Saturday, February 26, 2011

Ambassador from the Taliban

Review of "My life with the Taliban" by Abdul Salam (Mullah) Zaeef

Ever wonder what it's like on the other side of the news? What it's like to be a mullah? What it's like to help found the Taliban? What it's like to win a civil war? What it's like to be an ambassador? What it's like to be invaded by the US? What it's like to be taken prisoner by the US and rot in Guantanamo? If so, this is your book.

Deciding on today's title was quite difficult. Zaeef's book is so full of rich and ironic themes that many titles suggested themselves. I will pepper in some of the alternates as I go along.

Abdul Salam Zaeef grew up in rural areas in southern Afghanistan around Kandahar, attending madrassas, (thus becomming a talib, then a mullah), joining the Mujahideen against the Soviets, briefly running a mosque (thus becomming an Imam), helping to found the Taliban movement that took over most of Afghanistan, and rising to become its ambassador to Pakistan. After the US invasion, he was imprisoned and eventually shipped to Guantanamo for years of imprisonment, finally ending up as a private citizen in Kabul (under close supervision) in his early forties, writing his memoirs.

His story is well and briskly- occasionally movingly- told. Orphaned at a young age by his parent's deaths from illness, (his father was a minor Imam), then at age seven ripped from his younger sister by her arranged marriage, inspired at age fifteen to join the mujahideen and partipate in Afghanistan's brutal wars, and later shockingly abused by the US, he has plenty to be bitter about. The hold of a victimization narrative couldn't be stronger. The US is always killing women and children, while the Taliban is always seeking peace and friendly accord. [Studies in narcissism, Taliban division].

In Jungian terms, he seems quite unfamiliar with his own shadow side, which embodies the inevitable opposite of our positive qualities. Each of us has an individual shadow side, which we tend to project onto others rather than own up to ourselves. Cultures, too, take on communal shadow sides. The work of psychotherapy, in this school, is partly to bring the shadow to consciousness so that the individual can withdraw the shadow projections and start dealing with reality in more constructive ways, than simply to hate and trample on some object of projection- the scapegoat. So I would suggest that Afghanistan undertake a few decades of mass Jungian analysis(!). [Shadow over Afghanistan].

In fairness, principal policy makers in the US were hardly more reflective, as exemplified by the recent memoirs of Donald Rumsfeld and George Bush, both out to generally dreadful reviews. I would bet that, for an adventurous book club, the Rumsfeld memoir would make an intriguing pairing with Zaeef's!

But there is also love- specifically Zaeef's love of study, love of Islam, and love of his comrades in the great war against the Soviets. [We happy few, we Taliban]
"May God be praised! What a brotherhood we had among the mujahedeen! We weren't concerned with the world or with our lives; our intentions were pure and every one of us was ready to die as a martyr. When I look back on the love and respect that we had for each other, it sometimes seems like a dream."
Indeed, he recalls some earlier childhood preparation:
"We led our armies into fierce battles, slaying our enemies to defend our kingdoms. We ruled our land just like ministers and kings, at times demanding tax for the right of passage, or negotiating deals and truces. I think this is what all children do around the world."
I don't recall doing this, personally. At any rate, he also proclaims love of the Afghan people, and even includes a sugary plea to the US for better understanding in his preface and again at the end, accompanied by some other good advice.
"The world should realize how bad the situation for Afghans is, and how oppressed they are. People should be kind and compassionate to them."
His love of Afghanistan manifests in the crucial pivot of the book, in 1994, when the demobilized taliban faction of mujahideen around Kandahar, (one of many factions), with Zaeef in the lead, decide to take matters in their own hands against the local warlordism and banditry. They elect Mullah Omar as their leader, and set up a political network of mullahs that ousts each minor bandit in turn, gathering popular support and eventually taking complete charge of the area, including Kandahar. If the story ended here, (summary), it wouldn't have been such a bad turn of events. Zaeef doesn't say much about it, but the Taliban went on to fight a brutal war for the rest of the country, ousting the nascent regime of Massoud and Rabbani in Kabul (with the help of 20,000 Pakistani soldiers and floods of Saudi money).

