal had been struck between the government and the rioters: we let you torch and plunder to your heart's content, and you let us continue pretending that we are in charge".
...More on the extent of New Democracy Government's failure here.
Modigliani - The Chinese Saving Puzzle(2004) - edited
From this paper:
"In the Chinese cultural tradition, the younger generation is supposed to take care of the elder members of the family, while the elders will bequeath the house and other assets to their children. In other words, an economic unit is the extended family rather than the nuclear
family. Under such a system, a child is an effective substitute for life-cycle saving.
Consequently, when strict birth-control measures came into effect in the 1970s, the accumulation of life-cycle (tangible) assets gained in importance as a substitute for
children. One may also argue that even if the Chinese birth-control policy did not
occur, the secular trends of 1) more nuclear families; 2) migration of families
from their ancestral homes; and 3) less loyalty to elders would have had the effect of
reducing the role of children as a substitute for saving, anyway.
(...)
By the early 90s, the Chinese personal saving rate had reached a remarkable level of nearly 30
percent with a peak of over 33 percent. This occurred despite the fact that, even with the high growth rate, the per-capita income remained one of the lowest in the world. These saving rates are stunningly high in comparison with those of the United States, one of the world’s richest nations. During those same years, the personal saving rate in the United States was 7.6 percent;
and even the “private” saving rate, which is the sum of personal saving and corporate saving (profit retention), rises to only 10 percent. Since then the saving rate has
slipped further with the personal down to 3 percent and the private rate down to 5 percent—
though these low figures may reflect partly a transitory response to the boom in asset values.
When lay people are confronted with these figures, their usual reaction, after rubbing
their eyes, is to attribute the huge gap to obvious differences in upbringing and education. This thinking reflects cultural-ethical values attributed to personal thriftiness and risk-taking in different cultures. But, if the reader has found the analysis of this paper persuasive, he should understand that that type of explanation is fundamentally baseless. And the simplest proof is found in this very paper that for a long stretch of very recent time, 1958–1975, the Chinese
saving rate was quite low, around 5.3 percent or lower than in the United States.
What then is the explanation?
The key to the puzzle, we suggest, is provided by the LCH(*) and its implication that the major systematic determinant of the rate of private saving is to be found in the rate of growth of income and the demographic structure of the economy, while per-capita income, the traditional and commonsensical explanation counts little, if any. According to this model the extraordinary behavior of the Chinese saving ratio is the result of two nearly coincidental sharp turns in two key policies. The first is the movement initiated in the late 1970s toward a market-oriented economy, which, along with a number of very special characteristics of China’s society and labor force made possible an explosive growth pattern
such as was never seen before. With this development the growth rate jumps from a
more or less stable rate of 4 percent to a gradually rising (accelerating) pattern
reaching some 12 percent but 25 years later. The second turn regards demographic
policies. Until the 1970s the Chinese government was not seriously concerned with
population growth, and in fact for a while under Mao there was an endeavor to
encourage births. But eventually the view prevailed that to improve the economic wellbeing
of the Chinese population, it was essential to control population growth, and
the new policy was announced and strictly enforced to limit the number of children per
family (just one in the cities). As noted, this had a double profound effect on the saving
ratio. The first was a drastic decline in the ratio of people under fifteen years to working
population from 0.96 in the mid-70s to 0.41 at the turn of the century. The second
was to undermine the traditional role of the family in providing old-age support to the
parents by the children, thus encouraging provisions through individual accumulation.
According to our estimates each of these developments contributed equally more than ten basis points to the rise in the saving rate of some thirty basis points (from 3 percent to 33 percent) with the remainder largely accounted for by the spurious effect of inflation (five basis points).
As a further demonstration that the prodigious saving rate reached by the mid 90s does
not reflect “ethnic” or cultural characteristics of China, we report illustrative episodes for other countries and periods.
Japan had an exceptionally high growth rate—though not quite matching that of China—and a quite favorable population structure that had a saving rate that nearly matched China’s. One might be tempted to say that, after all, China and Japan share the heritage of the East. Unfortunately, such a simple explanation is refuted. In the 1960s, Italy saved even a larger fraction of its income than Japan. Yet, one cannot even use the excuse of the “Protestant ethic” since Italy is a solidly Catholic country and many think of it as the “paese della dolce vita”!
The explanation can again be found in a growth rate not as high as the other two countries but still well above average (row 7) and a very favorable M/P that reflected the sharp decline in population growth, to which one can probably add the substantial loss of its tangible and intangible wealth during World War II. And a similar story can be repeated for France with a fairly high growth rate of 5 percent, saving 19 percent of its income, and of Portugal with a somewhat higher growth rate and a saving ratio of nearly 20 percent.
In OECD countries during the 60s, the growth rate peaked at 4.9 percent and the saving rate also peaked for most countries with an average of 14.8 percent. Both are impressive by today’s standards. By the 1980s, the average growth rate had declined to below 3 percent and the saving rate to 14.4 percent. The inflation-adjusted saving rate had declined even more, from 14.8 percent to 12.3 percent.
(*)Life-Cycle Hypothesis: lifetime consumption profile expected to be essentially flat, with people borrowing against future earnings during their early study and working life when income is low, saving greatly during their most productive working years and consuming saved assets during retirement.
"In the Chinese cultural tradition, the younger generation is supposed to take care of the elder members of the family, while the elders will bequeath the house and other assets to their children. In other words, an economic unit is the extended family rather than the nuclear
family. Under such a system, a child is an effective substitute for life-cycle saving.
Consequently, when strict birth-control measures came into effect in the 1970s, the accumulation of life-cycle (tangible) assets gained in importance as a substitute for
children. One may also argue that even if the Chinese birth-control policy did not
occur, the secular trends of 1) more nuclear families; 2) migration of families
from their ancestral homes; and 3) less loyalty to elders would have had the effect of
reducing the role of children as a substitute for saving, anyway.
(...)
By the early 90s, the Chinese personal saving rate had reached a remarkable level of nearly 30
percent with a peak of over 33 percent. This occurred despite the fact that, even with the high growth rate, the per-capita income remained one of the lowest in the world. These saving rates are stunningly high in comparison with those of the United States, one of the world’s richest nations. During those same years, the personal saving rate in the United States was 7.6 percent;
and even the “private” saving rate, which is the sum of personal saving and corporate saving (profit retention), rises to only 10 percent. Since then the saving rate has
slipped further with the personal down to 3 percent and the private rate down to 5 percent—
though these low figures may reflect partly a transitory response to the boom in asset values.
When lay people are confronted with these figures, their usual reaction, after rubbing
their eyes, is to attribute the huge gap to obvious differences in upbringing and education. This thinking reflects cultural-ethical values attributed to personal thriftiness and risk-taking in different cultures. But, if the reader has found the analysis of this paper persuasive, he should understand that that type of explanation is fundamentally baseless. And the simplest proof is found in this very paper that for a long stretch of very recent time, 1958–1975, the Chinese
saving rate was quite low, around 5.3 percent or lower than in the United States.
What then is the explanation?
The key to the puzzle, we suggest, is provided by the LCH(*) and its implication that the major systematic determinant of the rate of private saving is to be found in the rate of growth of income and the demographic structure of the economy, while per-capita income, the traditional and commonsensical explanation counts little, if any. According to this model the extraordinary behavior of the Chinese saving ratio is the result of two nearly coincidental sharp turns in two key policies. The first is the movement initiated in the late 1970s toward a market-oriented economy, which, along with a number of very special characteristics of China’s society and labor force made possible an explosive growth pattern
such as was never seen before. With this development the growth rate jumps from a
more or less stable rate of 4 percent to a gradually rising (accelerating) pattern
reaching some 12 percent but 25 years later. The second turn regards demographic
policies. Until the 1970s the Chinese government was not seriously concerned with
population growth, and in fact for a while under Mao there was an endeavor to
encourage births. But eventually the view prevailed that to improve the economic wellbeing
of the Chinese population, it was essential to control population growth, and
the new policy was announced and strictly enforced to limit the number of children per
family (just one in the cities). As noted, this had a double profound effect on the saving
ratio. The first was a drastic decline in the ratio of people under fifteen years to working
population from 0.96 in the mid-70s to 0.41 at the turn of the century. The second
was to undermine the traditional role of the family in providing old-age support to the
parents by the children, thus encouraging provisions through individual accumulation.
According to our estimates each of these developments contributed equally more than ten basis points to the rise in the saving rate of some thirty basis points (from 3 percent to 33 percent) with the remainder largely accounted for by the spurious effect of inflation (five basis points).
As a further demonstration that the prodigious saving rate reached by the mid 90s does
not reflect “ethnic” or cultural characteristics of China, we report illustrative episodes for other countries and periods.
Japan had an exceptionally high growth rate—though not quite matching that of China—and a quite favorable population structure that had a saving rate that nearly matched China’s. One might be tempted to say that, after all, China and Japan share the heritage of the East. Unfortunately, such a simple explanation is refuted. In the 1960s, Italy saved even a larger fraction of its income than Japan. Yet, one cannot even use the excuse of the “Protestant ethic” since Italy is a solidly Catholic country and many think of it as the “paese della dolce vita”!
