Sunday, November 30, 2008

Look at the value of Social Security now that Wall Street has collapsed

We have heard for years from Investment salespeople what a bad investment Social Security is and how much better we can do if you buy their snake oil investment products.

Yeah. Right. Nathan Newman, riffing off of a Wall Street Journal article points out that for all the money investors have lost in the recent Wall Street meltdown, financial assets provide only 15.4% of the income for those over age 65 while Social Security provides 39.6% of their income.

That social security income is not tied to Wall Street ups and downs. Instead it is contracted to be delivered regularly with annual updates for inflation. The WSJ article points out that this is "an inflation-adjusted immediate annuity." As such it has an immediate value to retirees and those nearing retirement that can be measured in thousands of dollars. It is also guaranteed by the government and cannot be taken away, unlike all Wall Street products.

That makes Social Security a damned good investment for most Americans.

Oh, and the scare tactic line the investment salespeople offer "It won't be there when you retire?" That's a load of crap. The very worst case scenarios suggest that after 2041 the income of the Social Security System will be only 89% of what is needed to pay full promised benefits. OK. Say the worst case scenario comes true. The law already states that if there is a shortfall in revenue the Social Security System will pay out the benefits at the level permitted by the incoming revenue, which means at worst, the promised benefits would be reduced 11%.

But the fact is that the estimates for future benefits have always exceeded the most likely estimates, with the worst case never having occurred.

Which would you prefer? A contractual annuity paid by a private insurance company that could go bankrupt as AIG just did, or a contractual annuity that is guaranteed by the U.S. government? The best you could hope for if you had a contract with AIG or a similar insurance company is that the government would step in and guarantee your benefits. With Social Security you already have that.

That makes Social Security a very good investment.

That means that Social Security is a much more certain and reliable source of retirement income than the more volatile wall street gambles investments can provide.

"Tailgunner" Joe McCarthy is the true father of the modern Republican Party.

Neal Gabler explains that the true father of the modern Republican Party is Joe McCarthy, not the Libertarian government-hating ideologue Barry Goldwater. McCarthy was not an ideologue. He provided a populist technique for invoking public fears and anxieties to manipulate votes.

Goldwater's ideology never interested very many voters. It was the McCarthyite election tactics of demonizing the opponent that has built today's Republican Party.

Instead of running in a line through the conservatives, Goldwater to Reagan to G. W. Bush, with slight diversions to Nixon and G. H. W. Bush who governed as moderates, the true lineage of the modern Republican Party runs from Joe McCarthy to Richard Nixon, to Reagan to George W. Bush with a diversion when Goldwater took control of the party in 1964 and broke the power of the northeastern moderate Republicans who had previously run the party. The McCarthy line also runs through Rush Limbaugh and Bill O'Reilly, while Sarah Palin is clearly applying to join the tradition.

Bill Buckley strongly supported Joe McCarthy all his life, even writing both a defense of Joe McCarthy as well as a poorly written novelization of McCarthy's activities. Many other conservatives such as Ann Coulter are known to similarly support him. As Gabler says, McCarthy is now found in the core DNA or modern Republicans.

While Reagan and Goldwater are the public faces of modern Republicanism, Joe McCarthy is it's soul.

Go read Gabler's article in the Los Angeles Times if you want to understand modern American politics.

[ h/t to TPM. ]

The India - Pakistani rapprochement is even more important now

Shuja Nawaz writes in the Washington Post that the Mumbai terror attack appears to be likely to derail the recent moves towards a rapprochement between the governments of India and Pakistan. A number of other news reports echo this. But is this apparent common wisdom in the press accurate?

Pakistan has a new government in place since last April, and the terrorists in Pakistan have been attacking there also. Most noticeable was the recent bombing of the Marriot Hotel in Islamabad in September. Both Pakistan and India have suffered numerous smaller terrorist attacks in recent years.

Terrorism is a form of asymmetric warfare. It is being used by Political practitioners of Islamism to take down both the governments of Pakistan and India.

The first function of every government is to provide social stability. It is this function of providing a stable society that terrorists use to attack and delegitimize the existing government. The purpose of the terrorism is to weaken the government to the extent that it is forced to accommodate the otherwise unacceptable demands of the terrorists and possibly even to allow the terrorists to take the government over.

The governments of both Pakistan and India are under direct, violent attack by an alliance of terrorist groups often working together. Such attacks do not always delegitimize a government. Sometimes attacks like that in Mumbai and the earlier one on the Marriot in Islamabad can strengthen a government as people and organizations which otherwise would be competing with each other rally around the government to protect the nation. The single greatest failure of the Bush administration was to squander the opportunity to rally all Americans and much of the world around the American government after 9/11.

The attack on Mumbai is very probably an effort to derail the recent efforts of both the Pakistani and the Indian governments to reach a rapprochement. The Mumbai terrorists appear to have started their attack from Karachi, Pakistan, hijacked a boat, and come into Mumbai from the sea. The Pakistani Inter Services Intelligence (ISI)has elements which have supported terrorist organizations which attacked India trying to dislodge Indian control of the disputed Indian state of Kashmir. Similar ISI elements appear to be supporting the Taliban in their efforts to retake control of Afghanistan. Pakistan's government clearly does not control all the territory that is generally internationally agreed to be part of Pakistan, nor does it control all the elements of the government itself. It is exactly the type of poorly controlled nation and unstable government most susceptible to the pressures that the terrorists are applying.

The current President of Pakistan, Asif Ali Zardari, has been trying to gain greater control over the ISI and remove it ant the military from active politics since becoming President in April. He recently disbanded the political wing of the ISI which is reported to have spied on Pakistani politicians in order to intimidate them and rigged national elections. This follows his earlier failed attempt to place the entire ISI under the control of the Minister of Interior instead of under the control of the military.

Zardari's recent efforts to reach a rapprochement with the India government may be in part an effort to lower tensions between the two nations so that the Pakistani people will feel less need for the Army to take over the government again as it has numerous times in Pakistan's 60 year history. If tensions with India are lowered, then Zardari has a better chance to take control of the uncontrolled parts of Pakistan like North and South Waziristan, provinces in which the indigenous people are supporting the Taliban and al Qaeda.

It would be no surprise to learn that the Mumbai terrorist attack was a push-back against Zardari's efforts to rein in the Pakistani military and the ISI.

If that's the case, then the government of India needs to help strengthen Zardari's government by not threatening Pakistan and instead working towards the rapprochement. Threatening Pakistan will have the perverse effect of strengthening the Pakistani military and weakening the civilian government. It is the general weakness of the Pakistani government which is the greatest threat to both India and Afghanistan.

Both the governments of India and Pakistan need to highlight their shared need to defeat the terrorist attacks by the groups which have been attacking them. By showing that they are fighting a shared enemy, they can take advantage of the "rally around the attacked government" effect.

By showing their respective publics that each government is under attack and is asking the help of the other to help defend itself from attackers based in the other’s territory, it will become more difficult for the terrorist groups to appeal to the people with a claim that their respective government is being propped up as a puppet by an outside government. It is this appearance of being an outside government propping up an unpopular local government that will be the greatest restraint on any U.S. involvement in the rapprochement between those two nations. No government today wants to appear to be a puppet government supported by the U.S.

This looks like a useful strategy for strengthening the existing governments in South Asia and making them more resistant to the kind of terror attacks that have recently occurred in both Mumbai and in Islamabad. Neither nation can accept that the other is providing a place to launch terrorist attacks on it, either with or without government support. An effective rapprochement between the two governments can give both of them assurance that the other government is not directly supporting attacks, while the strengthening of both governments so that they are able to minimize rogue elements and control their territory will allow the each government to have greater trust in other. The overall result will be to bring about the stability that is always the first function of government.

The Mumbai terror attack, likely intended to drive a wedge between the governments of India and Pakistan to weaken them both, could have the perverse effect of drawing the two national governments closer together and strengthening them both. But as Bush's total failure to use the world-wide desire to help America after 9/11 clearly demonstrates, the direction public opinion takes depends a lot on how the governments of Pakistan and India act.

Addendum 12/01/2008 11:09 am CST

The problem in Pakistan is that the national government does not have sufficient control over the various groups and tribal areas to prevent terrorist groups from using Pakistan as training grounds and staging areas for attacks. Many such groups have taken control of parts of the government itself, the ISI apparently being infiltrated. But the current central government is attempting to gain control of its nation, which is a reason why the terrorists are attacking inside Pakistan as well as outside.

That's why it is dangerous for outsiders, even angry Indians reacting to the terrorist events in Mumbai, to accuse Pakistan of sending the terrorists to Mumbai without very strong evidence. India cannot take control of Pakistan and solve the problems there. That has to be done by the Pakistani government. Accusing "Pakistan" of "sending" the terrorists weakens the government. That is why the Rapprochement between to governments of Pakistan and India MUST be strengthened to deal with the terrorist groups. That means that the Pakistani people must be encouraged to support their government at the same time that the government of Zardari must be supported in its efforts to root out the terrorist elements within rogue elements of the government, all without making the Zardari government look like a weak puppet installed by outsiders to "straighten out" Pakistan.