The unasked question is- why? Why fight for the whole of Afghanistan, taking so much foreign support, committing massacres, and terrorizing the population? What was the big difference with the Northern alliance, headed by Burhanuddin Rabbani and Ahmed Shah Massoud? Why did the Taliban suddenly  become so bloodthirsty? Both sides were Muslim. Both were Afghan. Both had had plenty of war and suffering. The answer is they had fundamentally different views of Afghanistan's future- theocratic or democratic:

To take a quote from Shah Massoud:
"The Taliban say: 'Come and accept the post of prime minister and be with us', and they would keep the highest office in the country, the presidentship. But for what price?! The difference between us concerns mainly our way of thinking about the very principles of the society and the state. We can not accept their conditions of compromise, or else we would have to give up the principles of modern democracy. We are fundamentally against the system called 'the Emirate of Afghanistan.'" ... "There should be an Afghanistan where every Afghan finds himself or herself happy. And I think that can only be assured by democracy based on consensus."
Massoud was a committed democrat, and had progressive ideas about running Afghanistan, which were just coming to fruition after the civil war he fought from his position as defense minister in Kabul, against a variety of Islamists and other former mujahideen. Note also how Massoud mentions women as part of the democratic polity, something Zaeef never does. Zaeef hated him, as he describes upon hearing the announcement of a post-commnist government:
"Why did he appoint Massoud? Why would he take a decision like that? I knew [president] Mr Mujaddidi was a jihadi leader, who himself had fought against the Russians and the Communists. He had suffered and sacrificed in the name of God. Why would he now do something that would cause even more suffering? What was in his heart? In a split-second my happiness left me, my eyes turned red form the tears that came pouring down my cheeks and my cry turned into a scream."
Why indeed? I can only speculate, since Zaeef doesn't reveal his motivations (and may not know them, really). Massoud had certainly suffered and fought no less than the other mujahideen. Indeed, his northern region of operations was on the Soviet border. Perhaps it was simple tribalism, with Zaeef as a Pashtun shocked to hear of Tajiks (Massoud and Rabbani) running things. [Blood is thicker than religion]

But I think religion was actually more important. Zaeef seems to have had his heart set on the new government being a theocracy rather than a pluralist/democratic government that seemed to be excluding Islamist elements. His mujahideen faction in the war was the taliban- students from madrassas, mullahs, and others who chose an Islamist organization over the many other tribal and party-based mujahideen groups. A big part of their anti-communist motivation reacted to the Communist's aggressive modernization, in terms of women's rights, expropriation of large landholders, de-emphasis of religion, and the like. Clearly Zaeef was not alone, since the country promptly fell back into civil war, mostly due to the exclusion of, and brutality by, another Islamist group, the Hezbi Islami, or HIG.

Perhaps even more significant, Massoud and Burhanuddin Rabbani were Sufis, and there are few internecine hatreds so bitter as that between fundamentalist Sunnis and Sufis, who turn many of the violent and retrograde facets of Islam on their head. Sufis are accommodators, modernizers, and mystics. They are the anti-fundamentalists.

It is a sad story. We all operate from a position of great compassion for the people of Aghanistan and recognition of their right of self-determination. We can accept that Afghan revolutionaries and freedom fighters deserve high respect. They are Afghan. They sacrificed everything to free their country from the Soviets. They come from the people whom they seek to govern. Who are we from the West in comparison, when it comes to running Afghanistan?

But then one views the fruits of their efforts in self-government. The warlord period after victory over the Soviets was a Darwinian bloodbath. The Taliban's own rule, however effective in imposing brutal control, was a nightmare of a different sort. And finally, the Taliban's current efforts are once again singularly brutal and horrifying as they use mafia tactics to re-impose their rule over the poor people of Afghanistan. Has the cultural implant from the West over the last decade been enough to guide Afghanistan to a better future once we leave in a few years? It is very difficult to say.

But let us return to Zaeef's story. Mullah Omar gave him several ministerial posts in the new Taliban government (styled an emirate, under Omar as the Emir, I believe), culminating with the post of ambassador to Pakistan, easily Afghanistan's most important foreign mission, and eventually its only contact with the outside world. [Diplomat, mullah, patriot]. Zaeef characterizes Pakistan well, as the two-faced nation:
"Pakistan, which plays a key role in Asia, is so famous for treachery that it is said they can get milk from a bull. They have two tongues in one mouth, and two faces on one head so they can speak everybody's language; they use everybody, deceive everybody. They deceive the Arabs under the guise of Islamic nuclear power, saying that they are defending Islam and Islamic countries. They milk America and Europe in the alliance against terrorism, and they have been deceiving Pakistani and other Muslims around the world in the name of the Kashmiri jihad. But behind the curtain, they have been betraying everyone."
"The wolf and the sheep may drink water from the same stream, but since the start of the jihad, the ISI extended its roots deep into Afghanistan, like a cancer puts down roots in the human body; every ruler of Afghanistan complained about it, but none could get rid of it."
It is fascinating to hear about Zaeef's time as Ambassador, trying to ride the raging bull of the Taliban's international relations. He was a perfect person for the role, completely committed, yet soft-spoken and highly insightful when convenient. One of the greatest difficulties arrives in the form of a fatwa that damns and encourages the assassination of any Muslim who fights against the Taliban (as Musharraf and Pakistan were doing at the behest of the US). [Fatwa of the damned]. In the end, after the Islamic Emirate of Afghanistan is ushered off the stage, Zaeef was, for good measure, personally betrayed by the Pakistanis, who imprisoned and handed him over to the US. [US respects diplomatic immunity. Not!].

