How to Watch the Banks

February 18, 2010 by · Leave a Comment 

By Henry M. Paulson, Jr.

SIXTEEN months ago, our financial system teetered on the brink of collapse. The Treasury, the Federal Reserve and the Federal Deposit Insurance Corporation took actions that were unpopular and previously unthinkable — but absolutely necessary to stave off an economic catastrophe in which unemployment could have exceeded the 25 percent level of the Great Depression.

These temporary actions have ended or will end. And our financial system is much more stable. But it is critical that we learn from the financial crisis and put in place reforms to avert a repeat of 2008 or something even worse.

Congress must pass financial regulatory reform. Delays are creating uncertainty, undermining the ability of financial institutions to increase lending to the businesses of all sizes that want to invest and fuel our recovery. Our overriding goal in restructuring our financial architecture should be that taxpayers never again have to save a failing financial institution.

The debate recently has centered on big banks and trading risks. I agree that big banks do pose a dangerously large risk to our financial system, and I am troubled that concentration in the industry has only increased since the crisis. But if we are to protect our system from falling into trouble again, we need broad-based reform that covers all types of financial institutions and all forms of potentially risky activities.

For example, the most recent proposal by the Obama administration — to bar big banks from trading driven by other than customer-related activity — would not have prevented the collapse of Fannie Mae, Freddie Mac, Lehman Brothers, American International Group, Washington Mutual, Wachovia or other institutions whose failure contributed to the crisis. Rather than dictating a set of rules that will become out of date as the markets evolve, policy makers should devise legislation that ensures that regulators have the authority to tackle the issue of size and all potential systemic risks.

This calls for two vital changes. First, we must create a systemic risk regulator to monitor the stability of the markets and to restrain or end any activity at any financial firm that threatens the broader market. Second, the government must have resolution authority to impose an orderly liquidation on any failing financial institution to minimize its impact on the rest of the system.

Together, these two reforms will enable the regulatory system to better prevent the kinds of excesses that fueled our recent crisis, restore market discipline and keep the failure of a large institution from bringing down the rest of the system.

A single agency responsible for systemic risk would be accountable in a way that no regulator was in the run-up to the 2008 crisis. With access to all necessary information to monitor the markets, this regulator would have a better chance of identifying and limiting the impact of future speculative bubbles.

Given our global markets, we have to address the issue of size on a multinational level. We should work through the Financial Stability Board, a global regulatory agency with headquarters in Switzerland, to establish an international agreement calling for stronger capital and liquidity requirements for large, complex institutions. The need for adequate liquidity cushions is not as well understood, but in my judgment it is even more important than the need for banks to maintain higher capital levels.

As for our domestic approach, we now have different government regulators focusing on the individual trees, and we need one regulator accountable for looking at the entire forest. My preference is for the Federal Reserve to be the systemic risk regulator, because the responsibility for identifying and limiting potential problems is a natural complement to its role in monetary policy.

Congress, however, seems to be moving toward having a council of regulators perform this function. While that is not my preference, I believe a council can be workable if it is led by either the Treasury secretary or the Fed chairman, and is structured to ensure that strong decisions are reached quickly in a crisis. Too many such panels in government act by consensus, allowing a single member to render the council immobile.

No systemic risk regulator, no matter how powerful, can be relied on to see everything and prevent future problems. That’s why our regulatory system must reinforce the responsibility of lenders, investors, borrowers and all market participants to analyze risk and make informed decisions. This is possible only if everyone understands that no financial institution is too big to fail, and that its investors and creditors will have to bear the consequences if it does. 

To address the moral hazard issue, the government needs broad-based authority to liquidate any failing financial institution without going through the bankruptcy process, which is not well-suited for such complex firms in the midst of a financial crisis. We must send a clear signal to market participants that whenever this process is put in motion, the outcome is liquidation; we cannot leave any hope that we would inject taxpayer dollars to preserve the failing firm in its present form.

Winding down a large institution is difficult and time-consuming. The regulators with this responsibility will need to be trained to do the job. And we must also require all large firms to develop a road map for their liquidation well ahead of any failure.These are not the only necessary reforms — we must also address regulation of derivatives and our over-reliance on credit ratings agencies.