With that in mind, look at the complicated reactions of the Pakistani People to the Mumbai terror event as described In Time.
Most Pakistanis reacted with horror to news of the Mumbai killing spree starting Wednesday, having lived through equally devastating attacks on their own soil. But that initial sympathy quickly gave way to hostility as the focus of blame landed on Pakistan — a knee-jerk first reaction, rather than one based on any solid evidence. "It is a tragic incident, and we also felt bad about it as Pakistan is going through the same problem," says Abdur Rashid, a 67-year-old retired government servant in Rawalpindi, near Islamabad. "But it was really unfortunate to see that even before the operation [to clear out the attackers] was finished, the Indian government stated that Pakistan is involved. It sounds that the entire incident was concocted to punish Pakistan."

On Sunday, Indian media began reporting that the only attacker captured alive, a Versace-T-shirted 21-year-old by the name of Ajmal Amir Kamal, was Pakistani, and that he had identified all his fellow militants as being trained by the banned Pakistan-based militant group Lashkar-e-Toiba. Pakistanis are suspicious of these claims. "There is simply not enough evidence at this point to blame Pakistan," says Najam Sethi, editor of the English political weekly, the Friday Times. "No statement made under duress can be counted as 100% fact, and you can imagine the conditions under which this confession was made."

However, Sethi adds, "the Pakistan connection certainly can't be ruled out. These attackers were not hijackers negotiating with hostages. They knew they were on a suicide mission, and you can certainly find a lot of suicide bombers in the tribal areas." At the same time, the attackers clearly had a local connection, he argues, because out-of-towners could have had the intimate knowledge of the layout of Mumbai and of the targets to have caused so much carnage.

Amir Rana, an expert on Pakistani terrorist groups with the Pakistan Institute of Peace Studies, says he has heard some troubling reports, but says that no accusations should be leveled before a thorough investigation is completed. He cites several recent terrorist attacks in India that were initially blamed on Pakistan, only to have investigations later reveal that the perpetrators were aggrieved Indian Muslims, and in at least one case, Hindu extremists. Early accusations such as these, he worries, may only impede the close cooperation between the two countries necessary to resolve the issue.

"What we may actually be seeing here is an incident of transnational terrorism," he says. "The ideology is shared across borders, from Pakistan to India to Bangladesh." Terrorists these days are just as likely to meet in Dubai to discuss logistics, or in Katmandu to plan strategies. Training can take place not only in the ungoverned tribal areas of Pakistan, but also in Bangladesh, which also faces a mounting challenge from Islamic extremism. Weapons, distributed by a network of arms dealers that supply Sri Lanka's Tamil Tigers, Indian separatists groups and even Nepal's Maoists, are in easy reach. Neither the weapons, nor the tactics, of the Mumbai attackers point to any one country, says Rana. "For these kinds of attacks there is no need for training camps. There were no heavy weapons or guerilla tactics. The kind of training they needed could have been done in a single room."
IF the Mumbai terror attack was intended to derail the efforts towards rapprochement between the governments of Pakistan and India, (a conditional statement not yet proven, but highly likely) then rash accusations that the attacks were caused by "Pakistan" (suggesting that the government of Pakistan had a hand it the attack and that it was, at the very least, approved at the highest government levels) can serve only to give whoever directed the attack the victory they are looking for.

The People of Pakistan have themselves suffered through terrorist attacks, and as the Time Magazine article shows, were for the most part as horrified at the attacks on Mumbai as anyone else in the world. But the rash accusations that the Mumbai attack was "caused by Pakistan" have already begun to cause a defensive counter-reaction among the Pakistani people. The governments of both India and Pakistan must be encouraged to state that there will be no accusations until a thorough and independent investigation of the Mumbai attacks has been performed, and then both governments need to ensure that those independent investigations are performed without hindrance.

Accusatory statements should not be made by any government, especially governments other than those of India and Pakistan. The U.S. and Great Britain can aid by assisting in the investigations and by certifying their independence, but statements from either the U.S. or Great Britain have to be limited to expressing sympathy and support for the victims and (in muted terms that cannot sound like they are giving instructions - that's something hard for Global or ex-Imperial powers to do) their support of the governments of both India and Pakistan.

The issue of who wins or loses as a result of the Mumbai terror attack is still up in the air. The attack only started the real battle. It is now being fought-out in the court of public opinion, and the final results will be determined by the actions taken by the governments of India and Pakistan. The goal for the end game is that the governments of both India and Pakistan must be seen as strengthened, not weakened, by the Mumbai terror attack.

The example of what NOT to do was provided by the Bush administration reaction to 9/11. The end result of the attacks by 19 individuals on 9/11 has been two on-going wars, a cold war with Iran and an American nation with an international reputation and international support severely damaged by the government approved use of torture, the existence of Guantanamo and it's kangaroo courts which are not restrained by the Rule of Law, and by the events in Abu Ghraib for which no official of any significance has suffered punishment.

India and Pakistan must take advantage of the bad example provided by the Bush administration if they are to succeed in defeating the Mumbai terrorists in the court of public opinion.

Time magazine ends its article with a very similar admonishment which sums up what I have been saying.
Asim Javeid, a 23-year-old student in Rawalpindi, agrees. "The Mumbai attack shows that terrorism is a common threat to both India and Pakistan. Unless both countries join hands and take measures to combat terrorism, we will not be able to defeat this curse."

Mumbai terror attack update 11 30 2008

CNN reported Saturday Nov 11 that the Taj Mahal Hotel had previously had warning of a possible terrorist attack on the hotel, and had stepped up precautions for a while. The nature of the warnings were not described. The precautions, such as baggage searches and sending people through a metal detector, were all oriented towards the front entrance.

Those precautions had become less intense recently. In any case, the terrorists were extremely familiar with the layout of the hotel. They came in through back doors through a kitchen and "...seemed to know [the hotel] in the night or the daytime," indicating a very high level of training for the operation.

Both the law enforcement agencies and fire fighters were found to have organizational and infrastructure deficiencies which delayed their responses and caused them to be less effective than they should have been.

The Washington Post reported Friday, Nov 28, that "...the scale, sophistication and targets involved in the Mumbai attacks were markedly different from previous terrorist plots in India and suggested the gunmen had received training from outside the country."

Saturday, November 29, 2008

Here's a first glimpse at what the economics and finance professions did wrong to give us the current financial and economic collapse

Brad Delong has responded to a challenge by Calculated Risk to economists to determine what they did wrong that led us to the current financial collapse and the resulting economic downturn. His post is illuminating, and the comments to his post are absolutely fascinating. Here is Brad DeLong's post:
Let me say what things I was "expecting," in the sense of anticipating that it was they were both likely enough and serious enough that public policymakers should be paying significant attention to guarding the risks that it would create:

(1) A collapse of the dollar produced by a panic flight by investors who recognized the long-term consequences of the U.S. trade deficit.


(2) A fall back of housing prices halfway from their peak to pre-2000 normal price-rental ratios.

I was not expecting (2) plus:

(3) the discovery that banks and mortgage companies had made no provision for how the loans they made would be renegotiated or serviced in the event of a housing-price downturn.

(4) the discovery that the rating agencies had failed in their assessment of lower-tail risk to make the standard analytical judgment: that when things get really bad all correlations go to one.

(5) the fact that highly-leveraged banks working on the originate-and-distribute model of mortgage securitization had originated but had not distributed: that they had held on to much too much of the risks that they were supposed to find other people to handle.

(6) the panic flight from all risky assets--not just mortgages--upon the discovery of the problems in the mortgage market.

(7) the engagement in regulatory arbitrage which had left major banks even more highly leveraged than I had thought possible.

(8) the failure of highly-leveraged financial institutions to have backup plans for recapitalization in place in the case of a major financial crisis.

(9) the Bush administration's sticking to a private-sector solution for the crisis for months after it had become clear that such a solution was no longer viable.

We could have interrupted this chain that has gotten us here at any of a number of places. And I still am trying to figure out why we did not.
The comments on Brad's article are even more illuminating than his mea culpa. Here are some of my favorites:
The fundamental problem of the political economy of the U.S. and, to a lesser extent, other industrialize countries is excessive inequality. If the haves get too big a share, they won't be able to find an adequate return on their wealth by putting their money in productive investments because the market for new goods and services won't be big enough. Hence there will be an endless succession of speculative bubbles as all that money drives up the price of one class of assets after another. Under these circumstances, economists, like technocrats everywhere, will attempt to find specific technical explanations for each crisis because the underlying issue involves unpleasant politics. The blindness of the geeks is not irrational. After all, there has been no real prospect of doing what needed to be done, i.e. changing the tax and labor policies that promote inequality. Recall that Clinton took a huge political hit for slightly increasing the tax rate on the highest brackets, even though the official justification of the increase was controlling the deficit, not increasing income redistribution.

The prospect of a new depression has changed the politics of income distribution so that it may be possible to understand what's happened and even do something about it, at least until things calm down. O well, what's left to say except "sweet are the uses of adversity," or, if you prefer Heraclitus to Shakespeare, "every cow is driven to pasture by a blow."