This part of his story is deeply troubling, indeed mortifying, to read as a US citizen. We've all heard about the horrors of the US's foreign prisons as well as Guantanamo. The stupidity of treating people in bestial fashion, of expecting them to break under torture, of driving them insane, not to mention the moral depravity ... there is no sufficient way to characterize it, other than to recount it in detail, as Zaeef does for us here. [US respects human rights. Not!].
"Each brother who spent time in Camp Five [Guantanamo] looked like a skeleton when he was released; it was painful to look at their thin bodies. When Abu Haris returned from the camp, I did not recognize him; there was no resemblance between the man who had been taken away and the body that was returned. I was so scared by his appearance that sometimes I would even dream of him and wake up screaming. May almighty Allah release all Muslim brothers in good health and save them from the hands of the pagans and cruel people."
Not only have we made countless enemies in the Islamic world through this despicable behavior, we have hardly gained any information that we couldn't have through perfectly cordial conversations (this book, indeed, is a testament to Zaeef's willingness to talk!). And we have subverted our own legal system and standing in the international system, rendering Guantanamo's imates more hardened, more difficult to repatriate, and impossible to prosecute in any rational way.

Now Zaeef is back in Kabul, essentially under government watch and quietly twiddling his thumbs. But he has also apparently resumed his role as interlocutor for the Taliban, being whisked to Britain recently to confer with their foreign office.

For regular Afghans, the Taliban are unwelcome, as is the current fully corrupt Karzai government, as is the contest between the US and both of the above. What should we do? Zaeef's prescription is to go with the Taliban, which represents traditional and Islamic values from his vantage as a Kandahari and fundamentalist Mullah:
"Americans should know that they are no longer thought of as a people of freedom and democracy. They have sown the seeds of hatred throughout the world. Under their new banner they have declared a war on terrorism and terrorists, but the very term 'terrorist' is of their own making. The jihad against them will never stop as long as America doesn't take steps to correct its mistakes"
"Secondly, eliminating the word 'jihad' from the curriculum of the schools and some other subjects is extremely worrying. Jihad is a central concept within Islam, and understanding it is an obligation of every single Muslim."
"It is astonishing that after eight years, with tens of thousands of troops, warplanes and equipment, and a vast national army, facing down some estimated ten thousand insurgents, leaving some two-thirds of the country unstable, that foreign governments still believe that brute force is a solution to the crisis. And still they send more troops. The current conflict is a political conflict and as such cannot be solved by the gun."
"How much longer will foreigners who fail to understand Afghanistan and its culture make decisions for the Afghan nation? How much longer will the Afghan people wait and endure? Only God knows. One again, I pray for peace. Once again I pray for Afghanistan, my home."
One can easily draw out the many contradictions at work here. Zaeef prays for peace, but believes in jihad (real jihad, not some namby pamby Sufi spiritual jihad). He believes arms can not solve the political problems of Afghanistan, but apparently hasn't communicated this insight to his brethren in Pakistan.

This kind of self-blindness makes our common goal of preventing civil war and anarchy in Afghanistan extremely difficult. Perhaps mass psychotherapy won't be possible. Perhaps the Pashtun code and Islamic religion are both fundamentally violent. Perhaps the Afghan government is impossibly corrupt. Perhaps Pakistan is a relentlessly meddlesome and deceitful neighbor. Perhaps democracy doesn't map effectively onto the tribal and hierarchical social structure of traditional Afghanistan, which restricts the effective franchise only to the upper (male) tier of landholders/power brokers. (A bit like colonial America, come to think of it). It isn't going to be easy or pretty getting out of Afghanistan, but the surge of democratic sentiment sweeping the Muslim world has to make one hopeful.