Over time, we have to simplify the patchwork quilt of regulatory agencies and improve transparency so that consumers and investors can punish excesses through their own informed investing decisions. We have to examine the many policies that favor homeownership, and recalibrate our support for them. We must also tackle what is by far our greatest economic challenge — the reduction of budget deficits — a big part of which will involve reforming our major entitlement programs: Medicare, Medicaid and Social Security.

It has been a difficult, and humbling, two years for our nation. But every other major country has more significant economic problems than we do and, with the resilience of our economy and the ingenuity of our people, we can meet our challenges. Nonetheless, we must not lose our sense of urgency, or the political courage to make the necessary reforms to ensure our long-term prosperity.

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America’s Credibility Takes Another Blow

January 28, 2010 by · Leave a Comment 

By David Rothkopf

court_front_med It’s ironic. At precisely the moment that Secretary of State Clinton was rightly striking out at the Chinese for their infringement of the rights of their own citizens to open Internet access, democracy was dying in America.

In fact now, following an era that might well be defined by America’s twin credibility crises of the past decade, another looms.

The first two blows — blows that have left America’s standing in the world weaker today than it has been at any time in the past half century, even with the many steps President Obama has taken to reverse the missteps of the Bush era — undercut two of what might be seen as the three pillars of American standing on the planet.

The initial credibility crisis was triggered by the Bush administration’s reckless disregard for the values upon which the republic was founded. >From Guantanamo to Abu Ghraib, from the illegal invasion of Iraq to the rendition and torture of prisoners, America’s role as a leader by virtue of our moral standing was called into question. The champions of the rule of law were now seen, rightfully, as one of its enemies, arguing as we were that there were two standards: that to which we held the rest of the world and that we chose for ourselves.

Next, America’s role as an economic model for the world, champion of free markets and opportunity for all came under fire. In the run up to the economic crisis of 2008-2009, growing inequality in the United States was leading many critics to question our “leave it to the markets” approach. But then came the crisis and once again, the United States demonstrated that the doctrine we had preached worldwide were not going to be applied at home and moreover, that our system was deeply and fundamentally flawed. Doubt about “American capitalism” were only amplified in the aftermath of the crisis, in which middle class victims of the crisis were hardly helped and many were hurt but in which Wall Street fat cats called the tune, reaped the rewards of government intervention and then flouted their power by shrugging off the government when it was no longer necessary to their business plans.

What was left for Americans to cling to? Our moral standing and our fundamental message to the world had been built on the ideas of respect for the rule of law and free markets. And now the world was left to wonder, if not America, then to whom do we turn? Should we embrace other models?

Admittedly, the Chinese model, which might have had a shot at greater influence given the damage done to the U.S. brand, wasn’t doing itself any favors with its attempt to deny its people both basic rights of all international citizens of the 21st Century … which would also have the effect of making Chinese workers less competitive in the global economy. Hillary Clinton’s speech attacking this was forceful and utterly appropriate. The Chinese whining in response to it was a sign of weakness and with some luck, the Obama administration will ignore it, shrug off the Chinese threats of consequences in other areas of the bilateral relationship, and continue to press home this essential point.

But the argument on behalf of the American way was made immeasurably harder recently by the Supreme Court’s devastating blow to several of the most fundamental precepts of American society — equal rights, for example, or truly free speech (which is to say the right speak and be heard, without having to pay for it).

By a 5-4 vote the justices of the court, with the Republican right in the majority, struck down limits on corporate campaign spending. Further building on the dangerous fiction in American law that corporations ought to have rights akin to those of individuals, the decision effectively unleashes the floodgates of corporate and union money into the political arena.

This is certainly a more powerful threat to democracy than terrorism. It may well be a more powerful threat to democracy than was the fatally-flawed Soviet Union. Because to the extent to which politicians depend on donations to remain in power, they are inevitably influenced by those who have the most money. Not surprisingly, corporate entities, representing many people and often vast economic enterprises, have vastly more financial resources than individuals. Arguing, as American right wingers do, that campaign donations are form of free speech and thus cannot be constrained, ignores the reality that by equating money with free speech we effectively say that those with more money have more free speech, are entitled to greater influence within our society.