Posted by: Jim Harrison | November 29, 2008 at 09:44 AM
This is what I have been getting at when I have written of the importance of well-paid middle class consumers. The size of the economy is primarily based on the degree of consumption, not investment. Investment will always follow growth in consumption, and investment funds can be created by the banks. Investment funds not created by middle class savings means excess social inequality and a resulting long term weakness in the economy. That makes government supply-side policies nothing more than a pay-ff to wealthy political donors. That's a payoff that will ultimately lead to economic problems when it takes over the government policy-making machinery as has happened since the Reagan Revolution has been rolling through our society.
Like others, I saw a good number of things coming (I was short homebuilders by spring/summer 2006; I was short FRE by winter), but I did not predict the full denouement. My first surprise was not the failure of all concerned to consider a housing-price downturn (just looking at the model results told you that), not the abject failure of the NSROs (who have always superciliously minted money by telling investors soothing lies couched in grade-school math), nor that banks had not distributed enough housing exposure (they were buying in in 2003-2006, not selling out), and certainly not panic when it all became clear.

However, the surprise point for me (and, alas, the reason I left so freaking much money on the table when I covered my shorts much, much too early) was the response to a broken buck in the money markets and WaMu's seizure in the loan markets. I assumed that money-market investors would simply and accurately have reevaluated those funds with an eye towards risk instead of yield first (Reserve had amazing yields and had siphoned up vast assets with them; you knew they were taking risks), but they put runs on funds instead. I assumed the bond market would simply mark up spreads to compensate for the real chance of being wiped out by a bad loan book, but it simply stopped lending to banks instead.

Those were mistakes I could have avoided going in. I was wrong, and had every chance not to be. The lesson I draw for my little trading accounts is not to assume I know what other market participants will do in a novel environment.

Posted by: wcw | November 29, 2008 at 10:29 AM
Banks and finance institutions in modern capitalism are two contradictory things: profit making institutions who take risks and maximize their returns, and collectively the financial system of the economy, where we don't want systemic risk. The periodic financial crises (Third World debt, S and Ls, Long-Term Capital, now this) come when everybody starts to copy the "innovation" and everybody (including various Nobel economists) say that it is different this time, and the risks are under control due to clever market adaptations. Then the collapse, and the taking on of the bad assets by taxpayers. ... Risk taking banks and financial institutions overshoot, and as they make money, everyone else copies them, hence the systemic quality. Regulators have to anticipate that and work accordingly, and be supported politically. Career regulators, especially in the U.S., cannot by themselves fight off the massive lobbying and political expenditure by these firms and industries. Otherwise, we'll just keep getting a series of these down the road, and then everyone can say "Oh gosh, how did this happen?"

Posted by: macheath | November 29, 2008 at 10:54 AM
Macheath's comment lays out the inherent conflict between bankers and regulators. Bankers make their money by exploiting risks in the economy. Regulators exist to eliminate the major risks in the overall economic system and to prevent bankers from creating systemic level risks. This is the conflict. When the regulators are doing their job, the bankers are frequently blocked from making the money they wish to. But when bankers start making money and other bankers copy them, then the copied actions of individual bankers becomes increased systemic risk which the regulators are there to prevent. Or as the old line goes, the regulators are there to watch the party and when it gets going good, their job is to take away the punch bowl.

The problem is that wealthy individuals then use the inherent political power of large amounts of money to stop regulators from doing their jobs. It really doesn't cost very much to buy one or two key powerful legislators like Phil Gramm.

That becomes especially true when the bankers have one of the two American political parties which has made an art of running against government regulators as the Republicans have done since the Reagan reign. It is this conflict between bankers and regulators that is at the core of the Republican free market fundamentalism.
Isn't this a case of experts being confused because they are lost in the arcane details. From a relatively uninformed macro point of view, it was clear that an unsustainable debt buildup was occurring. It should have also been obvious that a lot of the debt was backed up by an unsustainable increase in asset prices. Yet it was assumed that the overall system could absorb the unwinding of these unsustainables without major damage. I have to admit that, like wcw I was somewhat taken in by the expert opinion. Because I gave it some weight, my flight from the equity & debt markets was far too timid -really just a minor readjustment of asset allocation, when a wholesale retreat would have been in order.

Posted by: bigTom | November 29, 2008 at 11:08 AM
The problems with the ratings agencies were pretty clear to all by 2002 (and I believe were discussed extensively in the comments section of this blog), but "when a mans income depends on his not understanding something" came into play and the finance and politco-economic worlds closed ranks to shut up anyone who tried to point out the leaks in the dike.

All of Wall Street since 1995 has essentially been one big ball of conflict of interest at a level that would get any $30k/year junior purchasing agent fired in a heartbeat, but anyone who tried to point that out was brutalized (and I suspect if they had any connections to the Street or the Treasury they and/or their institutions were threatened). Read the comments from the "professional finance people" here, on Crooked Timber, and in Drum's comments section: they are still in vicious counterattacking denial mode. Our job as taxpayers is to shut up and send our paychecks to Uncle Sam so that Wall Street salaries can continue uninterrupted.


Posted by: Cranky Observer | November 29, 2008 at 12:34 PM
I'm just an investor who became overall defensive too early while shorting specific asset classes such as real estate and mortgage lenders (some of that worked out just fine later). It was clear we were in a bubble but, in the end, the magnitude of its consequences was simply shocking and I was not nearly defensive enough; in 20-20 hindsight 90% in T-bills with 10% in double short market ETF's like SDS would have been about right WRT risk-adjusted return.

Excluding movement conservatives incapable of appropriately assessing the dangers for ideological reasons and those deepest in sell-side servitude who wouldn't tell the truth even if they knew it, I'm guessing the only economists making reasonably accurate predictions were heterodoxic (students of Minsky or those grounded in complexity and systems theory perhaps) with strong proponents of neoclassical framework(s) missing the boat by the widest margins and everyone else winding up more or less in between.

I believe it was Nikki Giovanni who said, mistakes are a fact of life, it is the response to error that counts: It will be interesting to see how the field of economics responds to the empirical challenge this 'mistake' represents to say nothing of the continuing monetary and fiscal policy responses by government since that has vitally important consequences for all of us: I would certainly feel better though if some of those who predicted this debacle were on that new advisory council along with Paul Volcker; don't think any of Obama's economic transition team were among those who 'saw this coming' were they?

Posted by: RW | November 29, 2008 at 12:56 PM
Don't feel so bad, Delong. Few can overcome the indoctrination that is required for an advanced economics degree and the never-ending reindoctrination that is required of the professional economist. This indoctrination requires one to ignore the real world and focus instead on very pretty, if fictional, models. This tunnel-vision allows one to suspend common-sense and write elegant papers set in fairytale lands in service to existing wealth and power.

The fully indoctrinated economist sees bubbles as the this time it's different/forever happy times of new paradigms, increasing inequality as a rising tide lifting all boats and financial swindles as desired innovation.

Look at Robert Rubin and his economist offspring Larry Summers. Two people who really really eff'd up and yet they are held in high regard. Why? Because the profession can not allow those orthodox to doctrine to be shown to be really really wrong. Once the foundations are shown to be made of sh*t, the whole rotten edifice could fall in a heartbeat.

Ask yourselves, if the majority economics profession not only didn't see this train wreck coming but instead justified the train's direction, then aren't they part of the problem?

Posted by: Paul Yarbles | November 29, 2008 at 01:07 PM
Paul Yarbles recognizes what almost anyone exposed to academic Economis knows - it is primarily brainwashing in the existing financial system. After such brainwashing it is difficult for most people to accept objections to the existing
the fact that there seems to be a missing item in the list, the high degree of leverage and entanglement among the various higher order derivatives, which is why we had the financial collapse that needed the recapitalizaton. Ever since Geithner's Hong Kong speech of Sept. 2006, which I have mentioned here previously more than once, this should have been high on any financial market watcher's list of things to worry about.

BTW, I think the people at the Fed were worrying about it. Most fail to remember how quickly the Fed responded in August, 2007 with their innovative response. They were not as taken by surprise as Brad and so many others.

Posted by: Barkley Rosser | November 29, 2008 at 01:45 PM
There is a lot of insight in this post and its comments.

Why are businesses allowed to retructure loans in bankruptcy and homeowners are not?

Any business going into Chapter 11 bankruptcy reorganization can restructure and reamortize loans whose conditions they find onerous or can no longer meet. But an individual homeowner going through Chapter 13 bankruptcy cannot restructure his mortgage loan. Why not?

As the bankruptcy Judge wrote in the Washington Post
Homeowners are the only ones who cannot modify the terms of their secured debts in bankruptcy. Corporate America flocks to bankruptcy courts to do precisely this -- to restructure and reamortize loans whose conditions they find onerous or can no longer meet. Airlines are still flying and auto parts makers still operating because they have used this powerful tool of the bankruptcy process. Lehman Brothers will surely invoke it. But when the bankruptcy code was adopted in 1979, the mortgage industry persuaded Congress that its market was so tightly regulated and conservatively run that it should be exempted from the general bankruptcy rules permitting modification. [Snip]

For more than a year, a number of legislators, academics and judges have advocated removing this ban on home mortgage modification to help stem the increasing number of foreclosures. I have twice participated in briefing sessions organized by the House Judiciary Committee, where I was lectured by lobbyists for the mortgage industry about the sanctity of contracts. I have listened to their high-priced lawyers make fallacious constitutional arguments based on discredited cases from the 1930s. (This is, incidentally, an industry that is not particularly concerned about its own contractual obligations as it tries, through various Treasury-aided programs, to stay afloat.)
The current prohibition on bankruptcy judges in Chapter 13 reorganization cases for individuals might make sense if the homes could be resold at market values that were as high as the mortgage values, or if the mortgage itself were not a subprime mortgage designed to automatically increase to levels the mortgage buyer was never going to be able to afford. But the current market in many parts of America has to drop 40% to 50% so that the average home can be afforded by the average homebuyer. And a great many home buyers and individuals who refinanced to pay for home repairs were shifted into adjustable Rate Mortgages (ARMs) they were never going to be able to afford, but which provide the mortgage seller a much larger commission.

