There can be little question that Obama's presidency will be much preferable to that of McCain. But to believe that Obama's election as the President of the United States represents an end to the global nightmare, one needs to hope against hope.
VINAY LAL
Barack Obama has achieved what would have seemed improbable to even the most ardent admirers of America two years ago: he has been elected the 44th President of the United States of America. Many, not least of them Obama himself, see in the ascendancy of a black man to the highest office of the world’s hegemon, a supremely historic moment in American, if not world, affairs. Ever since Obama declared his candidacy for the American presidency, he has never doubted that this would be an ‘historic’ election, whatever its outcome. Obama’s victory speech at Chicago’s Grant Park a few hours ago underscores his own sense of history being made with his affirmation that ‘a new dawn of American leadership is at hand.’ It is only in the mid-1960s that the US passed the Voting Rights Act, enabling most African Americans to cast a vote that in principle was always their birthright, and it remains an indubitable fact of American life that tens of thousands of African Americans, as well as other poor people, continue to remain disenfranchised. Even if the word ‘historic’ is maddeningly ubiquitous, the enormity of Obama’s personal achievement can scarcely be overstated.
During the course of the election campaign, Obama became a phenomenon. That other ubiquitous word of politics, ‘charisma’, appears to have been invented for him. Obama writes reasonably well, and has even been lauded for his skills as an orator; he is suave, good-looking, mentally alert, and a keen observer of world affairs. The ‘unflappable’ senator, as he has come to be described in the American press, exudes a sense of masculine strength and confidence that seems comforting to an ailing nation. Obama attracted crowds larger than any customarily seen in the US, except at football -- American football, not what the rest of the world understands by football -- games and nearly the whole world was rooting for him. Kenya, which claims Obama as its native son, has now declared a national holiday in honor of Obama’s triumph. Such is the incalculable hold of the US, in times better or worse, on the imagination of people worldwide that many are more heavily invested in the politics and future of the US than they are in the politics of their own nation.
There are, of course, perfectly good reasons, other than those summoned by the notion of America as the heaven on earth, why much of the rest of the world should find the American elections of interest. Iraqis, Afghanis, Iranians, Sudanese, and Pakistanis, among many others, known and unknown, the target at some point of the military wrath and moral unctuousness of America, may want to reason if their chances of being bombed back into the stone age increase or decrease with the election of one or the other candidate. The French, perhaps best known for the haughty pride in their own culture, were so moved by the events of September 11, 2001, which the Americans have attempted to install as a new era in world history, rendering 9/11 as something akin to BC or AD, that Le Monde famously declared, ‘Nous sommes tous Americains’ (‘We are all Americans’). One doubts that, had it been Beijing, Delhi, or Dakar that had been so bombed, the French would have declared, We are All Chinese, Indians, or Senegalese. That old imperialist habit of presuming the royal We, thinking that the French or American we is the universal We, has evidently not disappeared.
There can be little question that Obama's presidency will be much preferable to that of McCain.If nothing else, his presidency is not calculated to be an insult to human intelligence or a complete affront to simple norms of human decency. After eight years of George W. Bush, it seemed all but improbable that America could throw up another candidate who is, if not in absolutely identical ways, at least as much of an embarrassment to the US as the incumbent of the White House. But one should never underestimate the genius of America in throwing up crooks, clowns and charlatans into the cauldron of politics.
It is likely that McCain has a slightly less convoluted -- or should I say 'jejune'? -- view of world history and geography than Bush, nor is his vocabulary wholly impoverished, but he would not have struck anyone with a discerning mind as possessed of a robust intelligence. Though McCain insistently faulted the ‘junior senator’ from Illinois, as President-Elect Obama was known in official lingo, for his lack of experience, his pick of Sarah Palin, a small town mayor who had recently risen to the office of the Governor of Alaska, for the position of Vice President betrayed an enormous lack of judgment.
McCain committed numerous gaffes, accusing (to take one example) Iran of training al-Qaeda extremists, though of course if one thinks of George W. Bush it is manifestly clear that such displays of ignorance have seldom if ever in American politics cost a man the White House. In America, it is enough to have a candidate who understands that Iraq and Iran are not only spelled differently but constitute two separate nations. Obama seems so far ahead of the decorated Vietnam War veteran in these respects that it seems pointless to waste any more words on McCain.
Far too many American elections have offered scenarios where a candidate has been voted into office not on the strength of his intelligence, sound policies, or moral judgment, but because the candidate has appeared to be ‘the lesser of two evils’. The iconoclast Paul Goodman, writing in the 1960s, gave it as his considered opinion that American elections were an exercise in helping Americans distinguish between undistinguishable Democrats and Republicans, and there are, notwithstanding Obama’s appeal to liberals and apparently intelligent people, genuine questions to be asked about whether this election has been anything more than a choice between Tweedledee or Tweedledum.
Candidates with wholly distinct views have always been described as ‘spoilers’ in the American system, and anyone who do not subscribe to the rigidly corporatist outlook of the two major parties can only expect ridicule, opprobrium, and at best colossal neglect. One has only to recall the virulence with which supposedly liberal Americans spoke of the consumer advocate Ralph Nader, who justly described George Bush as ‘the giant corporation in the White House masquerading as a human being’, for having gifted Bush the White House by drawing votes away from Al Gore in the tightly contested election of 2000.
To this extent, whatever America’s pretensions at being a model democracy for the rest of the world, one can marvel at the ease and brilliance with which dissenters are marginalized in the US. The singularity of American democracy resides in the fact that it is, insofar as democracies are in question, at once both perversely primitive and advanced. In its totalitarian sweep over the political landscape, the one-party system, which through the fiction of two parties has swept all dissent -- indeed, I should say all thought -- under the rug, has shown itself utterly incapable of accommodating political views outside its fold; and precisely for this reason American democracy displays nearly all the visible signs of stability, accountability, and public engagement, retaining in its rudiments the same features it has had over the last two centuries.
Obama’s most ardent defenders adopted the predictably disingenuous view that Candidate Obama has had to repress most of his most liberal sentiments to appeal to a wide electorate, and that President Obama will be much less ‘centrist’ in his execution of domestic and foreign policies. (The US is one country where most hawks, particularly if they are distinguished senior statesmen, can easily pass themselves off as ‘centrists’, the word ‘hawk’ being reserved for certifiable lunatics such as Bill O’Reilly and Rush Limbaugh, or blatantly aggressive policy-makers such as Paul Wolfowitz. No one would describe Colin Powell, who shares as much responsibility as anyone else for waging a criminal war on Iraq, as a hawk.) Of course much the same view was advanced apropos Bill Clinton, who then went on to wreck the labor movement, cut food stamps, initiate welfare ‘reform’ that further eroded the entitlements of the poor, and launch aggressive military strikes in Afghanistan, Iraq, Somalia, Kosovo, and a host of other places.
Moreover, unless one is to take the view that Obama thought of his candidacy overnight, it is equally reasonable to argue that, knowing how much he would have to appeal to the rank-and-file of not only Democrats but the large number of ‘undecided’ voters as a candidate who would be markedly different from both the incumbent and the Republicans running for the presidency, Obama has been projecting himself as far more liberal than either his political record or views would give warrant to believe. Indeed, as a close perusal of his writings, speeches, and voting record suggests, Obama is as consummate a politician as any in the US, and he has been priming himself as a presidential candidate for many years.
