Tuesday, July 19, 2011

US financial mess part 2; the whodunit?


Oh ya the spoilers first; the bank clerk did it !... the financial executives / economists who with chameleon like ability appear and re- appear as the academic economist in Harvard who gives authenticity to deregulation plans ,, then as the secretary of treasury (finance minster) who passes these favorable laws , then as the federal reserve bank chief (central bank chief)who rectifies these laws & then as the bank CEO who gets all the benefits from such plans!. Point to be noted is that same person can appear as all four in different points of time…to call this conflict of interest will be understating it !


one upon a time...


If one has to pin point where it all started going wrong then it was the when the investment banks started using their assets in speculative market (packaging as CDO). This was not allowed by law after great depression. From 1933 (after great depression) until 1999, the United States maintained a separation between investment banking and commercial banks. A series of laws from 80’s to 90’s started to deregulate the control that government had on investment banks. The final nail in the coffin was the act passed in 1999 which virtually opened up the banks fully to open market. The act passed by Clinton was planned by Robert Rubin and Larry Summers.

Now lets just see how so called economic whiz kids ticked every box in the page of “conflict of interest” by incestuously being the law makers and at same time beneficiaries of those laws..And interestingly how they still continue to do the same!..of course they did it quite ‘bipartisanly’ as the idiotic politicians keep saying in US


Robert Rubin (treasury secretary under Clinton) ; Harvard economist who was CEO of Goldman Sacks before he became the secretary, then he successfully passed the bill for de regulating the investment banks and after leaving the government became Vice Chairman of citigroup!!



Larry summers (treasury secretary after Rubin); Harvard economist who actively assisted Rubin and later succeeded him as secretary. After leaving the post he made millions as advisor to a CDO based hedge fund. Now obama has re-appointed him as financial advisor!



Henry Paulson ; MBA from Havard and later become the richest ever CEO of Goldman sacks. resgined that post after Bush jr (poor chap!) appointed him as his treasury secretary and Paulson happily commented later that the US economy has never been more robust. 6 months later Lehman brothers collapsed and paulson was the treasury secy when the crisis peaked. Was in charge (with Ben Bernanke the Federal reserve chief) during the period when Goldman Sachs benefited from AIG bailout and made sure in doing so that AIG can’t sue GS .he along with Ben Bernanke facilitated the takeover of Meryl lynch by bank of America (hiding the real debts of ML from BOA)



enter " yes we can"...

Barrack Obama…he made all the right noises in run upto president election about controlling the greed in Wall Street. Now let’s see what he did once he took charge (lil boy obama must have felt like the proverbial deer in front of headlights in front of these finacial merlins)


1) Re-appoints Ben Bernanke as Federal Reserve chief (he was reelected by the narrowest margin ever in history). The very guy who conspired with Paulson to save Goldman sacks and then facilitated the takeover of Meryl lynch by BOA against their interests


2) Selects Timothy Geithner as his treasury secretary. Geithner‘s biographers has always debated whether he was a truer protégé of Rubin or that of Summers (the two founder fathers of deregulation). Active participant in planning the 1999 bill to deregulate and major contributor in GS bailout plan


3) Guess who gets appointed as White House National Economic Council director? Summers himself!


4) Guess what was the new New York fed reserve chief (largest of 12 federal banks in US), William Dudley’s job before he joined government? Chief economist, Goldman sacks!


5) Don’t even bother guessing obama’s Commodity Futures Trading Commission (CFTC is to protect market users and the public from fraud, manipulation, and abusive practices ) chief’s previous job; GS, what else!


6) as a foot note, the present chief of staff of obama (equilanet to prime minster) William Daleywhom we saw in the famous pic of whitehouse insiders watching "kill osama" operation was in executive committee of investement bank JP morgan chase & co!