Personal note: My next door neighbor was sold an ARM which reset a year and a half ago. Her mortgage payment jumped from $650 a month to over $1100 a month. The out-of-state mortgage owner refused to work with her on the payments. She lost the house to foreclosure. She had purchased it for $58,000 and it sold in foreclosure for $38,000. Who won? The mortgage broker who was long gone.

The average cost of foreclosure is 25% of the total value of the home. This goes to pay for the foreclosure process. The mortgage holder loses this just as the homeowner does. Foreclosure is a very expensive process.

The mortgage-holder has a mortgage on their books at a price that is much higher than the home can be sold for. But if it goes through foreclosure, an additional 25% of the current value is taken away from the mortgage holder. A bankruptcy judge could save this cost by restructuring the mortgage. The homeowner would get a mortgage at a price that reflects realistic current market values and the mortgage holder would avoid the additional 25% cost imposed by the foreclosure process.

Unfortunately, the mortgage broker still gets off scot free with his ill-gotten commissions.

It simply is not reasonable any more to think that mortgage industry's market is so tightly regulated and conservatively run that it should be exempted from the general bankruptcy rules permitting modification. Too many homeowners - AND their mortgage holders are being forced into foreclosure and bankruptcy in the current economy to continue this stupid provision of the bankruptcy code. "Tightly regulated and conservatively run?" That's a fiction left over from the days before financial deregulation with its subprime and ARM mortgages along with liar loans are bundled into massive Mortgage-backed Securities in which the investor does not have the time or money to deal with reconstructing an individual mortgage contract.

The banks are fighting against the change in the bankruptcy law because it will force them to write down mortgages that are part of their assets. This is especially threatening to them because the large banks are already having to write down so may losses from their assets. But when those mortgage assets go through foreclosure, the same write-down will be required - except that the foreclosure process will cost an additional 25% of the value of the home.

The only reasonable and cost-efficient solution is to give bankruptcy judges the power to restructure mortgages. Judge Leonard is correct. The proposed change in the bankruptcy law is a win-win solution to a problem that should not be allowed to continue.

Friday, November 28, 2008

Reports from Mumbai as of Nov 28, 2008

The terrorists’ attacks in Mumbai started three days ago, and as of last report the Indian police and Commandos are still mopping up the final members of the terrorist group. The attack was clearly thoroughly planned and the members of the attacking group were trained in military techniques. Where the attackers come from is not yet known, but Pakistan is the best guess. If members of the Pakistan Inter Service Intelligence (ISI) are involved, a likely scenario if this attack was initiated by Lashkar-e-Toiba, then the possibilities of Pakistan and India stepping away from the likelihood of further war become slimmer. The Lashkar-e-Toiba is reported to have denied involvement.

One thing that is very clear, though, is that regardless of the purpose of the attack or whether it is an attack by an Indian homegrown group or by organizations external to India, the attack is a major escalation in terror attacks in India. India has had more terrorist attacks than any other nation.

Investigations are on-going, and it appears that some of the terrorists were captured by the Indian police and Commandos, so many of the questions that exist today are likely to be answered soon.

News about the terrorist attacks in Mumbai:
  • From CNN 11/28/2008 [No time given] - [Mumbai Police Commissioner Hasan] Gafoor said most of the attackers had been heavily armed. "They were carrying an AK-assault rifle, one or two hand guns, and grenades." [Snip}

    Pranab Mukherjee, the external affairs minister for Maharashtra state, where Mumbai is located, said the preliminary investigation "indicates that some elements in Pakistan are involved."

    "I can't tell you the details since the investigation is going on," he said. "Until the investigation is complete, it will be difficult to say where they came from and how they came."[Snip]

    The gunmen were young men in their 20s who "obviously had to be trained somewhere," a member of the Indian navy's commando unit said Friday.

    They fired at guests "with no remorse" and knew the layout of the hotels well enough to "vanish" after confronting security forces, the commando said.

    "Not everybody can fire the AK series of weapons, not everybody can throw a grenade like that," the commando said outside the Taj hotel. "It is obvious that they were trained somewhere." [Snip]

    The identity of the attackers remained a mystery. Police said they came by boats to the waterfront near the Gateway of India monument and the two hotels.

    Indian naval and coast guard investigators have determined that two vessels recently seized in the Arabian Sea have no links to the Mumbai attacks. A fishing trawler, however, remains in custody.

    The Press Trust of India, citing Union Cabinet Minister Kapil Sibal, reported the gunmen had worked for months to prepare, even setting up "control rooms" in the two luxury hotels ...

  • From Washington Post 11/28/2008 1:06 pm EST - BERLIN, Nov. 28 -- Counterterrorism officials and experts said the scale, sophistication and targets involved in the Mumbai attacks were markedly different from previous terrorist plots in India and suggested the gunmen had received training from outside the country. But they cautioned it was too soon to tell who may have masterminded the operation, despite an assertion from a previously unknown Islamist radical group.

    Officials in India, Europe and the United States said likely culprits included Islamist networks based in Pakistan that have received support in the past from Pakistan's intelligence agencies. [Snip]

    British security officials said they were studying photographs of some attackers but were still trying to establish their nationalities. [Snip]

    Analysts said this week's attacks surpassed previous plots carried out by domestic groups in terms of complexity, the number of people involved and their success in achieving their primary goal: namely, to spread fear.

    "This is a new, horrific milestone in the global jihad," said Bruce Riedel, a former South Asia analyst for the CIA and National Security Council and author of the book "The Search for Al Qaeda." "No indigenous Indian group has this level of capability. The goal is to damage the symbol of India's economic renaissance, undermine investor confidence and provoke an India-Pakistani crisis."

    Several analysts and officials said the attacks bore the hallmarks of Lashkar-i-Taiba and Jaish-i-Muhammad, two networks of Muslim extremists from Pakistan that have targeted India before. Jaish-i-Muhammad was blamed for an attack on the Indian Parliament in 2001.

    Both groups have carried out a long campaign of violence in the disputed territory of Kashmir, which India and Pakistan have fought over for six decades.[Snip}

    In its Friday editions, the newspaper the Hindu reported that at least three of the suspects held by police were members of Lashkar-i-Taiba and that the assailants had arrived in Mumbai on a ship from Karachi, Pakistan.

    Earlier, Pakistan's government condemned the attacks and warned India against jumping to conclusions about who was responsible. Lashkar-i-Taiba issued a statement denying involvement.

    India has been plagued by a wave of terrorist attacks in recent years, many sparked by friction between Hindu nationalists and minority Muslim groups. The shootings in Mumbai were far from the worst to strike India's financial capital; bombings in 1993 and 2006 each killed more than 180 people.

    A group calling itself the Deccan Mujaheddin asserted responsibility for the attacks in e-mails sent to Indian media organizations Wednesday. Officials said they had never heard of the group. [Snip]

    Television footage showed the assailants carrying automatic rifles and backpacks filled with ammunition and grenades. Analysts said the fact that the gunmen quickly fanned across the city and were able to hold off Indian security forces over three days suggested that they had received training at organized camps.

    "What is striking about this is a fair amount of planning had to go into this type of attack," said Roger W. Cressey, a former White House counterterrorism official in the Clinton and Bush administrations. "This is not a seat-of-the-pants operation. This group had to receive some training or support from professionals in the terrorism business."

    Some experts said the operation bore resemblances to plots orchestrated by al-Qaeda, in that it involved multiple, simultaneous attacks targeting foreigners. In this case, according to witnesses, the gunmen sought out Americans and Britons, and also took hostages at the local headquarters of an Orthodox Jewish group.

    Others said they were dubious of a connection to Osama bin Laden's organization. They said al-Qaeda has relied on suicide bombers, not gunmen, and is not known to have cells in India.

    David Miliband, Britain's foreign secretary, told reporters that it was "premature to talk about links to al-Qaeda" and that it was still unclear who the intended targets were. "This is only the latest in a series of attacks in India over the last year or two," he said, adding, "Terrorism is not just a war against the West." [Snip]

    Other experts warned that there is a long list of suspects who could have played a role. For instance, Indian officials have blamed the 1993 bombings in Mumbai, which killed 257 people, on Dawood Ibrahim, an organized crime figure who remains on the run.

    "Anything could be in the cards," said Magnus Ranstorp, a terrorism analyst at the Swedish National Defense College. "With most terrorist attacks, it's relatively clear-cut who is involved. In this case, it could be all sorts of constellations that are at work."

