Rasul Shariff

2020-11-12T23:59:00.002-05:00

Trump’s big election lie pushes America toward autocracy By Timothy Snyder BOSTONGLOBE.COM Clinging to power by claiming you are the victim of internal enemies is a very dangerous tactic. Don’t underestimate where this can go. Updated November 11, 2020, 10:14 a.m. When you lose, it is good and healthy to know why. In the First World War, the conflict that defined our modern world, the Germans lost because of the overwhelming force assembled by their enemies on the Western Front. After the Americans entered the war, German defeat was a matter of time. Yet German commanders found it convenient instead to speak of a “stab in the back” by leftists and Jews. This big lie was a problem for the new German democracy that was created after the war, since it suggested that the major political party, the Social Democrats, and a national minority, the Jews, were outside the national community. The lie was taken up by the Nazis, and it became a central element of their version of history after they took power. The blame was elsewhere. It is always tempting to blame defeat on others. Yet for a national leader to do so and to inject a big lie into the system puts democracy at great risk. Excluding others from the national community makes democracy impossible in principle, and refusing to accept defeat makes it impossible in practice. What we face now in the United States is a new, American incarnation of the old falsehood: that Donald Trump’s defeat was not what it seems, that votes were stolen from him by internal enemies — by a left-wing party. “Where it mattered, they stole what they had to steal,” he tweets. He claims that his votes were all “Legal Votes,” as if by definition those for his opponent were not. Underestimating Donald Trump is a mistake that people should not go on making. Laughing at him will not make him go away. If it did, he would have vanished decades ago. Nor will longstanding norms about how presidents behave make him go away. He is an actor and will stick to his lines: It was all a fraud, and he won “by a lot.” He was never defeated, goes the story; he was a victim of a conspiracy. This stab-in-the-back myth could become a permanent feature of American politics, so long as Trump has a bullhorn, be it on Fox or on RT (formerly Russia Today) — or, though Democrats might find this unthinkable, as an unelected president remaining in power. After all, a claim that an election was illegitimate is a claim to remaining in power. A coup is under way, and the number of participants is not shrinking but growing. Few leading Republicans have acknowledged that the race is over. Important ones, such as Mitch McConnell and Mike Pompeo, appear to be on the side of the coup. We might like to think that this is all some strategy to find the president an exit ramp. But perhaps that is wishful thinking. The transition office refuses to begin its work. The secretary of defense, who did not want the army attacking civilians, was fired. The Department of Justice, exceeding its traditional mandate, has authorized investigations of the vote count. The talk shows on Fox this week contradict the news released by Fox last week. Republican lawmakers find ever new verbal formulations that directly or indirectly support Trump’s claims. The longer this goes on, the greater the danger to the Republic. What Trump is saying is false, and Republican politicians know it. If the votes against the president were fraudulent, then Republican wins in the House and Senate were also fraudulent: The votes were on the same ballots. Yet conspiracy theories, such as the stab in the back, have a force that goes beyond logic. They push away from a world of evidence and toward a world of fears. Psychological research suggests that citizens are especially vulnerable to conspiracy theories at the time of elections. Trump understands this, which is why his delivery of conspiracy theory is full of capital letters and bereft of facts. He knows better than to try to prove anything. His ally Newt Gingrich reaches for the worst when he blames a wealthy Jew for something that did not happen in the first place. History shows where this can go. If people believe an election has been stolen, that makes the new president a usurper. In Poland in 1922, a close election brought a centrist candidate to the presidency. Decried by the right in the press as an agent of the Jews, he was assassinated after two weeks in office. Even if the effect is not so immediate, the lingering effect of a myth of victimhood, of the idea of a stab in the back, can be profound. The German myth of a stab in the back did not doom German democracy immediately. But the conspiracy theory did help Nazis make their case that some Germans were not truly members of the nation and that a truly national government could not be democratic. Democracy can be buried in a big lie. Of course, the end of democracy in America would take an American form. In 2020 Trump acknowledged openly what has been increasingly clear for decades: The Republican Party aims not so much to win elections as to game them. This strategy has its temptations: The more you care about suppressing votes, the less you care about what voters want. And the less you care about voters want, the closer you move to authoritarianism. Trump has taken the next logical step: Try to disenfranchise voters not only before but after elections. If you have been stabbed in the back, then everything is permitted. Claiming that a fair election was foul is preparation for an election that is foul. If you convince your voters that the other side has cheated, you are promising them that you yourself will cheat next time. Having bent the rules, you then have to break them. History shows the danger in the familiar example of Hitler. When politicians break democracy, as conservatives in Weimar Germany did in the early 1930s, they are wrong to think that they will control what happens next. Someone else will emerge who is better adapted to the chaos and who will wield it in ways that they neither want nor expect. The myth of victimhood comes home and claims its victims. This is no time to mince words. In the interest of the Republic and of their own party, Republicans should accept the results. Timothy Snyder, a professor of history at Yale University, is the author of “On Tyranny: Twenty Lessons From the Twentieth Century” and, most recently, “Our Malady: Lessons in Liberty From a Hospital Diary.” Follow him on Twitter @TimothyDSnyder.

On the pulse: three delicious dal recipes from the Financial Times

2020-08-15T13:57:00.003-04:00

https://www.ft.com/content/af024f37-a58f-4110-bd40-3fa23f8198fe

On the pulse: three delicious dal recipes

The superfood lends itself to countless flavours and textures. Here FT journalists share their favourite recipes

August 12 2020

Anjli Raval

This time of the year reminds me of my childhood home in east London.

In the late afternoons, as my brother and I played, my grandfather would sit at the head of the dining table slicing fruit for the evening’s dessert. When Indian mangoes were in season, he would sneak us sweet, unctuous orange pieces. Later, strawberries, slices of watermelon or other summer fruits.

But the overwhelming aromas filling the air at that time of the day came from my grandmother’s Gujarati rasoi. Above all, from her “everyday” dal.

The scent of her red gram and moong lentils bubbling away with cinnamon, cloves, sweet and sour kokum, curry leaves, ginger, chilli and jaggery is fixed in my memory. The reddish-brown, thin, soupy dal packed a punch. The spice kick would hit the back of your throat. It was never meant to be had on its own or just with rice. It was part of an array of dishes on our steel thalis. A small bowl would be set amid a masala-stuffed potato dish or okra curry, something fried like a methi bhajiya (fenugreek fritters) with coriander chutney, a sambharo salad made with shredded cabbage and carrot, rotli (flatbread), yoghurt, rice, pickle and papad.

Dal itself can mean a dried legume — such as a lentil or pea — that grows as a seed inside a pod and can be split or cooked whole. But it is also the soupy dish or stew made from these same pulses that is particularly nutritious. The Oxford Companion to Food calls it “one of the principal foods of the Indian subcontinent”.

Each dal differs in flavour, texture and cooking method. Varieties change according to the region — south Indian specialities are thinner and translucent, for example, while heartier and creamier ones are popular in the north. They can be finished with tempered spices or some finely chopped fresh coriander. They can be sweet or tomatoey, packed with curry leaves or a spice blend such as Bengali panch phoran, which includes fennel seeds, fenugreek, nigella seeds, cumin seeds and mustard seeds. The range is seemingly endless.

When I went to university and later moved abroad, my grandmother’s cooking was no longer accessible. I didn’t have the time or, frankly, the knowledge to make the array of dishes that made up the flavour-laden thalis the women in my family seemed to curate subconsciously. And with that my grandmother’s “everyday” dal disappeared from my life.

Eventually, however, my stomach pined for home cooking and I started compiling a compendium of family recipes. Until then, no one had really written them down. Measurements were vague and told to one another in “mutthi” or fistfuls, as opposed to grammes or cups. I interpreted recipes and wrote down everything — my grandmother’s original flavour combinations, my mum’s different versions of dishes and soon enough my own adaptations.

Preferences and styles of cooking vary even among those who have grown up together. A recent survey of my family — via a 14-person WhatsApp chat — yielded more than 20 “favourite” dals. Results depended on mood, occasion, where they were eating the dal and who was cooking.

Eight years ago, I rang my grandmother from New York and told her that my go-to dal had become a tweaked version of my mum’s tadka dal — originally a Punjabi dish, which she makes with yellow split peas and split moong beans. “You mean that thick one that is a meal in itself?” she asked. I remember how appalled she was, implying it was heavier and not as delicately spiced as her everyday dal.

It is indeed a meal in itself and that’s exactly why I turned to it when I was thousands of miles away from home. My everyday dal was simple to make, rich, delicious and it didn’t need the supporting acts.

These days, I’m not an ocean away from home. I’m six and a half miles down the road in London. Like many people lately, I have been cooking comfort food — including all the extras I never felt the need to make before. And at the centre of it all is my dal — even if the recipe is not one my granny will necessarily agree with.

My mum gave me a small pressure cooker many years ago, it is one of my prized possessions. It follows me wherever I go — and dramatically cuts the time it takes to make a dal.
Wash the yellow split peas, then put them in a pressure cooker with the moong dal, two cups of water and a teaspoon of salt. Turn the gas under the pressure cooker on to a medium heat. After you hear about five whistles — roughly 15 minutes — turn it off and let it cool before you open it. The dal should be cooked through but not mushy. (If you do not have a pressure cooker, soak the dal for a few hours — or overnight — and then boil it in a pan with water and salt until cooked.)
In a separate pan add the oil and, when hot, the cumin seeds and dried red chilli. Then add the asafoetida and diced onion. When slightly brown and soft, add the grated garlic and ginger followed by the cooked pulses. Add another three cups of cold water. As the dal simmers, add the chilli powder, turmeric, coriander powder, cumin powder, garam masala and salt to taste. Once the dal starts to bubble, add the blended chopped tomatoes (or passata).
Simmer for a further 15 minutes on a low heat, stirring frequently. You can use a hand blender to blitz it a little but try to keep the texture of the dal. You can make it as thin or thick as you like, adding water as needed. Garnish with chopped fresh coriander.

Anjli Raval is the FT’s senior energy correspondent

Mamta Badkar

Growing up in Bombay, dal was a staple at lunch and dinner, and essential, my mother said, to add protein to my vegetarian diet. Yet it was something I ate willingly only when I was unwell.

I had a taste for more eclectic cuisine and my mother, an exceptional cook, pandered to these whims now and then. But dal — the prosaic pulse, the lacklustre legume — remained a constant fixture.

Every day I would try to mount a resistance and every day my mother would crush the sole mutineer at the dining table like some gastronomic despot. I found consolation in the sabzis (vegetables) — okra and a fenugreek and green pea curry were my favourites — and rotis.

