Tuesday, November 11, 2008

Remembrance Day / Veterans Day

At the 11th hour of the 11th day of the 11th month this year, I found myself in the DC Metro system. It wasn't a very memorial occasion, but I paused for two minutes of silence anyway. I tried to appreciate the vast contribution made by boys and men who have fought in the front lines of the wars in the last century.

I was ignored by all those around me. Veterans Day has little emotional meaning for most Americans, and Remembrance Day has almost as little impact for most Canadians.

It's understandable I suppose. It might all seem quite removed. Some people don't even like to honour the contributions of soldiers, as it seems like war-mongering to them. I respectfully disagree.

So long as there are dictators and greed, so long as their is nationalistic fervor, so long as their is religious hatred, there will be people who want to make war and do evil. There need to be good people there to stop them. I thank those who have done it in the past, making our future possible.

Sunday, November 9, 2008

US: Give Obama a break

Senator Obama's victory as President-Elect this week was stirring, dramatic, and as a symbol of change in this country, long overdue. Naturally, he is getting all kinds of advice about what he should do now. I have a little piece of advice too.

Go on a vacation.

Obama has been campaigning almost continuously for two years straight. He's got to be exhausted.

Very soon, this man will have responsibility over the nuclear codes. He will have responsbility for wars in Iraq and Afghanistan. He will have try to rescue the American economy from an incredible mess. He needs to craft smart policies on climate change, energy independence, health care, and social security. This is a man who needs to be well rested.

I'm not saying he needs to take as much vacation as the current President. But look, JFK took six weeks off after his campaign, and it was far shorter and less demanding than Obama's. A week in the sun wouldn't be too much to ask.

Give the man a break.

Thursday, October 23, 2008

US: The Financial Crisis Is Not That Complicated

For the last month, the press has been raging about how insanely complex the current financial crisis is. So complicated that financial wizards are still reeling to understand what happened. So complex that even mighty titans of finance like Greenspan and Paulson don't know how to fix it.

At the risk of hubris, I disagree. The problem seems pretty simple, really.

Here's what happened. About a decade ago, the financial community dreamed up something called Credit Default Swaps (CDS). These financial tools are basically an insurance policy against something going bankrupt. The "something" could be anything, like a corporate bond or a sub-prime mortgage. So if I sell you a CDS, you pay me a certain amount of money each year, like an insurance premium, and if the mortgage goes bust, I give you a big payout. Just like having car insurance: your insurance company pays you if your car gets creamed.

Here's the catch: "insurance" is regulated. "Swaps" aren't. This means that the Wall St guys don't have to have financial reserves in case they actually have to make the CDS payouts to someone. That's like if I sold all my friends car insurance, took their premiums, and hoped that no one crashes their car. If a bunch of my clients do happen to have car crashes -- especially at the same time -- then everyone is screwed. I can't make the payments, and the car owners suddenly don't have insurance. That's what happened this fall, except that it was mortgages that crashed, not cars.

The heart of the problem is that regulators were convinced by financial lobbyists that they didn't have to regulate CDS because they were called "swaps" instead of "insurance." That's just idiotic. But there you have it: highly-paid Washington lobbyists influenced legislation for special interests, to the detriment of the Joe Taxpayer. Joe Taxpayer just got screwed.

Greenspan admits now that he thought banks would have the self-discipline to hold sufficient financial reserves to back the CDS's even in the absence of regulation. Even without the benefit of hindsight, that's a staggering assumption: it should not be surprising that banks wanted to trade these enormously profitable CDS's while they could, and knowing that if the system collapsed, the government would have to pick up the pieces. The financial system of the US really is too big to fail.

Admittedly, the solution to this problem is not simple. But I think it has to start with the recognition that this is a classic, recurring problem: the financial wizards on Wall St will always be one step ahead of the regulators, and they will always try to hire high-priced lobbyists to create loopholes in regulations. This isn't new: the Savings and Loans crisis in the 1980s was created in much the same way. It almost certainly won't be the last time.