Obama’s 2006 book, The Audacity of Hope (New York, Crown Publishers), furnishes as good an entry point into his worldview as any. Its subtitle, ‘Thoughts on Reclaiming the American Dream’, provides the link to Obama’s memoir of 1995, Dreams of My Father (1995). People everywhere have dreams, no doubt, but there is nothing quite as magisterial as ‘the American dream’: the precise substance of the American dream -- a home with a backyard, mom’s apple pie, kids riding their bikes without a care in the world, a cute dog running around in circles after the kids, ice tea, a Chevrolet or SUV; or, if you wish, something loftier, freedom, prosperity, and equal opportunity for all -- matters less than the fact that ‘the American dream’ signifies something grand and unique in the affairs of humankind. ‘Oh Yeah The American Dream, / American Dream / the American Dream’, sang the reggae star Jimmy Cliff,
‘so You Want To Get American Visa
go To Where They Say The Living Is Easier
since You Were Young You Been Told
you Can Get Anything There
but The Soul.’
A politician who does not profess belief in the American dream is doomed, but there is no insincerity on Obama’s part in this respect. Leaving aside momentarily the question of how the American dream has been a nightmare to many of the most thoughtful Americans themselves, from Henry David Thoreau to James Baldwin, not to mention tens of millions of people elsewhere, Obama’s fondness for what Americans call ‘feel-good’ language is palpably evident. Just what does the audacity of hope mean? Need one be audacious to hope? Obama’s pronouncements are littered with the language of hope, change, values, dreams-- all only a slight improvement on chicken soup for dummies or chocolate for the soul.
The chapter entitled ‘The World Beyond Our Borders’, some will object, is illustrative of Obama’s engagement with substantive issues, and in this case suggestive of his grasp over foreign affairs. One of the stories that circulated widely about Bush upon his election to the presidency in 2000 was that he carried an expired passport; a variant of the story says that Bush did at that time own a US passport. It is immaterial whether the story is apocryphal: so colossal was Bush’s ignorance of the world that it is entirely plausible that he had never traveled beyond Canada and Mexico, though I am tempted to say that illegal aliens and men born to power, transgressors of borders alike, share more than we commonly imagine. Obama, by contrast, came to know of the wider world in his childhood: his white American mother was married to a Kenyan before her second marriage to an Indonesian. Obama is an uncommon African American in this respect, since the vast majority of African Americans have no living connection with Africa; moreover, though the precise importance of this cannot be unraveled at this juncture, his whiteness does not stem, as it does with most mixed African Americans, from his father. To what extent Obama can share the pain of a history, where hybridity was forged from the acts of white slave-owning men raping their black women slaves at will, is an open question.
Obama lived in Jakarta as a young boy, and the chapter offers a discussion of the purges under Suharto that led to the extermination of close to a million communists and their sympathizers. Obama is brave enough to acknowledge that many of the Indonesian military leaders had been trained in the US, and that the CIA provided ‘covert support’ to the insurrectionists who sought to remove the nationalist Sukarno and place Indonesia squarely in the American camp (pp. 272-73). He charts Indonesia’s spectacular economic progress, but also concedes that ‘Suharto’s rule was harshly repressive.’ The press was stifled, elections were a ‘mere formality’, prisons were filled up with political dissidents, and in areas wracked by secessionist movements rebels and civilians alike faced swift and merciless retribution -- ‘and all this was done with the knowledge, if not outright approval, of U.S. administrations’ (p. 276).
It is doubtful that most American politicians would have made even as mild an admission of American complicity in atrocities as has Obama. But a supremely realist framework allows for evasion as much as confession: thus Obama merely arrives at the reading that the American record overseas is a ‘mixed’ one ‘across the globe’, often characterized by farsightedness and altruism even if American policies have at times been ‘misguided, based on false assumptions’ that have undermined American credibility and the genuine aspirations of others (p. 280).
There is, in plain language, both good and bad in this world; and Obama avers that the US, with all its limitations, has largely been a force for good. And since America remains the standard by which phenomena are to be evaluated, Obama betrays his own parochialism. The war in Vietnam, writes Obama, bequeathed ‘disastrous consequences’: American credibility and prestige took a dive, the armed forces experienced a loss of morale, the American soldier needlessly suffered, and above all ‘the bond of trust between the American people and their government’ was broken. Though two million or more Vietnamese were killed, and fertile land was rendered toxic for generations, no mention is made of this genocide: always the focus is on what the war did to America (p. 287). The war in Vietnam chastened Americans, who ‘began to realize that the best and the brightest in Washington didn’t always know what they were doing -- and didn’t always tell the truth’ (p. 287).
One wonders why, then, an overwhelming majority of Americans supported the Gulf war of 1991 and the attack on Afghanistan, and why even the invasion of Iraq in 2002 had far more popular support in the US than it did in Europe or elsewhere around the world. The suggestion that the American people were once led astray but are fundamentally sound in their judgment ignores the consideration that elected officials are only as good as the people to whom they respond, besides hastening to exculpate ordinary Americans from their share of the responsibility for the egregious crimes that the US has committed overseas and against some of its own people.
Obama has on more than one occasion said, ‘I’m not against all wars, I’m just against dumb wars.’ More elegant thinkers than Obama, living in perhaps more thoughtful times, have used different language to justify war: there is the Christian doctrine of a just war, and similarly 20th century politicians and theorists, watching Germany under Hitler rearm itself and set the stage for the extermination of the Jewish people, reasoned that one could make a legitimate distinction between ‘good’ and ‘bad’ wars. Obama has something like the latter in mind: he was an early critic of the invasion of Iraq, though here again almost entirely on pragmatic grounds rather than from any sense of moral anguish, but like most liberals he gave his whole-hearted support to the bombing of Afghanistan in the hope, to use Bush’s language, that Osama bin Laden could be smoked out and the Taliban reduced to smithereens.
Does a ‘dumb war’ become ‘dumb’ only when Americans have been unable to clinch victory? Was the Iraq war not really a dumb war at the moment, less than a month into it, when Bush unfurled a large sign reading ‘Mission Accomplished’ on the deck of an aircraft carrier? Would Vietnam have been less of a dumb war if the Vietcong had been vanquished and Vietnam had become another outpost of American capitalism? How dumb does one have to be to understand that whether wars are ‘dumb’ or otherwise, the entire world has become captive to the ideology of the free market -- not least of all Vietnam, which in its eagerness to attract foreign capital and turn the country into yet another Dubai-like zone has zealously been beckoning American investors?
Obama is so far committed to the idea of Afghanistan as a ‘good’ war that he has pledged that, if elected President, he would escalate the conflict there and also bomb Pakistan if it would help him prosecute the ‘war on terror’. He has recently attacked McCain, who no one would mistake for a pacifist, with the observation that his opponent ‘won’t even follow [bin Laden] to his cave in Afghanistan’, even as the US Defence Secretary has all but conceded that a political accommodation with the Taliban, whose support of bin Laden was the very justification for the bombing of Afghanistan, can no longer be avoided. The casually held assumption that by birthright an American president can bomb other countries into abject submission, or that the US can never be stripped of its prerogative to chastise nations that fail to do its bidding, takes one’s breath away.
No one should suppose that Obama, blinded by the sharp rhetoric of the ‘war on terror’, has positions on Iraq and Afghanistan that are not characteristic of his view of the world as a whole. ‘We need to maintain a strategic force posture’, he writes, ‘that allows us to manage threats posed by rogue nations like North Korea and Iran and to meet the challenges presented by potential rivals like China’ (p. 307). This could have been the voice of Reagan, the Clintons, Bush, McCain, and countless others: there is such overwhelming unanimity about ‘rogue states’ that almost no politician in the US can be expected to display even an iota of independent thinking.
