29 June 2011

Christine Lagarde, IMF and the Question of Bailout

As predicted, Christine Lagarde was appointed the new Managing Director of IMF. As I said before, I like the idea of a woman finally running the Fund. It is a huge leap forward and I firmly believe gender should be given as prominent a role as Europe vs emerging markets criterion in selecting candidates.

Moreover, by all accounts, Mme Lagarde is a very competent and hard working woman and she would be an excellent IMF Chief.

Having said that, I have to reiterate that I am not as sanguine about her purported mission to solve the lingering Eurozone crisis. My educated guess is that she will push the recent Sarkozy plan to roll over Greek loans for a period of 30 years and will play a major role in convincing the rating agencies that this should not be viewed as a technical default.

The idea itself is fine as far as it goes. My problem with it is the framework upon which it rests. Capitalism is about risks and rewards, we are told. But the question is that is it still the case?

24 June 2011

Contrarian Notes on Greek Debt Crisis, the Euro and the EU

I mentioned my belief that Christine Lagarde's candidacy was about getting IMF involved in the Eurozone bailout to protect French and German banks.  Looking at the unfolding Greek crisis you notice that they are Greece's largest lenders with 56 Billion for France and 34 Billion for Germany:
Country Total lending exposure to Greece (millions) Total Government debt exposure to Greece (millions) 
Total of 24 countries 145,783 54,196 
European banks 136,317 52,258 
Non-European banks 9,466 1,938 
France 56,740 14,960 
Germany 33,974 22,651 
Italy 4,085 2,345 
Japan 1,631 432 
Spain 974 540 
UK 14,060 3,408 
US 7,318 1,505 
Source: BIS Quarterly Review
But that is only a tiny portion of the story. These figures might give you the impression that their exposure is relatively small and perfectly manageable. But if you looked at the overall exposure of German and French banks in Greece, Spain, Portugal and Ireland, you would see that they are on the hook for 900 billion euros.
German and French banks carry a combined $119 billion in exposure to Greek borrowers alone and more than $900 billion to Greece and other countries on the euro-zone's vulnerable periphery: Portugal, Ireland and Spain.
In fact, the overall debt and exposure distribution is as follows:

If the problem was about Greece alone, the so called "haircut" solution would have been already at the top of the agenda. In fact, it is mathematically impossible to solve the Greek crisis without a haircut. With close to $500 billion in debt, it is simply impossible for them to pay any of it off, especially if the payment has to be done while contracting their economy ruthlessly. The sensible solution would be to let them stimulate their economy with more deficit financing and pay their debt down the road.

But that is not possible right now for both economic and ideological reasons.

21 June 2011

France, Modernity and Post-Modernity: a Case for Muttering

When you walk around any city in France, you will see people who seem to be talking to themselves. This could be a barely audible muttering or it could involve full-fledged statements.

I am not exaggerating.

And Bluetooth earpieces are extremely rare here.

At first that puzzled me. Why would a middle age woman searching furiously her loudly ringing cell phone declare to no one in particular "I didn't think they would call me now"? Why would a man explain why he is putting a bottle back to a supermarket rack by stating "they seem to have change the label"? Why a professional woman, upon noticing the first drops of a rain, declares loudly "I checked before I left the weather, they did not predict rain"?

It seems like they are explaining their behavior to a higher authority, one that is always looking and monitoring: it looks like they are trying to make that authority understand that what appears to be erroneous behavior on their part is perfectly normal or easily defensible.

Since a lot of the times there is no one paying any attention to what they are doing, initially, I did not get why they were so preoccupied with being misunderstood.

Then, one day I was walking in the 7eme arrondissement and I had an-apple-fell-on-my-head-oh-my-goodness-so-gravity-exists moment.

I noticed a stern looking building with windows well protected by iron bars.

I thought that it could be minimum security prison or a factory from the early years of Industrial Revolution. Or maybe a government building like a post office. I moved closer to see what the building was and I discovered that it was a primary school.

I immediately remembered how Foucault described the functional nature of these early buildings used interchangeably as prisons, hospitals and government buildings and of course, as schools. They were designed for the surveillance of prisoners, patients, workers and pupils. His term for the accompanying process was normalization.

15 June 2011

Quote of the Day

If a woman has her Ph.D. in physics, has mastered quantum theory, plays flawless Chopin, was once a cheerleader, and is now married to a man who plays baseball, she will forever be “former cheerleader married to star athlete.”