Well in short u have almost all the perpetrators of the heist in the investigating team !!!!..


to cut a long story short, till the next econmic crisis (may be in 2016!) lets see what we wont be hearing..we wont hear a single finacial executive being punished or probed or any bank being asked for damages ...but for sure we will be hearing one thing..a lot of bipartism cutting across the party lines about economy..and the chameleon act will continue..... but please dont blame the politicians...these financial genuises know that politics is too smart a field to be left for politicians

US financial mess part 1; what really happened?


lets smiplify it


sub prime



Imagine I want to buy a home which is worth 30 lakhs, but I don’t have any kind of income to buy it. Other way is that I take a loan on the promise of paying back the loan at(for eg:) 3 lakhs/ yr for 10 yrs. Now common sense will tell us the lender has to wait 10 yrs to get his money back. So obviously lender will be very particular that I have enough financial back up to pay him back. So he will ask for some assurances (any other property I have, or other assets like gold). End result I wont get the loan and can’t have the house because I am subprime (meaning no chance of paying loan back).


Now let’s see what happened in US. The financial whiz kids in investment banks (like Lehman brothers, Meryl lynch, Goldman sacks) see that the value of property is always going to rise. So they calculate that if I can’t pay back the money after say 2 yrs they can sell the property which will be now worth 35 lakhs. So if I default the gain is 5 lakhs at 2 yrs! (so the more chances that I am going to default , better their prospects. ) a win- win situation. If I pay back well and fine, if I don’t then more than fine! So the investment banks start buying the mortgages from lenders. Meaning if ur a lender u can happily lend 30 lakhs to “sub-prime “me and then sell that mortgage to Lehman brothers for 30+. Even I win cuz I can use a posh house for 2 yrs then if I default again apply for another loan in spite of being “sub-prime” …wow!



securitization



Now the bankers get greedier. They see these mortgages which they have bought as permanently increasing pool of money (real estate prices will always rise!). So they repackage all these together in a fancy name “collateralized debt obligation” (CDO) and sell them back to investors. There are rating agencies (Moody’s, Stanford &Pooch’s) which rate these funds so as to guide common investor about where to put his funds. Hand in glove with bankers, they will give these CDO based funds highest possible rating (AAA). The investor will see this as a mutual fund like scenario where u put ur money and see it grow. Now the same penny less me will put my whatever lil savings into this fund seeing that its being growing regularly for last 3 yrs or so (this was true of lots of pension funds and provisional funds in US as such funds can only be put in AAA rated schemes!).

Seeing all these, insurance agencies (like AIG) also jumped into the orgy. They started issuing insurances against CDO based funds to investors. They called it credit default swaps (CDS). You have to pay a quarterly premium to AIG and if the fund fails AIG will pay u back! They went even one step further by issuing speculative insurances , meaning u can take an insurance against a fund that somebody else owns (almost like betting!). Meaning for a single fund there were multiple insurers! Again win- win!



the boom



Now the real fun started. Stock market indexes went through the roof, house prices became three times, investment bank & insurance company CEOs were taking home close to 400 million pounds a year , rating agencies issued AAA ratings without much care , lending agencies became very liberal to lend loans and yes the subprime guy in road can buy any house and use it for an year or two then move on to next house.



the fall



Story changed once the subprime lending became massive and completely senseless. People who couldn’t pay even a single premium started defaulting in huge amounts. Number of defaulted houses increased with few takers for them due to defaulting. House prices started to go down. Suddenly the cash drain started to dry off. Once the cash drain started to tickle off, the CDO based funds started to have less buyers and more sellers. Now the investment banks were full of toxic assets. Imagine my 30 lakh loan which Lehman brothers have brought from my lender. Now as the CDO market has few takers Lehman brothers are stuck with that 30 lakhs loan. If they sell the house they will get only 25 lakhs now. So it has become a toxic asset. AIG on other hand had investors asking for insurance money against failed CDO based funds. Now the house of cards started to come down

stop n think for a minute.....what are we..

the link below shows the largest true-color 360-panoramic view of the night sky ever created, shot by 28-year-old amateur astrophotographer Nick Risinger using six astronomical cameras. he did this by trekking 60,000 miles across the western United States and South Africa starting in March 2010. The final image is composed of 37,000 separate photographs.



http://media.skysurvey.org/interactive360/index.html




if u look close with great pain u might be able to see that small blue dot....yes our planet... cant help say "From this distant vantage point, the Earth might not seem of particular interest. But for us, it's different. Look again at that dot. That's here, that's home, that's us. On it everyone you love, everyone you know, everyone you ever heard of, every human being who ever was, lived out their lives. The aggregate of our joy and suffering, thousands of confident religions, ideologies, and economic doctrines, every hunter and forager, every hero and coward, every creator and destroyer of civilization, every king and peasant, every young couple in love, every mother and father, hopeful child, inventor and explorer, every teacher of morals, every corrupt politician, every "superstar," every "supreme leader," every saint and sinner in the history of our species lived there – on a mote of dust suspended in a sunbeam"... so very true, Sagan

osama legacy....whats the ground reality?