On the question of Palestine, Obama has similarly displayed belligerence and moral turpitude -- even if the bellicose Israelis have expressed some reservations about Obama’s capacity and inclination to safeguard Israel’s interests before anything else. At the annual meeting in June 2008 of the American Israel Political Action Committee, a self-avowedly Zionist organization that commands unstinting support from across the entire American political spectrum, Obama was unambiguous in declaring that ‘Jerusalem will remain the capital of Israel and it must remain undivided.’ It would only be belaboring the obvious to state that, on nearly every foreign policy issue that one can think of, with the exception of a timetable for withdrawal of American troops from Iraq, Obama’s position can scarcely be distinguished from all the other advocates of the national security state.
There can be no gainsaying the fact that Obama’s election as President of the US will appreciably alter American debates on race. African Americans make up 12% of the population but constitute nearly half of the US prison population; one of three black males will, in his lifetime, have gone through the criminal justice system. African Americans are, alongside Puerto Ricans, two ethnic groups among whom poverty is endemic, and repeated studies have shown that in every critical sector of life, such as access to jobs, housing, and health care, blacks face persistent racism and discrimination.
Obama is fully cognizant of these problems and is likely to address them to a greater extent than any other candidate. But one can also argue, with equal plausibility, that his ascendancy will strengthen the hands of those who want to think of American democracy as a post-race society, and whose instant inclination is to jettison affirmative action and reduce the already narrow space for discussions of race in civil society. It is immaterial, even if fascinating to some, whether numerous white people voted for Obama to prove their credentials as non-racists, while others gave him their vote because he’s not all that black -- just as some black people surely cast their ballot for Obama precisely because he is black.
By far the most critical consideration is that the US requires a radical redistribution of economic and political power: Martin Luther King had come to an awareness of this in the last years of his life, but there is little to suggest that Obama, a professional politician to the core, has similarly seen the light. One hopes that in the euphoria of Obama’s election, people will do neither King nor Obama the injustice of comparing them to each other. King struck upon a from of ethical resistance in the face of seething hatred, racism, and injustice, and was among those black leaders who came to the realization that America’s vicious war in Vietnam was inextricably linked to endemic forms of injustice at home. He had the courage to declare, before his assassination, that ‘America is the greatest purveyor of violence in the world today’. Whether Obama will display such courage remains to be seen, though the signs, to put it mildly, have not been encouraging.
In these deeply troubled times, when there is much casual talk of the American ship sinking, the white ruling class is preparing to turn over the keys of the kingdom to a black man. Imperial powers had a knack for doing this, but let us leave that history aside. Here, at least, Obama appears to have displayed audacity, taking on a challenge that many others might have forsworn. However, nothing is as it seems to be: with the passage of time, Obama has increasingly justified the confidence reposed in him as an establishment candidate.
A man with some degree of moral conscience would not have shrugged off the endorsements of Colin Powell and Scott McClellan, until recently among Bush’s grandstanding cheerleaders and apparatchiks, but would have insisted that Powell and others of his ilk be brought to justice for crimes against the Iraqi people. But Obama will do no such thing, for after all Powell and the master he served, like Kissinger and Nixon before them, only made ‘tactical’ errors. Obama prides himself, moreover, on being a healer not divider: he will even rejoice in the support for him among previously hardcore Republicans .
As Obama begins to put together his transition team for his first term into office, the presence of former Bill Clinton advisers, such as Rahm Emanuel and Clinton’s Chief of Staff, John D. Podesta, in his personal entourage suggests how far the ‘change’ on which Obama has wrested everyone’s hopes will most likely be more of the same.
When Obama is not speaking about values, hope, and change, he presents himself as a manager, representing brutal American adventurism in Iraq and Afghanistan as illustrations of policies that went wrong. He comes forward as a technician who is best equipped to fix broken policies, repair the system, and get America working once again. Throughout, he has remained as ardent an advocate of American exceptionalism as any, exploiting to the hilt the idea that America remains a singular phenomenon in world history.
‘If there is anyone out there’, Obama said in his victory speech in Chicago, ‘who still doubts that America is a place where all things are possible; who still wonders if the dream of our founders is alive in our time; who still questions the power of our democracy, tonight is your answer.’ If the descendants of slaves can have come this far, Obama will say, the dream of (white) American forefathers, all slave-owners to boot, is alive and well -- though what sleights of hand are necessary to arrive at this reading are all to obvious. As Jimmy Cliff continues in ‘American Dream’:
Words Without Deeds
is Like A Gold Wind Full Of Breeze
so You Better Take Heed
so You Better Beware
and You Better Take Care
cause You Just Might Be There For A Nightmare
One can only hope that an America that is once again working does not mean for a good portion of the rest of the world what it has meant for a long time, namely an America that is more efficient in its exercise of military domination and even more successful in projecting its own vision of human affairs as the only road to the good life. To believe that Obama’s election as the President of the United States represents an end to the global nightmare of the American dream, one needs to hope against hope.
--------------------------------------------------------------------------------
Vinay Lal, by an accident of history, teaches history at the University of California, Los Angeles, and is presently Director of the University of California Education Abroad Program in India. Like Obama, he was born in 1961, has a 10-year old daughter, lived in Jakarta as a young boy, and has been associated with Columbia University and the University of Chicago. There ends the similarity between the two.
Wednesday, 5 November 2008
Monday, 3 November 2008
Re: Support for Raj Thackeray
Let me actually defend Raj Thackeray for a change. I know the right to abode is a fundamental right of every Indian and to that extent every Indian is free to move and live where s/he wants. But what most people have done is trivialised Raj Thackeray and ignored the issue that he highlights.
The right to abode does not mean the right to squat on any government or private land. It is the rampant criminal-politico occupation of lands previously meant for open spaces under town planning schemes that is the crime. This issue is completely ignored. So what we have For example is goondas like Abhiram Singh and Kripa Shanker Singh - both in Mumbai North West area - annexing land and making huge profits.
Secondly, since these squatters tend to vote en masse, they change the demographic politics of the city and that is the worry of Raj Thackeray.
Thirdly, if only the so called protectors of the squatters viz Lalu, Mulayam et al had introduced development in their states, such huge numbers would not be forced to migrate. This issue is being sidelined too.
I find it strange defending Raj Thackeray, but the following email demonstrates an unwillingness on the part of some people to discuss the relevant issues involved in Mr. Thackeray's protests. It appears convenient to lampoon Mr. Thackeray while not penalising and punishing those politicians responsible for the failed states of UP and Bihar - instead the irony is that Mulayam and Lalu seem to pose as heroes.
A worser irony of course is that the hapless migrant (a la Do Bigha Zameen) finds himself between a rock and a hard place. My heart goes out to these poor immigrants. Alas!!!
Girish Menon
> Date: Mon, 3 Nov 2008 16:52:55 +0530
> From: R.Singh@airindia.in
> To: mgirish7@hotmail.com
> Subject: Fwd: Support for Raj Thackeray
>
>
>
> This is a wonderful mail circulating in favour of RAJ Thackeray have a
> look. We all should support Raj Thackeray and take his initiative ahead
> by doing more...
>
> 1.We should teach our kids that if he is second in Class, don't study
> harder..