  • From LA Times 11/28/2008 7:07 am PST - Even as troops moved floor to floor through the besieged hotels liberating trapped guests, the Indian government was blaming foreign elements for the mayhem. Indian Prime Minister Manmohan Singh went on national television Thursday, asserting that the organizers of the attacks were "based outside the country."

    In what was seen as a thinly veiled indictment of Pakistan, he warned India's neighbors that "the use of their territory for launching attacks on us will not be tolerated." Other government officials were quoted in Indian media alleging that the squads of gunmen had charged ashore from rubber boats that fanned out from an unidentified mother ship.

    In response, Pakistan's defense minister condemned the Mumbai attacks and warned India to refrain from accusing its longtime rival of involvement. And some security experts warned that India has plenty of home-grown extremists who could be behind the violence.

    Whatever their origin, it was clear the squads of attackers were well prepared. The militants struck after months of reconnaissance during which they set up "control rooms" in the targeted hotels, according to Indian officials and an owner of one of the hotels.

    "It's the opening of a new front, a strike in a place that causes surprise," said Louis Caprioli, a former French counter-terrorism chief. "And it is unique because it's a military operation that leaves the security forces confused and disorganized.

    "For the first time in a long time, you see the use of combatants who take hostages, like the Palestinians in the 1970s," he said. "They were ready to die, but they were not suicide attackers."

    Past attacks on Indian targets here and abroad have been the work of an evolving, interconnected array of murky Pakistani extremist groups tied to Al Qaeda and, sometimes, current or former Pakistani security officials. They include Lashkar-e-Taiba, which took part in a bloody siege of the Indian Parliament in 2001 and seems a prime suspect in this case, according to officials and experts.

    "This is a group affiliated with Al Qaeda," said Sajjan Gohel of the London-based Asia-Pacific Foundation. "There are eerie similarities to the Parliament attacks."

    But Lashkar-e-Taiba has reportedly denied involvement. And anti-terrorism officials warned against speculation because the evidence is limited. India has a history of violence by Hindus and criminal mafias as well as Muslim extremists. [Snip]

    Simone Ahuja, an Asia Society associate fellow and founder of a video production house in Mumbai, said the choice of targets favored by foreigners was clearly a blow aimed at dislodging closer U.S.-India ties. And she said the damage done to the Taj Mahal hotel, a waterfront landmark that suffered bomb damage and whose giant towers were licked by flames, may leave emotional scars on the city.

    "People are in tears watching their city fall," said Ahuja, who shares her time between Mumbai and Minneapolis. "This is like what happened to the World Trade Center. This will fundamentally change the mental and visual landscape." [Snip]

    Meanwhile, the Indian media speculated on how the nation's intelligence network had not been aware of the plot.

    Officials said commandos seized a small arsenal of weapons that included hand grenades, tear-gas pistols, knives and more than 80 magazines of ammunition. Also found were four or five credit cards with the names and pictures of suspected militants, officials said.

    One report indicated that the militants may have come ashore after dark Wednesday. One fisherman told authorities he saw three boats land on the beach. Numerous men cast off life jackets and hurried off the beach. When a bystander asked one of the men who they were, he reportedly responded, "We're military, just shut up," the witness said.

    The tactics resemble what Lebanese American expert Walid Phares calls a "jihadi infantry" model: a well-trained, commando-style contingent using automatic weapons and grenades to take hostages and execute attacks across a city.

    "The M.O. is different than previous mass-casualty attacks," a senior European anti-terrorism official said. "It's too early to tell [who's behind this]. We are not drawing any definitive conclusions."

  • From NY Times 11/27/2008 [No time given] - ISLAMABAD, Pakistan — The terrorist attacks in Mumbai occurred as India and Pakistan, two big, hostile and nuclear-armed nations, were delicately moving toward improved relations with the encouragement of the United States and in particular the incoming Obama administration.

    Those steps could quickly be derailed, with deep consequences for the United States, if India finds Pakistani fingerprints on the well-planned operation. India has raised suspicions. Pakistan has vehemently denied them.

    But no matter who turns out to be responsible for the Mumbai attacks, their scale and the choice of international targets will make the agenda of the new American administration harder.

    Reconciliation between India and Pakistan has emerged as a basic tenet in the approaches to foreign policy of President-elect Barack Obama, and the new leader of Central Command, Gen. David H. Petraeus. The point is to persuade Pakistan to focus less of its military effort on India, and more on the militants in its lawless tribal regions who are ripping at the soul of Pakistan.

    A strategic pivot by Pakistan’s military away from a focus on India to an all-out effort against the Taliban and their associates in Al Qaeda, the thinking goes, would serve to weaken the militants who are fiercely battling American and NATO forces in Afghanistan.

    But attacks as devastating as those that unfolded in Mumbai — whether ultimately traced to homegrown Indian militants or to others from abroad, or a combination — seem likely to sour relations, fuel distrust and hamper, at least for now, America’s ambitions for reconciliation in the region.

    The early signs were that India, where state elections are scheduled next week, would take a tough stand and blame its neighbor.[Snip]

    “If the Indians believe this was Lashkar-e-Taiba and Al Qaeda, as they are suggesting, we could see a crisis like 2002 with enormous pressure to do something,” an American official said on the condition of anonymity because he was not authorized to speak on the matter. “The key will be if the Indians see an ISI hand.” [Snip]

    Unless care is exercised, one of the apparent goals of the Mumbai attack will be achieved, said Moonis Ahmar, a lecturer in international relations at Karachi University. And the new American agenda of reconciliation between India and Pakistan will be sacrificed. “It’s a well-thought-out conspiracy to destabilize relations between the two countries,” Mr. Ahmar said.

  • From The Guardian 11/2/2008 10:20 GMT - In this case it looks like Islamist extremism, for which Mumbai has been a particular target. More than 250 people were killed there in a series of 13 bomb blasts in 1993 blamed on Muslim militants. Two years ago more than 200 people were killed by bomb attacks on trains and railway stations. The police charged about 30 suspects belonging to a Pakistan-based group called Lashkar-i-Taiba and a northern group called Students Islamic Movement of India.

    The violence is fuelled by longstanding ethnic tensions that were inflamed by riots in Gujarat State near Mumbai six years ago. Nearly 2,000 people were killed, most of them Muslims. The most serious attacks followed those riots.

    But there is clearly something different about this attack. It has relied not on bombs, but a coordinated assault by men with rifles who seem to have arrived at some of their targets by boat. They appear to be on a suicide mission. In at least one instance they singled out Britons and Americans, and one of their targets was a Orthodox Jewish centre. Clearly there is outside influence on their strategy and ideology.

    It is too early to say whether there is an al-Qaida connection, and such links can take many forms, from active training and assistance in planning and logistics to simple inspiration from the internet.

    What is likely is that the attacks will get blamed on Pakistan and its Inter-Services Intelligence agency (ISI), as have previous Islamist atrocities. US counter-terrorism officials believe some ISI members played a role in an attack this year on the Indian embassy in Afghanistan.

    Mumbai may be the latest of many outrages that have their roots in recent Indian history – but the targeting of westerners suggests this is becoming globalised, intertwined with a brand of violent extremism emanating from Pakistan and Afghanistan.

  • From 11/27/2008 1:19 pm Cairo - Egypt and the Arab League on Thursday denounced the "terrorist" attacks which left at least 100 people dead in India's financial hub Mumbai.

    Egyptian President Hosni Mubarak condemned the attacks and said his country "stands by the side of New Delhi in countering terrorism," state news agency MENA reported.

    Amr Mussa, who heads the 22-member Arab League, said such "criminal and terrorist acts aggravate the vicious circle of violence and counter-violence," the agency reported.

    The Muslim Brotherhood, Egypt's main opposition group, also condemned the "terrorist attacks" and called for the execution of the perpetrators.

    "These despicable acts of terror are an attack on humanity in general, not against people from certain nationalities or civilization," said a statement on the Brotherhood's website.

    "We hope that perpetrators of these heinous (acts) be brought to justice to receive the ultimate punishment for their crimes," said the Brotherhood, which control about a fifth of seats in parliament.

  • From November 27, 2008 10:25 PM (Mumbai) - Terrorists who struck Mumbai had set up advance "Control Rooms" in the luxury Taj and Trident (Oberoi) hotels which was also targeted and did prior reconnaissance executing plans worked "over months", Union Cabinet minister Kapil Sibal said on Thursday night.

    Sibal said the unprecedented terror attack in the country's financial capital was planned "over months" and the terrorists were not carrying AK-47 rifles but sophisticated weapons like MP-6.

    "The terrorists have identified the targets earlier. Somebody had told them earlier. Enormous planning went into the incident. The terrorists were dropped by a mother ship and travelled in rubber boats which they docked (at Mumbai)," Sibal told a private news channel.

    Terrorists were not attacking people at random. It was a well though out plan, Sibal said.

    They had targeted certain key police officers even when they were wearing vests and protective head gears, he said, adding the terrorists shot them dead within minutes of their arrival.

    As security agencies pieced together various leads in the probe on India's worst ever terror strike, there were reports that a likely marine arm of the Pakistan-based Lashkar-e-Toiba may have been involved in the well-planned attacks that left 125 persons dead.