There are many dogmas in our life that are never supposed to be questioned. When I say this I mean the ones other than the superstars of dogma land; religion, nationalism and political ideology. I write this note to dwell into my interactions with one of those dogmas that’s been walking around in my mental landscape with an audacity that tells me that no one of sound mind shall mess with it. The topic is Osama bin Laden. And the dogma being “thou shall hate Osama as he is embodiment of evil on two legs” (and a stick I guess as he s always shown to be carrying one with him!)

Let me ponder over the questions that trouble me ……


..

Shouldn’t the killing of bin laden be considered as a win for the democratic, liberal & secular world. If so then whats worrying part in it ?


There can’t be any doubt that the world is a slightly better place without bin laden than with bin laden. But what’s worrying is something else. It’s the continuing reasoning that we hear about why a bin laden or al qaida came into being in the first place. The often repeated reason being that it’s the product of anti Americanism that came out of wahabi Islamism which wants to wipe out the western world by using terrorism. The fundamental flaw in this thinking is the core idea that Muslims hate and attack the democratic secular and liberal world (leading self appointed exponent being US) for what they stand for, rather than for what is being done to the Muslim world by the same group. In other words though a fundamentalist Muslim may be bothered by the modernity, democracy, and sexuality of the democratic, liberal & secular world, what turns him to a terrorist & blow himself and others up is when these forces (American, Russian, Israeli &Indian in Kashmir) encroach on their lands. Terrorism is just a tactic or a symptom of the disease. In case of Osama and Al-Qaeda, one has to highlight the fact that it’s the American foreign policy which supports the Saudi police state, the US military presence in Afghanistan and Iraq and Yemen & support for the Israelis that enrages them, not the American culture and society.



Was Bin Laden a Frankenstein monster created by US/ CIA during afghan war that later turned against its creator?


The myth that has almost become a fact is that bin laden was in CIA payroll during Afghan war.


This is factually wrong and one has to understand the reasons why this legend came into being. The two sources that I found authentic are the accounts of Michael Scheuer, a former an intelligence officer at CIA who was the Chief of the Bin Laden Issue Station and was later ousted from the agency for being the anonymous author of the 2004 book Imperial Hubris, in which he criticized many of the United States' assumptions about Islamist insurgencies and that of Steve Coll , the Pulitzer Prize-winning American journalist who authored, The Bin Ladens: An Arabian Family in the American Century


Scheuer tells that though at various times CIA did try to contact Bin Laden for obvious reasons of common interest and common enemy to fight against, they were never successful in establishing any direct contact with Bin Laden himself. Coll in his fairly exhaustive account of bin laden family chronicles (which I must confess reads like a Rockefeller or ambani saga) notes the fact that in his search for any such Osama – CIA direct alliance he couldn’t find a single instance where Osama ever came into contact with any normal American citizen leave alone government / CIA official


Then why is it so easy today to sell that argument today?


We can safely assume that this is an American account of what happened as one can’t imagine Osama being keen to spread the news that he had a CIA connection. This is a direct by product of the interventionist foreign policy ideas of US. This US “interventionism in other states” for political /economic benefits has always been camouflaged by lot of talk on upholding great democratic values that the founder fathers has envisaged and the need to stand by their allies. But the reality is that its impossible to bring about a change from ‘outside- in’ even in states ruled by the most autocratic of dictatorships. US foreign policy history is full of such blunders like Shah in Iran, Pinochet in Chile, Castillo in Guatemala, Karzai in Afghanistan & not to mention Vietnam and now Iraq & pakistan. So one would imagine that its natural for the US foreign policy hawks to categorize the afghan war as one of their victorious interventionist endeavors

What was different in Afghan war of 80’s was that US was on the other side of the court. USSR was trying to do to Afghanistan what US is doing to Iraq and Afghanistan now. Naturally there was a strong anti- USSR feeling among the Afghans which was tapped into by both Islamic fundamentalists and CIA for their own religious and political interests. Islamic help came from Saudi via people like Osama & mujahedeens and CIA help came via Pakistan. Neither did Osama and the mujahedeen warriors who fought in the afghan war reach there because Americans asked them to nor were they keen to get help from a secular western superpower as it would have defeated their very purpose.