> just beat up the student coming first and throw him out of the
> school
> 2. Parliament should have only Delhiites as it is located in Delhi
> 3. Prime-minister, President and all other leaders should only be from
> Delhi
> 4. No Hindi movie should be made in Bombay/Mumbai. Only Marathi.
> 5. At every state border, buses, trains, flights should be stopped and
> staff changed to local men
> 6. All Maharashtrians working abroad or in other states should be sent
> back as they are SNATCHING
> employment from Locals
> 7. Lord Shiva- Rama-Ganesha, Mother Parvati-Sta, Saraswati, Durga, Kali
> .....should not be worshiped
> in our (Maharashtra) state as they belong to north (Himalayas)
> 8. Visits to Taj Mahal, Benares..... should be restricted to people
> from UP only, Gaya to Biharis etc.
> 9. Relief for farmers in Maharashtra should not come from centre
> because that is the money collected
> as Tax from whole of India, so why should it be given to someone in
> Maharashtra when such divisive
> mentality exists?
> 10. Let's support Kashmiri militants because they are right to killing
> and injuring innocent Hindu people
> for benefit of their state and community......
> 11. Let's throw all MNCs out of Maharashtra, why should they earn from
> us?
> We will open our own Maharashtra Microsoft, MH Pepsi and MH
> Marutis of the world.
> 12. Let's stop using cell phones, emails, TV, foreign Movies and
> dramas. James Bond and others
> should speak Marathi
> 13. We should be ready to die hungry or buy food at 10 times higher
> price but should not accept
> imports from other states
> 14. We should not allow any industry to be setup in Maharashtra because
> almost all machinery
> and most of the raw material and inputs comes from outside
> 15. We should STOP using local trains...Trains are not manufactured by
> Marathi manoos
> and Railway Minister is a Bihari. Nor most of the Petrol or its
> derivatives, so everyone
> should walk. Even cycles are amde in Punjab and Haryana
> largely....
> 16. Ensure that all our children are born, grow, live and die without
> ever stepping out of Maharashtra,
> then they will become true Marathi manoos
> 17. Mumbai must be returned to Gujarat, and so also Maharashtra, as it
> belonged to them before.
> 18. Maybe Mumbai where more than 60% of the population is non-Marathi,
> and certianly most of
> the investment and brains were from British, Anglo-Indians and
> Parsis, then South Indians and
> then only Marathi and North Indians should therefore be declared
> UNION TERRITORY.
> 19. Victoria Jubilee became Veermata Jeejabai, and Victoria Terminus
> became Chhatrapati Shivaji...
> Bombay Municipal became BrihanMumbai ....and so on...
> This kind of short cut of renaming, instead of building
> institutions must be adopted by all states...
> It wont be long by the time alls tates will look and feel like we
> imagine Bihar has become....
>
> This mail should somehow reach Raj Thackarey so forward it to as many
> people as possible.
> This mail needs to be read by all Indians. So please help in this
> cause. Keep Forwarding.
>
> JAI MAHARASHTRA! JAI MUMBAI !
>
> Just for information.....
> Most Indian religions originated from monks or kings residing along the
> banks of Ganges, and Bihar...
> The famed Nalanda Univ. Taxila, Bodh Gaya, Gaya etc. are in Bihar...
> Iron ore, Coal deposits, Forest produce
> Minerals, were in Bihar. Besides Sita from Janakpur, Sikh Guru Gobind
> Singh is from Patna, as is modern
> singer Daler Mehdi.... Just give Biharis a chance and they do wonders
> by their hard work, and
> unassuming manners....
>
> Upto 1950s Bihar was adjudged the best administered state of India,
> (and also the most
> endowed in minerals, which was used for development of the country).
> The first President of India
> was a Bihari, as were Chanakya and many other scholars of ancient
> India, when all others were mere
> illierate or poor peasants and jungle folk....
>
> Highest number of Doctors in US are from Bihar today.... So are many
> other professionals overseas.
>
> Tata's foundation city is Jamshedpur in erstwhile Bihar.....
>
> Bihari labour brought in Green revolution and prosperity in Punjab.
> The same labour is now running tea gardens in Assam and Far East,
> and risky road and other construction work in J&K where none others
> dare to venture, and get killed.
>
> They pay a price fro being quiet hard-working, silent and docile.....
> as they are doing in Mumbai under the new RAJ.....
>
> Conclusion: Something is wrong with Independent India, that it
> impoverished a rich and well run
> state like Bihar over the years, while other states prospered.... Are
> we Indians not to blame for
> the ills of our country, including imbalanced growth, and poor
> people...
>
>
> DISCLAIMER:
> This email (including any attachments) is intended for the sole use of the intended recipient/s and may contain material
> that is CONFIDENTIAL AND PRIVATE COMPANY INFORMATION. Any review or reliance by others or copying or distribution or
> forwarding of any or all of the contents in this message is STRICTLY PROHIBITED. If you are not the intended recipient,
> please contact the sender by email and delete all copies; your cooperation in this regard is appreciated.
> Air India Ltd.
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Thursday, 30 October 2008
The economics of hypocrisy
After implementing the largest government bail-out in history, the US continues to tell other nations, "do as I say, not as I do"
-
- guardian.co.uk,
- Monday October 20 2008 14.00 BST
larger | smaller - Article history
Back in July, the Republican Senator Jim Bunning of Kentucky famously denounced the $200bn nationalisation of Fannie Mae and Freddie Mac, the mortgage lenders, as something that can only happen in a "socialist" country like France.
France was bad enough, but now Senator Bunning's beloved country has turned into the Evil Empire itself. The US government is using $700bn of taxpayers' money to buy up the "toxic assets" choking up the financial system and – horror of the horrors – partially nationalising the US banking system.
President George Bush, however, did not see things quite that way. Announcing the bail-out package, he argued that, rather than being "socialist", the plan was simply a continuation of the American system of free enterprise, which "rests on the conviction that the federal government should interfere in the market place only when necessary". Obviously, in his view, nationalising a huge chunk of the financial sector was one of those "necessary" things.
Bush's statement is not only an ultimate example of political doublespeak – one of the biggest state interventions in history is dressed up as another workday market process – but it also reveals America's long-standing pragmatism towards the free market. Throughout history, Americans have supported the free market when it suits them but not when it doesn't.
Today, the US is the self-proclaimed defender of free trade and free finance, but in the days when it was struggling to catch up with Europe, it resorted to the most blatant kinds of protectionism both in trade and finance. Between the 1830s and the 1940s, the country had the highest average industrial tariff in the world. In the 19th century, non-resident shareholders in US banks could not even vote in shareholders' meetings, while foreign investment in coastal shipping was banned.
After it became the top dog, the US started to champion free trade and unregulated finance because that suited its interests. However, the US government still dishes out huge subsidies where it feels necessary. Its agricultural subsidies are notorious, but the proportion of publicly-funded research and development is also the highest in the world.
Now that the financial markets are crumbling and the real economy is sliding into a recession, the US government is using all the policies that its cherished free-market doctrine denounces – nationalisation, budget deficits, lax monetary policy and what not.
The unfortunate thing, however, is that American pragmatism does not extend beyond its borders. In a version of "don't try this at home", Americans tell other people that they should all adopt the free-market, free-trade model. However big their financial crises are, other countries are told that they should let the markets correct themselves.
Of course, other rich countries do not have to listen to US advice, although Japan did so in the 1990s and made its infamous financial crisis even worse by trying to get out of it without public bail-outs. However, the story is different for developing countries. They cannot ignore US advice, or else they will not get the endorsement from the US-dominated International Monetary Fund, which is important in getting access to the international capital market.
