Peace, Inshallah

President Obama’s speech in Cairo last week is generally regarded as a success. He did reach out to the Islamic world, hoping, as he said, for “a new beginning.” But very early in the speech, he started with an untrue premise. He stated that Christianity and Islam have much in common, shared values and interests. In the most abstract sense that is correct, as all religions have in common acknowledgment of a supreme God. But a very large difference between Christianity and Islam is captured in the single Arab word, “inshallah,” meaning “God willing.”

“Inshallah” peppers every conversation, almost every statement, in Arabic, and for good reason. Many Muslims take a passive attitude toward life that moves by the hand of God, not by their own hand. There is not the sense we have in the West of “doing” one’s life, building one’s career, striving for success, and so on. All those things are in God’s hands. What happens is not up to me. Inshallah.

In Christianity there is a similar theme of submission to God’s will in all things. Yet somehow that does not come at the expense of individual ego. Christians talk about God intervening in human affairs from time to time, making things turn out well or badly, but there is not a pervasive feeling that every minute of every day is controlled by the hand of God, individuals mere corks bobbing on the sea of divine events. It’s a fundamental difference in psychology that must underly any attempts at reconciliation of the cultures, and any political dialog. By suggesting otherwise, Obama started on shaky ground.

Christians do not prostrate themselves five times a day and pray in public. Our relationship with God is very private, very inner. Yet in one sense, Muslims practice inner mindfulness far more intensely than Christians, for that. Praying ostensibly five times a day would necessarily make you more mindful of God’s presence. That is the whole point of the practice. They are not praying to ask god to intervene so that their favorite sports team will win the playoffs. No. Each Muslim is reminding himself, “My life is not my life. My life is God’s life. Inshallah.

(Image: Reuters)

Vive La France

The big news today is not the appointment of a new Supreme Court judge, and not North Korea’s underground nuclear test. The real news is that France opened its first foreign military base in 50 years, in Abu Dhabi, United Arab Emirates. (http://www.guardian.co.uk/world/2009/may/26/france-military-base-uae ).

Why would France do that? Oil is one obvious answer. France needs to protect a future supply of oil just as the US has military bases in the Middle East for the same reason.

Secondly, the new base is a mere 137 miles from Iran, and that is surely no accident. That delightfully tweaks the Iranian nose, but also stands as a serious warning, by the UAE, and by implication, from other Arab states, that they are prepared to confront an aggressive Iran, even a nuclear Iran. France is a nuclear power, of course.

French president Nicolas Sarkozy highlighted the new base’s ability to fight pirates in the shipping lanes, but that is more misdirection than motivation.

The longer term strategic interest is that France wants to project its foreign policy into the Middle East to compete for military, economic, and cultural influence in the Arab world. That is a competition the U.S. would love to lose. We want out, not in. Let France strut its stuff for a while. We would pay them to open that base! (Maybe we did, who knows?).

The history of the Middle East is the history of Western meddling, especially by Britain, France, Russia, and the U.S. There is almost no other history to tell since before World War I. The uncertainty and latent instability in the region today is legacy of that sordid modern history. If we did not need the oil, we could let the devil take the hindmost. As it is, we should be grateful to France for providing some backbone while we are otherwise occupied. We have indeed come a long way from "Freedom Fries."

Pakistan Vs. Taliban

A million people are displaced from the fighting in the Swat valley in northwest Pakistan as the Pakistani army attempts to rout the Taliban. According to sketchy press reports “hundreds” of Taliban fighters have been killed and the army controls the valley again.

It is a worthy show of force that convinces the West that Pakistan is serious about fighting the Taliban. But is the army going to stay? Surely there are thousands, not merely hundreds of Taliban fighters. They are not going to retire. They will lie low until the Pakistan army retreats.
(Image: Huffington Post.com)

Blowing up villages is dramatic and accomplishes several objectives. It drives the enemy out, asserts the government’s authority, and assures continuing aid from the west. However it also creates millions of refugees and does nothing to solve the long term problem of Islamic radicalism in Pakistan. In the absence of a strategy, this may be the best that can be attained right now.

Whither Pakistan?

The Taliban have advanced from the lawless tribal areas of Pakistan to within 60 miles of the capitol, Islamabad. What we do not need is for the Taliban to have a nuclear weapon. These puritanical extremists are utterly irrational by Western standards and cannot be reasoned with. Amazingly, this story has not received much attention in mainstream western media.

