Monday, February 28, 2011

Kabul Bank Bailout

It's no secret that Our Friends in Afghanistan are blatantly, shamelessly, and thoroughly corrupt. Last fall, just one more example of Afghan public corruption hit (with minimal impact) the US news media. I am embarrassed to say that while my rage meter certainly registered, my soul, at the time, was too deadened to support even a moderately angry blog post.

Now I'm just sitting here groaning. According to a report by NPR, the USofA is likely to take on a bailout of Kabul Bank, which got itself in trouble by lending money to the brothers of both Afghan president Hamid Karzai and vice-president Mohammed Fahim, along with other well-connected individuals. None of those borrowers seem to have any noteworthy ambition to pay those loans back, so the ordinary Afghan depositor will lose most of his savings unless somebody steps in to prop up the bank.

Guess who is expected to step in? (If you guessed anybody other than the American taxpayer, you were wrong.)

Even if we weren't mired in deficit and debt, propping up the Karzai government — in any way — is pure and simple stupidity. In the context of our total debt, an extra billion may seem like chump change — but it's a billion given away to criminals. Okay, they may be our criminals, but they still belong in jail, not in overpriced US condominiums.

Excuse me, Mr. President, while I stick my fingers down my throat. Since your choice seems to be between bailing out some more thieves and pulling out of Afghanistan, and since I have 99% certainty regarding which choice you will make, I'm feeling violently ill.

Saturday, February 26, 2011

Unsubstantiated conjecture

Raymond Davis, the CIA operative, claims he shot two Pakistanis on motorcycles because they were attempting to rob him. The Pakistanis say he shot both of them in their backs, through the windshield of his car, for no particular reason — although it has been suggested that the two were "assets" who had turned against him.

Washington maintains that Davis is entitled to diplomatic immunity. Islamabad says he's a murderer, pure and simple.

So here's my unsubstantiated conjecture: the two dead men were agents of ISI, the Pakistani intelligence agency, and the killings were the outcome of some kind of "spy vs. spy" conflict that neither government cares to discuss. What kind of conflict? How the hell would I know? Clearly, the CIA and the ISI have not always worked and played well together, and the last people to find out about it are citizens of the US and Pakistan.

Let's just wait and see what emerges.

Sunday, 2/27, 9:40 AM Unsubstantiated conjecture substantiated

Well, we didn't have to wait long! Here's the latest update!

Friday, February 18, 2011


The Republicans have a new hero.

Wisconsin governor Scott Walker and his Republican controlled state legislature have launched a vicious attack on the state's public employees by attempting to bust their unions. The governor maintains that taking away public workers' right to collective bargaining is necessary to reduce the state's deficit, and the major media seem happy to parrot that justification.

Needless to say, that's a lie.

Want public workers to pay more towards their medical insurance? Negotiate it! It's been done, over and over again, in state after state. Need public workers to accept pay freezes or reduced hours? Negotiate it! Public worker unions have gone along with such cuts when real needs exist.

Of course, it's a lot easier to balance a budget on the backs of public workers when government can dictate the terms of employment. Health care costs going up too fast? Easy. Just take away their health insurance — all of it. Need more money to give even more tax breaks to business interests? Easy. Just take it from the public workers.

(Incidentally, the real reason Wisconsin is in deficit — instead of running a surplus — is because Walker signed two big tax giveaways to business and another tax break to encourage an experiment with health savings accounts. Before that, Wisconsin was in very good shape by comparison with other states.)

In other words, Walker created the deficit, then used it as an excuse for union busting. I've got a word for that.


Exempted from the proposed anti-labor law are law enforcement and firefighting unions, either because they were supportive of Walker during the election, or because the public may be willing to live without schools, but not without cops and firefighters to protect them from the depredations of young people who aren't going to school. It would be nice if the cops and firefighters would support their fellow public workers if a general strike became necessary. I wouldn't count on it, though. After all, they got theirs — and "everybody" knows that they're special.

Every cloud has a silver lining, though. Unions, nationwide, are waking up to the real Republican agenda — wiping out whatever remains of the American labor movement. Union members, frightened and disheartened in recent years, finally seem to have had enough.

Thanks, Scott. We're awake now, and ready to push back.

Saturday, February 12, 2011

The Future of Fannie and Freddie

Back in the early 1960s, Fannie Mae was a government agency, and had been so since it was created as part of the New Deal. Lyndon Johnson took it private to raise funds for the Vietnam War. In the intervening years, most commentators seem to have forgotten that history — and that the recent implicit government guarantee of Fannie Mae securities has been a carry-over from the explicit government guarantee that was there pre-privatization.