Weary of my intransigence, my mother started to whip up a variety of dals. Most days we would have a simple tadka dal or a spicy masala dal, but then she started to pepper our menus with kali (black) dal — a creamy dal makhani — and a version of meetha (sweet) dal that uses jaggery and tamarind paste. Still, eating any dal was mostly a chore and something I associated with being ill.

Later, as I headed off to university in New York City — foodie paradise — I was ready to purge dal from my diet once and for all.

Notwithstanding, my mother scribbled a handful of simple Indian recipes into a notebook and tucked it — along with some essential spices and a small pressure cooker — into my suitcase.

These recipes remained in my luggage during my first few months in America, as I tested the limits of my metabolism. As a student, my daily budget was tight and my meals consisted largely of falafel wraps from the halal cart just outside my campus, plus Koronet’s jumbo pizza slices, heavy on the grease and arteries, but light on my pocket.

It was the winter chill that made me long for the warmth of home — and, to my surprise, my mother’s homemade spicy dal. Much as I had dismissed it in my teens, it was what I had eaten when I was under the weather or stressed and nothing could comfort me more.

So, in December 2009, during my winter break, I reached for my mother’s notebook. She had helpfully led with an index of spices in both English and Hindi, followed immediately by an easy masala dal recipe.

I made my way from Manhattan’s Upper West Side to Murray Hill (or Curry Hill as it is often called) and bought some dal, chillies, onions, tomatoes, garlic and ginger from an Indian store. As I set out to cook dal for the very first time, I realised I didn’t have any bay leaves and panicked. My mother chuckled, explained that they aren’t essential and assured me that my cooking plans were not in fact ruined. She walked me through her recipe — one that I stick to, more or less, a decade later.

It took moving halfway across the world for me to realise that my mother’s daily dal was an expression of her love. Living in New York, one of the epicentres of the pandemic and far from family, it’s the meal I most often cook for my husband and me. And when I return home to Bombay, my first meal is always homemade curd rice and a serving of dal.

Wash the red lentils and split pigeon peas, then put them in a pressure cooker with three cups of water and the turmeric. Close the pressure cooker and set it on a medium flame until you hear three whistles. Then turn off the stove.
Prepare your tadka (tempering) ingredients, while the dal cooks. On a low flame, heat some sunflower oil, add the mustard seeds, cumin, one bay leaf and a pinch of asafoetida. Don’t let the spices burn.
Add the chopped onion and cook until it turns yellow, then add in the ginger and garlic. Add the finely chopped tomatoes, along with the green chillies and red chilli powder (I like to use Kashmiri chilli powder) and mix well. Then add the curry leaves and salt and, finally, pour the dal into the pan and let it all simmer for a couple of minutes. Turn off the flame.
To top it off, rinse coriander leaves, chop and sprinkle on the cooked dal. Serve with roti or rice.

Mamta Badkar is US head of fastFT

Tony Tassell

Lately, I have gotten a little more dal, turning to the superfood of the subcontinent and one of the world’s great comfort meals.

For many, dal is a taste of home. Meera Sodha writes in her cookbook Made in India: “Ask any Indian what their favourite food is, and they will most likely tell you that it’s their mother’s dal-bhaat (dal and rice). It might sound humble, but in the hands of an Indian cook these simple ingredients are transformed into food for the soul.”

I first acquired a taste for it on family trips to India as a kid and later as an adult, including a stint living in Mumbai in the 1990s. From bustling train station cafeterias to five-star restaurants, dal was found pretty much everywhere, in countless variations and flavours across the country.

Loyalty to favoured variations runs deep. In my family, we have developed a dal that we like most, a great, quick weekday meal, saving more elaborate dals for weekend experimentation or dinner with friends.

I have made it so many times, I could almost do it with my eyes shut. Once, when I was on a diet, I ate it every day for lunch with its slow-burning sustenance reducing the need for snacks. And as I have cut back on meat in recent years, I have cooked it more.

My recipe is based on an old one by the chef Merrilees Parker but I have adapted it over the years. Each time I make it, it is a little different. This is not precise cooking.

Wash the red lentils in a saucepan until water runs through it clear. Drain. Then add 900ml of water. Bring to a boil and cook until tender, about 20-30 minutes. Remove any scum that comes to the surface during cooking. Blitz with a hand blender, if you have one, to your desired consistency. Or hand mash a little.
Add a tablespoon of tomato paste and a tin of tomatoes. Stir and let simmer for a few minutes. In a separate pan, make what is called the tadka — flavoured oil. Heat up three to four tablespoons of oil. If you want a richer dal, use ghee instead.
Into the oil go the curry leaves, black mustard seeds, cumin seeds, red or green chilli split down the middle, chilli flakes and about four cloves of thinly sliced garlic. Fry for a minute or two. Then tip the tarka into the dal and stir. Add salt to taste and the juice of half a lemon.
Sometimes I will also add a few handfuls of spinach to the mix. Another variation is to add a couple of teaspoons of grated ginger to the lentils when they are being boiled or to the tarka. Sometimes I will add coconut milk to the boiled lentils to make a richer flavour. But this is very forgiving cooking. It should be tweaked to your own tastes.

Tony Tassell is the FT’s deputy news editor

Follow @FTMag on Twitter to find out about our latest stories first.

Corruption in New York State

2018-05-12T11:22:00.001-04:00

Areas of corruption in New York State.
Corrupt practices tend to build up over time as interest groups get legislation favorable to themselves passed.
Some of the more egregious examples in New York are:

Title Insurance Oligopoly

Liquor Store Restrictions

Labor Union Inflation of MTA contracts

Notes:
Please look at Zephyr Teachout book on corruption.

War crimes in Afghanistan

2014-06-13T18:21:00.000-04:00

Please go to the link below to read the story:

https://docs.google.com/document/d/1NcmOKOLjZjCJtUie0jJepFiJxwuxUL-_S1zT8CF1nCY/edit?usp=sharing

Carlotta Gall has written an important and well researched book on the American war in Afghanistan. She covered the war as a New York Times reporter from 1999 to 2009 and won a Pulitzer Prize.

For me, the most shocking part of the book were the details of the innocent civilians killed in American air strikes that were not necessary or completely disproportionate to the threat that the enemy posed.