Today the New York Times reports that the Pakistani government is finally sending in troops and aircraft against the advancing Taliban, albeit only “paramilitary” forces, not regular army. Is it yet another half-hearted effort or do they mean it this time? There is evidence and rumors that the Pakistani government is actually sympathetic to the Taliban and that the Pakistani intelligence agency (ISI) has aided and abetted the Taliban in the past. Surveys show that most Pakistanis are ambivalent about the Taliban. Most of the Muslim terrorist training camps are in Pakistan. So it is difficult to be sanguine about the earnestness or effectiveness of the government’s effort.

According to the Wall Street Journal, House Democrats are now considering whether to speed up financial aid to Pakistan to help them fight. Nearly two billion dollars are destined for Pakistan by later this summer. The question being considered is whether some of that money can be released early, like right now.

This is a story we have heard before. We funded and armed the Taliban in Afghanistan when the Russians invaded it. Look how well that turned out. We funded and armed Saddam Hussein against the Iranians in the 1980’s. We have done the same thing many times before in many parts of the globe. Geopolitical expedience comes back to haunt us. Very often the weapons end up being turned against us, but even when they do not, the culture certainly does. We have done it in Iran, Nicaragua, Panama, … the list goes on.

So far, we have gotten away with arming and propping up Israel; an exception to the rule. But Pakistan? They are halfway over to the Taliban side already. It is only a matter of time. Why don’t we put the $2billion into Afghan border security and let Pakistan fend for itself. If regional players do not care if the Taliban takes over Pakistan, and Pakistan itself doesn’t seem to care much, then why should we? We don’t want a nuclear Taliban (or a nuclear Iran either, or North Korea), but we cannot single handedly hold back the tide. Maybe we should be supporting India more, defending the Afghan borders, and getting ready to respond to a limited nuclear war in the middle east.

Do Republicans Care About Children?

The Obama budget passed both the house and senate with NO Republican votes. Why? Too much spending, increases the deficit says the GOP.

“Let’s not do this to our kids,” said Representative Mike Pence of Indiana, the No.3 Republican in the House. “Let’s not borrow from the next generation of Americans.”
(Hulse, NYTimes.com, 4/2/09).

Representative Pence voted FOR the monster Bush tax cuts of 2001 and 2003 (http://projects.washingtonpost.com/congress/members/p000587/key-votes/), which doubled the national debt from $5 trillion to $10 trillion. (http://www.brillig.com/debt_clock/ ).

Maybe Pence did not care so much about children back then.

It is worth noting that the Reagan tax cuts more than tripled the deficit, from $908 billion in 1980 to $3.2 trillion in 1990. If Pence had been in congress then, no doubt he would have voted for those tax cuts too (since he votes with his party 97% of the time).

Fom what I can discern, Republicans care not one whit for the financial well-being of future generations. Current protestations to the contrary are simply “not consistent with the facts.”

Hair of the Hound?

FASB announced today a “relaxation” of accounting rules for banks. “Relaxation” is a lovely euphemism. Everybody is in favor of relaxation. Who could be against it? What it actually means is a reduction in risk management. We could all be really, really relaxed if there were no laws at all, by that way of thinking.

FASB is the Financial Accounting Standards Board (often pronounced “Faz-bee”), a non-profit, non-governmental accounting industry organization (www.fasb.org). Member organizations include the American Institute of Certified Public Accountants, the American Accounting Association, and 28 others.

FASB attempts to maintain generally accepted accounting principles (GAAP) in the US, which is what makes it possible to understand the financial statement of just about any audited company. If you’re a company and you do not conform to GAAP, your auditors will not sign your financial statements.

The Securities and Exchange Commission (SEC) is responsible for setting and maintaining the accounting standards that publicly traded companies in the US must follow, but the SEC handed off that job to FASB in 1973. I don’t know how a government agency can privatize its legal responsibilities like that, but it happened, and it has been working okay ever since.

To the point, today FASB changed the acceptable accounting rules for banks that are holding piles of those “toxic assets” we have heard so much about. Banks are supposed to show those assets on their financial statements according to what they are worth. But what ARE they worth? In reality, they are worth almost nothing because if they put them up for sale today, they would find few, if any buyers.

Let’s say they are worth only 20 cents of their face value. Why not sell them at 20 cents each then and be done with it? The main reason is that you don’t really know if they are worth 20 cents. You might not get any buyers at 20 cents, or even at 10 cents because there just isn’t a market out there. Nobody’s buying anything. So in effect, if you put the toxic assets on the non-market right now, you could find they are worth zero dollars.