The implications are stark. Should this decision go unreversed by subsequent action of the Congress, a future court or a future constitutional amendment, it tips the balance of power in the United States even farther away from average people and in the direction of elites. Since campaign donations do not flow from companies primarily for ideological reasons but rather to advance narrow self-interests, the business of U.S. political class will necessarily be driven by the politics of the business class.

In a nutshell, yesterday’s Supreme Court decision made it very likely that America will not be an effective leader in combating global warming or preserving global resources, it will not be able to effectively resolve the internal threats to its own society like a failing health care system, and it will pursue international policies that are driven less by the broad national interest and more by the agenda of companies that in fact, have increasingly little national identity.

In this respect, this compromise of the third and most important pillar of U.S. international leadership-democracy, may be the most damaging of all. We can repair, as the Obama administration has attempted to do, the abuses of the Bush years. But if the court’s action does in effect institutionalize Calvin Coolidge’s old idea that “the business of America is business” it will be impossible to either effectively redress the flaws in the American economic model or for us to continue to argue that the nation that was the most important pioneer of representative democracy will continue to be able to play that role.

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Israel is Immune From Criticism

January 28, 2010 by · Leave a Comment 

By Brian Cloughley

Bombing-in-Gaza-001
The Goldstone report, which HRW supported, accused Israel of a disproportionate attack designed to punish, humiliate and terrorise a civilian population. Photograph: Hatem Omar/AP

The state of Israel has descended – plummeted – to one of the lowest levels of conscious barbarity that is currently evident in this horrible world.

Any nation that has behaved towards a subject people, as Israel has to Palestinians, is worthy only of utter contempt. On Sunday January 4 I heard a rabbi on the BBC’s morning religious program saying that he supported Israel’s air strikes on Gaza. A man of God actually endorsed the killing of hundreds of people. To say that I was – and am – aghast at the sentiment expressed is to put it very mildly. This religious leader, a person supposed to spread and preach tolerance, patience, charity and peace, was supporting war crimes of immense gravity. His approval of the killing of Arabs was blood-chilling.

And this rabbi was British. Here we have a British citizen supporting hatred and bigotry on a BBC religious program. But of course he isn’t really British. He is an Israeli religious propagandist of British citizenship whose main allegiance is to Israel. There are thousands like him in the UK and the US. They unconditionally promote Tel Aviv’s plans and policy and wield amazing influence over politicians and businesses. Killing Palestinians is Israeli policy, and these people spare no effort to justify it.

Here’s a resident of Gaza talking to the Israeli newspaper Haaretz about the horrors experienced by Palestinians (and congratulations to Haaretz for having the courage to print it): “I keep the children away from the windows because the F-16s are in the air; I forbid them to play below because it’s dangerous. They’re bombing us from the sea and from the east, they’re bombing us from the air. When the telephone works, people tell us about relatives or friends who were killed. My wife cries all the time. At night she hugs the children and cries. It’s cold and the windows are open; there’s fire and smoke in open areas; at home there’s no water, no electricity, no heating gas. And you [the Israelis] say there’s no humanitarian crisis in Gaza. Tell me, are you normal?”

No, they’re not, is the short answer, and the ruthlessness is epitomized by the evil Israeli foreign minister, Tzipi Livni, who is using the Gaza war to establish her credentials as a reliably hard-nosed barbarian. She declares “there is no humanitarian crisis in the [Gaza] Strip and therefore there is no need for a humanitarian truce.”

It was reported on January 5 that Israeli troops are using white phosphorus (WP) artillery shells in Gaza, supposedly to create smoke screens to conceal their advance.

American troops used WP – fondly known as Willy Pete – in their destruction of the Iraqi city of Fallujah, and the US tried to lie its way out of the war crime, but junior officers unintentionally blew the lies apart by writing in the magazine Field Artillery that “WP proved to be an effective and versatile munition. We used it for screening missions . . . and, later in the fight, as a potent psychological weapon against insurgents in trench lines and spider holes . . . We fired ‘shake and bake’ missions at the insurgents using WP to flush them out and high explosive shells (HE) to take them out.” In fact WP is an effective killer, and anyone who inhales particles will suffer a particularly hideous and painful death. As recorded by The Independent newspaper in Britain “In the aftermath of the battle [at Fallujah], the State Department’s Counter Misinformation Office issued a statement saying that WP was only “used very sparingly in Fallujah, for illumination purposes. They were fired into the air to illuminate enemy positions at night [which isn’t the propose of a smoke-shell], not at enemy fighters.” When The Independent confronted the State Department with the first-hand accounts of soldiers who participated, an official accepted the mistake and undertook to correct its website.” Big deal. Lie, lie and lie again, until you’re found out and it’s impossible to deny the facts. And the Israelis seem to be taking the example, as usual, and are stoutly denying what has been seen by independent witnesses.