How can Pakistan be considered as failure of US policy? Isn’t the CIA director’s quote “they are either involved or incompetent” true about Pakistan after Osama was found hiding right under their nose?


The present dilemma we see in Pakistan is very much the product of interventionist policy that makes countries fight proxy war for the US. This strategy works fine when the ground reality and popular opinion in that country is also pulling in same direction. The classical example is Pakistan of Zia- ul-haq’s time when it was channelizing CIA support to fight USSR in Afghanistan and at same time training “freedom fighters” for Kashmir. There were no suicide attacks of jihadist groups then in Pakistan though CIA was very much around. If the popular opinion and ground reality is pulling in diametrically opposite direction to the external pressure we will have present day Pakistan.

Pakistan was perfectly fine with Taliban in Afghanistan, and to great extent al Qaeda and Osama till 9/11 happened. It’s not that ISI or Pakistan in general was not aware at that time what the real intentions of these groups were. On the contrary they were much better informed than any as Pakistan was the only nation which recognized Taliban government. But still the worse crime one can accuse on average Pakistani at that time was that he was sympathetic to the jihad movement but not an active supporter or participator. Post 9/11 Pakistan did a complete turnabout in 24 hrs or so thanks to the not so subtle talks from US. It’s not tough to understand that this change was not reflective of popular perception as 9/11 didn’t cause any direct damage to average Pakistani than it did to say an average Chinese or Japanese. In spite of that what he saw in later years before his own eyes was the very scenario that Islamic fundamentalist propaganda was trying to warn him about. Whether it’s the drone attacks or CIA agents killing civilians and getting away with it or the present taking down of Osama, all of this are many times better recruiting advertisements for jihad than any video or speech As a result Islamic fundamentalism started to grow exponentially and we have the present day “involved or incompetent” Pakistan




The three critical happening in Islamic sphere; what happened in Egypt, what’s happening in Libya and what happened to bin laden…does this all show a trend towards democratic liberal ideals & away from terror ?


The general opinion that one hears is that acts of terrorism will come down in view of the fact that there’s been revolutions against dictators in Middle East and once liberal democracies take over in Islamic heartland things are going to get better. As much as one would hope so, when we look at ground realities this doesn’t seem to be the fact. Reasons for this error is mainly due to two reasons


1) This kind of feedback that we see in media is coming from the English speaking ,CNN debating analysts & social networking accessing westernized population of the Islamic world


2) We have an overbearing belief that the binding factor and driving force behind the movements we see in middle east was an urge to move towards pro-democratic, secular and liberal values


The pew research centre polls done recently among Muslims spread all around the world including Egypt can definitely be considered to be reflecting the real ground situation better than the above mentioned sources. What does it say? In Egypt for instance, About six-in-ten (62%) think laws should strictly follow the teachings of the Quran & about 31% of Egyptian Muslims say they sympathize with Islamic fundamentalists. In all of the countries were the poll was conducted (Indonesia, turkey, Egypt, Pakistan, Lebanon, Jordan) majority of common people believed religion should play a major part in how their country is been run

But we got to keep few points in mind while interpreting these results. Firstly as we discussed in beginning Islamic fundamentalism didn’t fly planes into twin towers on 9/11. It was anti- Americanism that did it. It’s not that difficult to understand as these Islamic schools of teaching has been around for ages while strong anti Americanism took wings post 91 Iraq war . Secondly what we are seeing in Middle East now is not in any way against Islamic ideals. Mubarak was the most US friendly of Islamic national heads and made lot of secular posturing. In Libya, the anti- Gadaffi forces are made of al Qaida elements that have fought outside Libya for al Qaida till now. Actually other than Saudi, Libya remains the biggest contributor of volunteers for al Qaida.