Today, Fannie Mae and it's near relation Freddie Mac are owned by the government again. Obama, along with most other government leaders who have drunk the Kool-Aid of free market miracle cures, can't wait to take it private again — or, better yet, eliminate Fannie and Freddie altogether. The basic idea, albeit offered as three separate "alternatives," is to make these big mortgage securitization houses less and less competitive until they disappear.

I cannot disagree that the mortgage giants' standards became entirely too lax when it came to deciding which loans would be purchased for securitization. The reason for that laxity, though, was that they were private companies, and had slipped the harness of government regulation thanks to free-market deregulatory fever. Their executives collected vast bonuses based on the amount of business they were able to churn, so riskier loans helped pad their pockets. Shareholders pressured those executives to increase earnings enough to remain "competitive" with finance houses like Lehman Brothers. There was nobody to say "no" when Fannie and Freddie took on vast amounts of irrational risk.

To me, the best thing to do from this point on is for the government to keep Fannie and Freddie, as federal agencies, with the goal of eventually earning back the money spent on their bailout. As federal agencies — better yet, as a single combined Agency — Fannie/Freddie could be operated according to succinct rules, with no need to pander to the greed of Wall Street oriented directors or the pressures applied by shareholders. Think about it:
  • A specific rule could limit the size of a mortgage the Agency could purchase. Reducing the maximum amount to $400,000 seems in line with the goal of helping the middle and working classes afford housing.
  • A specific rule could specify the percentages that must be paid in down payments to qualify a loan for purchase by the Agency, with lower interest rates available for those paying 20% or more, and a minimum down payment of 10% limited to smaller loans designed for the less affluent. Such a rule would reduce and offset possible defaults.
  • If the rules are clearly and precisely defined, "talent" is not necessary among the agency's directors. Bureaucrats, on specific salaries with no bonuses, would fill the bill.
  • The Agency would remain competitive with the private sector because an explicit government guarantee of the securities it issued would allow it to offer lower interest rates than the banking industry. Agency profits usually would not be as great as those generated by private financial firms, but they would be far less volatile.
Without Fannie/Freddie, it seems very certain the 30-year fixed-rate mortgage will wither and die. No private banker will be willing to tie up funds for more than ten to fifteen years at a fixed rate — with no ability to predict the kinds of rates that might prevail in the future. That uncertainty would make shorter term fixed rate mortgages more expensive as well. Without the 30-year mortgage, prospective homeowners would have to wait and save for many years before even thinking of buying a home, and many would wait forever because their incomes never would grow to a size sufficient to pay off a ten- or fifteen-year loan.

If mortgages are difficult or impossible to obtain or afford, demand for existing housing stock will plummet, and so will real estate prices. For the many middle class families whose homes are their most significant reservoir of wealth, the effect will be devastating.

Yes, Fannie and Freddie are seriously flawed — but the flaws emerge from their "hybrid" status. As purely government entities, they can operate successfully and continue to fulfill their original purpose. They can be designed to be moderately profitable or just to break even, depending on will of (a mostly imaginary) Congress. The only reasons to end their existence by complete privatization are ideological rather than practical. Our economy already has been hamstrung by the ideology of the so-called "free market." It's time to take a new look at the true successes of the New Deal.

Friday, February 11, 2011

Told you so!

I was planning to post about Fannie and Freddy today, but, instead, I'll take a few minutes to point out that my post of one week ago, in which I predicted a military coup in Egypt, was right on the mark.

Yes, I know, the media and the President and damned near everybody else is saying that the "democratic revolution" was a success. Well, I suppose it is possible that the Egyptian military will replace Mubarak's corrupt, authoritarian plutocracy with a corrupt, democratic plutocracy (like the United States), but it hasn't happened yet — all that's happened so far is a military coup.

Frankly, nobody really knows what the military elite will do in the coming months. What it has to accomplish, though, is not political, but economic reform. The wealth has to be spread at least a little bit further, so that the educated children of the middle class can find jobs that will enable them to live middle class lifestyles, and the members of the labor syndicates see some improvement in their standards of living.

Unfortunately, the Egyptian military has not shown a great deal of economic creativity, despite the fact that it is involved in a wide range of businesses and industries. It is sure to need help. Hopefully, the generals will know enough to hold the line against the army of free marketeers certain to descend on them momentarily. (If Obama really wants stability in Egypt, he'd better put Jeffrey Sachs on the no-fly list.)