  • An interview with Abdul Zaeef.
  • Sample of news conference in Pakistan, as ambassador and in denial.
  • Some recent Talib propaganda.
  • Someone else's review of this same book- taking a rather dim view, really.
  • Complete rot at the top in Afghanistan.
  • So Karzai hates us, naturally, and bumbles along.
  • Hitchens flays the "human rights community".
  • We are talking to the Taliban.
  • Appreciating the dark side of our archetypal narratives.
  • Historians sort of agree with Mullah Zaeef.
  • A little history of Libya.
  • USA is number... er ... 31.
  • Non-islamic terrorism ... yawn ...
  • Lincoln puts his foot down.
  • Screw the workers!
"Recall that in recent years, we've witnessed two separate debates over two types of taxpayer-subsidized laborers. First, we saw a brief argument over how much taxpayer money should pay government-sponsored bankers on Wall Street. Now, we're having a more prolonged discussion about how much taxpayer money should pay public employees in our schools, police departments, fire departments and infrastructure agencies."
  • Bill Mitchell quote of the week:
"The IMF helped cause the crisis. It has no credibility in lecturing us on what we should do to resolve it. Its notions of fiscal sustainability are based on meaningless financial ratios. It talks about being worried about jobs and poverty but then forces agreements on nations which unambiguously cause a loss of jobs and increasing poverty."

Saturday, February 19, 2011

An inconvenient future

A review of the geological record (i.e. our climate crystal ball) points to a torrid Earth

As we all know, climate change is already here and affecting our lives. Extreme weather, hotter average temperatures, desertification, coral bleaching, wildfires ... on and on it goes. The biosphere is in crisis, and we will bear substantial costs, though probably not the extinction that is the fate of so many of our fellow organisms. A recent story told of a polar bear who took off from shore with her cub towards the pack ice, only to find it over 400 miles away, herself emaciated and her cub dead.

A recent brief review in science (news stories here, here) laid out the trajectory where we headed, using Earth's climate 35 million years ago as its benchmark. CO2 was at roughly 1000 ppm at that time, compared to the roughly 400 ppm we are at now. The recent preindustrial level was roughly 280 ppm, and assuming we are near peak oil, and nowhere near peak coal, business as usual gets us to 1000 ppm CO2 by 2100 (which equals 0.1% of the atmosphere).

CO2 trajectories under various scenarios of public action.
One can not overemphasize how big these changes will be. The paper discusses them in terms of °C, (as most scientists do), which for US readers has a seriously diminishing effect, reducing the absolute values as well as using unfamiliar units. So I will convert all values to Fahrenheit (which incidentally is just as foreign an invention as the Celsius scale, only by a German rather than a Swede!). The paper assumes that CO2 is the main variable forcing climate change, which is consistent with everything we know to date about these geologic eras. It also synthesizes various geological markers of the temperatures and CO2 concentrations which the author and others have spent their careers studying.

Ancient climate data. Top- inferred CO2 concentrations, averaged in green. Bottom, glaciations & ice caps, which are absent at >~800 ppm CO2.
On average, earth was 29° hotter then than it is now. The tropics were 14° hotter (averaging 99.5°), while the poles were 32° warmer, averaging 73°. One can imagine that any kind of polar ice cap is not possible under these conditions. Miami Florida currently has an average annual temperature of 76°. The hottest average annual temperature ever recorded was 94° in Dallol, Ethiopia, in the 1960's.

Getting to these levels will probably take some extra time beyond 2100, due to lags in the climate system, principally the time it will take to melt the South Pole. But one can see that this is a world we do not want to live in. Everyone would want to move to the poles, where there is, frankly, not a lot of room. After the South Pole melts, sea levels will be roughly 230 feet higher than they are now.

Antarctica, melted.
While climate changes like this took millions of years in past epochs, we are imposing this change in a matter of two hundred years, far faster than our fellow earth inhabitants can evolve to keep up. After already causing one extinction event by our prehistoric hunting of large animals over several continents, followed by our destruction of many wild populations in historical time, we will shortly cause another of even more breathtaking scale by our CO2 emissions.

CO2 levels over more recent times, the last 400,000 years.
Once CO2 is at these levels, natural processes will take tens of thousands of years to return it to normal. So we had best come up with atmosphere purifying methods quickly, whether or not we manage to achieve policy changes that reduce our emissions.

These are conservative estimates, since the sun was 0.4% dimmer back in the Eocene era that we are talking about. But, being drawn from our actual climate past, they are very plausable predictions, not dependent on complex modelling and other types of forecasting (which tend to be conservative, actually). Earth has been there before, and while life surely flourished in the Eocene, it was not in the same places as it is now, and was not even the same life that exists now. We are heading into a far, far different world.

It is easy to blanch at this prospect and adopt a deer-in-the-headlights state, each individual being such a small part of this vast and cataclysmic problem/solution. That is why it is particularly important to raise climate change to the top of the political/economic agenda, more so than it is to perform individual mitigation, however laudable. Our collective economic and political structures need to take this seriously before any of our actions can be truly effective.