Gold - literally part of the fabric of India

2013-10-31T03:04:00.001-04:00

October 30, 2013 6:07 pm Financial Times India: Part of the fabric By Avantika Chilkoti and James Crabtree Can the government curb the country’s insatiable appetite for gold? Amid the rush of Mumbai’s chaotic international airport, customs officers beckon a passenger to step aside. A cardboard box held together by a large number of tiny staples catches their attention. Closer inspection reveals the joins are made of gold, moulded and coloured to resemble steel stationery. It is far from an isolated incident. Border officials say gold seizures have increased dramatically in recent months. Prominent signs in main airports tell arriving passengers that gold must be declared, whether it is delicate bangles and necklaces or ingots. Still it has been found secreted in chocolate bars, television sets and even underwear. Gold cases have jumped threefold since the start of this year, according to an administrator from India’s Directorate of Revenue Intelligence, an agency that covers smuggling. Trade Into uncharted waters “We have been making seizures but there is no way you can stop it 100 per cent,” says John Joseph, an official at the agency. “The trend will continue and more seizures will take place.” India absorbed about a quarter of worldwide gold supplies last year, making it the biggest gold importer. The seemingly insatiable appetite for gold is often viewed as a charming national quirk driven by elaborate weddings and lavish religious offerings. But with imports surging, ever-growing demand became one of the forces pushing Asia’s third-largest economy towards financial crisis. India increased gold duties repeatedly only for imports to hit their highest ever level in May. The influx helped to push the nation’s current account gap to record levels, leaving India especially vulnerable during the capital flight that swept emerging markets this summer, dragging the rupee down more than 15 per cent. In August the duty increases finally began to take hold, causing an import collapse and severe disruption to India’s gold market, says Bhaskar Bhat, managing director of Titan, a jeweller. Shortages and price surges followed, encouraging black market operators to ship in gold that legitimate traders could no longer supply. “It comes from Dubai, from Singapore, from Bangladesh,” he says. “It is hard to stop.” Now India’s government faces a double dilemma. Its curbs worked, at least in the short term. But demand for gold remains strong, particularly as the country heads into its annual season of weddings and Hindu festivals. During this time, purchases soar, notably around this weekend’s celebrations for Diwali, raising fears of a swift return to higher imports, and yet further pressures on external finances. In the longer term, however, policy makers are engaged in a campaign to wean citizens off using gold to save and invest, a centuries-old obsession that many economists feel is now stifling the financial system. They hope their country’s enormous gold stock – 20,000 tonnes worth a staggering $1.1tn, according to broker CLSA – can be diverted into capital for productive investment. “If I have one wish which the people of India can fulfil, it is don’t buy gold,” P Chidambaram, the finance minister, said in June. So far his counsel is being ignored. As a result, India stands midway through its most sustained attempt yet to beat back the metal’s appeal, the results of which will have consequences not just for the growth of one of the world’s most important emerging economies, but the $200bn global gold market as well. World gold prices rose sharply following the global financial crisis as investors sought safety in haven assets. Asian buyers proved especially hungry, attracted by the metal’s rising value as much as a taste for jewellery and trinkets. Indian demand jumped from 471 tonnes in 2001 to 1,017 tonnes in the year to March, worth $54bn. The surge put severe strain on the fragile finances of India, which has almost no domestic gold mines. The result was a jump in imports that accounted for about half of the country’s current account deficit over the last financial year. Mr Chidambaram declared a crackdown in January, more than doubling import duties over six months, while the Reserve Bank of India introduced a regulation in July forcing all gold importers to re-export a fifth of what they brought in. The latter policy had a pronounced effect. “This brought the entire industry to a standstill,” says Ashok Minawala of the All India Gems and Jewellery Trade Federation. The value of gold and silver imports fell 83 per cent year-on-year in September to $800m. Even so, the jewellery industry doubts whether New Delhi’s emergency restrictions can be sustained. Economists say imports are set to tick up again soon even if they remain in place; India has enjoyed a good monsoon, spurring gold spending in rural areas. “Demand can’t be wished away by curbing supply,” says PR Somasundaram, managing director for India at the World Gold Council, a trade body. . . . That demand stems from an affinity for gold woven deeply into the fabric of India’s culture – often literally, as in the case of the saris women wear on their wedding days. About half of gold purchases are tied in some way to weddings, where the metal is used for dowries. “In our community they will definitely ask you for gold . . . otherwise they won’t marry,” says Kalavati, a domestic worker from the southern state of Karnataka, who spent six times her Rs10,000 ($163) monthly wage buying gold for her daughter’s wedding, satisfying demands from her son-in-law’s family. Religion is another important factor, not least during tomorrow’s festival of Dhanteras, when precious metals are used to honour Lakshmi, the goddess of wealth. Along with heaps of scented marigolds, offerings of gold jewellery and ornaments are brought to places of worship throughout the year. Such donations have transformed India’s temples into vast gold stores, with the country’s three largest owning a stock of 3,500 tonnes, according to a recent report from Credit Suisse. In 2011, just one, the Sri Padmanabhaswamy temple in the southern state of Kerala, revealed a gold trove that it estimated to be worth as much as $20bn at current market prices. “Nowadays people are giving more. Day by day, the rush is increasing,” says Subhash Vittal Mayekar, who heads the Siddhivinayak temple in Mumbai. These cultural and religious affinities have become more important over the past decade, causing demand for gold to increase in step with the growing affluence of India’s population. Yet the nation’s gold surge has as much to do with investment as piety and nuptial celebrations, especially in a country where 40 per cent of people do not yet have a bank account, says Renny Thomas, a partner at McKinsey, the consultancy, in Mumbai. “If you are a mass-market consumer and live in a semi-urban or rural area and have some money to save, you can buy gold easily, close to where you live, and it is liquid and fairly safe,” says Mr Thomas. Loans against gold are easy to come by too – though in a nation where relinquishing family stocks carries stigma, this option tends to be used only in emergencies. Sharply rising rural incomes have spurred gold investment further, a factor that in some instances is complemented by the metal’s rising price. “If gold prices go up it doesn’t deter people from buying . . . it is only an indication that it is a good investment,” says Shinjini Kumar, a director at PwC India. More affluent savers have also poured money in, attracted by returns over the past five years that have outstripped comparable assets such as bank deposits, according to the RBI. This provides a hedge against inflation, though gold can also serve darker purposes – most notably as a repository for untaxed income, known in India as “black money”. Ultimately it is the combination of a long-established gold culture with rising affluence that has driven India’s demand surge. Yet the widespread reliance on gold assets now presents significant challenges for India’s financial development, given that capital tied up in gold cannot be placed in other productive assets, such as stocks or bonds. Were Indian gold demand to fall back below 1 per cent of gross domestic product, its average in the decade before the financial crisis, an extra $200bn of investment flows would be generated for the broader economy, according to research from Goldman Sachs. Breaking out of the cycle will not be easy, says Eswar Prasad, an economist at the Brookings Institution, requiring the creation and successful marketing of other products. “The allure of gold is symptomatic of the weakness in India’s financial system, and finding financial alternatives to it is crucial for the country’s development,” he says. Raghuram Rajan, the RBI governor, says savings certificates indexed to inflation, which the central bank issued this week, can be part of the answer. The RBI has also talked up other gold-backed financial products, including gold deposit schemes, where investors earn interest by depositing personal stocks with banks, which the lenders can then recycle into the domestic market, reducing demand for imports. . . . Such products raise different doubts, however. “I still find it difficult to imagine a father presenting his favourite daughter with a certificate for a gold-linked exchange traded fund on her big day,” says one senior policy maker. Instead, in the longer term, ending the lust for gold is likely to mean grappling with more basic factors, such as access to bank accounts. “Curbing the demand for gold will require a lot more – a stable outlook on inflation, [new types of] savings products and controlling black money,” says Shinjini Kumar. In the short term, India may have some breathing room. Goldman Sachs, Credit Suisse and others expect global gold prices to fall over the next year. If they are correct, this could undermine its attractiveness as an investment. India’s current account deficit is set to fall over the next six months, providing space for gold imports to tick up once more, and possibly for New Delhi to ease import restrictions. But until this happens, the breadth of India’s gold demand, across almost all segments of its population of 1.2bn, means pressure for fresh supplies is likely to keep growing, creating more work for officials at India’s borders. “If you focus on one thing they will stop it and invent a new thing,” says Arvind Singh, who works in customs at Mumbai’s international airport. Airline personnel are suspected of being involved, carrying gold and using staff passes to leave the airport without passing through customs, while middlemen are paid by sponsors to travel overseas, where they meet a dealer and bring the metal home. Reducing such illicit imports, much like demand more generally, will take time, says Nupur Pavan Bang of the Indian School of Business. “As long as people have money, nothing is going to stop the smuggling,” she says. “They’ll get it fixed in their teeth, they’ll get it fixed in the sole of their shoes.” ------------------------------------------- Markets: Tracking astrologers and weather forecasts Commodity traders are not, for the most part, a superstitious bunch. But when it comes to the gold market, they pay close attention to the prognostications of astrologers, writes Jack Farchy. The reason? Indian astrologers decide which days are auspicious for a wedding. And gold-buying during the Indian wedding season is one of the single most important drivers of the gold price. Analysts and traders at investment banks in London, New York and Zurich also maintain close ties to the Indian weather service: the strength of the annual monsoon season determines the level of disposable income for rural Indian families, who are some of the largest buyers of gold. “The role that India plays in the bullion markets is very prominent,” says James Steel, precious metals analyst at HSBC in New York. India has traditionally been the world’s largest consumer and importer of gold, accounting for about a quarter of demand for the metal last year. Gold dealing banks such as the Bank of Nova Scotia, HSBC and JPMorgan have large networks around the country. The country’s influence in the gold market has waned somewhat in recent years, as western investment and Chinese demand have both surged, helping to push gold prices up. As western investors lose patience with gold, however, the traditional sources of demand are once again catching the attention of traders and analysts. Since the government restrictions on imports began to take effect, the amount of gold being smuggled into India has become one of the key unknowns for the market. “It’s one of the main things we’re looking at,” says one hedge fund manager. “It’s fair to say that the physical markets are becoming more important again as the investment markets have contracted,” says Mr Steel. “India’s prominence is moving closer to centre stage again.”

First Presidential Debate

2012-10-04T17:42:00.001-04:00

Watched the first Presidential debate between Obama and Romney.
Romney was more glib and aggressive than Obama.
He kept making assertions that are simply not true.
Romney is a snake oil salesman.
Romney falsely stated that Obama had doubled the deficit. “The president said he’d cut the deficit in half,” Romney charged. “Unfortunately, he doubled it.”

From the New York Times:
http://www.nytimes.com/2012/10/04/opinion/an-unhelpful-presidential-debate.html?_r=2&ref=politics

October 4, 2012

An Unhelpful Debate

The first debate between President Obama and Mitt Romney, so long anticipated, quickly sunk into an unenlightening recitation of tired talking points and mendacity. With few sparks and little clarity on the immense gulf that truly separates the two men and their policies, Wednesday’s encounter provided little guidance for voters still trying to understand the choice in next month’s election.

The Mitt Romney who appeared on the stage at the University of Denver seemed to be fleeing from the one who won the Republican nomination on a hard-right platform of tax cuts, budget slashing and indifference to the suffering of those at the bottom of the economic ladder. And Mr. Obama’s competitive edge from 2008 clearly dulled, as he missed repeated opportunities to challenge Mr. Romney on his falsehoods and turnabouts.

Virtually every time Mr. Romney spoke, he misrepresented the platform on which he and Paul Ryan are actually running. The most prominent example, taking up the first half-hour of the debate, was on taxes. Mr. Romney claimed, against considerable evidence, that he had no intention of cutting taxes on the rich or enacting a tax cut that would increase the deficit.

That simply isn’t true. Mr. Romney wants to restore the Bush-era tax cut that expires at the end of this year and largely benefits the wealthy. He wants to end the estate tax and the gift tax, providing a huge benefit only to those with multimillion-dollar estates, at a cost of more than $1 trillion over a decade to the deficit. He wants to preserve the generous rates on capital gains that benefit himself personally and others at his economic level. And he wants to cut everyone’s tax rates by 20 percent, which again would be a gigantic boon to the wealthy.

None of these would cost the Treasury a dime, he insisted, because he would reduce deductions and loopholes. But, as always, he refused to enumerate a single deduction he would erase. “What I’ve said is I won’t put in place a tax cut that adds to the deficit,” he said. “No economist can say Mitt Romney’s tax plan adds $5 trillion if I say I will not add to the deficit with my tax plan.”

In fact, many economists have said exactly that, and, without details, Mr. Romney can’t simply refute them. But rather than forcefully challenging this fiction, Mr. Obama chose to be polite and professorial, as if hoping that strings of details could hold up against blatant nonsense. Viewers were not helped by a series of pedestrian questions from the moderator, Jim Lehrer of PBS, who never jumped in to challenge either candidate on the facts.

When Mr. Romney accused the president of supporting a “trickle-down government,” Mr. Obama might have demanded to know what that means. He could then have pointed out that it is Mr. Romney whose economic plan is based on the discredited idea that high-end tax cuts trickle down to the middle class and poor.

Mr. Romney said he supported the idea of regulation but rejected the Dodd-Frank financial reform law because it was too generous to the big “New York banks.” This is an alternative-universe interpretation of a law that is deeply despised and opposed by the banks, but Mr. Obama missed several opportunities to point out how the law limits the corrosive practices, like derivatives trading, that led to the 2008 crash and puts in place vitally important consumer protections.

On health care, Mr. Romney pretended that he had an actual plan to replace the Affordable Care Act, and that it covered pre-existing conditions. He has no such plan, and his false claim finally roused the president to his only strong moment of the evening. The country doesn’t know the details, he said, of how Mr. Romney would replace Wall Street reform, or health care reform, or tax increases on the rich because Republicans don’t want people to understand the hard trade-offs involved in these decisions.

There are still two more presidential debates, and Mr. Obama has the facts on his side to expose the hollowness of his opponent. But first he has to decide to use them aggressively.

The US loves the Kurti

2012-10-02T13:40:00.000-04:00

By Visi R. Tilak

: Prakash Singh/Agence France-Presse/Getty Images; The ‘kurti’ is now among the most sought after garments in the U.S, says Visi R Tilak.

Michael Phelps’s mother was sporting one while watching her son compete in the London Olympics, and gymnastics gold medalist Mary Lou Retton also wore one when interviewed on television. Mothers in the U.S. are wearing kurti style tunics while waiting outside school for their kids, and trendy young women in nightclubs are dancing with their glittery kurtis swaying. Even women at the beach are wearing them.

Yes, the kurti is everywhere – it is becoming a versatile, sought after garment in the U.S., even among non-Indians.

Chico’s, a trendy store at most malls in the U.S., carried a typical Indian kurti it called the “Luxe Linen Bethany Top” in its online store. Below this was a note that said, “We’re so sorry: this item sold out sooner than expected. For an equally chic substitute, please call our Personal Service Associates.”

Walking into any large store in the U.S., be it Nordstorm or Macy’s, Gap or Talbots, one cannot help but notice a popular variation of the kurti. Ann Taylor, which operates 280 stores across the country, as well as an e-commerce website, had a similar issue to Chico’s. Its “Everyday Tunic,” a very simple collared white kurti, was sold out, according to the company’s website.