So, good luck to the Egyptians. I now return to "no prediction" mode, and will emerge from it only if I perceive another chance to shoot fish in a barrel.

Friday, February 4, 2011

Coup time?

There is a straightforward way out of the mess in Egypt: a military coup.

A coup would work. Egyptians like and admire their military, and would probably stand behind it if it tossed out Mubarak and crew. The United States would be totally cool with a coup as well. Traditionally, we get on well with military leaders of developing countries, and our arms merchants would be happy because their lucrative contracts supplying the Egyptian armed forces would not be interrupted. (By the way, foreign aid from the U.S. pays more than 80% of the cost.)

The leaders of the coup, of course, would be portrayed in the western press as a "transitional" government. Democracy could wait a while — maybe another thirty or forty years — and the arms shipments to keep the military in power would continue. Israel could breathe easy, since Egypt would continue to be bought.

The chief responsibility of the coup leaders would be to put an end to Mubarak era patronage and corruption, and create a new system of patronage and corruption that would better serve angry middle class youth. The peasantry must continue to receive its subsidized wheat, and a few more NGOs could be invited to drill wells and provide schooling for little girls, but not much else need be done for the poor. As long as they're eating, they'll stay quiet.

Yes, there will be elections — typical Arab world elections to put in place very cooperative legislators with very limited powers. Some members of Parliament can even represent the Muslim Brotherhood, which already is planning its own cooption. There will be no reason to find a place for Mohammed El Baradei. He's been in the news lately mostly because the western press already knows who he is, but he has no real power base in Egypt.

I know I swore off making predictions a while back but, frankly, I don't see a real alternative to a coup. It's vaguely conceivable that new Vice President Omar Suleiman could run a caretaker government until September, when the next elections are scheduled, but there are significant problems with that scenario.

  • While many seem to prefer Suleiman to Mubarak, he is part of the old regime.
  • There is not enough time for any of the anti-Mubarak forces to organize viable parties and candidates in time for the next election, with the single exception of the Muslim Brotherhood.
  • Neither Egypt not other potentially unstable Arab countries would be stabilized.
Given that the Egyptian military is the single most important component of the Egyptian economy, and that military leaders require stability to maintain profitability, it is hard to see how a military coup could be avoided, even if anybody (other than Mubarak's inner circle) actually wanted to avoid one.

So here comes the coup.

Tuesday, February 1, 2011

Cairo, Illinois?

I know that nobody reads Karl Marx anymore, but just in case you happened to glance at the Cliff Notes, let me point out something interesting: the bourgeois revolution finally has arrived in Egypt.

Like almost all the Middle East, Egypt never quite managed to emerge from the Middle Ages. It was kept marking time by a series of native born and colonial rulers who hogged up all the wealth and power, and distributed it to their families, friends, and toadies with little regard for the country as a whole. Granted, Egypt's last king (Farouk I) and his British enablers were deposed by the military in 1952, but new strongman Gamal Abdel Nasser merely transferred the graft and related goodies to new favorites, while distracting the populace with pan-Arab nationalism and military campaigns against Israel. His successor, Anwar El-Sadat, figured out that there was more money to be had by cooperating with the United States and making peace with Israel than in remaining recalcitrant.

Anyway, Mubarak has followed in Sadat's footsteps for almost thirty years. Presumably, it was the uprising in Tunisia that inspired the current uprising in Egypt, and both Tunisia and Egypt seem to be following the same pattern — the middle class, tired of being cut out of the loop for acquisition of the really big bucks, has finally had enough.

Egypt's is not a revolution arising from political discontents; the young people in the streets couldn't care less about creating a "democracy." It also has nothing to do with Islamism; the Muslim Brotherhood may be hitching a ride, but the movement, at its roots, is secular.

The problem, as always, is economic — unemployed and underemployed Egyptian youth, mostly children of the middle class, want a chance to make lives for themselves. If the resurrected zombie of King Farouk could guarantee them decent jobs and a chance to move out of their parents' basements, they'd follow him. They've been joined by many older workers who have gone years without opportunities to use their skills, and even some of the poor — although most of those abandoned all hope years ago. (Popular revolutions always begin with the middle class.)

So, that got me to thinking about this other country with an entrenched plutocracy; large numbers of young people unable to move out of their parents' basements; middle class college graduates working in temp jobs and unpaid internships; and older workers apparently doomed to structural unemployment for the rest of their lives. Is it time for a popular uprising?

Probably not, unless you're willing to count the Tea Party. Just the same — in case any of you are interested and connected to the social media — allow me to suggest Cairo, Illinois as an initial rally site. It just might help get the point across.