The explanation can again be found in a growth rate not as high as the other two countries but still well above average (row 7) and a very favorable M/P that reflected the sharp decline in population growth, to which one can probably add the substantial loss of its tangible and intangible wealth during World War II. And a similar story can be repeated for France with a fairly high growth rate of 5 percent, saving 19 percent of its income, and of Portugal with a somewhat higher growth rate and a saving ratio of nearly 20 percent.
In OECD countries during the 60s, the growth rate peaked at 4.9 percent and the saving rate also peaked for most countries with an average of 14.8 percent. Both are impressive by today’s standards. By the 1980s, the average growth rate had declined to below 3 percent and the saving rate to 14.4 percent. The inflation-adjusted saving rate had declined even more, from 14.8 percent to 12.3 percent.
(*)Life-Cycle Hypothesis: lifetime consumption profile expected to be essentially flat, with people borrowing against future earnings during their early study and working life when income is low, saving greatly during their most productive working years and consuming saved assets during retirement.
jueves, 25 de diciembre de 2008
Great Middle-East Energy Great Game: Turkmenistan
From IHT(december 22, 2008):
"Prime Minister Vladimir Putin will host energy ministers from the world's largest exporters of natural gas on Tuesday in Moscow as Russia seeks to take a leading role among producers of the fuel.
Putin, who turned Gazprom into a global energy company during his presidency, is scheduled to open the Gas Exporting Countries Forum. The forum is expected to agree on a charter transforming it from a loose, consultative body into a formal organization with a permanent secretariat.
The annual meeting was delayed several times amid reports that member nations disagreed over the future role of the group. Western consumer countries have warned against the formation of a cartel modeled after the Organization of Petroleum Exporting Countries. The Gas Forum has 14 members, including Iran, Algeria and Qatar, which are also members of OPEC.
Russia supplies a quarter of European gas through pipelines.
(...)Gazprom, a state-run company, formed a "gas troika" in October with Qatar and Iran for joint exploration and production projects. Together, the three countries hold more than half of the world's gas reserves.
Read this June 2008 article to fully appreciate how fast the crisis has been unfolding.
M. K. Bhadrakumar(*), from AsianTimes(via Counterpunch):
"From the details coming out of Ashgabat in Turkmenistan and Moscow last weekend, it is apparent that the great game over Caspian energy has taken a dramatic turn. In the geopolitics of energy security, nothing like this has happened before. The United States has suffered a huge defeat in the race for Caspian gas. The question now is how much longer Washington could afford to keep Iran out of the energy market.
Gazprom, Russia's energy leviathan, signed two major agreements in Ashgabat on July 22 (2008) outlining a new scheme for purchase of Turkmen gas.
The first one elaborates the price formation principles that will be guiding the Russian gas purchase from Turkmenistan during the next 20-year period.
The second agreement is a unique one, making Gazprom the donor for local Turkmen energy projects. In essence, the two agreements ensure that Russia will keep control over Turkmen gas exports.
The new pricing principle lays out that starting from next year, Russia has agreed to pay to Turkmenistan a base gas purchasing price that is a mix of the average wholesale price in Europe and Ukraine. In effect, as compared to the current price of US$140 per thousand cubic meters of Turkmen gas, from 2009 onward Russia will be paying $225-295 under the new formula. This works out to an additional annual payment of something like $9.4 billion to $12.4 billion. But the transition to market principles of pricing will take place within the framework of a long-term contract running up to the year 2028.
The second agreement stipulates that Gazprom will finance and build gas transportation facilities and develop gas fields in Turkmenistan. Experts have estimated that Gazprom will finance Turkmen projects costing $4-6 billion. Gazprom chief Alexei Miller said, "We have reached agreement regarding Gazprom financing and building the new main gas pipelines from the east of the country, developing gas fields and boosting the capacity of the Turkmen sector of the Caspian gas pipeline to 30 billion cubic meters." Interestingly, Gazprom will provide financing in the form of 0% credits for these local projects. The net gain for Turkmenistan is estimated to be in the region of $240-480 million.
From all appearance, Gazprom, which was headed by Russian President Dmitry Medvedev for eight years from 2000 to May 2008, has taken an audacious initiative. It could only have happened thanks to a strategic decision taken at the highest level in the Kremlin. In fact, Medvedev had traveled to Ashgabat on July 4-5 en route to the Group of Eight summit meeting in Hokkaido, Japan. Curiously, the agreements reached in Ashgabat on Friday are unlikely to enable Gazprom to make revenue from reselling Turkmen gas. Quite possibly, Gazprom may now have to concede similar terms to Kazakhstan and Uzbekistan, the two other major gas producing countries in Central Asia. In other words, plain money-making was not the motivation for Gazprom. The Kremlin has a grand strategy.
(...)The government-owned China Daily admitted on Monday, "Both China and Russia kept silent on the details of the consensus they reached on energy cooperation in the first round of their negotiation in Beijing on the weekend." Without getting into details, China Daily merely took note of the talks as "a good beginning" and commented, "It seems that a shift of Russia's energy export policy is under way. Russia might turn its eyes from the Western countries to the Asia-Pacific region ... The cooperation in the energy sector is an issue of great significance for Sino-Russian relations ... the political and geographic closeness of the two countries would put their energy cooperation under a safe umbrella and make it a win-win deal. China-Russia ties are at their best times ... The two sides settled their lingering border disputes, held joint military exercises, and enjoyed rapidly increasing bilateral trade."
(...)
The agreements with Turkmenistan further consolidate Russia's control of Central Asia's gas exports. Gazprom recently offered to buy all of Azerbaijan's gas at European prices. (Medvedev visited Baku on July 3-4.) Baku will study with keen interest the agreements signed in Ashgabat on Friday. The overall implications of these Russian moves are very serious for the US and EU campaign to get the Nabucco gas pipeline project going.
Nabucco, which would run from Turkey to Austria via Bulgaria, Rumania and Hungary, was hoping to tap Turkmen gas by linking Turkmenistan and Azerbaijan via a pipeline across the Caspian Sea that would be connected to the pipeline networks through the Caucasus to Turkey already existing, such as the Baku-Tbilisi-Ceyhan pipeline. But with access denied to Turkmen gas, Nabucco's viability becomes doubtful. And, without Nabucco, the entire US strategy of reducing Europe's dependence on Russian energy supplies makes no sense. Therefore, Washington is faced with Hobson's choice. Friday's agreements in Ashgabat mean that Nabucco's realization will now critically depend on gas supplies from the Middle East - Iran, in particular. Turkey is pursuing the idea of Iran supplying gas to Europe and has offered to mediate in the US-Iran standoff.
The geopolitics of energy makes strange bedfellows. Russia will be watching with anxiety the Turkish-Iranian-US tango. An understanding with Iran on gas pricing, production and market-sharing is vital for the success of Russia's overall gas export strategy. But Tehran visualizes the Nabucco as its passport for integration with Europe. Again, Russia's control of Turkmen gas cannot be to Tehran's liking. Tehran had keenly pursed with Ashgabat the idea of evacuation of Turkmen gas to the world market via Iranian territory.
There must be deep frustration in Washington. In sum, Russia has greatly strengthened its standing as the principal gas supplier to Europe. It not only controls Central Asia's gas exports but has ensured that gas from the region passes across Russia and not through the alternative trans-Caspian pipelines mooted by the US and EU. Also, a defining moment has come. The era of cheap gas is ending. Other gas exporters will cite the precedent of the price for Turkmen gas. European companies cannot match Gazprom's muscle. Azerbaijan becomes a test case. Equally, Russia places itself in a commanding position to influence the price of gas in the world market. A gas cartel is surely in the making.
(*) M. K. Bhadrakumar was a career diplomat in the Indian Foreign Service. His assignments included the Soviet Union, South Korea, Sri Lanka, Germany, Afghanistan, Pakistan, Uzbekistan, Kuwait and Turkey.
"Prime Minister Vladimir Putin will host energy ministers from the world's largest exporters of natural gas on Tuesday in Moscow as Russia seeks to take a leading role among producers of the fuel.
Putin, who turned Gazprom into a global energy company during his presidency, is scheduled to open the Gas Exporting Countries Forum. The forum is expected to agree on a charter transforming it from a loose, consultative body into a formal organization with a permanent secretariat.
The annual meeting was delayed several times amid reports that member nations disagreed over the future role of the group. Western consumer countries have warned against the formation of a cartel modeled after the Organization of Petroleum Exporting Countries. The Gas Forum has 14 members, including Iran, Algeria and Qatar, which are also members of OPEC.
Russia supplies a quarter of European gas through pipelines.
(...)Gazprom, a state-run company, formed a "gas troika" in October with Qatar and Iran for joint exploration and production projects. Together, the three countries hold more than half of the world's gas reserves.
Read this June 2008 article to fully appreciate how fast the crisis has been unfolding.
M. K. Bhadrakumar(*), from AsianTimes(via Counterpunch):
"From the details coming out of Ashgabat in Turkmenistan and Moscow last weekend, it is apparent that the great game over Caspian energy has taken a dramatic turn. In the geopolitics of energy security, nothing like this has happened before. The United States has suffered a huge defeat in the race for Caspian gas. The question now is how much longer Washington could afford to keep Iran out of the energy market.