Why are kurtis so popular? Is it the Bollywood influence, is it their elegance, or is it just that they are comfortable to wear and suit all body types?

“Indian tunics/kurtis are just great easy pieces to have in your wardrobe. Since the comeback of leggings, tunics have gotten even stronger,” say Vivek Patel and Radhika Rana, co-owners of Vira Boutique in Boston Massachusetts. The two were voted among the 25 most stylish Bostonians of 2012 by the Boston Globe.

“When we first opened, we had a small collection from Indian designer Masaba. She does bright pops of color and print mixed with Western elements. This collection sold out with the first two weeks. The richness of silks and unique prints were very eye catching for customers,” says Mr. Patel.

“While they are great casual or dressy, they are easy and very flattering on all body types, hence people are more likely to opt for them. They prove comfort yet still show a sense of style. They are great styled casual with leggings during the day. Or another option is dressing them up with dark skinny jeans and a pair of heels,” he adds, noting that this versatility is an important reason for the kurti’s popularity.

Designer Rachel Roy, who has dressed Michelle Obama and Hollywood actresses such as Kate Hudson, Jennifer Garner, Sharon Stone and Penelope Cruz said in an interviewthat she plans to incorporate Indian styles into her outfits.

While many Indians in the U.S. choose to eschew Indian outfits and “blend in,” Indian influences are manifesting themselves in the Western fashion scene. “A couple of years ago, Naomi Campbell wore a sari by designer Sabyasachi Mukherjee for Lakme Fashion Week in Mumbai. It was beautiful! I have always been attracted to the sari because not only is it part of my heritage, but it is effortless, elegant and exotic,” Ms. Roy, whose father was Indian, was quoted as saying in an article in “SheKnows.”

“I am venturing to India in October and I plan to study the tradition behind the sari, in hopes to recreate and modernize it for a future collection,” she added.

The fabrics used are sometimes very traditional, yet when executed in a popular design style they are easier to sell to Western clients, adds Mr. Patel.

Vira Boutique plans to carry Indian designers such as Rohit Gandhi, and Rahul Khanna for Fall/Winter 2012. “We have chosen some tunic style tops and hand embroidered dresses.”

According to Mr. Patel, what makes fabrics and designers from India enticing is that they are unique and have great quality. He adds that as retail businesses go more global, it helps people be more unique in their fashion sense.

“Pairing a white tee and jeans with a beautiful embroidered waistcoat from India is just what global fashion is. The designers from India just see a very unique vision for their garments. The mix of Western silhouettes with Indian fabrics and embroidery is just what is needed. These garments are very different and that’s what people are looking for these days,” he says.

Visi R. Tilak is freelance writer with bylines in publications such as the Boston Globe, Indian Express, India Today and Tehelka. She can be reached via email visitilak@gmail.com, her website www.visitilak.com or on Twitter @vtilak.

Follow India Real Time on Twitter @indiarealtime.

Saiyaara

2012-09-15T02:09:00.002-04:00

Banjaara from Ek Tha Tiger

2012-09-15T02:04:00.001-04:00

2012-09-13T01:00:00.001-04:00

As Republican convention emphasizes diversity, racial incidents intrude

By Rosalind S. Helderman and Jon Cohen, Published: August 29 TAMPA —

From the convention stage here, the Republican Party has tried to highlight its diversity, giving prime speaking slots to Latinos and blacks who have emphasized their party’s economic appeal to all Americans. But they have delivered those speeches to a convention hall filled overwhelmingly with white faces, an awkward contrast that has been made more uncomfortable this week by a series of racial headaches that have intruded on the party’s efforts to project a new level of inclusiveness. The tensions come amid a debate within the GOP on how best to lure new voters. The nation’s shifting demographics have caused some Republican leaders to worry not only about the party’s future but about winning in November, particularly in key swing states such as Virginia and Nevada.

“The demographics race we’re losing badly,” said Sen. Lindsey O. Graham (S.C.). “We’re not generating enough angry white guys to stay in business for the long term.” On Tuesday, convention organizers ejected two attendees after they reportedly threw peanuts at a black CNN camerawoman and told her, “This is how we feed animals.” Organizers called the conduct “inexcusable and unacceptable.”

That followed an on-air shouting match between MSNBC host Chris Matthews and Republican National Committee Chairman Reince Priebus over whether presidential nominee Mitt Romney was injecting race into the campaign by joking about President Obama’s birth certificate and attacking his record on welfare reform. “There’s no doubt he did,” Matthews declared. “Garbage,” Priebus retorted. And on Wednesday, Yahoo News fired Washington bureau chief David Chalian after a live microphone caught him telling a colleague, before an online event, that Romney and his wife, Ann, were “happy to have a party with black people drowning,” a reference to the RNC’s decision to go ahead with the convention while Hurricane Isaac lashed New Orleans. Chalian later apologized. By early Wednesday, the conservative Drudge Report featured a block of headlines devoted to issues of race at the convention, most of them critical of liberal news outlets that didn’t air speeches by the GOP’s diverse lineup. Not all of the race talk has been of the party’s own making. Many Republicans argue that Democrats’ obsession with the issue has forced it to the forefront. They say Democrats have used overtly racial appeals to fire up their base, citing Vice President Biden’s recent charge at a Virginia campaign event attended by hundreds of black voters that the GOP’s approach to financial regulation would“put y’all back in chains.”

Still, the discussions of race this week have highlighted the Republican Party’s continued difficulty in attracting non-white supporters. Exit polls from 2008 showed that 90 percent of GOP voters were white, a homogeneity that has been consistent for more than 30 years, even as the percentage of the electorate that is white has fallen. Nonwhite voters favored Obama over Romney by better than three to one in a Washington Post-Kaiser Family Foundation poll from early August; 74 percent of Latino voters and 90 percent of African Americans backed Obama. And despite a speaker lineup in Tampa that includes Artur Davis, a black former Democratic congressman; former secretary of state Condoleezza Rice; and Utah congressional candidate Mia Love, who would be the party’s first black congresswoman if she won in November, just 2 percent of convention delegates are black. That’s according to an analysis by David Bositis of the Joint Center for Political and Economic Studies. Bositis also said that only two members of the 165-member RNC are black and that none of the leaders of the committees responsible for drafting the GOP platform and adopting the convention rules are black.

“This Republican Party base is white, aging and dying off,” he said. Many Republicans, however, worry about making overt racial appeals to minorities. “Amongst politicians, amongst people who cover politics, there’s an overwhelming tendency to silo voters,” said Wisconsin Gov. Scott Walker at a breakfast hosted by The Post and Bloomberg News. “As Republicans, we take on a huge risk if we try to appeal to voters . . . within a mind-set of silos instead of making direct appeals on the issues that they’re actually talking about in their household — not necessarily in their category, but in their household.” A new Post poll put the difference between the two parties’ perception of minority voters on stark display. Respondents were asked an open-ended question:

Why do most black voters so consistently support Democrats? Though “don’t know” was the top answer for members of both parties, a close second among Republicans was that black voters are dependent on government or seeking a government handout. Democrats more often said that their party addresses issues of poverty. In Tampa, Republicans have devoted significant time to brainstorming how to expand the party’s appeal to Latinos. At various forums and lectures, they have debated whether the GOP should change its tone in discussing illegal immigration, appeal more directly to religious Latinos on social issues or make a more explicit argument that Republicans can help boost the economic prospects of Latino communities. “We as a party have got to get it,” said Mel Martinez, a former senator from Florida and a former RNC chairman, speaking at a Tuesday event sponsored by Univision and the National Journal. “We’ve got to get smart about this. We could be relegated to a minority party. . . . We’ve got to find a way to make that connection.” There has been less discussion of new ways to reach out to black voters, in part out of a recognition that the first African American president has a special relationship with African American voters. Davis, who in 2008 helped nominate Obama at the Democratic National Convention but became disenchanted with the president’s handling of the economy, said that to reach black voters, Republicans must expand their message beyond limiting government. “It’s not just enough to go into the black community and say, ‘We want to keep government from taking over your life.’ That doesn’t resonate in a whole lot of the black community, who have come to see government as a salvation and as economic leveler,” he said. “It’s going to take being willing to define conservatism as not just a defense of economic liberty but as a broader way of constructing a society that can promote social mobility.” Romney adviser Tara Wall said, “We know that a majority of black Americans will vote for President Obama,” but “that doesn’t mean Democrats or President Obama own the black vote or can take every black vote for granted.” She said Romney’s policies on school choice, social issues and job creation appeal to black families. “These are some common principles that we share and that we can engage on,” she said. “This is a long-term effort. It doesn’t happen overnight.” Raynard Jackson, a black GOP political consultant, wrote Tuesday on the RootDC Live blog that he is “embarrassed by the lack of diversity” at the convention and frustrated by his party’s empty promises. “The Republican line is that the overwhelming majority of blacks will vote for Obama because he is African American,” Jackson wrote. “I find this thinking extremely insulting as a black Republican. The reason the majority of blacks will vote for Obama is because Republicans have not given African Americans a reason to vote for Republicans or Romney.”

Aaron Blake contributed to this report. © The Washington Post Company

2012-09-11T10:57:00.002-04:00

Bollywood goes to Cuba:

2012-09-11T10:35:00.004-04:00

Anniversary of 911

Hard to believe 911 was eleven years ago.
Sometimes it seems like yesterday.
It was a terrible day.
I remember going to the roof of my apartment building and seeing the first tower collapse with my own eyes.
The stench of the dead downtown sometimes misted up in a cab and reminded you of the awfulness of death.
The sad notices all over downtown of people looking for their missing ones.
The empty hospitals downtown because there were no wounded, only the dead.

The inane and criminal actions of the Bush administration using 911 as a justification:

Torture
Rendition
The invasion of Iraq and the terrible suffering of the Iraqi people.

Thank god Bush is gone, Osama is dead, and Obama is now the President.

A History of the Computer Age

2012-01-13T17:33:00.001-05:00

First there was Babbage
then Turing
then IBM and the Seven Dwarves
then Microsoft and Intel
then Apple
then Google
then Facebook and Twitter

Barack is coming

2008-11-22T04:01:00.002-05:00

Barack is coming
Barack is coming
Everyone is waiting for Barack Obama to be sworn in as president.
When he comes:

- The Pakistani Prime Minister says the CIA Predator drones will no longer fire missiles into his country
- The Detroit automakers know he will bail them out with $25 billion
- Barack has said he will close down Guantanamo

Niall Ferguson explains the panic of 2008

2008-11-18T03:43:00.000-05:00

Finance

Wall Street Lays Another Egg

Not so long ago, the dollar stood for a sum of gold, and bankers knew the people they lent to. The author charts the emergence of an abstract, even absurd world—call it Planet Finance—where mathematical models ignored both history and human nature, and value had no meaning.

by Niall Ferguson December 2008

The bigger they come: Uncle Sam and Wall Street take the hardest fall since the Depression. Illustration by Tim Bower.