Article two, Protocol III of the 1980 UN Convention on Certain Conventional Weapons states: “It is prohibited in all circumstances to make the civilian population as such, individual civilians or civilian objects, the object of attack by incendiary weapons.” But Israel is only following the US example. “Shake and bake” is such an attractive military option that it would be a shame to spoil their fun, especially when it has rabbinical approval.

Here is part of what is laid out in Protocol 1, Additional to the Geneva Conventions, 1977 . . . General Protection Against Effects of Hostilities: “Among others, the following types of attacks are to be considered as indiscriminate: An attack which may be expected to cause incidental loss of civilian life, injury to civilians, damage to civilian objects, or a combination thereof, which would be excessive in relation to the concrete and direct military advantage anticipated.”

Israel, supported energetically by Washington (and using US-supplied aircraft, bombs and rockets), has caused “incidental loss of life” and general civilian casualties on an enormous scale. The Israeli military and the Israeli people knew full well that their genocidal attack on Gaza would kill civilians. The use of white phosphorous in built-up areas is worthy of the Nazis at their most brutal. Stalin and Mao would nod approvingly. It wasn’t considered important that there would be countless civilian deaths. Nobody cares, and least of all American politicians.

Secretary of State Hillary Clinton refuses to comment on the atrocities. The vice-president has been silent. President Obama? As Reuters reported : “Obama . . . has not commented on the Middle East crisis since Israel launched attacks on Gaza nine days ago. His advisers insist that only President George W Bush can speak for America until then.” But it was noted that “The president-elect has commented on the global economic crisis and his plans to try to pull the US economy out of recession.”

Of course he has. And were it not for the power of Israel in America he would no doubt comment adversely on the slaughter in Gaza, because he is a decent man.
But Mr. Obama dare not criticize Israel, even for its use of chemical shells. Nor can any American who wishes to enter or remain engaged in politics. The kiss of political death in the United States of America is to censure Israel. It can’t be done.

And that is why apartheid is permitted in Israel; it’s why the mass-punishment blockade was enforced months before the attack went in; and it’s why the near-genocide in Gaza is allowed to continue.

Does anyone remember the hearing on the so-called Israeli-Palestine peace process in the US House of Representatives in February 2007? Of course not. It was a farce. And why was it such a revolting and hideous charade? – Because it was a three card trick.

The main witness, of the three cards who were called, was one Martin Indyk, a former official of the American Israel Public Affairs Committee which is the richest and most powerful lobby group in the country (two of whose members are currently under a mysteriously delayed investigation for spying for Israel). From there, inevitably, he went to be US ambassador in Tel Aviv. (And, incidentally, whose book on the Middle East was the subject of a glowing review in last week’s Economist.) Another witness was David Makovsky of the Washington Institute for Near East Policy (founded by Indyk; it’s all very chummy in pro-Israel sewers), which is funded extensively by American interests that support Zionism. (Among other connections, it is closely associated with the Jaffee Center for Strategic Studies at Tel Aviv University.) And was the third witness a counter-balance to two energetic supporters of Zion? Could he or she present a rather less biased view of the Middle East? Perhaps a person who would make the point that Israel has contemptuously ignored UN Security Council resolutions concerning illegal occupation of Palestinian lands?

Not a bit. The third member was a comic quasi-intellectual character called Daniel Pipes who once declared that Muslim immigrants to the US were “brown-skinned peoples cooking strange foods and not exactly maintaining Germanic standards of hygiene.” (Germanic? – How quaint.) Pipes founded the Middle East Forum (MEF) which encourages university students in America to report lecturers and professors who they consider to be anti-Israel or pro-Palestinian. (In Hitler’s Germany there were awards given to young people who identified and reported those they thought to be pro-Jewish; I know a very elderly German lady who did this when she was 15. She is now terribly ashamed at the memory, because she actually informed on her own father. How times change. Or don’t, of course.)