So what are the concluding points?


1) Osama’s killing is good riddance. But from perspective of anti- terrorism its relevance is slightly better than “a body count” in bold letters. From perspective of pro- terrorism it can be a good recruiting tool as it’s the end they always wanted for Osama

2) It’s alarming that we still don’t hear enough voices differentiating between anti-Americanism and Islamic fundamentalism in relation to growth of terrorism. Though both has been causative factors, the former definitely outweighs the latter and latter without former doesn’t make the mix that makes people blow up by themselves along with others

3) One shouldn’t be surprised if future Egypt government gets more Islamic flavor. it’s a matter of when and not whether. It shouldn’t alarm outside world as long as US stays away for good

4) The trend in Libya is slowly slipping towards a situation where Obama will have to make a call between American troops in ground or quit Libya for good. One hopes he will choose the latter while Zawahiri will be praying he chooses the former option

which endosulfan story is the true one!!!


The political landscape is heating up with demand for ban on endosulfan..This is an excellent case study where the true picture when thrown with colors of political interest combined with media hype and strong market interests on either side can become as clear as an abstract art!



Lets look at each argument and see how tough it is to see the reality


1) Endosulfan, the pesticide has caused such evident damage to people who have come in contact with it wherever its used that it has to be banned….now the counter argument is that endosulfan has been in use from 1950’s and till date no such evident damage was reported neither to the farmers or to the people who used these fruits


2) The increased incidence of malignancies and sexual mal development in endosulfan used area in Kerala is proof enough for its danger…counter argument is that among the states using endosulfan in India, Kerala is not one of the major users. States like Andhra, MP, Gujarat, Maharashtra use 90% of endosulfan and never reported any such damage for last 4 decades


3) There are validated studies to prove that endosulfan caused health problems in Kerala..Counter argument..Both the studies that showed this relation has been shown by epidemiologists to be flawed..as case control studies they had major lapses in case and control selection, data reporting and methodologies to analyze the residual volume of pesticide


4) India is now the leading producer of endosulfan world wide and hence a ban will cause major loss to the Indian companies manufacturing it so they are behind the lobby opposing the ban…counter argument..Endosulfan was produced mainly by EU nations particularly Germany in past. Now they have moved on to much costlier pesticides that are ten times costlier .so they want to get into the lucrative Indian market which is now monopolized by Indian made cheap endosulfan


5) There are ready made substitutes available to endosulfan..Counter argument. No proper long term studies have been done on these..they all are much costlier than endosulfan


6) Endosulfan will be next DDT.. still DDT is found in soil where it was used 30 yrs after it was banned, so ban endosulfan today or the future generations will suffer.. Counter argument…Compared to DDT, which can persist in the environment for decades, endosulfan short half-life means that in most conditions, it reduces to only negligible quantities in a few months, or even days on plants. In fresh food crops when it is used there is a withholding period, which means that by the time foods get to market, minute traces of endosulfan are virtually non-existent

who am i....the ultimate question...!!! to all my fellow Indians..here's who i am...


1.I am not a Mallu I am a Malayali


2.I love cricket...yes it is played in my state



3.Sreesanth is from my state,but I hate him.


4.My mother tongue is not Tamil.


5.I may like Rajnikanth or Shah Rukh Khan.....but I always prefer Mohanlal


6.Shakeela is not from my state


7.Sachin is God for me too .


8.Not all my uncles are in Dubai.


9.I am not a Nair or Menon or pillai or thomas


10.I am not an alcoholic, which desont mean in my state that I am gay, impotent or just plainly scared of mom.


11.I may or may not be Marxist,but i am essentially a socialist


12.I may not laugh at your joke...no offenses..blame it on Jagathy Sreekumar..I have already heard them.


13.You may not laugh at my joke...no offenses...blame it on Sreenivasan...you would not understand.


14.I am a non vegetarian.....and Yes I eat beef


15.If you find me and another malayali shouting at each other animatedly at the top of our voices calling each other names...never bother we are just having a healthy discussion on Mammootty and Mohanlal.


16.When I was a student....I never bunked...we just called a strike...


17.Yes I use a lungi....and i bowl wearing it.....now you can't beat that.


18.I don't understand Kadhakali.......