This year we have lived through something more than a financial crisis. We have witnessed the death of a planet. Call it Planet Finance. Two years ago, in 2006, the measured economic output of the entire world was worth around $48.6 trillion. The total market capitalization of the world’s stock markets was $50.6 trillion, 4 percent larger. The total value of domestic and international bonds was $67.9 trillion, 40 percent larger. Planet Finance was beginning to dwarf Planet Earth.

Planet Finance seemed to spin faster, too. Every day $3.1 trillion changed hands on foreign-exchange markets. Every month $5.8 trillion changed hands on global stock markets. And all the time new financial life-forms were evolving. The total annual issuance of mortgage-backed securities, including fancy new “collateralized debt obligations” (C.D.O.’s), rose to more than $1 trillion. The volume of “derivatives”—contracts such as options and swaps—grew even faster, so that by the end of 2006 their notional value was just over $400 trillion. Before the 1980s, such things were virtually unknown. In the space of a few years their populations exploded. On Planet Finance, the securities outnumbered the people; the transactions outnumbered the relationships.

Read Niall Ferguson’s prescient article on today’s financial woes, Empire Falls (November 2006).

New institutions also proliferated. In 1990 there were just 610 hedge funds, with $38.9 billion under management. At the end of 2006 there were 9,462, with $1.5 trillion under management. Private-equity partnerships also went forth and multiplied. Banks, meanwhile, set up a host of “conduits” and “structured investment vehicles” (sivs—surely the most apt acronym in financial history) to keep potentially risky assets off their balance sheets. It was as if an entire shadow banking system had come into being.

Then, beginning in the summer of 2007, Planet Finance began to self-destruct in what the International Monetary Fund soon acknowledged to be “the largest financial shock since the Great Depression.” Did the crisis of 2007–8 happen because American companies had gotten worse at designing new products? Had the pace of technological innovation or productivity growth suddenly slackened? No. The proximate cause of the economic uncertainty of 2008 was financial: to be precise, a crunch in the credit markets triggered by mounting defaults on a hitherto obscure species of housing loan known euphemistically as “subprime mortgages.”

Central banks in the United States and Europe sought to alleviate the pressure on the banks with interest-rate cuts and offers of funds through special “term auction facilities.” Yet the market rates at which banks could borrow money, whether by issuing commercial paper, selling bonds, or borrowing from one another, failed to follow the lead of the official federal-funds rate. The banks had to turn not only to Western central banks for short-term assistance to rebuild their reserves but also to Asian and Middle Eastern sovereign-wealth funds for equity injections. When these sources proved insufficient, investors—and speculative short-sellers—began to lose faith.

Beginning with Bear Stearns, Wall Street’s investment banks entered a death spiral that ended with their being either taken over by a commercial bank (as Bear was, followed by Merrill Lynch) or driven into bankruptcy (as Lehman Brothers was). In September the two survivors—Goldman Sachs and Morgan Stanley—formally ceased to be investment banks, signaling the death of a business model that dated back to the Depression. Other institutions deemed “too big to fail” by the U.S. Treasury were effectively taken over by the government, including the mortgage lenders and guarantors Fannie Mae and Freddie Mac and the insurance giant American International Group (A.I.G.).

By September 18 the U.S. financial system was gripped by such panic that the Treasury had to abandon this ad hoc policy. Treasury Secretary Henry Paulson hastily devised a plan whereby the government would be authorized to buy “troubled” securities with up to $700 billion of taxpayers’ money—a figure apparently plucked from the air. When a modified version of the measure was rejected by Congress 11 days later, there was panic. When it was passed four days after that, there was more panic. Now it wasn’t just bank stocks that were tanking. The entire stock market seemed to be in free fall as fears mounted that the credit crunch was going to trigger a recession. Moreover, the crisis was now clearly global in scale. European banks were in much the same trouble as their American counterparts, while emerging-market stock markets were crashing. A week of frenetic improvisation by national governments culminated on the weekend of October 11–12, when the United States reluctantly followed the British government’s lead, buying equity stakes in banks rather than just their dodgy assets and offering unprecedented guarantees of banks’ debt and deposits.

Since these events coincided with the final phase of a U.S. presidential-election campaign, it was not surprising that some rather simplistic lessons were soon being touted by candidates and commentators. The crisis, some said, was the result of excessive deregulation of financial markets. Others sought to lay the blame on unscrupulous speculators: short-sellers, who borrowed the stocks of vulnerable banks and sold them in the expectation of further price declines. Still other suspects in the frame were negligent regulators and corrupt congressmen.

This hunt for scapegoats is futile. To understand the downfall of Planet Finance, you need to take several steps back and locate this crisis in the long run of financial history. Only then will you see that we have all played a part in this latest sorry example of what the Victorian journalist Charles Mackay described in his 1841 book, Extraordinary Popular Delusions and the Madness of Crowds.

Nothing New

As long as there have been banks, bond markets, and stock markets, there have been financial crises. Banks went bust in the days of the Medici. There were bond-market panics in the Venice of Shylock’s day. And the world’s first stock-market crash happened in 1720, when the Mississippi Company—the Enron of its day—blew up. According to economists Carmen Reinhart and Kenneth Rogoff, the financial history of the past 800 years is a litany of debt defaults, banking crises, currency crises, and inflationary spikes. Moreover, financial crises seldom happen without inflicting pain on the wider economy. Another recent paper, co-authored by Rogoff’s Harvard colleague Robert Barro, has identified 148 crises since 1870 in which a country experienced a cumulative decline in gross domestic product (G.D.P.) of at least 10 percent, implying a probability of financial disaster of around 3.6 percent per year.

If stock-market movements followed the normal-distribution, or bell, curve, like human heights, an annual drop of 10 percent or more would happen only once every 500 years, whereas in the case of the Dow Jones Industrial Average it has happened in 20 of the last 100 years. And stock-market plunges of 20 percent or more would be unheard of—rather like people a foot and a half tall—whereas in fact there have been eight such crashes in the past century.

The most famous financial crisis—the Wall Street Crash—is conventionally said to have begun on “Black Thursday,” October 24, 1929, when the Dow declined by 2 percent, though in fact the market had been slipping since early September and had suffered a sharp, 6 percent drop on October 23. On “Black Monday,” October 28, it plunged by 13 percent, and the next day by a further 12 percent. In the course of the next three years the U.S. stock market declined by a staggering 89 percent, reaching its nadir in July 1932. The index did not regain its 1929 peak until November 1954.

That helps put our current troubles into perspective. From its peak of 14,164, on October 9, 2007, to a dismal level of 8,579, exactly a year later, the Dow declined by 39 percent. By contrast, on a single day just over two decades ago—October 19, 1987—the index fell by 23 percent, one of only four days in history when the index has fallen by more than 10 percent in a single trading session.

This crisis, however, is about much more than just the stock market. It needs to be understood as a fundamental breakdown of the entire financial system, extending from the monetary-and-banking system through the bond market, the stock market, the insurance market, and the real-estate market. It affects not only established financial institutions such as investment banks but also relatively novel ones such as hedge funds. It is global in scope and unfathomable in scale.

Had it not been for the frantic efforts of the Federal Reserve and the Treasury, to say nothing of their counterparts in almost equally afflicted Europe, there would by now have been a repeat of that “great contraction” of credit and economic activity that was the prime mover of the Depression. Back then, the Fed and the Treasury did next to nothing to prevent bank failures from translating into a drastic contraction of credit and hence of business activity and employment. If the more openhanded monetary and fiscal authorities of today are ultimately successful in preventing a comparable slump of output, future historians may end up calling this “the Great Repression.” This is the Depression they are hoping to bottle up—a Depression in denial.

To understand why we have come so close to a rerun of the 1930s, we need to begin at the beginning, with banks and the money they make. From the Middle Ages until the mid-20th century, most banks made their money by maximizing the difference between the costs of their liabilities (payments to depositors) and the earnings on their assets (interest and commissions on loans). Some banks also made money by financing trade, discounting the commercial bills issued by merchants. Others issued and traded bonds and stocks, or dealt in commodities (especially precious metals). But the core business of banking was simple. It consisted, as the third Lord Rothschild pithily put it, “essentially of facilitating the movement of money from Point A, where it is, to Point B, where it is needed.”

The system evolved gradually. First came the invention of cashless intra-bank and inter-bank transactions, which allowed debts to be settled between account holders without having money physically change hands. Then came the idea of fractional-reserve banking, whereby banks kept only a small proportion of their existing deposits on hand to satisfy the needs of depositors (who seldom wanted all their money simultaneously), allowing the rest to be lent out profitably. That was followed by the rise of special public banks with monopolies on the issuing of banknotes and other powers and privileges: the first central banks.

With these innovations, money ceased to be understood as precious metal minted into coins. Now it was the sum total of specific liabilities (deposits and reserves) incurred by banks. Credit was the other side of banks’ balance sheets: the total of their assets; in other words, the loans they made. Some of this money might still consist of precious metal, though a rising proportion of that would be held in the central bank’s vault. Most would be made up of banknotes and coins recognized as “legal tender,” along with money that was visible only in current- and deposit-account statements.

Until the late 20th century, the system of bank money retained an anchor in the pre-modern conception of money in the form of the gold standard: fixed ratios between units of account and quantities of precious metal. As early as 1924, the English economist John Maynard Keynes dismissed the gold standard as a “barbarous relic,” but the last vestige of the system did not disappear until August 15, 1971—the day President Richard Nixon closed the so-called gold window, through which foreign central banks could still exchange dollars for gold. With that, the centuries-old link between money and precious metal was broken.

Though we tend to think of money today as being made of paper, in reality most of it now consists of bank deposits. If we measure the ratio of actual money to output in developed economies, it becomes clear that the trend since the 1970s has been for that ratio to rise from around 70 percent, before the closing of the gold window, to more than 100 percent by 2005. The corollary has been a parallel growth of credit on the other side of bank balance sheets. A significant component of that credit growth has been a surge of lending to consumers. Back in 1952, the ratio of household debt to disposable income was less than 40 percent in the United States. At its peak in 2007, it reached 133 percent, up from 90 percent a decade before. Today Americans carry a total of $2.56 trillion in consumer debt, up by more than a fifth since 2000.