"Reverently let us invoke the God of our fathers to guide and protect us in our efforts to perpetuate the principles which by his blessing they were able to vindicate, establish and transmit to their posterity. With the continuance of his favor ever gratefully acknowledged, we may hopefully look forward to success, to peace and to prosperity."
  • Bill Mitchell quote of the week:  A graph, which speaks for itself.

  • Plus a bonus quote from FDR:
"We know now that Government by organized money is just as dangerous as Government by organized mob."

Saturday, February 12, 2011

A flowering of RNA

Curiouser and curiouser: down the genomic rabbit hole with regulatory RNAs

One of the biggest molecular biology stories of the last decade was about RNA. The more we look, the more functions biologists find for RNA in the cell. We thought we understood RNA decades ago- the floppy and unstable molecule used in only three places- as rRNA, forming the structural scaffold of the translating ribosome; as tRNA to link amino acids to their codons during protein translation; and as mRNA- the message translated from DNA into RNA, which likewise enters the ribosome to serve as the template for translation.

That was it- nice and neat, with three functions all centered around translation. It was surprising enough to find out that the rRNA was not just a scaffold, but actually the catalytic center of the ribosome- further evidence for the centrality of RNA in that way-back eon when DNA hadn't been invented yet, before the full advent of life as we know it.

But RNA has kept turning up in the oddest places over the last decade or two, clearly not willing to be neatly boxed up and put on the shelf of molecular biology knowledge. A flood of new prefixes and other variations tell the tale:


Clearly things (or people) are going a little nuts. No one knew about these RNAs before because they are typically small, or of modest significance. Small genes, especially of non-coding RNAs, are hard to find, since with the flood of genomic DNA sequence, we use trained computers to find genes by traditional rules, which prominently include the genetic code to conceptually translate DNA to proteins, and statistics to decide whether a gene is "real" or not (i.e. large). But nature is not so tidy, and doesn't need any stinkin' rules. It makes things up as it goes along.

The central "dogma" of DNA -> mRNA -> protein still holds for most functions of the cell. The new RNAs don't make structures in the cell, but regulate other genes, adding to an already elaborate network of control. They control, but don't stick around.

A recent paper in science (reviewed here; general review) provided a fascinating example of one of these RNAs in action, operating in that eternally interesting pathway that plants have to figure out whether to flower or not. First off, I should say that this pathway is not fully understood. The actors are only gradually coming into focus, and this paper is just one scene in a long-running production.

Vernalization is the process by which plants sense the alternation of cold to warm in order to flower properly in the spring, when we all want our daffodils to bloom. No winter, no tulips, crocuses, or other delightful flowers. The model plant used in this paper and elsewhere is the small weed Arabidopsis thaliana. We can assume that its processes more or less generalize to all plants, especially to most temperate flowering plants.

A central gene the vernalization process is FLC (flowering locus C), which represses a battery of other genes involved in flowering by repressing their transcription. It is a central regulator, and typifies the very common motif of repression, which often occurs in extensive circuits of double-negatives. Biological circuits are logical, but that doesn't mean they are intelligently designed!

Anyhow, FLC is usually on, repressing the whole flowering razmatazz in most tissues and at most times. During extended cold temperatures, however, FLC is turned off in gradual, progressive fashion in selected tissues, which, when maintained as temperatures rise again, allows flowering. This shutoff of FLC has to be maintained through many cell divisions, as the flower grows, so its mechanism has to be quite robust. A central question, then, has been how FLC is turned off in response to cold in the gradual way required to sense the winter season. And that is what this paper is about.

Prior papers showed that FLC is turned off by a venerable mechanism known as the polycomb system, named for the fruit fly where it was first found to have subtle effects on the male sex comb (don't ask!). Polycomb proteins form large complexes linearly spread over the chromatin (DNA plus histones, etc.) and also chemically modify histones, shutting off nearby genes in a permanent fashion- just the thing when you are, say, a skin cell, and don't ever want those liver genes turned on again. Polycomb proteins are used frequently in developmental processes once final decisions have been made. Their repression is carried along through mitosis to progeny cells, as required by the vernalization and flowering process.

Prior work also found one gene (VIN3) that is necessary (though not  sufficient) for establishing FLC repression in cold temperatures, as well as other genes encoding proteins of the generic polycomb complexes which are required to maintain the repression once temperatures rise again. VIN3 is another transcriptional regulator, making this whole story rather humdrum and typical, so far.