Gazprom, Russia's energy leviathan, signed two major agreements in Ashgabat on July 22 (2008) outlining a new scheme for purchase of Turkmen gas.
The first one elaborates the price formation principles that will be guiding the Russian gas purchase from Turkmenistan during the next 20-year period.
The second agreement is a unique one, making Gazprom the donor for local Turkmen energy projects. In essence, the two agreements ensure that Russia will keep control over Turkmen gas exports.
The new pricing principle lays out that starting from next year, Russia has agreed to pay to Turkmenistan a base gas purchasing price that is a mix of the average wholesale price in Europe and Ukraine. In effect, as compared to the current price of US$140 per thousand cubic meters of Turkmen gas, from 2009 onward Russia will be paying $225-295 under the new formula. This works out to an additional annual payment of something like $9.4 billion to $12.4 billion. But the transition to market principles of pricing will take place within the framework of a long-term contract running up to the year 2028.
The second agreement stipulates that Gazprom will finance and build gas transportation facilities and develop gas fields in Turkmenistan. Experts have estimated that Gazprom will finance Turkmen projects costing $4-6 billion. Gazprom chief Alexei Miller said, "We have reached agreement regarding Gazprom financing and building the new main gas pipelines from the east of the country, developing gas fields and boosting the capacity of the Turkmen sector of the Caspian gas pipeline to 30 billion cubic meters." Interestingly, Gazprom will provide financing in the form of 0% credits for these local projects. The net gain for Turkmenistan is estimated to be in the region of $240-480 million.
From all appearance, Gazprom, which was headed by Russian President Dmitry Medvedev for eight years from 2000 to May 2008, has taken an audacious initiative. It could only have happened thanks to a strategic decision taken at the highest level in the Kremlin. In fact, Medvedev had traveled to Ashgabat on July 4-5 en route to the Group of Eight summit meeting in Hokkaido, Japan. Curiously, the agreements reached in Ashgabat on Friday are unlikely to enable Gazprom to make revenue from reselling Turkmen gas. Quite possibly, Gazprom may now have to concede similar terms to Kazakhstan and Uzbekistan, the two other major gas producing countries in Central Asia. In other words, plain money-making was not the motivation for Gazprom. The Kremlin has a grand strategy.
(...)The government-owned China Daily admitted on Monday, "Both China and Russia kept silent on the details of the consensus they reached on energy cooperation in the first round of their negotiation in Beijing on the weekend." Without getting into details, China Daily merely took note of the talks as "a good beginning" and commented, "It seems that a shift of Russia's energy export policy is under way. Russia might turn its eyes from the Western countries to the Asia-Pacific region ... The cooperation in the energy sector is an issue of great significance for Sino-Russian relations ... the political and geographic closeness of the two countries would put their energy cooperation under a safe umbrella and make it a win-win deal. China-Russia ties are at their best times ... The two sides settled their lingering border disputes, held joint military exercises, and enjoyed rapidly increasing bilateral trade."
(...)
The agreements with Turkmenistan further consolidate Russia's control of Central Asia's gas exports. Gazprom recently offered to buy all of Azerbaijan's gas at European prices. (Medvedev visited Baku on July 3-4.) Baku will study with keen interest the agreements signed in Ashgabat on Friday. The overall implications of these Russian moves are very serious for the US and EU campaign to get the Nabucco gas pipeline project going.
Nabucco, which would run from Turkey to Austria via Bulgaria, Rumania and Hungary, was hoping to tap Turkmen gas by linking Turkmenistan and Azerbaijan via a pipeline across the Caspian Sea that would be connected to the pipeline networks through the Caucasus to Turkey already existing, such as the Baku-Tbilisi-Ceyhan pipeline. But with access denied to Turkmen gas, Nabucco's viability becomes doubtful. And, without Nabucco, the entire US strategy of reducing Europe's dependence on Russian energy supplies makes no sense. Therefore, Washington is faced with Hobson's choice. Friday's agreements in Ashgabat mean that Nabucco's realization will now critically depend on gas supplies from the Middle East - Iran, in particular. Turkey is pursuing the idea of Iran supplying gas to Europe and has offered to mediate in the US-Iran standoff.
The geopolitics of energy makes strange bedfellows. Russia will be watching with anxiety the Turkish-Iranian-US tango. An understanding with Iran on gas pricing, production and market-sharing is vital for the success of Russia's overall gas export strategy. But Tehran visualizes the Nabucco as its passport for integration with Europe. Again, Russia's control of Turkmen gas cannot be to Tehran's liking. Tehran had keenly pursed with Ashgabat the idea of evacuation of Turkmen gas to the world market via Iranian territory.
There must be deep frustration in Washington. In sum, Russia has greatly strengthened its standing as the principal gas supplier to Europe. It not only controls Central Asia's gas exports but has ensured that gas from the region passes across Russia and not through the alternative trans-Caspian pipelines mooted by the US and EU. Also, a defining moment has come. The era of cheap gas is ending. Other gas exporters will cite the precedent of the price for Turkmen gas. European companies cannot match Gazprom's muscle. Azerbaijan becomes a test case. Equally, Russia places itself in a commanding position to influence the price of gas in the world market. A gas cartel is surely in the making.
(*) M. K. Bhadrakumar was a career diplomat in the Indian Foreign Service. His assignments included the Soviet Union, South Korea, Sri Lanka, Germany, Afghanistan, Pakistan, Uzbekistan, Kuwait and Turkey.
Hajj makes Muslims more tolerant, study suggests
I haven't read the paper so I can't say anything about metodology and scientific consistency.
Generally speaking it seems reasonable.
In her book l'Enracinement(The Need for Roots: Prelude to a Declaration of Duties Toward Mankind) Simone Weil suggested that once the war would be over, the government should have looked for ways to provide stimulus to the farmers giving them the chance to visit other regions of the country, to share experience with colleagues and share a more general sense of purpose that will give them strenght in the solitude of their life.
The "slightly different" is a powerfull agent of change, especially in conservative societies.
Here's the article.
Generally speaking it seems reasonable.
In her book l'Enracinement(The Need for Roots: Prelude to a Declaration of Duties Toward Mankind) Simone Weil suggested that once the war would be over, the government should have looked for ways to provide stimulus to the farmers giving them the chance to visit other regions of the country, to share experience with colleagues and share a more general sense of purpose that will give them strenght in the solitude of their life.
The "slightly different" is a powerfull agent of change, especially in conservative societies.
Here's the article.
The operating assumption of the Ponzi scheme is that the tide will always rise
Micheal Hudson from Counterpunch:
"The recent stock market and real estate bubbles are much like pyramid schemes in the sense that what is bidding up stock and property prices is an exponential inflow of new money from pension plans and mutual funds (for shares) and bank credit (for real estate). Venture capitalists are “cashing out” while corporate managers exercise their stock options.
Suppose that mortgage-packaging companies are honest in their appraisals of current price trends. The real estate bubble is nonetheless speculative and postindustrial. The analogy is found when financial managers endorse government policies that encourage the inflation of price for stocks and bonds, stamps and coins, Rembrandts and modern art by claiming that this creates wealth and hence, by definition, pulls living standards and culture onward and upward.
What is wrong with this picture? For starters, it fails to define value as distinct from price, windfall and capital gains as distinct from earned income. It also neglects the fact that market prices rise and fall, but the debts remain in place. And when debts cannot be paid, savings are wiped out".
(...)
"Individuals are getting rich while the economy is polarizing between creditors and debtors, property owners and rent-payers. Unproductive investment occurs when it takes the form of windfall “capital” gains, and when it involves going into debt for real estate, stocks or bonds, or “collectibles.” Unproductive credit occurs when commercial banks make loans that merely finance the purchase of property, companies or financial securities already in place.
Two centuries ago, French followers of Count Henry St. Simon outlined an industrial system that was to be based mainly on equity financing (stocks) rather than debt (bonds and bank loans). Their idea was to make industrial banking a kind of mutual fund, so that claims for payment (and hence, the value of savings) would rise and fall to reflect the economy’s earning power. The industrial banking that developed largely in Germany and central Europe differed from the short-term Anglo-American collateral-based trade credit and mortgage lending. But since World War I, global financial practices have been more extractive than productive.
The consequence has been that debts on the economy-wide level have grown more rapidly than the ability to pay. Instead of reducing this debt overhead by earning their way out of debt, economies have sought to inflate their way out of debt. However, the mode of inflation is not the familiar rise in consumer prices, much less wage inflation. Rather, it is asset-price inflation, emanating largely from the United States. Since the gold-exchange standard gave way to the paper dollar standard in 1971, the U.S. economy has become unique in being able to create credit – and foreign debt – without constraint. The result has been an unparalleled growth in debt relative to income, production and wages. This “debt pollution” has been likened to environmental pollution".
(...)
"Governments have replaced industrial growth with purely financial wealth creation in the form of a real estate and stock market bubble. This has turned the economic universe upside-down relative to what the classical writers expected to result from the technological progress unleashed by the Industrial Revolution and its parallel agricultural, commercial and financial revolutions. Property and credit have become costs instead of a benefit, institutional forms of rent- and interest-extracting overhead rather than helpful inputs".