The banks have so many of these assets, they are not willing to put them up for sale and find out they are worth nothing. That would mean a large part of the bank was worth nothing, and that would mean the bank was insolvent. So to put the assets up for sale would be suicide. So they won’t do it. But they have to do it if they want to get the assets off their books because that is the “mark to market” GAAP rule.

But here is the wrinkle: Bankers claim that some of these assets are actually quite valuable. They are probably worth 60 or even 80 cents of face value, they say, because they are debt instruments from solid borrowers with good credentials who are making their payments and there is no problem with these assets other than the fact that everybody is afraid of them. In a normal market, these would be good assets. It just happens that there is no market right now.

FASB has bought that argument and said, okay, you can assign whatever price you think is reasonable to these assets and show that on your books. You don’t have to really mark them to market because there is no market. FASB will allow banks and their auditors to use "significant judgment" to value their “impaired assets” (no longer toxic, just impaired, and who hasn’t been impaired from time to time? ).

Conveniently, the first quarter just ended two days ago and banks are now feverishly preparing 1Q reports. What a godsend to be able to show that the bank is actually healthy, not rotten to the core! How do you think they will value the troubled assets? Zero? Not likely. Twenty percent of face? Well, why not use some “significant judgment” and value them at 80% of face, because then, hallelujah, the report will show that the bank is healthy!

You might think the bankers would be showering FASB with tearful thanks for letting them off the hook and for nullifying the consequences of their greed and irresponsibility. But no. The response of the American Bankers’ Association was to ask FASB, “Could you make that retroactive? This is great for 1Q09, but you know, we took a major hit in 4Q08, so if you would make the rule retroactive, we could revise the ’08 statement and we would really come out smelling like a rose!”

This request would make us laugh with despair, except that House Financial Services Committee Chairman Barney Frank (D-MA), said he will consider it! I hope he meant, “I will give it all the consideration it deserves.” Which is NONE! Frank is a smart guy, and so far he has done the right thing. We must wait to see if he is who he appears to be.

One interesting consequence of the FASB “relaxation” is that Paul Krugman is thwarted. He has been saying for weeks that the banks are rotten and the only cure is to cut out the cancer by nationalizing them. But this FASB move finesses him. Now the toxic assets will have a fantasy value based on their owners’ opinions, but if that fools enough people, investors might show up at Geithner’s yard sale and buy some. Then a market will in fact exist, and the price will be a real-market price, and the financial reports will suddenly be true, and the banks will be recovered. It’s like the Emperor’s New Clothes. If nobody calls “naked!” the scheme might work.

If that is the outcome, I will be the first to praise its brilliance. Markets are 99% psychology anyway, so it could work, and that would be wonderful.

There are loose ends though. One is the moral issue of letting all those greedy banks off the hook so easily. We are supposed to hold our noses and let that go for the sake of the recovery, but that is not easy to do.

Another is that this sleight of hand by the green eyeshade crowd is exactly the kind of non-transparent shenanigans that brought the whole system down in the first place. It is a hair of the hound that bit us. Does that theory work?

In Defense of Bonuses!

I suspect the people who are enraged about the AIG bonus scandal are people who don’t leave tips for wait staff in restaurants. Hey, they already get paid a salary, right, so why leave a tip? This is such a non-issue, I can hardly believe it is still in the news.

The common sense meaning of a “bonus” is something that is over and above what is normally expected in a situation. So it sounds like these AIG employees were showered with gratuitous money on the basis of greed alone.

But that is not what a “bonus” means in many industries, including the financial industry. Your bonus is a normal, expected part of your compensation. In the case of AIG it was written into the employment contract over a year ago. There was nothing unexpected, unusual, or gratuitous about it. Some employees could have a salary of $1 per year and a large “bonus” at the end of the year. Remove the bonus and they have worked a year for one dollar. That’s not fair.

Another reason people get tied in a knot over this incident is that the bonuses are very large, compared to what most people earn in a year. Many bonuses were a million dollars or more. But so what? That’s what people make in that industry. If you don’t make that much, maybe you went into the wrong business. Get over it. Resentment over the size of somebody else’s pay package is just unconscionable envy.

The argument has been made that the people who got these bonuses were undeserving. They were the very people who got AIG into so much financial trouble that it required taxpayer bailout. Since a bonus is contingent on performance, it seems inconceivable to many, including those in congress, that these employees could have earned any bonus.