19.I don't like you much,I may look down upon you...can't help it....that is how we are made....


20.When you are talking to me....never mention Poland....again blame it on Sreenivasan..you wouldn't understand.

why US sounds so suspiciously like the jealous mother of a school child who compares tabs with her child's friends?

Obama in his state of the union adress said he wants to "win the future" by out-innovating, out-educating and out-building the rest of the world. "If we want to win the future -– if we want innovation to produce jobs in America and not overseas -– then we also have to win the race to educate our kids,” he said.


now this what i will call educational protectionism and its a wrong way of thinking... this are the reasons why i think so


1)the often heard american view recently is China and India “started educating their children earlier and longer, with greater emphasis on math and science;”..now thats a mis representation of actual ground situation..its not that these nations have improved thier educational systems, its just that now more people are accessing education..and when close to half of humanity lives in this two nations it becomes a huge number



2)“the quality of US math and science education lags behind many other nations" is another argument...well the problem is how do u measure this quality? If its the international tests that they are quoting, then the American students performance on international tests have been pretty bad for a long time,(from 1960's) and believe it or not, has got better in recent years.



3)"Race to the Top is the most meaningful reform of public education in a generation"..again this idea is based on the tests and ratings...lets just call it as we see it...Race to the Top is about killing ideas and forcing students to memorize equations by imposing common standards and testing in only two subjects on students all over the nation; by forcing schools and teachers to teach to the tests; .... perhaps this explains why American students who scored poorly on tests but have been able to build a strong economy with innovations.



4)“America has fallen to ninth in the proportion of young people with a college degree”..so what?..does that means more populous countries in the world shuldnt have graduates..last time i checked neither was US the most populous nation nor was graduation was a basic necesiity for succes in life


so let me conclude with two remarks...


one, education is not a zero sum game..its doesnt mean if some one else is gaining knowledge that some one else has to loose it..its an add on game ..more , the merrier...


two, educational protectionism or radical changing of educational route plan is not warrented on basis of changes caused by better access to educational options around the world


so the way for US is to keep its door opened as before for all the top brains in world to access the advanced academic & research oppurtunities that it can provide due to its economic developement

Free press & vibrant democracy of US in Valerie Plame affair

lets look at the main culprits in real life incident who did this hand in glove trick...


First, The sixteen words that send US to war ;“The British Government has learned that Saddam Hussein recently sought significant quantities of uranium from Africa.” spoken by President Bush in his state of the union address, 2003

http://www.youtube.com/watch?v=XDzPDOoTt5c

Second, "what i didn't see in Africa", written in New York Times by Joseph Wilson a former diplomat who was send to Niger by CIA to find out the validity of uranium transfer to Iraq. he found that no such transfer ever happened and reported it back to the agency. to his surprise, in the next state of union address president (with the sixteen words above)informed the nation that such a deal has happened

http://www.nytimes.com/2003/07/06/opinion/what-i-didn-t-find-in-africa.html


Third, one week after this column appeared, white house took great pains to expose Wilson's wife, Valerie Plame's true identity as a CIA agent to convince people that she had send Wilson to Niger to help his business


Fourth, even though the trail of this expose lead directly to the doorsteps of Vice President , only Libby was punished legally..and even his punishment was overturned by president bush using his discretionary executive powers!


1) Washington Post; in spite of having done everything to sell the war, still continues to back its story


2) Robert Novak ; the self styled 'prince of darkness of the right wing' who shamelessly exposed Valerie Palme in Washington Post to just tarnish the credibility of her husband, Joseph Wilson who exposed the conspiracy behind the fictitious WMD..


3) Judith Miller, Pulitzer Prize-winning journalist, formerly of the New York Times .A number of stories she wrote while working for the New York Times later turned out to be inaccurate or completely false. she would later refuse to disclose the names of US govt officals who leaked the Valerie Palme's identity to her..though she she and Novak had same sources, Miller refused to publish the news


4) Lewis "Scooter" Libby former advisor to Vice President, Karl Rove Deputy Chief of Staff to former President George W. Bush & Richard Armitage, Deputy Secretary of State, The unholy trinity that leaked the state secret to Novak, Miller and Co to put Wilson's credibility in doubt