"The recent stock market and real estate bubbles are much like pyramid schemes in the sense that what is bidding up stock and property prices is an exponential inflow of new money from pension plans and mutual funds (for shares) and bank credit (for real estate). Venture capitalists are “cashing out” while corporate managers exercise their stock options.
Suppose that mortgage-packaging companies are honest in their appraisals of current price trends. The real estate bubble is nonetheless speculative and postindustrial. The analogy is found when financial managers endorse government policies that encourage the inflation of price for stocks and bonds, stamps and coins, Rembrandts and modern art by claiming that this creates wealth and hence, by definition, pulls living standards and culture onward and upward.
What is wrong with this picture? For starters, it fails to define value as distinct from price, windfall and capital gains as distinct from earned income. It also neglects the fact that market prices rise and fall, but the debts remain in place. And when debts cannot be paid, savings are wiped out".
(...)
"Individuals are getting rich while the economy is polarizing between creditors and debtors, property owners and rent-payers. Unproductive investment occurs when it takes the form of windfall “capital” gains, and when it involves going into debt for real estate, stocks or bonds, or “collectibles.” Unproductive credit occurs when commercial banks make loans that merely finance the purchase of property, companies or financial securities already in place.
Two centuries ago, French followers of Count Henry St. Simon outlined an industrial system that was to be based mainly on equity financing (stocks) rather than debt (bonds and bank loans). Their idea was to make industrial banking a kind of mutual fund, so that claims for payment (and hence, the value of savings) would rise and fall to reflect the economy’s earning power. The industrial banking that developed largely in Germany and central Europe differed from the short-term Anglo-American collateral-based trade credit and mortgage lending. But since World War I, global financial practices have been more extractive than productive.
The consequence has been that debts on the economy-wide level have grown more rapidly than the ability to pay. Instead of reducing this debt overhead by earning their way out of debt, economies have sought to inflate their way out of debt. However, the mode of inflation is not the familiar rise in consumer prices, much less wage inflation. Rather, it is asset-price inflation, emanating largely from the United States. Since the gold-exchange standard gave way to the paper dollar standard in 1971, the U.S. economy has become unique in being able to create credit – and foreign debt – without constraint. The result has been an unparalleled growth in debt relative to income, production and wages. This “debt pollution” has been likened to environmental pollution".
(...)
"Governments have replaced industrial growth with purely financial wealth creation in the form of a real estate and stock market bubble. This has turned the economic universe upside-down relative to what the classical writers expected to result from the technological progress unleashed by the Industrial Revolution and its parallel agricultural, commercial and financial revolutions. Property and credit have become costs instead of a benefit, institutional forms of rent- and interest-extracting overhead rather than helpful inputs".
Two sentences about crisis from chinese perspective
Henry CK Liu wrote this two very graphic sentence in yesterday's Asian Times online:
"The structural problem of the Chinese economy can be described in one sentence: China produces from plants financed by foreign investment that operate with low domestic wages for foreign markets that pay with dollars that cannot be used in the domestic economy.
The solution to this structural problem can also be summed up in one sentence: China must finance plants with sovereign credit to produce for the domestic market where consumer purchasing power will come from high wages, with sovereign credit repaid from increased tax revenue from a vibrant domestic economy".
"The structural problem of the Chinese economy can be described in one sentence: China produces from plants financed by foreign investment that operate with low domestic wages for foreign markets that pay with dollars that cannot be used in the domestic economy.
The solution to this structural problem can also be summed up in one sentence: China must finance plants with sovereign credit to produce for the domestic market where consumer purchasing power will come from high wages, with sovereign credit repaid from increased tax revenue from a vibrant domestic economy".
Either you watch out your language or you keep it private
IHT republish an Oxford Analytica daily brief called "Debt legitimacy comes under scrutiny".
Here some of the more relevant passage:
"Some Latin American governments are increasingly questioning the 'legitimacy' of their public debt. Questioning the need to service and repay debt incurred by previous governments, despite having ability to pay, is an innovative strategy that aims to elevate the needs of domestic citizens by making additional resources available to them, at least in the short term. However, it runs contrary to the rules and expectations underpinning the global financial architecture.
(...)
"If Correa's gamble appears to pay off initially, by seeming likely to succeed in substantially reducing his county's debt burden without a significant economic deterioration, this could embolden other governments in the region and elsewhere to make similar moves".
(...)
However, if it soon becomes apparent that the cost of Ecuador's default is too high, in terms of a virtual elimination of (already reduced) access to international credit markets -- including companies' access to trade finance -- and an ensuing worsening of fiscal problems (probably including an inability to meet accelerated debt obligations even if it wished to), then this would be likely to discourage other countries from taking similarly belligerent approaches.
(...)
"There is certainly a significant degree of truth to the argument that debts incurred by previous authoritarian and/or corrupt governments in developing countries have not ultimately had the domestic social benefits expected. Some non-governmental organizations, such as the Jubilee Debt Campaign, have long sought to bring to wider debate issues surrounding the 'legitimacy' of developing countries' debt burdens and appear generally sympathetic to the idea of strategic default if the social burden of continuing debt servicing and repayment is very onerous.
In a worst-case scenario, the actions being taken by Quito and being contemplated by some other regional governments could embolden countries all over the world to engage in strategic defaults on their debts. Though unlikely, this could lead to the unraveling of parts of the global sovereign debt system, with dire long-term consequences.
More likely is that Ecuador and any other countries pursuing strategic defaults will suffer severe economic collapses in the short-to-medium term, deterring other countries from doing so.
Here some of the more relevant passage:
"Some Latin American governments are increasingly questioning the 'legitimacy' of their public debt. Questioning the need to service and repay debt incurred by previous governments, despite having ability to pay, is an innovative strategy that aims to elevate the needs of domestic citizens by making additional resources available to them, at least in the short term. However, it runs contrary to the rules and expectations underpinning the global financial architecture.
(...)
"If Correa's gamble appears to pay off initially, by seeming likely to succeed in substantially reducing his county's debt burden without a significant economic deterioration, this could embolden other governments in the region and elsewhere to make similar moves".
(...)
However, if it soon becomes apparent that the cost of Ecuador's default is too high, in terms of a virtual elimination of (already reduced) access to international credit markets -- including companies' access to trade finance -- and an ensuing worsening of fiscal problems (probably including an inability to meet accelerated debt obligations even if it wished to), then this would be likely to discourage other countries from taking similarly belligerent approaches.
(...)
"There is certainly a significant degree of truth to the argument that debts incurred by previous authoritarian and/or corrupt governments in developing countries have not ultimately had the domestic social benefits expected. Some non-governmental organizations, such as the Jubilee Debt Campaign, have long sought to bring to wider debate issues surrounding the 'legitimacy' of developing countries' debt burdens and appear generally sympathetic to the idea of strategic default if the social burden of continuing debt servicing and repayment is very onerous.
In a worst-case scenario, the actions being taken by Quito and being contemplated by some other regional governments could embolden countries all over the world to engage in strategic defaults on their debts. Though unlikely, this could lead to the unraveling of parts of the global sovereign debt system, with dire long-term consequences.
More likely is that Ecuador and any other countries pursuing strategic defaults will suffer severe economic collapses in the short-to-medium term, deterring other countries from doing so.
martes, 23 de diciembre de 2008
Global Imbalances: Focus China
Yasheng Huang, MIT Sloan School of Management and author of Capitalism with Chinese Characteristics wrote a very important article on the WSJ:
"Remember the hype about "decoupling"? Not so long ago, Western analysts -- in particular investment-bank economists -- were peddling the idea that China had become a powerful economic center of its own, able not only to drive its own growth independent of the United States but also to power the global economy forward.
To the extent that these Wall Street economists are still employed, few would make that argument now. The economic numbers emerging out of China are sobering. Exports, still the backbone of the economy, are contracting for the first time in seven years, according to the latest data. They're being driven down by slackening demand overseas. Even worse is the sharp decline of imports, a sure sign of falling domestic demand. These two developments taken together signal monumental economic challenges ahead. Clearly China is not bucking global trends.
So how did all the decoupling theorists get it so wrong? This isn't an idle question. The decoupling theory itself was the product of faulty economic analyses that persist today, even as the decoupling theory falls out of favor. Debunking these claims carries important policy implications.
The fundamental problem, and a mortal bias of economists, is a fixation with simple measurements -- especially GDP data. Ask a professional economist how many provinces China has and you are likely to draw a blank stare. But ask him what the GDP growth of China has been and he'll quickly be able to tell you that China has grown at a double-digit rate for 30 years and that at this rate China will overtake the U.S. by 2035 (or some other date). GDP-centrism is endemic, and often comes at the expense of deeper analysis. Just look at the enthusiasm with which economists and analysts greeted Goldman Sachs's famed "BRIC" report forecasting dramatic booms in Brazil, Russia, India and China -- a report based on little more than fifth-grade mathematics.
This obsession with China's impressive GDP growth often ignores discussion of what's causing that growth and whether it's self-sustained. This is where the decoupling enthusiasts stumbled, and where policy makers can still go seriously wrong. Consider, for example, data about the very slow growth of household incomes in China. This is particularly apparent in rural households. For the past 20 years or so, rural household income has grown at a rate half that of GDP growth. The slow household income growth, combined with rapid GDP growth, means that China has created a huge production capacity but it has done so at the expense of its own consumption base. This fact alone should have disproved the decoupling hypothesis. All the new "excess" production had to go somewhere, i.e., to the U.S. What's more, the persistence of this gap suggests that over time, China's growth has become more, not less, a derivative of America's consumption appetite.