So in its 1997 financial crisis, Indonesia was forced by the IMF to close 16 banks at the same time, prompting a bank run. It was made to raise interest rates to 80%, and the president of Indonesia was humiliated by being photographed signing terms of agreement with the IMF, while the Fund's managing director stood over him with arms folded. Similarly, Korea had to shut down close to a quarter of its financial institutions and raise interest rates to 30%. The country was forced to run a budget surplus, despite the fact it had the then second lowest public debt (as a proportion of GDP) in the OECD. Only when its economy took a nosedive for six months, it was allowed to run a small budget deficit equivalent to 0.8% of GDP, when the $700bn bail-out package alone will increase US budget deficit by 5% of its GDP.
The recent crisis in the US has exposed the limits of the free-market doctrine that has ruled most of the world in the last quarter of a century. True to its history of pragmatism, the US is dealing with it by ditching free-market policies when "necessary", which at this moment happens to be almost all the time.
However, the US needs to go a step further. It should openly admit that, if markets need the state, it is better to have the state intervene regularly and prevent a free-market mess from developing because the clean-up comes at much higher costs to the taxpayers. It would help the world even more if the US accepted that all countries, and not just itself, have the right to use a pragmatic mix of the market and state intervention according to their own "necessities", as Mr Bush put it so succinctly.
France was bad enough, but now Senator Bunning's beloved country has turned into the Evil Empire itself. The US government is using $700bn of taxpayers' money to buy up the "toxic assets" choking up the financial system and – horror of the horrors – partially nationalising the US banking system.
President George Bush, however, did not see things quite that way. Announcing the bail-out package, he argued that, rather than being "socialist", the plan was simply a continuation of the American system of free enterprise, which "rests on the conviction that the federal government should interfere in the market place only when necessary". Obviously, in his view, nationalising a huge chunk of the financial sector was one of those "necessary" things.
Bush's statement is not only an ultimate example of political doublespeak – one of the biggest state interventions in history is dressed up as another workday market process – but it also reveals America's long-standing pragmatism towards the free market. Throughout history, Americans have supported the free market when it suits them but not when it doesn't.
Today, the US is the self-proclaimed defender of free trade and free finance, but in the days when it was struggling to catch up with Europe, it resorted to the most blatant kinds of protectionism both in trade and finance. Between the 1830s and the 1940s, the country had the highest average industrial tariff in the world. In the 19th century, non-resident shareholders in US banks could not even vote in shareholders' meetings, while foreign investment in coastal shipping was banned.
After it became the top dog, the US started to champion free trade and unregulated finance because that suited its interests. However, the US government still dishes out huge subsidies where it feels necessary. Its agricultural subsidies are notorious, but the proportion of publicly-funded research and development is also the highest in the world.
Now that the financial markets are crumbling and the real economy is sliding into a recession, the US government is using all the policies that its cherished free-market doctrine denounces – nationalisation, budget deficits, lax monetary policy and what not.
The unfortunate thing, however, is that American pragmatism does not extend beyond its borders. In a version of "don't try this at home", Americans tell other people that they should all adopt the free-market, free-trade model. However big their financial crises are, other countries are told that they should let the markets correct themselves.
Of course, other rich countries do not have to listen to US advice, although Japan did so in the 1990s and made its infamous financial crisis even worse by trying to get out of it without public bail-outs. However, the story is different for developing countries. They cannot ignore US advice, or else they will not get the endorsement from the US-dominated International Monetary Fund, which is important in getting access to the international capital market.
So in its 1997 financial crisis, Indonesia was forced by the IMF to close 16 banks at the same time, prompting a bank run. It was made to raise interest rates to 80%, and the president of Indonesia was humiliated by being photographed signing terms of agreement with the IMF, while the Fund's managing director stood over him with arms folded. Similarly, Korea had to shut down close to a quarter of its financial institutions and raise interest rates to 30%. The country was forced to run a budget surplus, despite the fact it had the then second lowest public debt (as a proportion of GDP) in the OECD. Only when its economy took a nosedive for six months, it was allowed to run a small budget deficit equivalent to 0.8% of GDP, when the $700bn bail-out package alone will increase US budget deficit by 5% of its GDP.
The recent crisis in the US has exposed the limits of the free-market doctrine that has ruled most of the world in the last quarter of a century. True to its history of pragmatism, the US is dealing with it by ditching free-market policies when "necessary", which at this moment happens to be almost all the time.
However, the US needs to go a step further. It should openly admit that, if markets need the state, it is better to have the state intervene regularly and prevent a free-market mess from developing because the clean-up comes at much higher costs to the taxpayers. It would help the world even more if the US accepted that all countries, and not just itself, have the right to use a pragmatic mix of the market and state intervention according to their own "necessities", as Mr Bush put it so succinctly.
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Our false oracles have failed. We need a new vision to live by
Our false oracles have failed. We need a new vision to live by
Huge financial success has hidden the moral bankruptcy in our civilisation, We must rediscover our lost values or perish
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Sunday, 26 October 2008
The Obaminations Of Barack
By Niranjan Ramakrishnan
26 October, 2008
Countercurrents.org
No presidential contender I have seen, other than Bill Clinton, has run a better campaign than Barack Obama. If nothing else, one must hand it to him for the magnificent improbability of the effort – a guy whose last name sounds like 'Osama' and whose middle name is the same as Saddam's – running for president in America, where the average Joe (including the plumber, likely) doesn't know Madrasi from Madrassa – now poised, and in the view of many, on the verge of victory!
A Winner
Obama has many things to be said in his favor: high intelligence, a rounded education, international exposure, and not least the facet remarked upon endlessly these last few weeks – a steady temperament. On the practical side he has displayed a power of organization that is not to be ignored, one reason to hope the traditional Republican electoral mischief of the last eight years is less likely to succeed (though no less likely to be attempted). After all, no matter what your ideas, winning elections has a practical element to it, and Obama has shown most definitely that, "Yes he can".
Race without Race
Now to Obama's political ideas, and what he offers the country. First we must get past the asinine gushing over how great it would be to have a black president, woman president, etc. As someone pointed out, tongue in cheek, Africa has had black presidents for half a century (Haiti for four times as long), with results generally not much to write home about. And Benazir Bhutto's coming to power in Pakistan brought about no great improvements in that country, even for its womenfolk. Nothing changes just because of one individual from a certain race or gender coming to power.
Thus we should treat Obama just as another candidate, and ask the real questions: what does he want to do? Has he shown signs that he can?
A Consequential Candidate
During the primary campaign Obama, in a tight race against Hillary Clinton, took a shot at Bill Clinton during an interview with a newspaper's editorial board. He said something to the effect that Bill Clinton was a less consequential president than Ronald Reagan – for he had not altered the country in the manner Reagan did. This struck me as a good sign of Obama's understanding – Bill Clinton's signature achievement (reversing the budget deficit) was set at naught within a year of his leaving office – so much for his building a national consensus. Ronald Reagan's views still inform (or infest, some might say) the body politic. So, clearly, Obama is setting some standards for his presidency.
The Prince of Peace? Really?