But the thing about polycomb proteins is that they don't glomb onto a zone of chromatin and do their thing without some extra help ... they need direction from RNA guides, whose sequence directly mates with the complementary DNA and then attracts the polycomb proteins. Only in the last few years has this necessity for RNA been realized, opening a new field looking for such guide RNAs all over the genome that service these developmental repression processes. The VIN3 protein may help turn the FLC gene off, but it can't by itself set up more durable repression by the polycomb complexes. And that is where the new paper comes in, finding an RNA, (named COLDAIR), which is encoded by the first intron within the FLC locus itself, and which seems to guide polycomb repression of FLC.

COLDAIR non-coding RNA is transcribed from the first intron of the FLC gene. VRE stands for "vernalization response element", which is a DNA site controlling transcription of COLDAIR, presumably by binding activating proteins.
The researchers show that COLDAIR is essential for the vernalization process, is expressed at the right time, and associates with the polycomb proteins as hypothesized, both in the test tube and in plants. They somewhat acidly note that a nearby RNA found by others (COOLAIR) neither has any known role in vernalization (by deletion or other functional test) nor associates with polycomb proteins, despite a proposed role in the process. The current authors had found COLDAIR by intensively searching through the FLC gene for stray transcription products appearing under the right conditions, hypothesizing that as a subject of a polycomb repression process, such an RNA would be required to direct its location/nucleation. COLDAIR is about 1100 bases long- very long for minor regulatory RNAs in general, but typical for these polycomb complex guide RNAs.

Expression of relevant genes during vernalization, expressed as number of days of cold temperature (V) or warm (T).
How all these dots connect isn't entirely clear, unfortunately. What regulates the expression of the COLDAIR RNA at the right time and place in response to cold temperature isn't known. What connects VIN3 protein binding and repression (and local histone de-acetylation) with COLDAIR RNA expression or recruitment is also not known, though it is likely that VIN3 represses FLC transcription directly and partially modifies the local histones. And the details of how RNA in combination with the VIN3 DNA binding protein can guide the polycomb complex growth around the FLC gene is not quite clear, though direct triplex formation between the RNA and the DNA duplex is a leading theory.

While a work in progress, the polycomb story is most interesting and general. The master regulators of mammalian body plan development, (capable of cutting off limbs, digits, and vertebral segments when misexpressed), the HOX genes, are regulated in a similar fashion, turned off in various areas of the body by the polycomb system using locally produced guide RNAs, similar to what is described above. (Landmark paper.) Indeed it is becoming apparent that our cells are full of stray RNAs that may add substantially to the count of "genes" in the human genome. These don't code for protein components of the physical body, but regulate how other genes operate, lending support to the theme that our complexity arises less out of the hardware of what we are made of, and more out of the vastly complicated (though also quite junky) software controlling how, where, and when the limited number of pieces are put together.

  • Some GOP commentary on Egypt.
  • GOP announces new climate strategy: Abandon Earth.
  • Does anyone do background checks at Freddie Mac?
  • A bit of ham & jazz.
  • Bill Mitchell quote of the week: (Quote taken from a recent report criticizing the economists at the IMF, showing how ideologically blind they were and remain, here in regard to Iceland.)
"In spite of a banking sector that had grown from about 100 percent of GDP in 2003 to almost 1,000 percent of GDP, financial sector issues were not the focal point of the 2007 Article IV discussions. The massive size of the banking sector was noted, but this was not highlighted as a key vulnerability that needed to be addressed urgently. Instead, the IMF worried about the possibility of overheating, and the staff report was sanguine about Iceland’s overall prospects. For example, the headline sentences in the staff appraisal were “Iceland’s medium term prospects remain enviable. Open and flexible markets, sound institutions … have enabled Iceland to benefit from the opportunities afforded by globalization.” The report presented a positive picture of the banking sector itself, noting that “the banking sector appears well-placed to withstand significant credit and market shocks” and “[B]anks took important steps over the past year to reduce vulnerabilities and increase resilience.”"
  • Lastly, we are all Egyptians this week, with high hopes for the future.

Saturday, February 5, 2011

We are on FIRE

Finance, Insurance, and Real Estate are still out of control

After the crisis brought upon us by the financial industry and its corruption of government regulation, we have yet to thoroughly reasses its role in our lives and economy. The recent financial crisis commission report provided a good start, despite the obfuscating, if not fatally self-interested, dissenting reports from the Republican side. With 30% of corporate profits going to finance, and even higher shares of income, we have to ask whether this sector (frequently referred to as the FIRE sector) needs to be dramatically reduced, and if so, how.
Graph accompanied with the quote: "So in essence the bank bailout was not a one time event when the US population handed over more than a trillion dollars to a select club of financial companies. It is very much ongoing behind the scenes with vast sums being transferred every day allowing the financial sector to recapitalize its balance sheet."
The recent crisis is best conceptualized by Hyman Minsky's theory of the financial cycle. After a crisis, investors and managers are risk averse, sticking to their knitting and feeling content with consistent, if modest, returns. They are so risk averse that credit creation grinds to a halt and the economy falls into recession or depression, bank credit being the primary source of low-powered money. To fill the gap, the government needs to spend (high-powered) money to raise aggregate demand to levels that restore employment.