Even more spectacular, however, has been the rising indebtedness of banks themselves. In 1980, bank indebtedness was equivalent to 21 percent of U.S. gross domestic product. In 2007 the figure was 116 percent. Another measure of this was the declining capital adequacy of banks. On the eve of “the Great Repression,” average bank capital in Europe was equivalent to less than 10 percent of assets; at the beginning of the 20th century, it was around 25 percent. It was not unusual for investment banks’ balance sheets to be as much as 20 or 30 times larger than their capital, thanks in large part to a 2004 rule change by the Securities and Exchange Commission that exempted the five largest of those banks from the regulation that had capped their debt-to-capital ratio at 12 to 1. The Age of Leverage had truly arrived for Planet Finance.

Credit and money, in other words, have for decades been growing more rapidly than underlying economic activity. Is it any wonder, then, that money has ceased to hold its value the way it did in the era of the gold standard? The motto “In God we trust” was added to the dollar bill in 1957. Since then its purchasing power, relative to the consumer price index, has declined by a staggering 87 percent. Average annual inflation during that period has been more than 4 percent. A man who decided to put his savings into gold in 1970 could have bought just over 27.8 ounces of the precious metal for $1,000. At the time of writing, with gold trading at $900 an ounce, he could have sold it for around $25,000.

Those few goldbugs who always doubted the soundness of fiat money—paper currency without a metal anchor—have in large measure been vindicated. But why were the rest of us so blinded by money illusion?

Blowing Bubbles

In the immediate aftermath of the death of gold as the anchor of the monetary system, the problem of inflation affected mainly retail prices and wages. Today, only around one out of seven countries has an inflation rate above 10 percent, and only one, Zimbabwe, is afflicted with hyperinflation. But back in 1979 at least 7 countries had an annual inflation rate above 50 percent, and more than 60 countries—including Britain and the United States—had inflation in double digits.

Inflation has come down since then, partly because many of the items we buy—from clothes to computers—have gotten cheaper as a result of technological innovation and the relocation of production to low-wage economies in Asia. It has also been reduced because of a worldwide transformation in monetary policy, which began with the monetarist-inspired increases in short-term rates implemented by the Federal Reserve in 1979. Just as important, some of the structural drivers of inflation, such as powerful trade unions, have also been weakened.

By the 1980s, in any case, more and more people had grasped how to protect their wealth from inflation: by investing it in assets they expected to appreciate in line with, or ahead of, the cost of living. These assets could take multiple forms, from modern art to vintage wine, but the most popular proved to be stocks and real estate. Once it became clear that this formula worked, the Age of Leverage could begin. For it clearly made sense to borrow to the hilt to maximize your holdings of stocks and real estate if these promised to generate higher rates of return than the interest payments on your borrowings. Between 1990 and 2004, most American households did not see an appreciable improvement in their incomes. Adjusted for inflation, the median household income rose by about 6 percent. But people could raise their living standards by borrowing and investing in stocks and housing.

Nearly all of us did it. And the bankers were there to help. Not only could they borrow more cheaply from one another than we could borrow from them; increasingly they devised all kinds of new mortgages that looked more attractive to us (and promised to be more lucrative to them) than boring old 30-year fixed-rate deals. Moreover, the banks were just as ready to play the asset markets as we were. Proprietary trading soon became the most profitable arm of investment banking: buying and selling assets on the bank’s own account.

Losing our shirt? The problem is that our banks are also losing theirs. Illustration by Barry Blitt.

There was, however, a catch. The Age of Leverage was also an age of bubbles, beginning with the dot-com bubble of the irrationally exuberant 1990s and ending with the real-estate mania of the exuberantly irrational 2000s. Why was this?

The future is in large measure uncertain, so our assessments of future asset prices are bound to vary. If we were all calculating machines, we would simultaneously process all the available information and come to the same conclusion. But we are human beings, and as such are prone to myopia and mood swings. When asset prices surge upward in sync, it is as if investors are gripped by a kind of collective euphoria. Conversely, when their “animal spirits” flip from greed to fear, the bubble that their earlier euphoria inflated can burst with amazing suddenness. Zoological imagery is an integral part of the culture of Planet Finance. Optimistic buyers are “bulls,” pessimistic sellers are “bears.” The real point, however, is that stock markets are mirrors of the human psyche. Like Homo sapiens, they can become depressed. They can even suffer complete breakdowns.

This is no new insight. In the 400 years since the first shares were bought and sold on the Amsterdam Beurs, there has been a long succession of financial bubbles. Time and again, asset prices have soared to unsustainable heights only to crash downward again. So familiar is this pattern—described by the economic historian Charles Kindleberger—that it is possible to distill it into five stages:

(1) Displacement: Some change in economic circumstances creates new and profitable opportunities. (2) Euphoria, or overtrading: A feedback process sets in whereby expectation of rising profits leads to rapid growth in asset prices. (3) Mania, or bubble: The prospect of easy capital gains attracts first-time investors and swindlers eager to mulct them of their money. (4) Distress: The insiders discern that profits cannot possibly justify the now exorbitant price of the assets and begin to take profits by selling. (5) Revulsion, or discredit: As asset prices fall, the outsiders stampede for the exits, causing the bubble to burst.

The key point is that without easy credit creation a true bubble cannot occur. That is why so many bubbles have their origins in the sins of omission and commission of central banks.

The bubbles of our time had their origins in the aftermath of the 1987 stock-market crash, when then novice Federal Reserve chairman Alan Greenspan boldly affirmed the Fed’s “readiness to serve as a source of liquidity to support the economic and financial system.” This sent a signal to the markets, particularly the New York banks: if things got really bad, he stood ready to bail them out. Thus was born the “Greenspan put”—the implicit option the Fed gave traders to be able to sell their stocks at today’s prices even in the event of a meltdown tomorrow.

Having contained a panic once, Greenspan thereafter had a dilemma lurking in the back of his mind: whether or not to act pre-emptively the next time—to prevent a panic altogether. This dilemma came to the fore as a classic stock-market bubble took shape in the mid-90s. The displacement in this case was the explosion of innovation by the technology and software industry as personal computers met the Internet. But, as in all of history’s bubbles, an accommodative monetary policy also played a role. From a peak of 6 percent in February 1995, the federal-funds target rate had been reduced to 5.25 percent by January 1996. It was then cut in steps, in the fall of 1998, down to 4.75 percent, and it remained at that level until June 1999, by which time the Dow had passed the 10,000 mark.

Why did the Fed allow euphoria to run loose in the 1990s? Partly because Greenspan and his colleagues underestimated the momentum of the technology bubble; as early as December 1995, with the Dow just past the 5,000 mark, members of the Fed’s Open Market Committee speculated that the market might be approaching its peak. Partly, also, because Greenspan came to the conclusion that it was not the Fed’s responsibility to worry about asset-price inflation, only consumer-price inflation, and this, he believed, was being reduced by a major improvement in productivity due precisely to the tech boom.

Greenspan could not postpone a stock-exchange crash indefinitely. After Silicon Valley’s dot-com bubble peaked, in March 2000, the U.S. stock market fell by almost half over the next two and a half years. It was not until May 2007 that investors in the Standard & Poor’s 500 had recouped their losses. But the Fed’s response to the sell-off—and the massive shot of liquidity it injected into the financial markets after the 9/11 terrorist attacks—prevented the “correction” from precipitating a depression. Not only were the 1930s averted; so too, it seemed, was a repeat of the Japanese experience after 1989, when a conscious effort by the central bank to prick an asset bubble had ended up triggering an 80 percent stock-market sell-off, a real-estate collapse, and a decade of economic stagnation.

What was not immediately obvious was that Greenspan’s easy-money policy was already generating another bubble—this time in the financial market that a majority of Americans have been encouraged for generations to play: the real-estate market.

The American Dream

Real estate is the English-speaking world’s favorite economic game. No other facet of financial life has such a hold on the popular imagination. The real-estate market is unique. Every adult, no matter how economically illiterate, has a view on its future prospects. Through the evergreen board game Monopoly, even children are taught how to climb the property ladder.

Once upon a time, people saved a portion of their earnings for the proverbial rainy day, stowing the cash in a mattress or a bank safe. The Age of Leverage, as we have seen, brought a growing reliance on borrowing to buy assets in the expectation of their future appreciation in value. For a majority of families, this meant a leveraged investment in a house. That strategy had one very obvious flaw. It represented a one-way, totally unhedged bet on a single asset.

To be sure, investing in housing paid off handsomely for more than half a century, up until 2006. Suppose you had put $100,000 into the U.S. property market back in the first quarter of 1987. According to the Case-Shiller national home-price index, you would have nearly tripled your money by the first quarter of 2007, to $299,000. On the other hand, if you had put the same money into the S&P 500, and had continued to re-invest the dividend income in that index, you would have ended up with $772,000 to play with—more than double what you would have made on bricks and mortar.

There is, obviously, an important difference between a house and a stock-market index. You cannot live in a stock-market index. For the sake of a fair comparison, allowance must therefore be made for the rent you save by owning your house (or the rent you can collect if you own a second property). A simple way to proceed is just to leave out both dividends and rents. In that case the difference is somewhat reduced. In the two decades after 1987, the S&P 500, excluding dividends, rose by a factor of just over six, meaning that an investment of $100,000 would be worth some $600,000. But that still comfortably beat housing.

There are three other considerations to bear in mind when trying to compare housing with other forms of assets. The first is depreciation. Stocks do not wear out and require new roofs; houses do. The second is liquidity. As assets, houses are a great deal more expensive to convert into cash than stocks. The third is volatility. Housing markets since World War II have been far less volatile than stock markets. Yet that is not to say that house prices have never deviated from a steady upward path. In Britain between 1989 and 1995, for example, the average house price fell by 18 percent, or, in inflation-adjusted terms, by more than a third—37 percent. In London, the real decline was closer to 47 percent. In Japan between 1990 and 2000, property prices fell by more than 60 percent.

The recent decline of property prices in the United States should therefore have come as less of a shock than it did. Between July 2006 and June 2008, the Case-Shiller index of home prices in 20 big American cities declined on average by 19 percent. In some of these cities—Phoenix, San Diego, Los Angeles, and Miami—the total decline was as much as a third. Seen in international perspective, those are not unprecedented figures. Seen in the context of the post-2000 bubble, prices have yet to return to their starting point. On average, house prices are still 50 percent higher than they were at the beginning of this process.

So why were we oblivious to the likely bursting of the real-estate bubble? The answer is that for generations we have been brainwashed into thinking that borrowing to buy a house is the only rational financial strategy to pursue. Think of Frank Capra’s classic 1946 movie, It’s a Wonderful Life, which tells the story of the family-owned Bailey Building & Loan, a small-town mortgage firm that George Bailey (played by James Stewart) struggles to keep afloat in the teeth of the Depression. “You know, George,” his father tells him, “I feel that in a small way we are doing something important. It’s satisfying a fundamental urge. It’s deep in the race for a man to want his own roof and walls and fireplace, and we’re helping him get those things in our shabby little office.” George gets the message, as he passionately explains to the villainous slumlord Potter after Bailey Sr.’s death: “[My father] never once thought of himself.… But he did help a few people get out of your slums, Mr. Potter. And what’s wrong with that? … Doesn’t it make them better citizens? Doesn’t it make them better customers?”