This raises the important policy question of why and how Chinese growth systematically undermined its own consumption potential. To answer this, one has get a grip on how China's rapid GDP growth happened in the first place. Part of that growth is a result of economic liberalization, but the market-driven part is small and has been diminishing. Fixed asset investment, heavily controlled by the government, has risen to nearly 45% today, from a level of 30-35% during the 1980s. Much of the GDP growth since the mid-1990s has been a result of government-organized massive investment drives -- in infrastructure, urban construction and urbanization. This government-heavy growth has done the most damage to China's consumption potential, pushing the country further to a dependency on the markets of the rich nations.
Let me illustrate this point by an example. The following proposition will sound familiar to many foreign investors who have done business with Chinese local officials eager to get their investment capital: "Do you want 10 acres of densely populated land for your new factory? No problem. We will clear the land for you in three weeks." Many foreign investors marvel at the "business friendly" attitude of local governments in China, especially in sharp contrast to the seeming incompetence of the Indian government to get things done.
But this "business friendliness" is the heart of the problem: The Chinese households often reap almost no financial benefits from the conversion of their residential land into industrial or commercial development. The Chinese government, thanks to its formal ownership of all land assets, can relocate households on a scale unthinkable in a market economy, often with compensation far below the fair market value of the land. This is why factory owners incur far lower costs in setting up operations in China as compared with other countries, and also is why thousands of skyscrapers can mushroom seemingly out of nowhere overnight in Chinese cities.
But China is not exempt from a basic economic principle: A cost to one person is an income to another. The fact that factory owners and developers in China incur lower costs means that the income to some other economic participant is low. Those who derive low income in China happen to be the majority of the population, especially the rural Chinese who have little political power to protect themselves. Thus one sure mechanism of private wealth creation -- urbanization achieved when small landholders sell out to developers at market prices -- is almost completely missing in China despite the fact that the country is urbanizing at a dizzying rate on the surface.
All this is significant beyond the esoteric confines of the decoupling debate. To truly rebalance the Chinese economy requires the Chinese government to focus on income growth of the Chinese people rather than being fixated with GDP growth. One straightforward way to do this is to adopt market pricing of land by permitting and encouraging competition when acquiring land from Chinese peasants as a part of its current stimulus package. In the past two years, the Chinese leadership has done a good job reducing the expenditures -- such as taxes, education and health fees -- of the Chinese peasants. It is time now to raise their income.
China is one of the few countries in the world endowed with the land mass, the energetic and talented population, and the entrepreneurship to become a true global economic powerhouse. But that potential has been squandered by a misguided development strategy that privileges production at the expense of consumption and uses political power to suppress costs rather than relying on market mechanisms to boost income. In the midst of a global recession, China, along with its 1.3 billion people, is paying a dear price for that mistake now".
Now a much gloomier piece taken from a NakedCapitalism:
Yves Smith here: George Jankovic, serial entreprenuer (former president of NutriSystem) and quantitatively oriented investor, sent us a guest post that questions conventional wisdom about the growth prospects for China. Analysts have raised the specter that GDP growth would drop to 5%, which internally would be allegedly be tantamount to a recession (5% growth is necessary to absorb the increase in workforce). But just about no one seems to take seriously that China could have zero or negative growth.
From Jankovic:
Power generation in developing economies where manufacturing is a high % of GDP should correlate well with GDP growth. China's power generation declined more than 8% in November. In his FT.com Long Room posting, Joules Watt concludes that would correspond to a GDP growth of only 1.5% y-o-y based on his regression analysis of power generation vs. GDP growth. I think things will get even worse for China in 2009 and secular growth will never return to the levels we have gotten accustomed to during the last 30 years. The impact of these cyclical and secular slowdowns on a variety of products, such as oils and metals, will be huge.
Whether the official GDP data will confirm it or not, Chinese yoy real GDP growth will turn negative in the first half of 2009. Perhaps for all of 2009. This is the first time that China has been hit by both an external shock and an internal one. They are still blaming the US for their problems, but they were a co-participant in this bubble: their T-bill purchases fueled the credit bubble in the US which, in turn, fueled their export bubble. Everybody's credit bubbles fueled everybody's export bubbles, and vice versa, worldwide. So the Chinese export bubble has to collapse, as well. The same is true for their real-estate bubble (although this one was much smaller than US and UK bubbles).
Rare is an analyst willing to even contemplate low-digit growth rates for China in 2009, let alone NO GROWTH (Jim Walker from Asianomics (ex CLSA) predicts 0-4% growth). But, while history doesn't repeat itself, it rhymes. During its first 30 years of recovery and industrialization after WW2, Japan experienced several "growth recessions" when its growth halved from the boom times. But in the mid 1970s recession, it got much worse. Industrial production growth went from +16% y-o-y throughout the first half of 1973 to -19% in February 1975! Real y-o-y GDP growth went from more than 10% to solidly negative for a few quarters in late 1974 and early 1975.
While it's always dangerous to draw direct analogies from one country to another or from one time period to another, a country that is 25+ years into its industrialization, that is heavily dependant on both net exports to the world at the time of a global GDP and trade collapse, and that is also dependant on its real estate construction, has to get into deep trouble.
Can the rest of the fixed infrastructure investment help (infrastructure investment commands by far the highest % of GDP)? If you exclude investments in factories etc. (which will plunge with plunging exports) and home and office building construction (which are already plunging), what's left has already peaked. 2008 should have been the peak railroad construction year based on their 5-year plan. 2009 will, at best, match it if the Chinese government does move up some of the planned future construction. Road construction already peaked couple of years ago. The same is likely true for ports. Airports should have a brighter future, but only long-term. So, no help from this largest sector of the economy either.
I don't think there will be any help from consumer spending either. While the Chinese were not buying stocks in Shanghai on margin as the US investors did in 1929, they still lost a lot of money there. And since that was an epic bubble (based on cyclically-adjusted P/E ratios, it exceeded the Japanese bubble of 1989 and vastly exceeded the US 1929 and 2000 bubbles), it has still to deflate. What's more important is that wage growth in China didn't match its GDP growth over the years, so wages declined as a share of GDP. Consumption as % of GDP has roughly matched that fall.
As all kinds of businesses downsize now not only because of the recession, but also because of the new labor law, wages as % of GDP will further decline. Confidence has also been hit by multiple factors -- hey, all you need to do is read the papers (anywhere in the world, for that matter). These two factors will hurt consumption growth. You can already see this in declining car sales. Auto manufacturing was, along with its upstream industries like car parts, one of the strongest growing industries in China during the boom times.
So there will be no place to hide in 2009. But, that's not all...
Japanese growth never exceeded 10% after 1975. It never got even close to 10% while it routinely exceeded it prior to the mid 1970s. I believe that China will experience the same. It is not only much a more mature economy now, but the one that has already completed a good chunk of its industrialization and its exports are currently so high compared to the world GDP (much higher than Japan’s ever were) that one can't expect their super high growth to persist. Long-term demographics don't work in their favor either.
While this doesn’t mean that a great Chinese growth story ends, it will be a shock to many. For instance, while the current recession will hit hard the immediate Chinese demand for oil, metals and other commodities, the secular growth slowdown along with a more efficient energy and metals usage (they have just decided to raise taxes on oil, for instance, which will lead to more efficient usage over time) will hit the long-term demand, as well. Is the world ready to contemplate a much slower growing China? It better be.
"Remember the hype about "decoupling"? Not so long ago, Western analysts -- in particular investment-bank economists -- were peddling the idea that China had become a powerful economic center of its own, able not only to drive its own growth independent of the United States but also to power the global economy forward.
To the extent that these Wall Street economists are still employed, few would make that argument now. The economic numbers emerging out of China are sobering. Exports, still the backbone of the economy, are contracting for the first time in seven years, according to the latest data. They're being driven down by slackening demand overseas. Even worse is the sharp decline of imports, a sure sign of falling domestic demand. These two developments taken together signal monumental economic challenges ahead. Clearly China is not bucking global trends.
So how did all the decoupling theorists get it so wrong? This isn't an idle question. The decoupling theory itself was the product of faulty economic analyses that persist today, even as the decoupling theory falls out of favor. Debunking these claims carries important policy implications.
The fundamental problem, and a mortal bias of economists, is a fixation with simple measurements -- especially GDP data. Ask a professional economist how many provinces China has and you are likely to draw a blank stare. But ask him what the GDP growth of China has been and he'll quickly be able to tell you that China has grown at a double-digit rate for 30 years and that at this rate China will overtake the U.S. by 2035 (or some other date). GDP-centrism is endemic, and often comes at the expense of deeper analysis. Just look at the enthusiasm with which economists and analysts greeted Goldman Sachs's famed "BRIC" report forecasting dramatic booms in Brazil, Russia, India and China -- a report based on little more than fifth-grade mathematics.