So it seems to me that if we know this is a recurring problem in the financial industry, we ought to structure long-term solutions around that principle. It's true that the exact form and timing of these crises are unpredictable, but the fact that they will happen is entirely predictable. Instead of letting them take everyone by surprise and the cost being passed on to taxpayers, why not find ways to ensure that the fat cats on Wall St foot the bill when financial collapses occur?

Tuesday, March 4, 2008

The Canada-Obama Free Trade Agreement

Obama's campaign is being accused of soft-pedaling his policy concerns about NAFTA to a foreign government, namely Canada. A leaked memo from the Canadian consulate in Chicago appears to confirm it. It comes just days -- hours -- before the big showdown on March 4.

What a mess.

Despite Obama's strident denials, there probably is something to this story. Either he or his campaign thought it would be good idea to use some weasel words about his true intent on free trade.

The real damage from this episode is that it is driving both Democratic candidates further and further into the wrong policy position: protectionism. Obama is now publicly digging in his heals on free trade, insisting that he would renegotiate NAFTA and pull out if he wasn't satisfied. Still worse, Hillary Clinton is clutching to this controversy like a drowning swimmer, hoping that if she can prove that she is more anti-NAFTA than Obama is, it will win her Ohio.

The tragedy is that both of the candidates appear to know better. Hillary Clinton publicly supported NAFTA when it was passed, and she's smart enough to know that NAFTA has been good for the economy of all three countries involved. But now she says she was against it all along, and was just being loyal to her husband. (Clearly a guy who knows what loyalty is about.)

So the Democrats should feel ashamed of themselves, but the real buffon here is the Canadian government. By allowing that memo to get into the press, the Canadiang government has driven both Democrats into a more anti-NAFTA position, which won't be good for Canada if either of them is elected.

The fact that the Canadian embassy doesn't seem to get it is galling. They issued a statement that says: “The Canadian Embassy and our consulates general regularly contact those involved in all of the presidential campaigns and, periodically, report on these contacts to interested officials. There was no intention to convey, in any way, that Senator Obama and his campaign team were taking a different position in public from views expressed in private, including about NAFTA.”

Hey guys, I got a genius idea for you: stop trying to get private concessions out of Presidential candidates and then leaking them to the press!

Saturday, February 2, 2008

International: Blood and oil in Chad

Violence is spreading in Chad as rebels attack the capital. The flow of blood is, unfortunately, all too connected to the flow of oil.

In 2003, Chad became a significant oil exporter thanks to the World Bank-sponsored Chad-Cameroon pipeline. The World Bank stipulated restrictions on how the oil money could be used, but of course once the pipeline was built, the Chadian government as a lot less willing to follow the rules.

Chad's neighbours do not give us much hope for responsible leadership. North of Chad, Qaddhafi has ruled Libya for almost 40 years, where he has used oil money to sponsor violence around the world. To the East, Sudan is a major oil-exporter and, not coincidentally, embroiled in a genocide in Darfur.

Why does this seem to happen in oil-exporting countries? There are two basic reasons.

First, oil erodes the legitimacy of government. The oil industry is famously corrupt, perhaps second only to the global arms trade in terms of bribes paid and officials bought off. Along with corruption, oil money usually brings economic mismanagement and government incompetence. In a desparately poor country like Chad, this all adds up to a highly unpopular government that lacks any real legitimacy. That opens up the door to extreme, revolutionary leaders who are little interested in ruling the country for the good of the public.

Second, oil income is highly concentrated. This makes a successful revolution potentially very profitable: if the rebels can seize control of the government, they seize control of a very lucrative oil business. High stakes attracts big sharks: again, radical leaders.

How should the internatoinal community respond to the situation in Chad, and oil-exporters elsewhere? Well I'm working on that -- I'll let you know when my dissertation is finished. But the logical starting point is that countries should at least avoid doing harm.

This is what France appears to have done over the last 3-5 years: it has continued to back the President of Chad, even as his people have turned against him. Doing so has robbed France of any legitimacy in the eyes of the people, greatly reducing its ability to help re-establish peace. The international community has simply got to learn the lesson that continues to haunt the global arena: backing a unpopular and illegitimate but compliant dictator might work in the short-run, but it frequently comes back to bite us in the rear-end -- with disastrous consequences.