Obama would have been just another presidential wannabe if he had not given that single speech against the Iraq War in 2002. That speech has been milked as a permanent political ATM; it was this address that gave Obama his initial spurt when he launched his campaign, coinciding with a time when there were about a 100 Americans getting killed each month in Iraq. However it would seem that to Obama, this was just a bullet point (no pun intended) on his resume, not a cause. Bill Clinton pointed out an inconvenient fact, namely, that Obama's record on Iraq once he got to the US Senate was exactly the same as Hillary Clinton's, whose flawed judgment on Iraq was one of Obama's main planks. Bill Clinton termed this notion of Obama being a serious opponent of the war in Iraq a 'fairy tale' (only to be reviled as a racist – he was not calling the candidacy a fairy tale, only Obama's ongoing stands on Iraq, but by then he had lost the media which had commenced its ballroom dance with Barack).
War, Uninterrupted
It is clear to anyone looking at the record (see for instance Restoration Boulevard) that the war itself, or even the Iraq War he opposed – causes him little ongoing moral anguish. As he himself said at that pivotal 2002 speech, he was not against all wars, only 'dumb' ones. Sure enough, he was soon expressing his willingness to consider attacks against Iran, Pakistan, and backing for Israel should she attack her enemies, etc., etc. Notable too was his lack of outrage at Israel's bludgeoning of Lebanese cities during the summer of 2006. His speech to AIPAC, an Israeli lobby group powerful enough to make American presidential candidates grovel, was certainly not lacking in belligerence. His ongoing theme of sending more troops to Afghanistan indicates that in matters of unilateral foreign military intervention, Obama is entirely at home with George W. Bush, Richard B. Cheney and yes – John Sidney McCain III.
At least going by public pronouncements, therefore, little by way of change is to be expected on this aspect of foreign policy.
The Constitutional Scholar
Obama edited the Harvard Law Review, an honor given to few. He was also professor of Constitutional Law in Chicago. Whatever one's political beliefs, unless one is of the opinion that 9/11 and the 'War on Terror' have somehow abrogated the Constitution, the Bush administration's depredations of the nation's laws should cause every legal scholar to writhe in agony. Law professors like Jonathan Turley have spoken out often about the brazen violations of the law by the administration and expressed consternation at Congress remaining supine in the face of these abuses. Obama however has remained a silent spectator. In fact, he reversed his initial opposition to the FISA bill and ended up voting for it (giving a convoluted explanation for his change of heart). Anyone would have thought a legal scholar at least would stand up for the Constitution. No such luck. In his soaring speeches abuses against the Constitution find little mention.
A Steady Head in a Crisis
When John F. Kennedy was asked about his heroism, he replied, "It was involuntary. They sank my boat. " Of course everyone knew he was being modest about his role, which included swimming out into the ocean to save a colleague, leading his team to safety and keeping them alive before they were rescued several days later by an Australian captain.
One hopes Obama, when asked by historians, will have enough modesty to reply that his ascension was involuntary – "they sank the financial sector". Before the cratering of Lehman Brothers and AIG and the ensuing turmoil, Obama and McCain were running neck and neck, with the latter even running ahead in some polls. It was at this juncture that Obama displayed superb instincts, bringing to mind what Secretary of State Dean Rusk once told a junior during a crisis, "Don't just do something. Stand there!"
Obama's steadiness of manner was accentuated even more by the twitching figure at the other end of the presidential boxing ring, whose responses brought to mind the Wodehouse exchange along these lines: "'Drive like the blazes', he yelled at the chauffeur. 'Where to?' asked the other, not unreasonably". In the end, Obama and Biden joined John McCain in doing exactly the same thing: voting for a bailout package neither had authored, including an extra 150 billion dollars of grease to get it through the House of Representatives. What was Obama's contribution? Not clear if there was any. But this much his mother has taught him well: Don't try to catch a falling knife.
Throw (Grand)momma from the Train
As Duryodhana memorably points out to Vidura in the Mahabharata, virtues in a ruler are not the same as those in an individual. It was presumably at an individual level that EM Forster wrote, "If I had to choose between betraying my country and betraying my friend, I hope I should have the guts to betray my country." If the opposite is the index of statesmanship, Barack Obama has displayed it in spades – jettisoning friends at the earliest sign of trouble. In his celebrated (though short-lived in its efficacy, for the Rev. Wright was to scale new heights soon thereafter – see Barack Bertie and Jeremiah Jeeves) speech in Philadelphia, Barack Obama not only sought to distance himself from the pastor, but also threw in his own grandmother's private utterances to her family as a counterbalance to the Rev. Wright's public fulminations. It struck me as chillingly cynical when I heard it, a man (rightly) unwilling to put his children before the press, but throwing out his grandmother (the same ailing lady he is off to visit in Hawaii this week) without compunction to sustain a political toehold. This was coldblooded and ruthless calculation on full display.
Excuse me
Of all the lame excuses – "I've decided to spend more time with my family" (after an affair), "I was quoted out of context", "I deny that I denied it", etc., Obama's excuses take the cake. When asked about Wright's sermons Obama, a regular at Wright's church for 20 years, said this – I was not in church that day. As to William Ayers, "I was 8 when he committed his vile acts". Obama is too intelligent a man not to know the absurdity of this line of argument. He is banking on a press that is so smitten with him to ask, "And were you 8 when you sat down with Ayers?" The straightforward answer would have been to say that he doesn't have to agree with everything his friends say. A similar weasel reply greeted questions about his being a Muslim: I've never been a Muslim, I am a Christian.
Here's how Ralph Nader replied when he was asked about his religious affiliation at a public meeting recently: "First, none of your business. Second, Church and State. Third, I think there's too much religion in our public life". If only Obama had answered this way! But caution is his middle name (oops!).
Beholden to Biden?
Obama's feelings about the Iraq War and his evaluation of the war as the single greatest strategic error ever committed by the United States stand in sharp contrast to his choice of Joseph Biden as his running mate. This worthy windbag not only lobbied and clamored for the Iraq War Resolution, but stood by his vote for years thereafter, even mocking Cindy Sheehan for questioning the War. This is the same former chair of the Judiciary Committee who fawned before Alberto Gonzales – yes that same Alberto Gonzales – saying to him during his confirmation hearings, "I like you. You're the real deal". This after Abu Ghraib! (In mitigation, it should be added Biden did not vote for Gonzales' confirmation).
Senator Biden is the man whose judgment Obama values and has picked for his running mate.
A Campaign sans Answers – and Questions
That such a campaign appears set to defeat the McCain-Palin ticket so handily is commentary enough on the vacuousness (and viciousness) of the Republican effort, although it is equally a sign that enough people are seeing through the various schemes and scams of disassembling ongoing for the past 28 years.
Overall it is astonishing that a campaign season that has lasted nearly two years has managed to avoid any discussion of basic questions such as "What is the role of the government?", or "Is terrorism really our #1 priority?" or "How bound should America be to Israel's foreign policy?" or "What's wrong with universal health care?" or "Is it OK to attack other countries?" or "Can a government violate the Constitution amidst a war?" or "Should the government spy on its own citizens without a warrant?", or "What is a just tax policy?".
It is only accidentally that one such question has been brought up, "Should we spread the wealth around?" I appreciate that Barack Obama brought up this issue, but I wish he would stand up and defend his 'gaffe'. Here's my answer to this question (Adrift, Yes. A Draft? Never) some years back.
It was Joe Biden who nailed Rudy Giuliani as a shameless self-promoter whose every sentence was made up of a noun, a verb, and 9-11. By the same token, Obama's can be said to contain a noun, a verb and either Hope, Change, or First African American (the last more often during the primaries).