    The assessment by the Centre as Mumbai continued to be under siege for the second day came amid reports that the leader of the armed terrorists involved in the attack was killed by his own men.

  • From The Daily Mail Last updated at 10:33 PM on 27th November 2008 [Presumend GMT] -- Police have captured one of the terrorists behind the Mumbai attack during the operation at the Taj Mahal hotel.

    He was named locally as Zakiruallah, a Punjabi from the Pakistan town of Faridkot.

    The 12 gunmen involved may have been trained in Pakistan by militant group Lashkar-e-Taiba, Indian officials have claimed.

    Sources close to the operation said Zakiruallah told investigators that the group had been trained by Lashkar.

    But a spokesman for Lashkar denied involvement. The Pakistani government also condemned the attacks.

    It is believed the terrorists hijacked an Indian trawler, M V Alpha, which was used as a mothership from which to launch a maritime terror attack on the coastal city.

    Indian coastguards recovered the vessel off the Mumbai coast. The decapitated body of its captain was found on board.

    Two inflatable rafts were used to transport the men together with massive quantities of RDX explosive, hand grenades and AK-47 assault rifles, to Mumbai. [Snip]

    Ratan Tata, who runs the company that owns the Taj Mahal hotel, said they appeared to have scouted their targets in advance.

    'They seem to know their way around the back office, the kitchen. There has been a considerable amount of detailed planning,' he said at a press conference.

    The attack comes after it was revealed a domestic Islamic terror group warned it was planning a massacre in Mumbai two months ago.

    The Indian Mujahideen denounced the city's police anti-terrorist squad - known as the ATS - in September, accusing them of harassing Muslims.

    It said in an e-mail: 'You [the ATS] should know that your acts are not at all unnoticed. We are keeping an eye on you and just waiting for the right time to execute bloodshed. [Snip]

    Analysts believe the group which claimed direct responsibility for last night's terror attack, the Deccan Mujahideen, is a front for the Indian Mujahideen.

    Witnesses say the attackers were young South Asian men speaking Hindi or Urdu, suggesting they are probably members of an Indian militant group rather than foreigners.

    Deccan is an area of southern India, indicating the terrorists may be members of a south India offshoot or cell of the main group.

    Indian police say the Indian Mujahideen is an offshoot of the banned Students' Islamic Movement of India (SIMI), but that local Muslims appear to have been given training and backing from militant groups in neighbouring Pakistan and Bangladesh.

    SIMI has been blamed by police for almost every major bomb attack in India, including explosions on commuter trains in Mumbai two years ago that killed 187 people. [Snip]

    The Mumbai attacks also focused clearly on tourist targets, including two luxury hotels and a famous cafe.

    However, experts consider any links to al-Qaeda or that the attacks were inspired by Osama bin Laden's movement unlikely.

    Rohan Gunaratna, author of Inside Al-Qaeda and a terrorism expert at the International Center for Political Violence and Terrorism Research in Singapore, said he believed the group that carried out Wednesday's attack was Indian Mujahideen.

    Mr Gunaratna added: 'The earlier generation of terrorist groups in India were mostly linked to Pakistan. But today we are seeing a dramatic change. They are almost all homegrown groups. ... They are very angry and firmly believe that India is killing Muslims and attacking Islam.'

    British-based Jane's Information Group said it thought the attackers could be Indian but that taking hostages suggested a wider anti-Western agenda.

    'Until now, terrorist attacks in India have targeted civilians, often in busy market or commercial areas, and in communally sensitive areas with the intention to foment unrest between Hindu and Muslim communities,' said Urmila Venugopalan, Jane's South Asia analyst.

    'This stands in contrast to the national issues that appeared to motivate Indian Mujahideen,' Venugopalan said. [SNIP]

    Indian Prime Minister Manmohan Singh blamed 'external forces' but stopped short of blaming Pakistan. Both are nuclear-armed countries.

    Risk forecasters Exclusive Analysis added that it was 'highly unlikely' that they were authorized or even known about at the top level in Pakistan.
This was a long term operation, well planned, rehearsed, and well financed. Should Indian Intelligence services have gotten wind of it earlier? Did they miss something? Here is an analysis by someone who seems to know what he is talking about. He doesn't think that the attack on Mumbai is especially sophisticated, consisting of well known techniques and equipment, but he does wonder why Indian Intelligence didn't spot it earlier. Based on his analysis I would doubt the report that one news organization I quoted above made that said a policeman thought the terrorists were using highly sophisticated weapons rather than AK 47's.

Simone Ahuja (above) stated “This is like what happened to the World Trade Center. This will fundamentally change the mental and visual landscape.” She is probably correct. But what happens next is going to determine whether the changed mental and visual landscape favors the terrorists or the Indian people. That, too, is an issue that remains up in the air.

What's the reason for the terrorist attacks on Mumbai?

As has been all over the news, there has been a series of highly coordinated terrorist attacks largely on landmark hotels in the Indian city of Mumbai. The first reports that were published by American media emphasized the apparent focus on taking American and British citizens as hostages or captives. A shadowy and previously unknown organization calling itself Deccan Jihad is reported to have taken credit for the attacks.

Mark Kleiman offers a speculation regarding why the attacks occurred at this time.
The important context for the Mumbai bombings must surely be the peace initiative launched by the Pakistani President earlier in the week and seemingly moved forward by a meeting of the two foreign ministers yesterday. That makes the obvious suspects the folks who have the strongest interests in keeping India and Pakistan at daggers drawn: the Pakistani ISI (which Zardari had already stripped of its role in domestic politics) has to be the prime suspect, and apparently India has such suspicions. But there's also the Pakistani military, al-Qaeda, the Taliban, and the Hindu nationalists.
Christiane Amanpour, CNN’s chief international correspondent and an expert on terrorism, has said much the same thing.
“There has obviously for many, many years been a type of feelings by India that, say, 150 or so million Muslims who are in the minority are feeling sort of hard done by in terms of the Hindu majority. There are also complaints by Indian Muslims about the way Kashmir is progressing, that enclave, and that is a huge, huge flashpoint. But what’s really amazing is that often, it’s blamed on tensions with Pakistan. And yet, this comes at a time where the president of Pakistan has really made an unprecedented overture to India in terms of trying to warm up relations, trying to secure a lasting peace. And just today, Indian and Pakistani officials were having meetings, and they ended it with a joint declaration that they wanted to co-operate on ending terrorism and combating terrorism,” the terrorism expert said.
The terror attacks may well be a desperate effort to force the governments of India and Pakistan to stop their apparent rapprochement and return to their previous positions of deadly enemies.

Addendum November 28, 9:40 am CST
Reuters presented some background information at 8:39 am EST Nov 27. They describe two organizations considered likely candidates to have directed the terrorist attacks on Mumbai, Lashkar-e-Taiba, and the Indian Mjuahideen. The article briefly describes those two organizations.

For more extensive information, here is the wikipedia entry on Lashkar-e-Toiba and here is the wikipedia entry on the Indian Mjuahideen. As always with wikipedia, consider the references the articles provide and remember that such articles can be manipulated by people with axes to grind.

Reuters offered two inferences which could be drawn from the tactics used:

    The Mumbai attacks were unusual in that they involved coordinated attacks by gunmen on multiple targets, hostages were taken, and foreigners were specifically targeted.

    Several analysts say these tactics point to Lashkar-e-Taiba as being involved. The attacks on symbolic targets designed to gather maximum publicity, and the specific targeting, point to a group following al Qaeda ideology and tactics.

    The attacks also show a considerable degree of sophistication, another factor pointing to an experienced group like Lashkar-e-Taiba.

    The Indonesian Mujahideen have also surprised police with the sophistication of their attacks, however, although until now these have always been bomb attacks on Indian targets.

    In May, the Indian Mujahideen made a specific threat to attack tourist sites in India unless the government stopped supporting the United States in the international arena.

    The threat was made in an e-mail claiming responsibility for bomb attacks that killed 63 people in the tourist city of Jaipur. The mail declared "open war against India" and included the serial number of a bicycle used in one of the bombings.


    A man speaking Urdu with a Kashmiri accent phoned an Indian TV station, offering talks with the government and accusing the Indian army of killing Muslims in Kashmir. This suggests the attackers are involved with a Kashmiri group like Lashkar-e-Taiba.

    The demands of the Indian Mujahideen -- like their targets -- have always tended to be much more domestic. The group issued an e-mail threat in September to attack Mumbai but directed its anger at the Mumbai police anti-terrorist squad, accusing them of harassing Muslims.

    "If this is the degree your arrogance has reached, and if you think that by these stunts you can scare us, then let the Indian Mujahideen warn all the people of Mumbai that whatever deadly attacks Mumbaikars will face in future, their responsibility would lie with the Mumbai ATS and their guardians," it said.
Terrorism is always a tactic used by weak organizations to try to delegitimize the accepted government of any nation so that those weaker organizations can either force the government to accept and implement their demands or even cause the government to fall so that the weaker organization can replace it.