Maryanne Ellison Simmons, wife of Milwaukee Brewers’ catcher Ted Simmons, quoted in Ann B. Dobie. Theory into practice. An Introduction to Literary Criticism. London: Thomason, 2002. 97.

14 June 2011

IMF and Christine Lagarde

As expected, Christine Lagarde is shortlisted for the job of Managing Director of IMF.

The reason I did not mention the other person on that short list (Augustin Carstens) is because everyone expects her to get the nod and he is just the runner up. As he himself said "I'm not fooling myself. It's like starting a soccer game with a 5-0 score."

Since the beginning, the voting structures of the World Bank and the IMF enabled the US and Europe to have an unofficial arrangement to select an American to run the former and a European to manage the latter. In fact,  European might be an understatement as France has had four Managing Directors in the 35 out of its 65 years, which works out to be 54 percent of the time. Lagarde will be the fifth French Director of the Fund.

I like the idea of a woman finally running the IMF. From what I read she is a very bright and hard-working person and she would be a very good Director. My only issue with her candidacy is that she is representing a specific perspective regarding the Euro zone debt crisis.

There are two main schools of thought on this. One side, let's call this the Ireland option, says that while the banks and the banksters may have given risky loans to some Euro zone countries like Iceland, Ireland, Greece and Portugal, we should not penalize them and we should make the loans risk-free retroactively.  Instead,  partly because it was a sovereign debt and partly because we are told we cannot afford to let banks fail, according to this view, we should force these countries to socialize private risk and to find a way to pay back their creditors. As a carrot, this school says that if these countries follow its recommendations, they will be helped by ECB and IMF. As a stick, they enforce austerity measures and selling of public assets.

The other side, let's call that Iceland option (and interestingly their Prime Minister Jóhanna Sigurðardóttir is a woman and openly gay politician), says that the banks and banksters gave those high risk loans knowingly and in fact helped them hide the risks so they is no reason to socialize that private risk. It was their risk and this is how capitalism operates, you take risks, they pay off you win, they don't you lose. The threat (i.e. the stick) here is that they will never be able to borrow in the open markets ever again and their economy will be doomed forever and ever.

In other words, the debate is between the side that argues in favor of bailing out the banksters and those against it. Those who say that these are our Galtian overlords and we need to inflict pain on ourselves to save them from the consequences of their actions and those who say this is capitalism and a haircut every now and again is part of the system

Iceland voted no to a deal and rejected a proposed bailout. Ireland accepted the deal and socialized the bankster's debt. As a result they implemented austerity measures, their economy shrank and unemployment rose.

Guess what happened to the prediction that Iceland will never ever be in the open markets again.

The credit default swap (CDS) for the Icelandic state has now dropped to 200 points and has not been lower since many months before the banking collapse in October 2008. The CDS has been in constant decline since January and indicates growing faith in Iceland’s economy.
Meanwhile, the CDS spread for Ireland is 683 basis points.
Why, it’s almost as if defaulting on debts run up by runaway bankers and letting your currency depreciate works better — even from the point of view of investors — than socializing private-sector losses and grimly sticking with a fixed exchange rate.

If Christine Lagarde is selected (as she will be), she will look after the interests of Société Générale and Deutsche Bank, both of which are heavily exposed in the Euro zone saga. And she will use the clout of the Fund to make these countries comply with the Ireland option, use IMF funds to bailout those banks and make these countries suffer to pay back those loans.

I am always in favor of women running things, but I object to it when they run to do the dirty work of men. It is like Socialist or Social Democratic Parties implementing austerity measures to address the consequences of the conservatives' profligacy (remember W and his trillion dollar tax cuts and two expensive wars).

In this case, an emerging market economist would almost certainly be better than Lagarde. It is very telling that a very acceptable candidate (one they could sell both as a European, thus not changing the current arrangement and as an emerging market economist), Kemal Dervis was quickly put aside as rumors of a previously unknown affair surfaced immediately. He would not have been an acceptable Manager not because of past indiscretions (an affair he had when he was single) but because he is a good friend and adviser of Papandreu. He would have been more likely to advocate a haircut for the banksters. And we cannot allow that.

DSK might have been the Satyre de la République but at least he moved the Fund to the left and had the common sense to advocate Keynesian spending at the height of the crisis in 2008. With Lagarde, we are likely to have a defender of austerity for the people and a program of bail outs for the banksters.

And that offends me as a tax payer whose euros will go to cover the banksters' risk.

Syria's Unfolding

The next few months will be critically important about the future of the Middle East in general and of Syria in particular.