This is rather boring, and after the financial landscape has been stable for some time, the financial industry begins gradually to take higher and higher risks, as everyone is lulled by past stability into complacency that nothing could go wrong with, say, deregulation, or arcane derivatives, or ornate hedge funds. Those money managers who are not leveraging their assets and taking risks are left behind, and the party heats up, higher and higher. In the savings and loan debacle, as in the recent mortgage debacle, lenders turned to blatently unsound borrowers to rake in deals and fees, leaving in their wake trillions of dollars of destruction and heartbreak. Fraud is the operative term.

It is a psychological cycle, unfortunately infecting the "adult" government supervisors as much as the FIRE industry itself. Through the 80' and 90's, Democrats, but more so Republicans, were con-jobbed out of boring banking with scare stories of being left behind by more hip foreign banks, combined with a resurgent Ayn Randian fervor for economic "freedom". Airline deregulation went pretty well, didn't it? Alan Greenspan and Ben Bernanke ultimately failed to do the most elemental regulation of mortgage lending, (and a zoo of other lending and leverage creation), in the ideological belief that this industry was magically market self-correcting.

The problem, of course, is that the financial industry is inherently unstable if left to its own devices. Not only does the Minsky cycle (called the "financial instability hypothesis") lead an unregulated industry to higher and higher leverage and risk, building a house of cards that inevitably collapses, but the FIRE sector is uniquely situated to also perform what Bill Black calls control fraud- using the good reputation of a financial institution and the financial system generally to rob counter-parties blind. In the recent case, predatory lenders robbed both the borrowers (of their homes and dreams) and the investors who bought the toxic loans down the line. All for short-term income that accrued to the officers and CEOs who made the deals.

For good or ill, we are awash in capital. The advent of money means the advent of financial savings, and the need to store them. Through its monetization of all our needs and desires, and its destruction of traditional forms of social support, capitalism also forces us to save madly for our retirements and other later needs, resulting in trillions in search of investment gains. The FIRE industry is only too happy to accommodate, as they engineer ways to take more fees for themselves and offload as much risk as possible (pensions, health care, real estate losses, market volitility, financial collapse) onto taxpayers and customers. Goldman Sachs's deal to rape its own customers during the housing downturn was emblematic of this practice, as were Fanny/Freddie Mac's fraudulent gorging on subprime loans. Long term risk goes to the chumps, and fabulous short-term loot to the managers.

Why do customers keep coming back? There are few other options, unless one wishes to stockpile gold. Another reason is simple human optimism. We love to gamble, and there is no casino like the Wall Street casino. Another is a vast array of official and propagandistic incentives, like mortgage interest deductions, special treatment of capital gains, adulatory magazine profiles, capture of government offices by employees of Goldman Sachs, and the like.

And what is it all for? Miniscule amounts of new capital are actually directed by the FIRE sector into productive enterprises, compared to the vast amounts churned around through the many markets and non-market deals. Currency trading routinely turns over many times physical world trade per week, and many times world GDP per year. These are not essential activities. Some amount of speculation furnishes market-makers and liquidity, but a great amount creates stampeding volatility, which has, in the currency trading world, afflicted small countries now for decades. Similarly, the Wall Street casino creates continual risk of meltdown when a risky and highly leveraged system collapses in sudden distrust. Liquidity is a wonderful product, except that it tends to disappear at the most inconvenient times.

In a broader sense, it is an agent problem- that those given custody of our money will help themselves to it however they can. That goes for corporate officers generally, whose pay has far outstripped that of workers, and specifically for FIRE, whose control of our ill-fated "investments" creates endless incentives for what in less polite society would be called embezzlement. Thankfully, it is the already-rich who bequeth their money to the most egregious hedge fund managers. The rest of us tend to go with more sober index funds and bonds. Suppose the government imposed a wealth tax of 2% per year, equivalent to what is routinely sucked away by investment "managers". The rich would be up in arms.

This frenzy of greed started in earnest in the 80's with the Reagan revolution, with its greed is good mantra, and various theories that managers needed proper "incentives" aligned with the shareholders they were serving. But a little thought shows how empty and self-serving this rationalization is. Would our corporate cheerleaders favor paying President Obama a salary of three billion dollars per year because he "runs" an enterprise a thousand times that size in revenue? Would they propose that cashiers at Starbucks skim 2% off the till because they need proper incentives for cashiering? Would they offer salaries of a billion dollars to our soldiers who handle nuclear weapons and keep global catastrophe at bay (or at hand)?