In this case the flashpoint is probably the status of Kashmir, the key disagreement between Pakistan and India since the original partition of those two countries in 1947 out of British India. Organizations like Lashkar-e-Taiba, and the Indian Mjuahideen are known to share training and personnel, and are known to be supported by segments of the Pakistani Inter-services Intelligence (ISI). elements of the ISI also provide support to the Taliban operating in Afghanistan out of the northern Pakistani province Waziristan.

All of this lends credence to speculations that the Mumbai terrorist attacks are efforts to derail the efforts of the new government of Pakistan to take tighter control over Waziristan and Pakistan in general. The recent efforts towards a peace initiative recently begun by the Pakistani President and advanced by the two foreign ministers of Pakistan and India are clearly anathema to the Islamic terrorist organizations.

Since the United States and Great Britain can both be expected to encourage the Pakistani President to exert greater control over Pakistani territory and also to work towards a rapprochement between the two nuclear powers - India and Pakistan - the logic behind the Mumbai terrorist attacks and the apparent effort of the terrorists to take American and British hostages appears quite logical. The terrorist attacks appear to be the lashing out by a weak opposition organization as the governments of both Pakistan and India move to threaten their existence and their goals.

Wednesday, November 26, 2008

Obama, Bush - their appropriate roles

Steve Benen points to what is happening.
MSNBC had a chyron this morning that read, "Obama will address economic woes today, Pres. Bush to pardon turkey."

Sounds to me like the relevant players now realize their role.
So Obama is the President two months early because of the vacuum of power in Washington; meanwhile the lame duck Bush pardons a turkey.

I doubt that Bush has the imagination needed to empathize with the turkey.

Wonder why Bush has been so passive as the U.S. economy collapses? It's because he believes in conservative ideology

The American economy is coming to a halt as the banks shut down lending. Where's Bush? Never has his inherent passivity been so obvious.

Steve Benen states the answer:
...for all the talk in far-right circles about Bush not being conservative enough, some of his most painful disasters came because he refused to stray from his conservative ideas.

This is probably a little too casual an analysis, but it seems this touches on one of the more glaring differences between Bush and Reagan -- both instinctually backed conservative ideas driven entirely by far-right ideology, but Reagan reversed course when those ideas failed. Bush didn't.

When Reagan's tax cuts didn't work, he reversed course and approved significant tax increases (several times). When Reagan's antagonism towards the Soviets didn't work, he reversed course and compromised on arms control.

But Bush, with very few exceptions, could ever own up to his errors.

Right now, he has nothing to lose by accepting a stimulus package, except his ideological pride. So it doesn't happen, no matter how much it might help. His approach to the economy has been a spectacular failure, and when given a chance to go in a different direction, Bush has decided on a legacy of consistency, instead of success.
Bush will go to his grave with two mistaken beliefs. First, he still believes that God appointed him President to do God's will. Second, he will have to believe that his decisions were God-inspired and correct in the long run. He will never accept the fact that the current recognition of his utter failure will be the one that historians tag him with in the far future.

How could he be wrong? He is a conservative who has accepted Jesus Christ as his savior and he has applied conservative principles consistently.

A political uprising in Thailand

The People's Alliance for Democracy has shut down the Bangkok airport in order to overthrow the current government of Thailand. MSNBC has a video report.

If you don't want to sit through the advertisement and then the excerpt from NBC news, what is happening is that a political group of mostly middle class Thai people are protesting against the current democratically elected government of Thailand. The problem? The current government was elected by the relatively poor rural Thai citizens of northeast and northern Thailand.

The protesters are attempting to get the army to step in and conduct another coup, much as they did in 2006, and replace the current government with one elected after enacting voting limitations that disenfranchise the rural voters who support this government.

For an interesting and more in-depth discussion of the current Thai political situation, read Thailand's political maze – a beginners guide. Don't overlook the comments, a number of which appear to come from Thai individuals who have knowledge of the situation.

Saturday, November 22, 2008

Republicans MUST work to stop universal health care

It is quite clear that Universal Health care is an idea whose time has come. Every major politician, both Democrat and Republican, had to campaign with some kind of health care plan, and Obama won with an explicit proposal as part of his campaign.

Politically, for the Democrats to succeed in passing universal health care will be a disaster for Republicans that is worse than the failure of the Bush administration to deal with Katrina or the failure to discover WMD in Iraq. The middle class will love it, and the Democrats will lock up the middle class for a generation or more, much as they did after FDR passed Social Security.

Last night Hilzoy wrote Making It Explicit discussing this. Her conclusion is
Pethokoukis and Cannon claim that if Obama succeeds in passing health care, then people who might have been conservatives will like it, and will be more likely to vote for the people who passed it. This is unexceptional. An honest conservative might accept this claim and say: well, I guess our ideas are unpopular, so we'll just have to make our case more persuasively.

But that's not the conclusion they draw. Pethokoukis and Cannon say: because people will like health care reform, if we do not block it, our party will lose support. So precisely because people would like it if they tried it, we need to make sure that it fails.

At least they're honest about it.
This morning Steve Benen added his post THE RIGHT, HEALTHCARE, AND POLITICAL SURVIVAL.
Today, the circumstances are slightly different -- Democrats are in good shape and don't need their reputation "revived" -- but with the Pethokoukis and Cannon analyses in mind, history may repeat itself.

Remember, for Kristol then and Pethokoukis/Cannon now, it's not about the quality of the policy -- it's about political survival. If Democrats deliver, they'll be positioned to win over a generation of voters. Blocking (or "killing") a reform effort may undermine the public's needs, but it would also block Democrats from winning a historic victory.

With that in mind, the right will likely aggressively resist healthcare reform because, as a matter of electoral strategy, conservatives probably don't have a choice.
Essentially it's 1993 all over again. If the Democrats pass universal health care, the national Republican party will be relegated to the minority for a generation and they know it. So we can expect them to pull out all the stops to kill any health care bill.

Since these will be party line votes with heavy party discipline, it may have been a significant reason why Harry Reid and Barack Obama were willing to put up with Joe Lieberman's election campaign crap and leave him in as committee chairman just to make sure he did not bolt to the Republican Party. If Norm Coleman wins in Minnesota and Saxby Chambliss wins in Georgia, then the Democrats will almost certainly have to pull over two Republicans to defeat a filibuster by the Republican. As a Democrat, Lieberman is almost certainly a reliable vote to break a filibuster on this subject. That means Harry Reid only has to get two Republicans to break ranks - difficult but not impossible.

But if Joe went to the Republican caucus, or resigned and was replaced by a Republican Senator, then Harry Reid will need three Republican cross-overs. Paying off Joe to keep him in the caucus is a lot easier than getting that third Republican cross over.

It looks like Harry Reid and Barack Obama knew what they were doing with Joe Lieberman. Joe probably also knows.

Addendum 3:58 pm CST
Dday at Hullabaloo also writes on the Republican intention to block everything the Democrats attempt.
"A New Era Of Comity And Bipartisanship

by dday

Somebody forgot to tell Mitch McConnell.
Senate Minority Leader Mitch McConnell (R-Ky.) on Friday sent a message to Democrats that Republicans are not prepared to bend to a stronger majority.

In a letter to Majority Leader Harry Reid (D-Nev.), McConnell urged Reid to adopt a more conciliatory tone and warned him that Republicans will unite against Democrats if he does not. The letter was signed by all 40 GOP senators and two Republican incumbents who are awaiting the results of elections in Georgia and Minnesota.
This is the Senate GOP that obstructed practically every major bill that Democrats tried to bring up for the last two years. That's not going to stop, regardless of how many Republicans are planted in the Cabinet or throughout the federal bureaucracy. At this point, Republicans aren't interested in winning the next election, they're interested in stopping any popular policy and beating this country into the ground."
I wrote as early as last year that this Presidential election was going to be the nastiest in living memory. The Republicans certainly tried to make it so.

Now, though, they are going to get really serious about blocking any possible productive work out of the Congress.

They have to. They are in the "trapped rat" syndrome. They are absolutely convinced that if the Democrats do what they promised in the campaign, then the Republican Party will be relegated to the status of a minority party for the next generation.

They're right.

The problem is that their obstructionist tactics in the face of the collapsing economy are going to make their loss even greater. Unfortunately, their only alternative is to give up conservative extremism in the form of market fundamentalism, political evangelical social conservatism and the international aggression of the neocons. They'd rather gamble on obstructionism.

Do we really have to wait 59 more days to get a decent President??

New York Times OpEd writer Gail Collins offers an excellent idea:
Thanksgiving is next week, and President Bush could make it a really special holiday by resigning.

Seriously. We have an economy that’s crashing and a vacuum at the top. Bush — who is currently on a trip to Peru to meet with Asian leaders who no longer care what he thinks — hasn’t got the clout, or possibly even the energy, to do anything useful. His most recent contribution to resolving the fiscal crisis was lecturing representatives of the world’s most important economies on the glories of free-market capitalism.

Putting Barack Obama in charge immediately isn’t impossible. Dick Cheney, obviously, would have to quit as well as Bush. In fact, just to be on the safe side, the vice president ought to turn in his resignation first. (We’re desperate, but not crazy.) Then House Speaker Nancy Pelosi would become president until Jan. 20. Obviously, she’d defer to her party’s incoming chief executive, and Barack Obama could begin governing.