There, in a nutshell, is one of the key concepts of the 20th century: the notion that property ownership enhances citizenship, and that therefore a property-owning democracy is more socially and politically stable than a democracy divided into an elite of landlords and a majority of property-less tenants. So deeply rooted is this idea in our political culture that it comes as a surprise to learn that it was invented just 70 years ago.

Fannie, Ginnie, and Freddie

Prior to the 1930s, only a minority of Americans owned their homes. During the Depression, however, the Roosevelt administration created a whole complex of institutions to change that. A Federal Home Loan Bank Board was set up in 1932 to encourage and oversee local mortgage lenders known as savings-and-loans (S&Ls)—mutual associations that took in deposits and lent to homebuyers. Under the New Deal, the Home Owners’ Loan Corporation stepped in to refinance mortgages on longer terms, up to 15 years. To reassure depositors, who had been traumatized by the thousands of bank failures of the previous three years, Roosevelt introduced federal deposit insurance. And by providing federally backed insurance for mortgage lenders, the Federal Housing Administration (F.H.A.) sought to encourage large (up to 80 percent of the purchase price), long (20- to 25-year), fully amortized, low-interest loans.

By standardizing the long-term mortgage and creating a national system of official inspection and valuation, the F.H.A. laid the foundation for a secondary market in mortgages. This market came to life in 1938, when a new Federal National Mortgage Association—nicknamed Fannie Mae—was authorized to issue bonds and use the proceeds to buy mortgages from the local S&Ls, which were restricted by regulation both in terms of geography (they could not lend to borrowers more than 50 miles from their offices) and in terms of the rates they could offer (the so-called Regulation Q, which imposed a low ceiling on interest paid on deposits). Because these changes tended to reduce the average monthly payment on a mortgage, the F.H.A. made home ownership viable for many more Americans than ever before. Indeed, it is not too much to say that the modern United States, with its seductively samey suburbs, was born with Fannie Mae. Between 1940 and 1960, the home-ownership rate soared from 43 to 62 percent.

These were not the only ways in which the federal government sought to encourage Americans to own their own homes. Mortgage-interest payments were always tax-deductible, from the inception of the federal income tax in 1913. As Ronald Reagan said when the rationality of this tax break was challenged, mortgage-interest relief was “part of the American dream.”

In 1968, to broaden the secondary-mortgage market still further, Fannie Mae was split in two—the Government National Mortgage Association (Ginnie Mae), which was to cater to poor borrowers, and a rechartered Fannie Mae, now a privately owned government-sponsored enterprise (G.S.E.). Two years later, to provide competition for Fannie Mae, the Federal Home Loan Mortgage Corporation (Freddie Mac) was set up. In addition, Fannie Mae was permitted to buy conventional as well as government-guaranteed mortgages. Later, with the Community Reinvestment Act of 1977, American banks found themselves under pressure for the first time to lend to poor, minority communities.

These changes presaged a more radical modification to the New Deal system. In the late 1970s, the savings-and-loan industry was hit first by double-digit inflation and then by sharply rising interest rates. This double punch was potentially lethal. The S&Ls were simultaneously losing money on long-term, fixed-rate mortgages, due to inflation, and hemorrhaging deposits to higher-interest money-market funds. The response in Washington from both the Carter and Reagan administrations was to try to salvage the S&Ls with tax breaks and deregulation. When the new legislation was passed, President Reagan declared, “All in all, I think we hit the jackpot.” Some people certainly did.

On the one hand, S&Ls could now invest in whatever they liked, not just local long-term mortgages. Commercial property, stocks, junk bonds—anything was allowed. They could even issue credit cards. On the other, they could now pay whatever interest rate they liked to depositors. Yet all their deposits were still effectively insured, with the maximum covered amount raised from $40,000 to $100,000, thanks to a government regulation two years earlier. And if ordinary deposits did not suffice, the S&Ls could raise money in the form of brokered deposits from middlemen. What happened next perfectly illustrated the great financial precept first enunciated by William Crawford, the commissioner of the California Department of Savings and Loan: “The best way to rob a bank is to own one.” Some S&Ls bet their depositors’ money on highly dubious real-estate developments. Many simply stole the money, as if deregulation meant that the law no longer applied to them at all.

When the ensuing bubble burst, nearly 300 S&Ls collapsed, while another 747 were closed or reorganized under the auspices of the Resolution Trust Corporation, established by Congress in 1989 to clear up the mess. The final cost of the crisis was $153 billion (around 3 percent of the 1989 G.D.P.), of which taxpayers had to pay $124 billion.

But even as the S&Ls were going belly-up, they offered another, very different group of American financial institutions a fast track to megabucks. To the bond traders at Salomon Brothers, the New York investment bank, the breakdown of the New Deal mortgage system was not a crisis but a wonderful opportunity. As profit-hungry as their language was profane, the self-styled “Big Swinging Dicks” at Salomon saw a way of exploiting the gyrating interest rates of the early 1980s.

The idea was to re-invent mortgages by bundling thousands of them together as the backing for new and alluring securities that could be sold as alternatives to traditional government and corporate bonds—in short, to convert mortgages into bonds. Once lumped together, the interest payments due on the mortgages could be subdivided into strips with different maturities and credit risks. The first issue of this new kind of mortgage-backed security (known as a “collateralized mortgage obligation”) occurred in June 1983. The dawn of securitization was a necessary prelude to the Age of Leverage.

Once again, however, it was the federal government that stood ready to pick up the tab in a crisis. For the majority of mortgages continued to enjoy an implicit guarantee from the government-sponsored trio of Fannie, Freddie, and Ginnie, meaning that bonds which used those mortgages as collateral could be represented as virtual government bonds and considered “investment grade.” Between 1980 and 2007, the volume of such G.S.E.-backed mortgage-backed securities grew from less than $200 billion to more than $4 trillion. In 1980 only 10 percent of the home-mortgage market was securitized; by 2007, 56 percent of it was.

These changes swept away the last vestiges of the business model depicted in It’s a Wonderful Life. Once there had been meaningful social ties between mortgage lenders and borrowers. James Stewart’s character knew both the depositors and the debtors. By contrast, in a securitized market the interest you paid on your mortgage ultimately went to someone who had no idea you existed. The full implications of this transition for ordinary homeowners would become apparent only 25 years later.

The Lessons of Detroit

In July 2007, I paid a visit to Detroit, because I had the feeling that what was happening there was the shape of things to come in the United States as a whole. In the space of 10 years, house prices in Detroit, which probably possesses the worst housing stock of any American city other than New Orleans, had risen by more than a third—not much compared with the nationwide bubble, but still hard to explain, given the city’s chronically depressed economic state. As I discovered, the explanation lay in fundamental changes in the rules of the housing game.

I arrived at the end of a borrowing spree. For several years agents and brokers selling subprime mortgages had been flooding Detroit with radio, television, and direct-mail advertisements, offering what sounded like attractive deals. In 2006, for example, subprime lenders pumped more than a billion dollars into 22 Detroit Zip Codes.

These were not the old 30-year fixed-rate mortgages invented in the New Deal. On the contrary, a high proportion were adjustable-rate mortgages—in other words, the interest rate could vary according to changes in short-term lending rates. Many were also interest-only mortgages, without amortization (repayment of principal), even when the principal represented 100 percent of the assessed value of the mortgaged property. And most had introductory “teaser” periods, whereby the initial interest payments—usually for the first two years—were kept artificially low, with the cost of the loan backloaded. All of these devices were intended to allow an immediate reduction in the debt-servicing costs of the borrower.

In Detroit only a minority of these loans were going to first-time buyers. They were nearly all refinancing deals, which allowed borrowers to treat their homes as cash machines, converting their existing equity into cash and using the proceeds to pay off credit-card debts, carry out renovations, or buy new consumer durables. However, the combination of declining long-term interest rates and ever more alluring mortgage deals did attract new buyers into the housing market. By 2005, 69 percent of all U.S. householders were homeowners; 10 years earlier it had been 64 percent. About half of that increase could be attributed to the subprime-lending boom.

Significantly, a disproportionate number of subprime borrowers belonged to ethnic minorities. Indeed, I found myself wondering, as I drove around Detroit, if “subprime” was in fact a new financial euphemism for “black.” This was no idle supposition. According to a joint study by, among others, the Massachusetts Affordable Housing Alliance, 55 percent of black and Latino borrowers in Boston who had obtained loans for single-family homes in 2005 had been given subprime mortgages; the figure for white borrowers was just 13 percent. More than three-quarters of black and Latino borrowers from Washington Mutual were classed as subprime, whereas only 17 percent of white borrowers were. According to a report in The Wall Street Journal, minority ownership increased by 3.1 million between 2002 and 2007.

Here, surely, was the zenith of the property-owning democracy. It was an achievement that the Bush administration was proud of. “We want everybody in America to own their own home,” President George W. Bush had said in October 2002. Having challenged lenders to create 5.5 million new minority homeowners by the end of the decade, Bush signed the American Dream Downpayment Act in 2003, a measure designed to subsidize first-time house purchases in low-income groups. Between 2000 and 2006, the share of undocumented subprime contracts rose from 17 to 44 percent. Fannie Mae and Freddie Mac also came under pressure from the Department of Housing and Urban Development to support the subprime market. As Bush put it in December 2003, “It is in our national interest that more people own their own home.” Few people dissented.

As a business model, subprime lending worked beautifully—as long, that is, as interest rates stayed low, people kept their jobs, and real-estate prices continued to rise. Such conditions could not be relied upon to last, however, least of all in a city like Detroit. But that did not worry the subprime lenders. They simply followed the trail blazed by mainstream mortgage lenders in the 1980s. Having pocketed fat commissions on the signing of the original loan contracts, they hastily resold their loans in bulk to Wall Street banks. The banks, in turn, bundled the loans into high-yielding mortgage-backed securities and sold them to investors around the world, all eager for a few hundredths of a percentage point more of return on their capital. Repackaged as C.D.O.’s, these subprime securities could be transformed from risky loans to flaky borrowers into triple-A-rated investment-grade securities. All that was required was certification from one of the rating agencies that at least the top tier of these securities was unlikely to go into default.

The risk was spread across the globe, from American state pension funds to public-hospital networks in Australia, to town councils near the Arctic Circle. In Norway, for example, eight municipalities, including Rana and Hemnes, invested some $120 million of their taxpayers’ money in C.D.O.’s secured on American subprime mortgages.