This obsession with China's impressive GDP growth often ignores discussion of what's causing that growth and whether it's self-sustained. This is where the decoupling enthusiasts stumbled, and where policy makers can still go seriously wrong. Consider, for example, data about the very slow growth of household incomes in China. This is particularly apparent in rural households. For the past 20 years or so, rural household income has grown at a rate half that of GDP growth. The slow household income growth, combined with rapid GDP growth, means that China has created a huge production capacity but it has done so at the expense of its own consumption base. This fact alone should have disproved the decoupling hypothesis. All the new "excess" production had to go somewhere, i.e., to the U.S. What's more, the persistence of this gap suggests that over time, China's growth has become more, not less, a derivative of America's consumption appetite.
This raises the important policy question of why and how Chinese growth systematically undermined its own consumption potential. To answer this, one has get a grip on how China's rapid GDP growth happened in the first place. Part of that growth is a result of economic liberalization, but the market-driven part is small and has been diminishing. Fixed asset investment, heavily controlled by the government, has risen to nearly 45% today, from a level of 30-35% during the 1980s. Much of the GDP growth since the mid-1990s has been a result of government-organized massive investment drives -- in infrastructure, urban construction and urbanization. This government-heavy growth has done the most damage to China's consumption potential, pushing the country further to a dependency on the markets of the rich nations.
Let me illustrate this point by an example. The following proposition will sound familiar to many foreign investors who have done business with Chinese local officials eager to get their investment capital: "Do you want 10 acres of densely populated land for your new factory? No problem. We will clear the land for you in three weeks." Many foreign investors marvel at the "business friendly" attitude of local governments in China, especially in sharp contrast to the seeming incompetence of the Indian government to get things done.
But this "business friendliness" is the heart of the problem: The Chinese households often reap almost no financial benefits from the conversion of their residential land into industrial or commercial development. The Chinese government, thanks to its formal ownership of all land assets, can relocate households on a scale unthinkable in a market economy, often with compensation far below the fair market value of the land. This is why factory owners incur far lower costs in setting up operations in China as compared with other countries, and also is why thousands of skyscrapers can mushroom seemingly out of nowhere overnight in Chinese cities.
But China is not exempt from a basic economic principle: A cost to one person is an income to another. The fact that factory owners and developers in China incur lower costs means that the income to some other economic participant is low. Those who derive low income in China happen to be the majority of the population, especially the rural Chinese who have little political power to protect themselves. Thus one sure mechanism of private wealth creation -- urbanization achieved when small landholders sell out to developers at market prices -- is almost completely missing in China despite the fact that the country is urbanizing at a dizzying rate on the surface.
All this is significant beyond the esoteric confines of the decoupling debate. To truly rebalance the Chinese economy requires the Chinese government to focus on income growth of the Chinese people rather than being fixated with GDP growth. One straightforward way to do this is to adopt market pricing of land by permitting and encouraging competition when acquiring land from Chinese peasants as a part of its current stimulus package. In the past two years, the Chinese leadership has done a good job reducing the expenditures -- such as taxes, education and health fees -- of the Chinese peasants. It is time now to raise their income.
China is one of the few countries in the world endowed with the land mass, the energetic and talented population, and the entrepreneurship to become a true global economic powerhouse. But that potential has been squandered by a misguided development strategy that privileges production at the expense of consumption and uses political power to suppress costs rather than relying on market mechanisms to boost income. In the midst of a global recession, China, along with its 1.3 billion people, is paying a dear price for that mistake now".
Now a much gloomier piece taken from a NakedCapitalism:
Yves Smith here: George Jankovic, serial entreprenuer (former president of NutriSystem) and quantitatively oriented investor, sent us a guest post that questions conventional wisdom about the growth prospects for China. Analysts have raised the specter that GDP growth would drop to 5%, which internally would be allegedly be tantamount to a recession (5% growth is necessary to absorb the increase in workforce). But just about no one seems to take seriously that China could have zero or negative growth.
From Jankovic:
Power generation in developing economies where manufacturing is a high % of GDP should correlate well with GDP growth. China's power generation declined more than 8% in November. In his FT.com Long Room posting, Joules Watt concludes that would correspond to a GDP growth of only 1.5% y-o-y based on his regression analysis of power generation vs. GDP growth. I think things will get even worse for China in 2009 and secular growth will never return to the levels we have gotten accustomed to during the last 30 years. The impact of these cyclical and secular slowdowns on a variety of products, such as oils and metals, will be huge.
Whether the official GDP data will confirm it or not, Chinese yoy real GDP growth will turn negative in the first half of 2009. Perhaps for all of 2009. This is the first time that China has been hit by both an external shock and an internal one. They are still blaming the US for their problems, but they were a co-participant in this bubble: their T-bill purchases fueled the credit bubble in the US which, in turn, fueled their export bubble. Everybody's credit bubbles fueled everybody's export bubbles, and vice versa, worldwide. So the Chinese export bubble has to collapse, as well. The same is true for their real-estate bubble (although this one was much smaller than US and UK bubbles).
Rare is an analyst willing to even contemplate low-digit growth rates for China in 2009, let alone NO GROWTH (Jim Walker from Asianomics (ex CLSA) predicts 0-4% growth). But, while history doesn't repeat itself, it rhymes. During its first 30 years of recovery and industrialization after WW2, Japan experienced several "growth recessions" when its growth halved from the boom times. But in the mid 1970s recession, it got much worse. Industrial production growth went from +16% y-o-y throughout the first half of 1973 to -19% in February 1975! Real y-o-y GDP growth went from more than 10% to solidly negative for a few quarters in late 1974 and early 1975.
While it's always dangerous to draw direct analogies from one country to another or from one time period to another, a country that is 25+ years into its industrialization, that is heavily dependant on both net exports to the world at the time of a global GDP and trade collapse, and that is also dependant on its real estate construction, has to get into deep trouble.
Can the rest of the fixed infrastructure investment help (infrastructure investment commands by far the highest % of GDP)? If you exclude investments in factories etc. (which will plunge with plunging exports) and home and office building construction (which are already plunging), what's left has already peaked. 2008 should have been the peak railroad construction year based on their 5-year plan. 2009 will, at best, match it if the Chinese government does move up some of the planned future construction. Road construction already peaked couple of years ago. The same is likely true for ports. Airports should have a brighter future, but only long-term. So, no help from this largest sector of the economy either.
I don't think there will be any help from consumer spending either. While the Chinese were not buying stocks in Shanghai on margin as the US investors did in 1929, they still lost a lot of money there. And since that was an epic bubble (based on cyclically-adjusted P/E ratios, it exceeded the Japanese bubble of 1989 and vastly exceeded the US 1929 and 2000 bubbles), it has still to deflate. What's more important is that wage growth in China didn't match its GDP growth over the years, so wages declined as a share of GDP. Consumption as % of GDP has roughly matched that fall.
As all kinds of businesses downsize now not only because of the recession, but also because of the new labor law, wages as % of GDP will further decline. Confidence has also been hit by multiple factors -- hey, all you need to do is read the papers (anywhere in the world, for that matter). These two factors will hurt consumption growth. You can already see this in declining car sales. Auto manufacturing was, along with its upstream industries like car parts, one of the strongest growing industries in China during the boom times.
So there will be no place to hide in 2009. But, that's not all...
Japanese growth never exceeded 10% after 1975. It never got even close to 10% while it routinely exceeded it prior to the mid 1970s. I believe that China will experience the same. It is not only much a more mature economy now, but the one that has already completed a good chunk of its industrialization and its exports are currently so high compared to the world GDP (much higher than Japan’s ever were) that one can't expect their super high growth to persist. Long-term demographics don't work in their favor either.
While this doesn’t mean that a great Chinese growth story ends, it will be a shock to many. For instance, while the current recession will hit hard the immediate Chinese demand for oil, metals and other commodities, the secular growth slowdown along with a more efficient energy and metals usage (they have just decided to raise taxes on oil, for instance, which will lead to more efficient usage over time) will hit the long-term demand, as well. Is the world ready to contemplate a much slower growing China? It better be.
The Value of Reliable Information
Rating agencies are widely discredited but from where are the new tools to evaluate securities riskiness expected t come from.
Until(as long as) we don't re-established the confidence we will not see many investment.Unemployment will grow and governments will face the kind of challenge from anti-system forces that for long time we have thought confined into a remote past.
What to do? Here's the flash forward to the answer of Mark Thoma:
"The solution to this problem, then, is to provide insurance against the risks caused by the lack of information during the time period when the information flows are being restored".
And here the analysis:
"Analysts writing about the credit crisis often have more certainty about the source of the problems in financial markets than I think is warranted. Thus, rather than advocating robust solutions, these analysts tend to come up with narrow answers to the problems they have identified. Yet evidence from previous crises suggests that America needs to take a broad approach to the current turmoil.
(...)
There may be a single key to unlocking the whole mess, but if there is we aren't sure what it is, and that also points to a multi-pronged approach. Capital injections are one part of that approach, but capital injections do not, by themselves, adequately address(...) all of the elements of the problem.