But congresspersons are in no position to judge what is satisfactory performance at a firm like AIG. If the job is to bring in revenues by writing contracts of a certain kind, and you do that well, you get paid. That’s what the employment contract said and that’s what they did, so they got paid. Fair’s fair. It is an incorrect presumption to think that somebody in congress is a better judge of of the employees' performance.

Admittedly, the criterion performance to be rewarded should have been quality, not quantity. That is a common difficulty in any behavior management scheme – specifying the desired behavior with precision. But the employees did not specify the behavior to be rewarded, the bosses did. It is called a labor contract because you exchange your labor for cash payment. So the government would do better to replace the worthless executives in charge and retain the employees who proved so capable of performing the work required!

I did not even bother to write to my congresspersons about the idiotic house proposal to tax the bonuses at 90%. It was so stupid on the face of it that I did not think it had a chance of passing. Was I wrong about that! The legislation was not only a knee-jerk reflex, based on irrational emotion rather than reason, but it is almost certainly unconstitutional. (It is illegal to use tax law to punish individuals or selected groups). I now believe that rationality will prevail in the senate, but I am writing to my senators just in case. You just never know with politicians.

Reincarnation at Treasury?

Reincarnated? These two fellows must be karmically related.

Although Ludwig was never much for economics, Tim isn't strong on language games, either.

Still, you have to wonder.



(Ludwig Wittgenstein) ..................................................... (Timothy Geithner)

Propping Up Versus Fixing

“We had no choice” but to prop up AIG, said Fed Chairman Bernanke (foxnews.com/politics, 3/3/09), as the government dumped another $30 billion into the insurance giant, bringing the taxpayer onus to over $200 billion so far on just that one black hole.

He is right, sickening though it is. And more billions will be probably be needed. The trouble is that AIG insures against default of credit-backed securities for dozens of banks worldwide. If AIG defaulted on its insurance contracts, all those banks would collapse and we would indeed be back to The Great Depression.

So why not fix the problem rather than continual “propping up”? What we do NOT need is a Potemkin banking system.

Whatever happened to the plan for the government to buy the toxic assets? Whatever happened to the “bad bank” strategy? Where the hell is Geithner? I’m starting to get the sinking feeling that nobody is in charge.

The New Hillary

Secretary of State Hillary Clinton visited Asia this week on her first outing as a member of the Obama Administration. She talked with leaders in Myanmar (Burma), Japan, South Korea, China, and Malaysia, and according to news reports, some of her comments were unusually candid. She emphasized economics and climate change, not human rights with China. She talked about North Korean regime change in Seoul, and wondered aloud if sanctions against Burma were useful. There’s nothing wrong with saying what’s obvious, she told reporters (Kessler, G.: Washington Post.com, 22 Feb 09).
(Clinton in China Feb 09 LA Times Photo)

But that is exactly what is not obvious. As she herself has said, diplomacy is a head game. Stating the obvious may not be to one’s advantage. Human rights organizations are furious with her for not emphasizing human rights issues in China. Others wonder if she is just trying to be well-liked or if she has any policy in mind, and if it is a policy, since when did the US no longer care about human rights?

But I think she is doing the right thing, and I confess I did not realize she had the flexibility to think in a different way, whether directed by Obama or not. Her comments show a subtlety of mind I did not know lurked there.

Her comments mark a sharp break with the Bush foreign policy. She is saying, we are no longer going to throw our weight around like the bullies we have been. We are now willing to talk plainly and listen with an open mind. That is a fundamental change in direction for US diplomacy and it is important to indicate to all, that is what is happening.

She is also saying, especially by choosing Asia for her maiden voyage, that our important future allies are not necessarily going to be in Europe but in Asia. That’s the truth, and it is smart to signal that, to both Asia and Europe. So there is a policy behind her remarks and it is much larger and more important than whether Tibetans should be allowed more autonomy.

The Chinese can be harsh in dealing with their own citizens, but so can we. They have a billion people to keep in check, three times what we have, with much more diversity in culture and language, and with with a fraction of the wealth and education we enjoy. “Human Rights” should be re-thought in less absolute terms. What do we know about how China works? We barely know how the US works.

The US has been the world leader in promoting human rights since the Carter presidency, and that should continue, but perhaps, in view of our abominable performance in the last eight years, with a bit more humility.

I am impressed with Clinton’s comments. If she continues in such a candid and yet subtly strategic way, she might well be the best secretary of state we have had in living memory. I never saw that coming.