False Choices
We are often told that we have no choice but to vote for Obama because McCain would be a third term of Bush. Let us conceded that McCain is demonstrably unfit. But McCain and Obama are not the only two candidates on offer. Ralph Nader is a man who has already done more for average Americans by his activism then either McCain or Obama can hope to achieve. Bob Barr has been consistent in standing up against violations of our rights and liberties.
Besides, before romancing the Democrats, it is wise to remember that it was a Democratic Senate that passed the Iraq War Resoloution; it was a Democratic Congress that passed the FISA bill (with Obama voting for it), and it was the same Democratic Congress which passed the Bailout package (with all its pork). To paraphrase Shakespeare, "The fault, dear Brutus, is not in our Presidents, But in ourselves...". So long as we remain consumers, not citizens (see Silence of the Lambs), our politics are sure to play false.
Back before Fo(u)rth
My fundamental problem with Obama is not with his solutions but with his diagnoses. The problem is not partisanship or bickering. If anything the problem is the lack of partisanship – partisanship with the Common People. Partisanship with the Constitution against the Corporations. Congressional Partisanship against a usurping Executive. Partisanship of the press against those in power. Unlike Obama, I think that before we can go forward, we must first go back. In a forthcoming article (Cleaning up after Bush), I write the following:
Barack Obama explicitly stated in his acceptance speech that there is no going back. That would be true if we were on the right track to begin with. In our situation, exactly the opposite is true. We are off the road, lost in the woods, and need to go back to the main road first before going anywhere. Without that essential step we can only get more lost.
If Obama is serious about moving the country forward, he must first restore it to where it was before. He might sense this, but does he have the will? Obama has run a sterile campaign touching no political issue of significance; it is not clear whether he thinks of himself as a technocrat, or whether he feels his first job is to win. Judging from what he has said so far, he appears unlikely to rock the boat even to right it.
Dr. Johnson said that a second marriage is a triumph of hope over experience. The post-election scenario is akin to a second wedding, where one has to fall in love with the candidate in his new incarnation as incumbent, all over again. Perhaps even those of us who were unmoved by his charms during the campaign will be surprised by Barack Obama the President. After all, to use his own cliches, one can always Hope that he might Change! Let us hold our breath (or will it be our noses?).
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The more Starbucks a country has, the worse its economic crisis
Sunk in the sloppy mess of the Frappuccino recession
The more Starbucks a country has, the worse its economic crisis. Where lies the link between coffee and greed?
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Saturday, 25 October 2008
Pretenders all of us
By Chan Akya
I am highly inspired by the testimony provided by Alan Greenspan, former chairman of the Fed and formerly the most powerful man in financial markets, to the US House Committee of Government Oversight and Reform on Thursday. Headlines immediately captured the essence of the prepared testimony, namely that "the" Alan, as we can call him in the style of the times, had admitted some shock but hadn't really fessed up to any major mistake on his own part.
Now of course, there is the whole ego, superego and id thing; but the little matter of continuing employment wherein the former chairman derives some tidy income from consulting for the world's major financial companies in sectors such as mutual funds (PIMCO) and banking (Deutsche Bank). Then there is always the matter of book sales [1], which may be adversely affected by any notions of fallibility.
In any event, many commentators have in the past attempted to create a dictionary of what Greenspan means when he uses any particular phrase. His commentaries and numerous testimonies during his tenure were famous (or infamous, depending on how much you actually understood) for the use of code, with specific phrases designed to excite the markets but leave lay people utterly befuddled.
In the same spirit, the following few phrases that appeared in his testimony on Thursday have been translated for the benefit of Asia Times Online readers. I have also added a comment on what a certain fictitious chairman of the Fed (let us call him Paul V) might have said in the same place.
The Alan: "We are in the midst of a once-in-a century credit tsunami. Central banks and governments are being required to take unprecedented measures. You, importantly, represent those on whose behalf economic policy is made, those who are feeling the brunt of the crisis in their workplaces and homes."
What he meant: "I am really glad it's you not me doing the heavy lifting. Furthermore, my opening with the tsunami reference is designed to make this whole mess seem like an unpredictable seismological event rather than the simple effect of various policy mistakes."
What Paul might have said?: "I messed up."
The Alan: "What went wrong with global economic policies that had worked so effectively for nearly four decades? The breakdown has been most apparent in the securitization of home mortgages. The evidence strongly suggests that without the excess demand from securitizers, subprime mortgage originations (undeniably the original source of crisis) would have been far smaller and defaults accordingly far fewer. But subprime mortgages pooled and sold as securities became subject to explosive demand from investors around the world. These mortgage-backed securities being 'subprime' were originally offered at what appeared to be exceptionally high risk-adjusted market interest rates. But with US home prices still rising, delinquency and foreclosure rates were deceptively modest. Losses were minimal. To the most sophisticated investors in the world, they were wrongly viewed as a 'steal'."
What he meant: "Hey don't look at me; all my data said this sort of stuff could never happen. It's the fault of all those poor people who couldn't see that they were supposed to turn away the free money being offered to them, and the fault of all my rich buddies for trusting these poor folks in the first place."
What Paul might have said?: "Firstly, it is not true that economic policies had worked well in the past four decades, as the series of crises in the US and around the world from 1968 to the present would tell us. I should have tightened credit policy and banking supervision when the growth in higher risk mortgages appeared to increase disproportionately to actual income growth in the United States. Furthermore, the billions of dollars flowing into the US should have alerted me to potential bubbles and forced me to hike rates drastically. Or in short, I messed up."
The Alan: "It was the failure to properly price such risky assets that precipitated the crisis. In recent decades, a vast risk management and pricing system has evolved, combining the best insights of mathematicians and finance experts supported by major advances in computer and communications technology. A Nobel Prize was awarded for the discovery of the pricing model that underpins much of the advance in derivatives markets. This modern risk management paradigm held sway for decades. The whole intellectual edifice, however, collapsed in the summer of last year because the data inputted into the risk management models generally covered only the past two decades, a period of euphoria. Had instead the models been fitted more appropriately to historic periods of stress, capital requirements would have been much higher and the financial world would be in far better shape today, in my judgment."
What he meant: "Nobody really knew how to price or trade these things. They even managed to confuse the idiots on the Nobel committee. So don't blame me for believing the balderdash. Also no one told me Nicholas Nassem Taleb was writing a book [2] that would point out all these model fallacies and so sell more copies than my book did."
What Paul might have said: "We had enough experience of other crises, such as the Latin America debt crisis that blew up our banks in the late '80s, to know the effect of false assumptions and poor data on the integrity of our financial system. This should have alerted us to the potential for mispricing and false profit generation; that should have forced us to intervene on the regulatory and accounting side of these transactions to make them less attractive for our banks to do. That was my job as Fed chairman, and I failed. Or in short, I messed up."
Fessing up
Having translated some of the comments for Asia Times Online readers, I will now fess up to my own mistakes in assuming that the end of the Group of Seven leading industrialized countries [3] could be hastened by the emergence of new giants such as Russia and some Asian countries.
In particular, three countries have recently performed a whole lot worse than my expectations, in effect denting any claims they can have in coming years for being considered serious (and independent) investment destinations. These three countries are Russia, South Korea and India: I have left out for now other countries that seem in greater danger of tipping over, such as Indonesia, as they were never considered anything more than exotic destinations. The three above though were talked of in some earnest as breaking their historic moulds but instead may well have been exposed as fraudsters being pulled up by the global economic prosperity.