Last week, the Syrian regime claimed that the protesters killed some 120 security personnel. The protesters made the counter claim that these people were killed by their senior officers as they refused to fire upon the protesters. I heard from some people in the region that some shadowy Salafist group was responsible for the murders. They argued that the discovery of a mass grave with ten bodies, four of which beheaded, support this claim. But I find that claim to be highly improbable and considering that similar claims about the insurgents were made by official sources and the Baath Party leadership, I think the rumors are likely to be an attempt to render the situation even murkier.

As for the protesters being responsible for the killings, I seriously doubt that they have the arms and the training to be able to ambush a large contingent of security forces and kill 120 of them. Even if they were able to do so, it would not have been possible without severe casualties on their side and there were no such reports.

Which leaves the highly likely option of the Syrian state being responsible of these killings. Maybe it was the punishment for mutiny as the insurgents claimed or it was caused by some other event. Either way, the way it was presented to the world did sound like a highly publicized effort to justify the eventual shelling and ruthless destruction of Jisr al-Sughour.

Ba'ath Party crushed uprisings before and killed thousands of people with impunity. They did it in 1980 in Aleppo, or in 1982 in Hama, killing tens of thousands and declaring their willingness to kill up to a million people if needed. They are now getting ready to do it again.

Except this time around, Turkey opened its borders and suddenly shifted its rhetoric against the Ba'ath leadership. The muted commentary of up until two weeks ago gave way to terms like unacceptable savagery and atrocities.
Turkey's Prime Minister Recep Tayyip Erdogan, whose warm relations with Assad prompt both men call each other "brother," said late Thursday that Syria's actions were "savage" and could not be defended at the United Nations.
"Unfortunately they are acting in an inhumane way," said Mr. Erdogan. "The savagery right now ... these images are hard to eat, hard to swallow."
This is a very significant turning point and I somehow doubt that the Syrian leadership will have a clear understanding of it. Previously, shelling civilians who had nowhere to go was relatively easy and successful. But now that Turkey has opened its borders and thousands are fleeing, suppressing the uprising completely will become very difficult. In fact, if the Syrian regime insists on following the lead of the President's brother Maher, at some point, the situation could get bad enough that the Libyan case could become a blueprint.

The same players that made a lot of noise to intervene in Libya are also itching to get involved in this conflict. For instance, France and the UK are trying to get a UN resolution passed. Their role will remain limited as they have no access to the region and no power base. But their clamor could be influential in the decision making process of the key players, which are the US, Turkey and Israel.

And of course the Kurds.

If my starting hypothesis is correct and the US is supporting the Arab Spring to implement a number of regime changes in the region with the ultimate goal of stabilizing and controlling the distribution of oil and gas, then Syria is likely to pay a heavy price for its past policies. It has played a central role in Gaza through Hamas and and also in Lebanon through Hezbollah. Historically, it pursued a policy of the enemies of my enemies are my friend, first by supporting ASALA against Turkey and then the PKK. With Hamas and Hezbollah it moved beyond that indirect support approach to shape and control these organizations.

Given my premise, from the beginning of the Arab Spring, I was convinced that sooner or later Syria would be engulfed in a very serious situation. I believe we are witnessing the unfolding of that scenario.

10 June 2011

Anish Kapoor Leviathan Installation in Paris

I went to see the Anish Kapoor sculpture called Monumenta 2011-Leviathan. It was specially created to fit in the enormous space of Le Grand Palais, which is one of the two palaces especially built for the Paris Exposion Universelle of 1900 (the Eiffel Tower was also created for that event).

This is how designboom announced the installation
each year the french ministry of culture and communication invites a leading artist to create a work that responds to the exceptional architectural space of the grand palais in paris. the sheer monumental scale of the building provided the inspiration for a big idea: monumenta.
this year, indian-born, british-based artist anish kapoor created a temporary, site-specific installation inside the nave of the glass-domed hall. the space was originally unveiled at the 1900 universal exhibition.for its fourth edition, after guest artists anselm kiefer, richard serra and christian boltanski, it has been the turn of anish kapoor to meet the challenge with a brand new work for the 13,500 m2 space.
I am not going to comment on the piece other than to say that I have enormous respect for an artist who can conceive such a giant sculpture: it is multifaceted and multidimensional and needs to be experienced.

I am just going to juxtapose how various publications attempted to convey the main point of the installation in their headlines.