As a bonus, the Pelosi presidency would put a woman in the White House this year after all. On the downside, a few right-wing talk-show hosts might succumb to apoplexy. That would, of course, be terrible, but I’m afraid we might have to take the risk in the name of a greater good.

Can I see a show of hands? How many people want George W. out and Barack in? [Snip]

In the past, presidents have not taken well to suggestions that they hand over the reins before the last possible minute. Senator J. William Fulbright suggested a plan along those lines when Harry Truman was coming to the end of a term in a state of deep unpopularity, and Truman called him “Halfbright” for the rest of his life. Bush might not love the idea of quitting before he has a chance to light the Christmas tree or commute the execution of one last presidential turkey. After all, he still has a couple more trips planned. And last-minute regulations to issue. (So many national parks to despoil, so many endangered species to exterminate ... .) And then there’s all the packing.

On the other hand, he might want to consider his legacy, such as it is.

In happier days, Bush may have nurtured hopes of making it into the list of America’s mediocre presidents, but somewhere between Iraq and Katrina, that goal became a mountain too high. However, he might still have a chance to avoid the absolute bottom of the barrel, a spot currently occupied by James Buchanan, at least in my opinion. Buchanan nailed down The Worst President title in the days between Abraham Lincoln’s election and inauguration, when the Southern states began seceding and Buchanan, after a little flailing about, did absolutely nothing. “Doing nothing is almost the worst thing a president can do,” said the historian Michael Beschloss.

If Bush gives up doing nothing by giving up his job, it’s possible that someday history might elevate him to the ranks of the below average. Better than Franklin Pierce! Smarter than Warren Harding! And healthier than William Henry Harrison!
I can see some difficulties in this, since for Barack Obama to take over, say the Monday after Thanksgiving, would mean that he had to use pretty much all of the the staff that Bush left behind. New Cabinet Secretaries would still be trying to find the restroom and parking places in their new offices by New Year's Day. As it is, someone will have time to prepare maps for them before they show up on January 20th and ask for the keys. And Congress would have to come back into session to approve at least the top level appointees. So replacing even the Cabinet Secretaries would be extremely difficult.

So as great as the idea, sounds, we really will have to wait 59 more days.

[ Yes. Steve Benen posted this first, but it is too good to pass up. ]

Friday, November 21, 2008

What's the chance that Switzerland will soon go bankrupt?

We've already seen Iceland go bankrupt as a result of the failure of its major bank, Kaupthing. The two Swiss banks, UBS and Credit Suisse, are a larger part of the Swiss economy than Kaupthing was of the Iceland economy, and both Swiss banks are teetering on the brink. Here is's Felix Salmon:
UBS has a $2 trillion balance sheet; Credit Suisse has another trillion on top of that. Call it $3 trillion between the two of them, which is about ten times Switzerland's GDP of $300 billion or so. Now that's what I call too big to save. Oh, and did I mention? At the end of 2007, Credit Suisse was levered by more than 40 times; UBS was levered by more than 64 times. A 16% fall in UBS's assets would wipe out not only all of its equity but 100% of Swiss GDP on top.
John Quiggen at Crooked Timber also points to the risk presented by Citi Group.
The failure of Citigroup, which looks increasingly likely to happen in the near future, would mark the end of the beginning of the financial crisis. Until now, the prevailing view has been that the crisis and recession will pass in a year or so, after which things will go back, more or less, to the way they were, with a few less financial institutions, and a bit more regulation. A Citigroup failure would put paid to that idea.

Citi is not only too big to fail, it’s too big to rescue with any of the half-measures that have been tried so far. Only outright nationalization is feasible, and that will probably require joint action by a number of governments; Citigroup’s global operations are too big for the US to handle alone. After that, the kinds of tinkering discussed at the G20 last week will be irrelevant. It’s now unsurprising to read (on CNBC!) predictions that all US financial institutions will be nationalized within a year. That’s probably an overstatement: as long as the economy doesn’t really crash, there are plenty of small banks and credit unions that will survive, but few of the big names will be among them.
So Credit Suisse, UBS and Citi are all being looked at as the next Lehman Brothers, which Treasury Secretary Henry Paulson made the massive error of allowing to go bankrupt without considering the consequences for the overall economy. Lehman Brothers put the banking industry on notice that any one of them could be the next to go and there was no certainty that the government would bail them out. Now we look at Citi which is so large that no single government can bail it out, and the two Swiss banks which dwarf the Swiss economy even without the rather amazing levels of leverage they have.

This of course it just banking institutions. But consider the way the banks reacted to Paulson allowing Lehman Brothers to fail. Now Paulson and the American Congress are delaying any action at all to bail out General Motors. What happens to the rest of the economy if GM goes under? I frankly don't think they understand that they brought a lot of their crisis on to themselves, but they are highly overpaid executives. Such people to not learn because they already know it all and their paychecks prove it.

But at the same time, the ripple effects of any of the Detroit big three going into bankruptcy will be massive, even though the details are totally unpredictable.

In the meantime, Paulson and the Bush administration are doing absolutely nothing as everything collapses around their ears. sort of, you know, like the unaware and unlearning Detroit big three executives, aren't they? Probably not a Democrat in the bunch in Detroit, and the Republican Bush administration is so conservative that they probably still believe that the free market will magically save everyone in the last reel of the movie.

I've been saying for a while now that we see no change from the downward trajectory of the economy, and we don't know where the bottom is. That's still true - in Spades.

Lame duck Bush fiddles as American economy burns

Krugman today describes the disaster that is the Bush administration on the way out.
Everyone’s talking about a new New Deal, for obvious reasons. In 2008, as in 1932, a long era of Republican political dominance came to an end in the face of an economic and financial crisis that, in voters’ minds, both discredited the G.O.P.’s free-market ideology and undermined its claims of competence.

Everyone’s talking about a new New Deal, for obvious reasons. In 2008, as in 1932, a long era of Republican political dominance came to an end in the face of an economic and financial crisis that, in voters’ minds, both discredited the G.O.P.’s free-market ideology and undermined its claims of competence. And for those on the progressive side of the political spectrum, these are hopeful times.

There is, however, another and more disturbing parallel between 2008 and 1932 — namely, the emergence of a power vacuum at the height of the crisis. The interregnum of 1932-1933, the long stretch between the election and the actual transfer of power, was disastrous for the U.S. economy, at least in part because the outgoing administration had no credibility, the incoming administration had no authority and the ideological chasm between the two sides was too great to allow concerted action. And the same thing is happening now.

How much can go wrong in the two months before Mr. Obama takes the oath of office? The answer, unfortunately, is: a lot. Consider how much darker the economic picture has grown since the failure of Lehman Brothers, which took place just over two months ago. And the pace of deterioration seems to be accelerating.

Most obviously, we’re in the midst of the worst stock market crash since the Great Depression: the Standard & Poor’s 500-stock index has now fallen more than 50 percent from its peak. Other indicators are arguably even more disturbing: unemployment claims are surging, manufacturing production is plunging, interest rates on corporate bonds — which reflect investor fears of default — are soaring, which will almost surely lead to a sharp fall in business spending. The prospects for the economy look much grimmer now than they did as little as a week or two ago.

Yet economic policy, rather than responding to the threat, seems to have gone on vacation. In particular, panic has returned to the credit markets, yet no new rescue plan is in sight. On the contrary, Henry Paulson, the Treasury secretary, has announced that he won’t even go back to Congress for the second half of the $700 billion already approved for financial bailouts. And financial aid for the beleaguered auto industry is being stalled by a political standoff. [Snip]

I’m concerned, in particular, about the two D’s: deflation and Detroit.

About deflation: Japan’s “lost decade” in the 1990s taught economists that it’s very hard to get the economy moving once expectations of inflation get too low (it doesn’t matter whether people literally expect prices to fall). Yet there’s clear deflationary pressure on the U.S. economy right now, and every month that passes without signs of recovery increases the odds that we’ll find ourselves stuck in a Japan-type trap for years.

About Detroit: There’s now a real risk that, in the absence of quick federal aid, the Big Three automakers and their network of suppliers will be forced into liquidation — that is, forced to shut down, lay off all their workers and sell off their assets. And if that happens, it will be very hard to bring them back.

Now, maybe letting the auto companies die is the right decision, even though an auto industry collapse would be a huge blow to an already slumping economy. But it’s a decision that should be taken carefully, with full consideration of the costs and benefits — not a decision taken by default, because of a political standoff between Democrats who want Mr. Paulson to use some of that $700 billion and a lame-duck administration that’s trying to force Congress to divert funds from a fuel-efficiency program instead.
You can hear the Washington-based fiddle music all over America now. That's the conservatism of the Reagan Revolution "at work" (if you can call sitting on their hands being "at work"), with the same level of successful programs as were offered by the Hoover administration in the early 1930's.

Do the Republicans particularly care about the problems of deflation and Detroit? I doubt it. They care about figuring out how to get back into power as soon as possible, and they see obstructing all efforts to improve the economy as their route to the return to power. As you can see the Administration is doing nothing, and as John Kyl has demonstrated they are already warning they will obstruct every effort by Congress to do anything at all. Seventy-six years after 1932 they Republican Party is still pursuing the same strategies which made them famous in the last great economic failure.