I doubt it. Our corporate class and FIRE in particular have engaged in cynical self-dealing croynism at enormous scales, abetted by their various media, academic and official acolytes. And the worst part is that this cancerous growth of financial power has seeped into our political and other public spheres, corroding public goods and public debate. Our cities are cesspools of advertising, uncared-for and crumbling infrastructure, and homelessness, punctuated by shiny bank branches. Our media are infected with ceaseless advertising, are almost wholly corporate controlled, and feature ever more shameless empires purveying the views of the business class to a naive underclass, lying freely when needed and creating a political alliance of breathtaking cynicism, mouthing the word "freedom".

The great hopes placed in the Obama administration have been dashed largely because of its capture by the same business/FIRE class that Republicans thought they had locked up. Summers, Benanke, and Geithner have been staunch FIRE backers. Their solution to the crisis caused by the financial industry was to bail out the biggest malefactors, hanging the smaller banks out to dry. Simple homeowners have been ignored completely, left to be raped on the back end by the same banks who fraudulently lent them excess mortgages on the front end. Losses are put on the feckless borrowers as far as operationally possible, using a legal system that is, in essence and in practice, blind to corporate fraud and abuse.

To top it all off, the banks have been given accounting rules that allow them to hide their losses (as unmarketable, and thus un-price-able assets). And the Fed keeps feeding them money under the table by both buying their toxic waste directly and by its interest rate policy, (offering the spread between free reserves and federal bond rates, thus enabling banks to not lend). They are following the Japan model of making a brave face while slowly and inertly melting off their vast losses at taxpayer/monetary expense.
"As long as the strength of the recovery remains uncertain, there are few other investment opportunities, after adjusting for risk and taxes, with anticipated returns greater than the near-zero interest (currently 0.25 percent) the Federal Reserve pays on deposits." - St. Louis Fed newsletter
And too big to fail? What ever happened to that "problem"? It has not been addressed. Indeed there are even fewer, bigger, banks, ready to fail at the next crisis they cook up, ready to take the next bailout with which to pay their officers the kind of "incentives" needed to clean up those darn accidental messes. The whole system which is predicated on the trust we extend along with our hard-earned savings, has turned out to be a well-oiled machine of betrayal.

It makes me sick. I urge readers to relentlessly search out low-cost, low-complexity financial products and investment options for money they may have to save, and for debt they may need to incur.

  • Sermons for slavery. We have long been a nation of greed.
  • Speaking of endemic economic-political corruption, a good review of appalling government we sponsor in Afghanistan.
  • Postmodernism runs aground.
  • Quote from the good book, on the virtues of regulation:
"... the price of the S&L bailout would have funded the presence of 10 full-time bank examiners in every thrift in the country for close to 200 years."
"Litan’s fellow economists assured us that financial deregulation was supposed to release untold energies by liberating the self-adjusting mechanisms of the capital markets. Instead, it released im- prudence, incompetence, and fraud throughout the entire system."
"Greenspan praised thrift-killer Charles Keating’s “seasoned and expert” management team for rescuing a “badly burdened” thrift through “sound and profitable” investments. Every word of this was untrue. Greenspan’s reputation, however, survived intact (just as it did his earlier demented jottings for Ayn Rand’s Objectivist newsletter)."
  • Bill Black continues his crusade, detailing fraud at Fannie and Freddy.
"In that memorandum, Pinto recorded that he had found over 25 million such [subprime] mortgages (his later work showed that there were approximately 27 million). Since there are about 55 million mortgages in the U.S., Pinto’s research indicated that, as the financial crisis began, half of all U.S. mortgages were of inferior quality and liable to default when housing prices were no longer rising."
This blog goes on to debate these numbers, as well as the dissenting Republican theories, but one wonders why investors, quite aside from the government, are not suing more of the malefactors of all this fraud. I guess that securitization has so far provided the magic dispersion of responsibility and accountability required to duck this storm. ... Fannie and Freddy managers were, and remain, culpable in fraud.
  • Bill Mitchell quote of the week. Germany's public purpose is not only to suppress its own workers, but workers throughout Europe.
"So in that context the call for some unified economic government in Europe is – as it stands – a good one. But of-course the Chancellor does not have the same conception of that idea as I have. For her, the creation of a common economic governance agreement is about imposing order – German order on the member states. It is about control – fiscal rules – and rules about wage costs and pension funding."