Here is the Time and the American functionalism:
The artist erects an enormous inflatable piece inside the Grand Palais.
Here is the Telegraph and the British functionalism
Anish Kapoor's Monumenta sculpture alludes to the idea of the cathedral: the body as living, breathing sacred space.
 Here is Daily Mail and the British working class discourse revue et corrigé par Murdoch:
The next big thing: Giant PVC sculpture stuns the Paris arts scene
Don't be alarmed! This strange blob in the Grand Palais des Champs-Elysees is not some alien creature from the Paris sewers mulching everything in its path
And here is The Guardian and the British working class discourse by Gramscian organic intellectuals of art as politics:
Anish Kapoor dedicates Leviathan sculpture to Ai Weiwei
I hate post-modernity. With a passion.

07 June 2011

A Better Conspiracy Theory

As I mentioned, early on, 57 percent of French people thought that DSK was a victim of a plot. I did not find that possibility credible. It was a clear case of our elite believing to be untouchable and above laws and rules that are applicable to the rest of us.

As I also added, our Galtian overlords have been given every reason to believe that: IOKIYAR. And DSK would have been OK if he had the right identity.

In the case of Anthony Weiner, the New York Congressman who has just admitted of twittering a photo of his erection to a young woman, there is a better conspiracy theory. Some lonely voices in the Left blogosphere have been trying to highlight the fact that Weiner uncovered recently that Ginni Thomas, the wife of Supreme Court justice Clarence Thomas made $700,000 which remained undisclosed for 13 years with all the conflict of interest implications such a situation entails.

06 June 2011

One More Thing about DSK

After I shared my take on DSK with my non-existent readership, I read this wonderfully economical sentence:
My own sexuality is so much about my desire to be desired that the thought of sex without reciprocity leaves me limp.
This is probably the most succinct argument against the typical rapist position of "I knew the slut wanted it" which is likely to be advanced (in a more palatable form) by the defense attorneys in this case.

This wonderful sentence notwithstanding, "one more thing" refers to an anecdote about the ethnicity issue I alluded to in my first essay. I said: 
I get my Jewish friends who fret that somehow the alleged actions of one individual will one day be used against them as a community. I get it because, as they remind me, historically, this has always been the case and most of the time, alleged actions of an individual wasn't even needed: the Jews of Norwich could have told you way back when, in 12th century.
Well, within five days of that, a friend of mine reported an evening of discussion among well-meaning French people. After insisting that assaulting a chamber maid was an incomprehensible act, they suggested, as a possible cause, well, his Jewishness.  

My Jewish friend was flabbergasted.

Sadly, I wasn't.

Turkey, Arab Spring and the US

I suggested a few days ago that the Arab Spring could be seen as chess moves in a larger game if one concedes that the US wants to have a dominant presence in the region to control the global distribution of oil.

I claimed that without a US encouragement it would be hard to explain why the Tunisian and Egyptian armies refused to obey a direct order from their respective commanders in chief, something they have never done previously and, given their close ties to US military, something they would not have done without US acquiescence. And I concluded that, because the security of Israel is paramount for the US, it would not have allowed that type of regime change (at least) in Egypt, unless it fit a larger plan.

Given that premise, I advanced that the requirement for the US to control the distribution of oil in that region is to bring some stability to it by solving its two major problems: the first one was the Israeli-Palestinian conflict. The other is the plight of the Kurds.

Interestingly, both of these solutions and the overall game requires Turkish involvement. And that brings us to Turkey's role in that chess game.

02 June 2011

What is Germany Doing Right?

In the last few decades, thanks to a relentless assault on Keynesian economics, we witnessed the emergence of a peculiar new orthodoxy. On the surface of it, this not-so-new paradigm promoted the deification of the markets and called for very limited interventions into their functioning: money supply and interest rates being the two most obvious ones.

However, this seemingly benign hands-off-the-perfect-markets paradigm had significant political components, such as an almost total deregulation of all economic activities, the removal of environmental or social protection mechanisms, a fierce push back against trade unions in an effort to lower wages and globally enforced free trade arrangements.

This way businesses could cut their cost of doing business by lowering wages, destroying the environment and the social safety networks or they could simply get up and go to cheaper labor countries protected by the rules of global free trade. As a bonus, most of the time, this move enabled them to reduce the amount of taxes they paid in one place.

When the 2009 recession hit Western economies, the universal answer was to implement austerity measures, lay off workers and go after social safety funds. Welfare state, which was already a dirty word became a swear word. Trade unions, already in steady decline lost most of their bargaining powers.

Except in Germany.