So where do the solutions that have been suggested come up short? If you read across the spectrum of serious proposals, and look at what has actually been implemented, most of the underlying problems have at least been recognised. But one area that has not received nearly enough attention is the information problem. Previous financial crises did not cause us to seriously question our informational architecture like this one has. This crisis has wiped out or discredited major sources of financial-market information that are crucial for credit markets to function. The ratings agencies are an obvious example. They are supposed to solve an asymmetric information problem between borrowers and lenders by giving those doing the lending a reliable assessment of the riskiness of financial investments. They failed in that mission.
Likewise, the balance sheets of financial institutions are no longer trusted—assessing a firm's solvency is largely a guess at this point. People are not going to part with their money until they are confident that the information about potential investments, and about the firms managing those investments, is reliable. That is true for both depositors and potential equity holders who could help with recapitalisation. We can take toxic assets off the books, but how will investors know for sure that new financial assets are safe, or that the firms doing the investing won't repeat the mistakes of the past and take huge losses yet again? How will investors know that the mathematical models used to assess these assets in terms of risk and return are reliable?
I don't think anything trustworthy can replace the ratings agencies in the short-run—nobody has much faith in the risk-assessment models being used in the industry—and that will be a problem as firms begin to issue new securities, a step that is needed to get credit flowing. There might be more we can do with respect to balance-sheet information, but this problem also seems to stem from the difficulty investors have in valuing financial assets.
The solution to this problem, then, is to provide insurance against the risks caused by the lack of information during the time period when the information flows are being restored. Private-sector agents may not want to risk putting their money into the banking system right now as equity holders if they believe they might lose everything. But if the downside risk is limited through some insurance provision—something that puts a limit on losses—they might not be so reluctant (and government may be the only one capable of such guarantees). Similarly, private-sector agents may be unwilling to invest in financial assets, or to trust money managers if they believe their money can suddenly disappear. Again, though, if the downside losses are limited, they might not be so reluctant. There are many, many forms this type of insurance can take, and the solutions can be based in both the public and private sectors. The important thing is to get the insurance into place.
So my recommendation would be to continue to pursue a broad-based strategy that addresses the many problems that have been suggested as potential causes of the crisis, and to bolster the initiatives that help to overcome the information and credibility issues that have arisen as big barriers to the flow of new credit. On the information and credibility issue, it's important to recognise that even if we recapitalise every bank that is in trouble, remove every existing toxic asset on every bank balance sheet, and refinance every mortgage so that it is not in danger of default, we still will not have fully repaired financial markets. We will still be left with a lack of trust—for good reason—in the informational architecture people use to make financial decisions. Until that is repaired—which will require a new regulatory structure, among other things—these markets will not perform to their full potential without some sort of insurance against the lack of credible information
domingo, 21 de diciembre de 2008
Niall Ferguson and the case for homeowners debt reduction
Professor Niall Ferguson is not only a marvelously insightful historian but also eager to use his knack for the "big picture" to help address systemically crucial issues.
In 2005, for instance, together with Professor Lawrence J. Kotlikoff he called for an entire set of fiscal and income security policies in the US.
As disprejudiced as he might be, I cannot but feel a pro-finance bias not in the argument itself but in what he left aside.
The case he made here is a pragmatic one and yet he is too clever to miss that his recipe would only provide temporary relief to a chronically ill patient.
Waiting for more comprehensive proposals, surely in the pipeline, I leave the reader with an abstract from the FT article:
"Excessive debt is the key to this crisis; it is the reason we are confronting no ordinary recession, curable by a simple downward adjustment of interest rates. It is the reason we still have to fear, if not a second Great Depression, then very likely the biggest recession since the 1930s. We are living through the painful end of an age of leverage which saw total private and public debt in the US rise from about 155 per cent of gross domestic product in the early 1980s to something like 342 per cent by the middle of this year.
With average household debt rising from about 75 per cent of annual disposable income in 1990 to very nearly 130 per cent on the eve of the crisis, a large proportion of American families are submerging under the weight of their accumulated borrowings. British households are in even worse shape.
Looking back, we now see just how big a proportion of US growth since 2001 was financed by mortgage equity withdrawals. Without that as a means of financing consumption, the economy would barely have grown at 1 per cent a year under President George W. Bush. Looking forward, we see just how hard it will be to stabilise property prices and the prices of the securities based on them. Already, at the end of September, one in 10 American home owners with a mortgage was either at least a month in arrears or in foreclosure. One in five mortgages exceeds the value of the home it was used to purchase.
The financial sector’s debts grew even faster as banks sought to bolster their returns on equity by “levering up”. According to one recent estimate, the total leverage ratios (on- and off-book assets and exposure divided by tangible equity) for the two biggest US banks were 88:1 for Citibank and 134:1 for Bank of America. The bursting of the property bubble caused such ratios, which were already too high on the eve of the crisis, to explode as off-balance-sheet commitments and pre-arranged credit lines came home to roost. Only by borrowing from the Federal Reserve on an unprecedented scale have the banks been able to stay in business.
(...)
Although commentators like to draw parallels with Franklin Roosevelt’s New Deal, in truth the measures taken since the crisis began in August 2007 more closely resemble those taken during the world wars. After 1914, and again after 1939, there was massive government intervention in the financial system. Banks and bond markets were reduced to mere channels for the financing of huge public sector deficits. That is what is happening today, but without the stimulus to manufacturing that the world wars provided. We are having war finance without the war itself.
Yet the effect of these policies is essentially to add a new layer of public debt to the existing debt mountain. Added together, the loans, investments and guarantees made by the Fed and the Treasury in the past year total about $7,800bn, compared with a pre-crisis federal debt of about $10,000bn. The Treasury may have to issue as much as $2,200bn in new debt in the coming year.
For the time being, the distress-driven demand for dollars and risk-free assets is pushing down the cost of all this borrowing. Treasury yields are at historic lows. But it is not without significance that the cost of insuring against a US government default has risen 25-fold in little over a year. At some point, with most big economies adopting the same fiscal policy, global bond markets are going to start choking.
Is it really plausible that the cure for excessive leverage in the private sector is excessive leverage in the public sector? Might there not be a simpler way forward? When economists talk about “deleveraging” they usually have in mind a rather slow process whereby companies and households increase their savings in order to pay off debt. But the paradox of thrift means that a concerted effort along these lines will drive an economy such as that of the US deeper into recession, raising debt-to-income ratios.
The alternative must surely be a more radical reduction of debt. Historically, such reductions have been done in one of four ways: outright default, restructuring (for instance, bankruptcy), inflation or conversion. At the moment, more and more American households are choosing the first as a way of dealing with the problem of negative equity, while more and more companies are being driven towards bankruptcy. But mass foreclosures and bankruptcies are not a pretty prospect.
Inflation, by contrast, is hard to worry about in the short term, not least because the Fed’s expansion of the monetary base is leading to no commensurate expansion of the broad money supply; the banks would rather shrink than expand their balance sheets.
That leaves conversion, whereby, for example, all existing mortgage debts could be wholly or partly converted into long-term, low and fixed-interest loans, as recently suggested by Harvard’s Martin Feldstein. (In his scheme, the government would offer any homeowner with a mortgage the option to replace 20 per cent of the mortgage with a low-interest loan from the government, subject to a maximum of $80,000. The annual interest rate could be as low as 2 per cent and the loan would be amortised over 30 years.
At the very least, this would rescue many homeowners from the nightmare of negative equity. A similar operation might also be contemplated for the debts of those banks that have been partially or wholly recapitalised by the state. This would not add to the federal debt in net terms and would reduce the interest burden, if not the absolute debt burden, of households.
Such radical steps would naturally represent a haircut for creditors, notably the holders of mortgage-backed securities and bank bonds. Yet they would surely be preferable to the alternatives. And they would certainly be a less extreme solution than the general debt cancellation envisaged in the Old Testament.
In 2005, for instance, together with Professor Lawrence J. Kotlikoff he called for an entire set of fiscal and income security policies in the US.
As disprejudiced as he might be, I cannot but feel a pro-finance bias not in the argument itself but in what he left aside.
The case he made here is a pragmatic one and yet he is too clever to miss that his recipe would only provide temporary relief to a chronically ill patient.
Waiting for more comprehensive proposals, surely in the pipeline, I leave the reader with an abstract from the FT article:
"Excessive debt is the key to this crisis; it is the reason we are confronting no ordinary recession, curable by a simple downward adjustment of interest rates. It is the reason we still have to fear, if not a second Great Depression, then very likely the biggest recession since the 1930s. We are living through the painful end of an age of leverage which saw total private and public debt in the US rise from about 155 per cent of gross domestic product in the early 1980s to something like 342 per cent by the middle of this year.
With average household debt rising from about 75 per cent of annual disposable income in 1990 to very nearly 130 per cent on the eve of the crisis, a large proportion of American families are submerging under the weight of their accumulated borrowings. British households are in even worse shape.
Looking back, we now see just how big a proportion of US growth since 2001 was financed by mortgage equity withdrawals. Without that as a means of financing consumption, the economy would barely have grown at 1 per cent a year under President George W. Bush. Looking forward, we see just how hard it will be to stabilise property prices and the prices of the securities based on them. Already, at the end of September, one in 10 American home owners with a mortgage was either at least a month in arrears or in foreclosure. One in five mortgages exceeds the value of the home it was used to purchase.