In 2006 Pipes was given the ‘Guardian of Zion’ award, an annual prize to a prominent supporter of Israel, by the Rennert Center for Jerusalem Studies at Bar-Ilan University in Israel.

With a galaxy of partisan propagandists like Indyk, Makovsky and Pipes being the only people selected to give evidence on Israel-Palestine to the nation’s legislators in Washington, there was no chance whatever that the Congressional Sub-Committee would be presented with a balanced view of the Israel-Palestine problem. The deck was stacked, and the legislators listened. They had no choice, because of the power of the Israel lobby. They’ve been shaken and baked.

There is little doubt that the bias towards Israel will continue in the legislature and administration of the United States of America, no matter what Obama might really think, and no matter how many Palestinian children the Zionists have slaughtered. The Israelis are behaving like genocidal people, but those who stay silent about their atrocities are not far behind in the gutter stakes.

Brian Cloughley’s book about the Pakistan army, War, Coups and Terror, has just been published by Pen & Sword Books (UK)

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The Kuwaiti Quartet

May 28, 2009 by · Leave a Comment 

By Sumayyah Meehan, MMNS Middle East Correspondent

610xggg Political crisis has marred the growth and development of Kuwait for the past few years as political upheaval has been the order of the day. The entire government has resigned no less than five times and the democratically elected parliament has been dissolved thrice in only a matter of years with the most recent dissolution coming just a few months ago. Even before candidates hung up their campaign posters or voters could go to the polls, there was an air of change floating around in Kuwait. Citizens have long tired of the bickering between the Emiri elected cabinet and the members of parliament chosen by the public. There were more ‘grillings’, where MP’s make accusations against another MP, than parliamentary decisions to pull Kuwait out of the current economic crisis it is wallowing in and put it back on track with its’ neighboring Arab rivals.

It has been a mere four years since women were granted suffrage rights and the right to run for parliamentary elections in Kuwait. Female candidates failed to win seats in the past two parliamentary elections. But this past week, history turned one giant page when a total of 4 female candidates won seats in the newly formed Kuwaiti Parliament. A total of 210 candidates, 16 of which were female, vyed for a coveted seat in the 50 member strong Parliament. “Frustration with the past two parliaments pushed voters to seek change. And here it comes in the form of this sweeping victory for women,” Massouma al-Mubarak told reporters following her victory.

Quite notably all four newly elected female MP’s were educated in the USA and hold Doctorates in their specific fields. Massouma Al Mubarak is a political science professor and was Kuwait’s first female Emiri appointed Cabinet minister. Rola Dashti is an economist and activist for women’s rights. She was at the forefront of the battle to win voting rights for Kuwaiti women since it began. Salwa al Jasser is an Education professor and Aseel al Awhadi is a Philosophy professor.

Supporters of the female candidates set off fireworks and feted them in a barrage of wild cheers and congratulatory celebrations rivaling even the poshest of Hollywood after parties.  However, there are several male MP’s who are unhappy with having to share parliament with women. Islamic fundamentalists have made statements to the local media that women do not belong in politics and have insisted that all of the female MP’s wear the Islamic hijab whenever Parliament is in session. Only two out of the four newly elected females MP’s observe the Islamic headscarf.

It remains to be seen if the Kuwaiti Quartet will be able to change the political scene in Kuwait, which has always operated on a crisis-by-crisis basis. Kuwaiti political analysts expect the power struggle between MP’s in the Parliament to continue regardless of gender. If this week is any indication, the Kuwaiti Quartet is already facing an uphill battle in their bid to makeover Kuwaiti politics. MP Massouma Al Mubarak was accused of trying to push through more female politicians into the Cabinet and the Kuwait Quartet were also accused of trying to form their own bloc to stand united against the male members of Parliament.

The State of Kuwait is often referred to as a ‘half democracy’ since only the Emir controls the Cabinet while the public chooses Parliamentarians.  Kuwaiti activists have long petitioned for the formation of political parties and for Kuwait to be a true democracy where the public has the right to choose all elected officials.