I show below the performance of the countries' equity indices and their currencies against the US average, and for good measure those of China. While the relative equity performance is nothing to boast about for China (indeed, as equity returns are currency adjusted it means that nominal performance in China was the worst across that column), the trio of Russia, South Korea and India show some eye-popping bad numbers. The most difficult to believe is the significant decline of the Korean won against the US dollar this year; shocking for a country that showed an improving current account balance until the middle of this year.
| YTD Equity Return % | YTD Currency Return % | |
| Russia | -72 | -9.10 |
| Korea | -63 | -49.62 |
| India | -62 | -26.34 |
| US | -38 | NA |
| China | -62 | +6.33 |
This is however not all of the bad news - as the current crisis is very much one rooted in the credit markets, it makes sense to evaluate the relative riskiness of the various governments underpinning the economies. This we can do by looking at sovereign credit default swaps (CDS), that is, the insurance payment being demanded by a market counterparty to cover your risk of that government failing to repay its obligations. These are traditionally shown in basis points or one-hundredth of a percentage point (thus 500 basis points means 5%).
From the CDS value, the implied probability of default being assigned to that sovereign can be worked out provided we can assume a certain "loss given default", (or LGD, which is fixed here at 60%); this is shown in the column after the CDS. Note that the figure below for India pertains to its largest state-owned bank (State Bank of India) because the government itself doesn't have any externally traded obligations.
| Oct 23rd 5yr CDS spread | Implied Prob of Default % | |
| Russia | 1100 | 61 |
| Korea | 600 | 41 |
| India | 750 | 48 |
| US | 25 | 2 |
| China | 235 | 15 |
From the above, it is clear that none of the pretenders and especially not the first three countries can claim to be in a position to overtake the existing global benchmark for risk-free assets, namely the United States. It is shocking and rather amazing that despite holding about US$1 trillion of reserves between them, the three countries average a default probability of 50% within five years. That one-in-two chance of default within the period shows that these countries have never truly learnt the lessons of the past few decades.
Russia
The simple matter of evaporating market confidence has belied Russia's claims to great-power status, resurgence under president and now Prime Minister Vladimir Putin and so on. For a country with more than $500 billion in reserves (itself down around $100 billion from just August this year), market signals are not so much about the government as they are about the overall level of confidence in the economy and its business representatives.
The first point of the market's loss of confidence is the mounting debt maturities of various Russian companies and the country's largest banks, all of which tapped the short-term (one- to two-year) markets to finance their expansion plans. With many of these facilities now coming due for payment, and no prospect that any investor would agree to postpone payments for another couple of years (refinancing), the Russian government has been expected to step up.
The only other alternative for investors in such nominally private companies, namely to convert the debt into equity stakes, doesn't apply in the case of Russia, due to the high-handed behavior of the government. Thus, despite very little in the way of direct obligations, the shadow of the 1998 debt default by Russia along with a string of Kremlin-inspired malfeasance has scared investors and caused a flight from Russia. Many oligarchs are rumored to be urgently stashing away their wealth in destinations far away from Russia, adding to the pressure on the currency - this is even being cited as one reason for private companies to deny payments to foreign creditors as their owners make off with the bank balances.
It is still possible for Russia to take remedial steps that could prevent an escalation of the current crisis into a full-blown economic collapse. After underpinning the viability of Russian banks, it must undertake quick steps to improve investor confidence; for example by avoiding arbitrary closure of its stock markets whenever prices fall [4], avoiding the temptation to indulge in currency intervention and implementing steps to improve bankruptcy procedures, corporate governance and the like which can help create equilibrium much faster.
South Korea
Perhaps the country that shocked me the most by its presence on this list, South Korea has failed to learn the basic lessons of asset-liability and liquidity management from its previous crisis in 1997-98. Most recently, the Korean government has had to unveil a $100 billion guarantee program for the offshore debt of its banks, taking away a rather substantial chunk of the $240 billion or so of foreign exchange reserves that it boasts.
Given the escalating current account deficit and poor prospects for investment inflows, it is possible (albeit very unlikely) for Korea to run out of foreign exchange by the beginning of 2010. This must be problematic for any country, and more so for one with international pretentions, as shown by the abortive global takeovers attempted by South Korean companies such as KDB [5] and Samsung in recent months.
There are numerous culprits here. Most notable is the Bank of Korea, which followed an ill-advised policy of maintaining an onshore US dollar shortage in order to deflect the potential for Korean won appreciation. In so doing, it created the conditions for greater offshore borrowings to fund the economic reliance on the export market rather than domestic consumption. In turn, this left banks and companies with the same mix of short-term liabilities against longer-term assets that marked South Korea's first descent into a balance of payments crisis in the Asian financial crisis of 1997.
Ironically, many equity index managers were finally upgrading Korea from its perch in "emerging markets" to a new "developed markets" level; instead it appears that Korea will have to negotiate to stay afloat in the emerging markets category; its most recent equity, currency and credit performance certainly put it in the same category.
India
To a number of people who bought into the BRIC - Brazil, Russia, India and China - hoopla, India's fall from grace parallels that of Russia. Here again, it is not the external borrowing practices of the sovereign itself that are to blame; funnily enough, neither are the borrowings of local companies in global markets considered to be excessive. In any event, less than $25 billion of Indian corporate and bank debt falls due by the end of next year compared with $275 billion of foreign exchange reserves that the country boasts. Even accounting for zero capital inflows and continued current account deficits, the overall cushion will remain close to $200 billion.
Achilles though still has a heel. The loss of confidence can be traced to the haphazard decision-making of the central bank, which came late to the inflation-fighting party this year in a futile attempt to prevent foreign exchange appreciation, thereby causing policy about-turns that stun even the most adept of investors.
Secondly, political noise in the country has been increasing ahead of next year's elections. This has turned investors naturally cautious, and in turn made crisis management a bit trickier for the government (in which respect there is much in common with the recent US experience).
Thirdly, there is legitimate concern both domestically and offshore about the impact of low infrastructure investments by India over the past two decades. The problems seen in the poorest parts of the country offer a closer view, albeit one that the media have been slower to latch onto compared with the markets.
Recent violence in the state of Orissa between Hindu fundamentalists and Christian missionaries showed not so much the tinderbox of religious intolerance as it did the fairly low "price" that poor Indians assigned to their centuries-old culture and religion. For the destitute and the desperate whose battle for basic sustenance is all-consuming, manna from any source is welcome. Inconveniently enough for the people who believe in an India that can outshine its recent past, the images aptly conveyed the two sub-nations (the upwardly mobile and the downwardly stale) created by communist-inspired governments in the country. [6] As in the case of Russia, the response from investors has been to sell first and ask questions later.
And in closing ...
Perhaps the one quote from Greenspan's testimony that I find myself agreeing with, and especially the last sentence: "There are additional regulatory changes that this breakdown of the central pillar of competitive markets requires in order to return to stability, particularly in the areas of fraud, settlement, and securitization. It is important to remember, however, that whatever regulatory changes are made, they will pale in comparison to the change already evident in today's markets. Those markets for an indefinite future will be far more restrained than would any currently contemplated new regulatory regime."
The fact that a market become overcautious at the drop of a hat (or a few billion dollars) is borne out by the experience of the US subprime mortgage market, as it is for countries such as Russia, South Korea and India. In all these cases, the loss of confidence that has been sparked by a combination of quantitative and qualitative factors will induce substantial behavioral shifts that will take years if not decades of patient reworking for these markets and/or countries to correct. Pretenders, whether they are government officials or market fallacies, will always be exposed.
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