The financial sector’s debts grew even faster as banks sought to bolster their returns on equity by “levering up”. According to one recent estimate, the total leverage ratios (on- and off-book assets and exposure divided by tangible equity) for the two biggest US banks were 88:1 for Citibank and 134:1 for Bank of America. The bursting of the property bubble caused such ratios, which were already too high on the eve of the crisis, to explode as off-balance-sheet commitments and pre-arranged credit lines came home to roost. Only by borrowing from the Federal Reserve on an unprecedented scale have the banks been able to stay in business.
(...)
Although commentators like to draw parallels with Franklin Roosevelt’s New Deal, in truth the measures taken since the crisis began in August 2007 more closely resemble those taken during the world wars. After 1914, and again after 1939, there was massive government intervention in the financial system. Banks and bond markets were reduced to mere channels for the financing of huge public sector deficits. That is what is happening today, but without the stimulus to manufacturing that the world wars provided. We are having war finance without the war itself.
Yet the effect of these policies is essentially to add a new layer of public debt to the existing debt mountain. Added together, the loans, investments and guarantees made by the Fed and the Treasury in the past year total about $7,800bn, compared with a pre-crisis federal debt of about $10,000bn. The Treasury may have to issue as much as $2,200bn in new debt in the coming year.
For the time being, the distress-driven demand for dollars and risk-free assets is pushing down the cost of all this borrowing. Treasury yields are at historic lows. But it is not without significance that the cost of insuring against a US government default has risen 25-fold in little over a year. At some point, with most big economies adopting the same fiscal policy, global bond markets are going to start choking.
Is it really plausible that the cure for excessive leverage in the private sector is excessive leverage in the public sector? Might there not be a simpler way forward? When economists talk about “deleveraging” they usually have in mind a rather slow process whereby companies and households increase their savings in order to pay off debt. But the paradox of thrift means that a concerted effort along these lines will drive an economy such as that of the US deeper into recession, raising debt-to-income ratios.
The alternative must surely be a more radical reduction of debt. Historically, such reductions have been done in one of four ways: outright default, restructuring (for instance, bankruptcy), inflation or conversion. At the moment, more and more American households are choosing the first as a way of dealing with the problem of negative equity, while more and more companies are being driven towards bankruptcy. But mass foreclosures and bankruptcies are not a pretty prospect.
Inflation, by contrast, is hard to worry about in the short term, not least because the Fed’s expansion of the monetary base is leading to no commensurate expansion of the broad money supply; the banks would rather shrink than expand their balance sheets.
That leaves conversion, whereby, for example, all existing mortgage debts could be wholly or partly converted into long-term, low and fixed-interest loans, as recently suggested by Harvard’s Martin Feldstein. (In his scheme, the government would offer any homeowner with a mortgage the option to replace 20 per cent of the mortgage with a low-interest loan from the government, subject to a maximum of $80,000. The annual interest rate could be as low as 2 per cent and the loan would be amortised over 30 years.
At the very least, this would rescue many homeowners from the nightmare of negative equity. A similar operation might also be contemplated for the debts of those banks that have been partially or wholly recapitalised by the state. This would not add to the federal debt in net terms and would reduce the interest burden, if not the absolute debt burden, of households.
Such radical steps would naturally represent a haircut for creditors, notably the holders of mortgage-backed securities and bank bonds. Yet they would surely be preferable to the alternatives. And they would certainly be a less extreme solution than the general debt cancellation envisaged in the Old Testament.
Looting: The Economic Underworld of Bankruptcy for Profit - George Akerlof 1993
A couple of great articles found on Jesse's Café Américan.
Hedge funds gain access to $200bn Fed aid(from Financial Times)
Japan plans to buy $227 billion in shares to boost market(from Market Watch)
But there is more. A 1993 Brookings paper from Nobel Laureate George Akerlof called,
Looting: The Economic Underworld of Bankruptcy for Profit. (via Yves Smith, Naked Capitalism)
Here the abstract quoted by Yves:
"Our theoretical analysis shows that an economic underground can come to life if firms have an incentive to go broke for profit at society's expense (to loot) instead of to go for broke (to gamble on success).
Bankruptcy for profit will occur if poor accounting, lax regulation, or low penalties for abuse give owners an incentive to pay themselves more than their firms are worth and then default on their debt obligations.
Bankruptcy for profit occurs most commonly when a government guarantees a firm's debt obligations. The most obvious such guarantee is deposit insurance, but governments also implicitly or explicitly guarantee the policies of insurance companies, the pension obligations of private firms, virtually all the obligations of large or influential firms. These arrangements can create a web of companies that operate under soft budget constraints. To enforce discipline and to limit opportunism by shareholders, governments make continued access to the guarantees contingent on meeting specific targets for an accounting measure of net worth. However, because net worth is typically a small fraction of total assets for the insured institutions (this, after all, is why they demand and receive the government guarantees), bankruptcy for profit can easily become a more attractive strategy for the owners than maximizing true economic values...
Unfortunately, firms covered by government guarantees are not the only ones that face severely distorted incentives. Looting can spread symbiotically to other markets, bringing to life a whole economic underworld with perverse incentives. The looters in the sector covered by the government guarantees will make trades with unaffiliated firms outside this sector, causing them to produce in a way that helps maximize the looters' current extractions with no regard for future losses...."
And here Yves:
"Dick Fuld(former Lehman's Ceo) reportedly spends much of his days allegedly wondering why he didn't get a bailout. He should instead be thanking his lucky stars he is not in jail. Bankruptcy fraud is criminal, and fraudulent conveyance is subject to clawbacks. How could Lehman possibly have been producing financials that showed it had a positive net worth, yet have an over $100 billion hole in its balance sheet when it went under? No one has yet given an adequate answer on where the shortfalls were.
Commonwealth countries have a much simpler solution. If a company is "trading insolvent," that is, continuing to do business when it is in fact broke, its directors are personally liable.
We have said repeatedly that one of the triggers for the crisis was permitting investment banks to go public (prior to 1970, no NYSE member firm could be listed). We had dinner with one of our long-standing colleagues who was responsible for Sumitomo Bank's investment in Goldman Sachs and had (and continues to have) close and frequent dealings with the firm. He said that the change in the firm's behavior after it went public was dramatic. Before, it would deliberate (one might say agonize) important business decisions,. Waiting two years to enter a new field was not unheard of. But after the partners cashed in and were playing with other people's money, the firm quickly became aggressive in its use of capital in expanding the size and scope of its activities.
Hedge funds gain access to $200bn Fed aid(from Financial Times)
Japan plans to buy $227 billion in shares to boost market(from Market Watch)
But there is more. A 1993 Brookings paper from Nobel Laureate George Akerlof called,
Looting: The Economic Underworld of Bankruptcy for Profit. (via Yves Smith, Naked Capitalism)
Here the abstract quoted by Yves:
"Our theoretical analysis shows that an economic underground can come to life if firms have an incentive to go broke for profit at society's expense (to loot) instead of to go for broke (to gamble on success).
Bankruptcy for profit will occur if poor accounting, lax regulation, or low penalties for abuse give owners an incentive to pay themselves more than their firms are worth and then default on their debt obligations.
Bankruptcy for profit occurs most commonly when a government guarantees a firm's debt obligations. The most obvious such guarantee is deposit insurance, but governments also implicitly or explicitly guarantee the policies of insurance companies, the pension obligations of private firms, virtually all the obligations of large or influential firms. These arrangements can create a web of companies that operate under soft budget constraints. To enforce discipline and to limit opportunism by shareholders, governments make continued access to the guarantees contingent on meeting specific targets for an accounting measure of net worth. However, because net worth is typically a small fraction of total assets for the insured institutions (this, after all, is why they demand and receive the government guarantees), bankruptcy for profit can easily become a more attractive strategy for the owners than maximizing true economic values...
Unfortunately, firms covered by government guarantees are not the only ones that face severely distorted incentives. Looting can spread symbiotically to other markets, bringing to life a whole economic underworld with perverse incentives. The looters in the sector covered by the government guarantees will make trades with unaffiliated firms outside this sector, causing them to produce in a way that helps maximize the looters' current extractions with no regard for future losses...."
And here Yves:
"Dick Fuld(former Lehman's Ceo) reportedly spends much of his days allegedly wondering why he didn't get a bailout. He should instead be thanking his lucky stars he is not in jail. Bankruptcy fraud is criminal, and fraudulent conveyance is subject to clawbacks. How could Lehman possibly have been producing financials that showed it had a positive net worth, yet have an over $100 billion hole in its balance sheet when it went under? No one has yet given an adequate answer on where the shortfalls were.
Commonwealth countries have a much simpler solution. If a company is "trading insolvent," that is, continuing to do business when it is in fact broke, its directors are personally liable.
We have said repeatedly that one of the triggers for the crisis was permitting investment banks to go public (prior to 1970, no NYSE member firm could be listed). We had dinner with one of our long-standing colleagues who was responsible for Sumitomo Bank's investment in Goldman Sachs and had (and continues to have) close and frequent dealings with the firm. He said that the change in the firm's behavior after it went public was dramatic. Before, it would deliberate (one might say agonize) important business decisions,. Waiting two years to enter a new field was not unheard of. But after the partners cashed in and were playing with other people's money, the firm quickly became aggressive in its use of capital in expanding the size and scope of its activities.
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