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Middle East Hit by U.S. Financial Crisis

October 16, 2008 by · Leave a Comment 

Courtesy New America Media, Shane Bauer

Editor’s Note: Even oil-rich Arab countries, which until recently were smug about being insulated from the financial debacle on Wall Street, are starting to worry. Analysts are predicting that they are sure to increase regulations and start pulling their economies away from the United States. NAM contributor Shane Bauer is a journalist and photographer based in the Middle East.

Stock traders in the Middle East

SANA’A, Yemen–While Washington was hashing out the terms of its largest financial bailout in history, Arab bankers were saying everything in the Middle East was as good as ever.

A full-page ad in one Middle Eastern magazine advertised a proposed business park called Falcon City, another fantasy land to add to the skyscrapers and glitter of oil-rich Dubai. Office buildings were shaped to resemble the Eiffel Tower, the Great Wall of China, the Pyramids of Egypt, and the Taj Mahal.

“As a residential or business address, each wonder is a totally amazing investment,” the caption read.

A few days later, the same newsstands spelled dread. Images of fear-stricken men in white robes and kafiyyas, their eyes fixed on strings of red numbers, splashed the front pages. Headlines announced that the Middle East’s markets were crashing, and columnists spit fire, calling on the Arab world to free itself “from the shackles of American imperialism.”

The degree to which Arab investors, which have some $800 billion invested internationally, will rein in their international investments will likely depend on how heavily they are impacted by the crisis. But analysts say that at the very least, Arab countries are sure to increase regulations and start pulling their economies away from the United States.

“U.S. influence has long been waning, both in its capacity to inspire and to intimidate,” says David Levy, senior fellow and director of the Middle East Initiative at the Washington, D.C., think tank the New America Foundation. “The region has been increasingly looking elsewhere for investments and markets. The crisis on Wall Street will only hasten that process.”

2008-10-12T102958Z_01_DUB09_RTRMDNP_3_DFM-LIMITDOWN But Arab analysts say the United States was becoming increasingly unattractive for investment well before the financial crisis hit. Washington had rejected several investment attempts in recent years by Arab companies on the basis that they were, well, Arab.

The last rejection came when some Gulf companies showed interest in investing nearly $20 billion to help save Citi Group and Merrill Lynch when they were initially threatened with bankruptcy. The deal was stopped in Congress when opponents said an increase in Arab investment in the United States would present a national security problem.

As Arab stock markets fall for their third day since reopening after a one-week post-Ramadan holiday, one thing is clear: those with the most open markets and the strongest ties to the U.S. economy are being hit the hardest.

In the past three days alone, banks in the Persian Gulf have lost about $150 billion. On Tuesday, the Tadawul All-Shares Index, home to the Arab world’s biggest market, finished at its lowest close in four years.

Countries that last week were saying that their economies were “insulated” from international financial disasters are now bailing out their banks. The central bank of the United Arab Emirates pumped $17.5 billion into its banks this week and said it is ready to give more if needed.

Jan Randolph, an economic analyst at Global Insight, says that “Arab investors and banks are going to start looking locally for investments.”

The president of the Union of Arab Banks, Adnan Yusif, has announced that there needs to be an increase in regional investment, and economists have been calling for a meeting of financial ministers and policy makers to come up with a regionwide plan to deal with the crisis.

But inter-Arab economic cooperation might not be easy. The Middle East is home to some of the world’s most closed economies, like Syria, as well as countries whose names are virtually synonymous with unfettered growth, like the United Arab Emirates.

Antagonisms over competing economic ideologies run deep in the Arab world, and the current crisis seems to be reigniting debates about how much regional economies should be bound to the global economy.

“If this crisis does send real shockwaves through the region, and you start seeing that economies more closed to the world are more protected, people might start seeing open economies as a double-edged sword,” says David Levy.

Masa’ad al-Kurdi of the Saudi-owned Al-Majella magazine writes that neo-liberal globalization is to blame for the crisis. “The developing world’s economies are dependent on the U.S., the world’s largest importer, to buy their exports,” he argues. As the dollar weakens, “developing countries are going to pay the most,” writes Al-Kurdi, who concludes that “the United States of America is driving the world into the abyss.”

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