In Detroit the rise of subprime mortgages had in fact coincided with a new slump in the inexorably declining automobile industry. That anticipated a wider American slowdown, an almost inevitable consequence of a tightening of monetary policy as the Federal Reserve belatedly raised short-term interest rates from 1 percent to 5.25 percent. As soon as the teaser rates expired and mortgages were reset at new and much higher interest rates, hundreds of Detroit households swiftly fell behind in their mortgage payments. The effect was to burst the real-estate bubble, causing house prices to start falling significantly for the first time since the early 1990s. And the further house prices fell, the more homeowners found themselves with “negative equity”—in other words, owing more money than their homes were worth.

The rest—the chain reaction as defaults in Detroit and elsewhere unleashed huge losses on C.D.O.’s in financial institutions all around the world—you know.

Drunk on Derivatives

Do you, however, know about the second-order effects of this crisis in the markets for derivatives? Do you in fact know what a derivative is? Once excoriated by Warren Buffett as “financial weapons of mass destruction,” derivatives are what make this crisis both unique and unfathomable in its ramifications. To understand what they are, you need, literally, to go back to the future.

For a farmer planting a crop, nothing is more crucial than the future price it will fetch after it has been harvested and taken to market. A futures contract allows him to protect himself by committing a merchant to buy his crop when it comes to market at a price agreed upon when the seeds are being planted. If the market price on the day of delivery is lower than expected, the farmer is protected.

The earliest forms of protection for farmers were known as forward contracts, which were simply bilateral agreements between seller and buyer. A true futures contract, however, is a standardized instrument issued by a futures exchange and hence tradable. With the development of a standard “to arrive” futures contract, along with a set of rules to enforce settlement and, finally, an effective clearinghouse, the first true futures market was born.

Because they are derived from the value of underlying assets, all futures contracts are forms of derivatives. Closely related, though distinct from futures, are the contracts known as options. In essence, the buyer of a “call” option has the right, but not the obligation, to buy an agreed-upon quantity of a particular commodity or financial asset from the seller (“writer”) of the option at a certain time (the expiration date) for a certain price (known as the “strike price”). Clearly, the buyer of a call option expects the price of the underlying instrument to rise in the future. When the price passes the agreed-upon strike price, the option is “in the money”—and so is the smart guy who bought it. A “put” option is just the opposite: the buyer has the right but not the obligation to sell an agreed-upon quantity of something to the seller of the option at an agreed-upon price.

A third kind of derivative is the interest-rate “swap,” which is effectively a bet between two parties on the future path of interest rates. A pure interest-rate swap allows two parties already receiving interest payments literally to swap them, allowing someone receiving a variable rate of interest to exchange it for a fixed rate, in case interest rates decline. A credit-default swap (C.D.S.), meanwhile, offers protection against a company’s defaulting on its bonds.

Bringing down the bull: The pain of America’s financial crisis is felt all over the world. Illustration by Brad Holland.

There was a time when derivatives were standardized instruments traded on exchanges such as the Chicago Board of Trade. Now, however, the vast proportion are custom-made and sold “over the counter” (O.T.C.), often by banks, which charge attractive commissions for their services, but also by insurance companies (notably A.I.G.). According to the Bank for International Settlements, the total notional amounts outstanding of O.T.C. derivative contracts—arranged on an ad hoc basis between two parties—reached a staggering $596 trillion in December 2007, with a gross market value of just over $14.5 trillion.

But how exactly do you price a derivative? What precisely is an option worth? The answers to those questions required a revolution in financial theory. From an academic point of view, what this revolution achieved was highly impressive. But the events of the 1990s, as the rise of quantitative finance replaced preppies with quants (quantitative analysts) all along Wall Street, revealed a new truth: those whom the gods want to destroy they first teach math.

Working closely with Fischer Black, of the consulting firm Arthur D. Little, M.I.T.’s Myron Scholes invented a groundbreaking new theory of pricing options, to which his colleague Robert Merton also contributed. (Scholes and Merton would share the 1997 Nobel Prize in economics.) They reasoned that a call option’s value depended on six variables: the current market price of the stock (S), the agreed future price at which the stock could be bought (L), the time until the expiration date of the option (t), the risk-free rate of return in the economy as a whole (r), the probability that the option will be exercised (N), and—the crucial variable—the expected volatility of the stock, i.e., the likely fluctuations of its price between the time of purchase and the expiration date (s). With wonderful mathematical wizardry, the quants reduced the price of a call option to this formula (the Black-Scholes formula):

in which:

Feeling a bit baffled? Can’t follow the algebra? That was just fine by the quants. To make money from this magic formula, they needed markets to be full of people who didn’t have a clue about how to price options but relied instead on their (seldom accurate) gut instincts. They also needed a great deal of computing power, a force which had been transforming the financial markets since the early 1980s. Their final requirement was a partner with some market savvy in order to make the leap from the faculty club to the trading floor. Black, who would soon be struck down by cancer, could not be that partner. But John Meriwether could. The former head of the bond-arbitrage group at Salomon Brothers, Meriwether had made his first fortune in the wake of the S&L meltdown of the late 1980s. The hedge fund he created with Scholes and Merton in 1994 was called Long-Term Capital Management.

In its brief, four-year life, Long-Term was the brightest star in the hedge-fund firmament, generating mind-blowing returns for its elite club of investors and even more money for its founders. Needless to say, the firm did more than just trade options, though selling puts on the stock market became such a big part of its business that it was nicknamed “the central bank of volatility” by banks buying insurance against a big stock-market sell-off. In fact, the partners were simultaneously pursuing multiple trading strategies, about 100 of them, with a total of 7,600 positions. This conformed to a second key rule of the new mathematical finance: the virtue of diversification, a principle that had been formalized by Harry M. Markowitz, of the Rand Corporation. Diversification was all about having a multitude of uncorrelated positions. One might go wrong, or even two. But thousands just could not go wrong simultaneously.

The mathematics were reassuring. According to the firm’s “Value at Risk” models, it would take a 10-s (in other words, 10-standard-deviation) event to cause the firm to lose all its capital in a single year. But the probability of such an event, according to the quants, was 1 in 10,²⁴—or effectively zero. Indeed, the models said the most Long-Term was likely to lose in a single day was $45 million. For that reason, the partners felt no compunction about leveraging their trades. At the end of August 1997, the fund’s capital was $6.7 billion, but the debt-financed assets on its balance sheet amounted to $126 billion, a ratio of assets to capital of 19 to 1.

There is no need to rehearse here the story of Long-Term’s downfall, which was precipitated by a Russian debt default. Suffice it to say that on Friday, August 21, 1998, the firm lost $550 million—15 percent of its entire capital, and vastly more than its mathematical models had said was possible. The key point is to appreciate why the quants were so wrong.

The problem lay with the assumptions that underlie so much of mathematical finance. In order to construct their models, the quants had to postulate a planet where the inhabitants were omniscient and perfectly rational; where they instantly absorbed all new information and used it to maximize profits; where they never stopped trading; where markets were continuous, frictionless, and completely liquid. Financial markets on this planet followed a “random walk,” meaning that each day’s prices were quite unrelated to the previous day’s, but reflected no more and no less than all the relevant information currently available. The returns on this planet’s stock market were normally distributed along the bell curve, with most years clustered closely around the mean, and two-thirds of them within one standard deviation of the mean. On such a planet, a “six standard deviation” sell-off would be about as common as a person shorter than one foot in our world. It would happen only once in four million years of trading.

But Long-Term was not located on Planet Finance. It was based in Greenwich, Connecticut, on Planet Earth, a place inhabited by emotional human beings, always capable of flipping suddenly and en masse from greed to fear. In the case of Long-Term, the herding problem was acute, because many other firms had begun trying to copy Long-Term’s strategies in the hope of replicating its stellar performance. When things began to go wrong, there was a truly bovine stampede for the exits. The result was a massive, synchronized downturn in virtually all asset markets. Diversification was no defense in such a crisis. As one leading London hedge-fund manager later put it to Meriwether, “John, you were the correlation.”

There was, however, another reason why Long-Term failed. The quants’ Value at Risk models had implied that the loss the firm suffered in August 1998 was so unlikely that it ought never to have happened in the entire life of the universe. But that was because the models were working with just five years of data. If they had gone back even 11 years, they would have captured the 1987 stock-market crash. If they had gone back 80 years they would have captured the last great Russian default, after the 1917 revolution. Meriwether himself, born in 1947, ruefully observed, “If I had lived through the Depression, I would have been in a better position to understand events.” To put it bluntly, the Nobel Prize winners knew plenty of mathematics but not enough history.

One might assume that, after the catastrophic failure of L.T.C.M., quantitative hedge funds would have vanished from the financial scene, and derivatives such as options would be sold a good deal more circumspectly. Yet the very reverse happened. Far from declining, in the past 10 years hedge funds of every type have exploded in number and in the volume of assets they manage, with quantitative hedge funds such as Renaissance, Citadel, and D. E. Shaw emerging as leading players. The growth of derivatives has also been spectacular—and it has continued despite the onset of the credit crunch. Between December 2005 and December 2007, the notional amounts outstanding for all derivatives increased from $298 trillion to $596 trillion. Credit-default swaps quadrupled, from $14 trillion to $58 trillion.

An intimation of the problems likely to arise came in September, when the government takeover of Fannie and Freddie cast doubt on the status of derivative contracts protecting the holders of more than $1.4 trillion of their bonds against default. The consequences of the failure of Lehman Brothers were substantially greater, because the firm was the counter-party in so many derivative contracts.

The big question is whether those active in the market waited too long to set up some kind of clearing mechanism. If, as seems inevitable, there is an upsurge in corporate defaults as the U.S. slides into recession, the whole system could completely seize up.

The China Syndrome

Just 10 years ago, during the Asian crisis of 1997–98, it was conventional wisdom that financial crises were more likely to happen on the periphery of the world economy—in the so-called emerging markets of East Asia and Latin America. Yet the biggest threats to the global financial system in this new century have come not from the periphery but from the core. The explanation for this strange role reversal may in fact lie in the way emerging markets changed their behavior after 1998.

For many decades it was assumed that poor countries could become rich only by borrowing capital from wealthy countries. Recurrent debt crises and currency crises associated with sudden withdrawals of Western money led to a rethinking, inspired largely by the Chinese example.

When the Chinese wanted to attract foreign capital, they insisted that it take the form of direct investment. That meant that instead of borrowing from Western banks to finance its industrial development, as many emerging markets did, China got foreigners to build factories in Chinese enterprise zones—large, lumpy assets that could not easily be withdrawn in a crisis.

The crucial point, though, is that the bulk of Chinese investment has been financed from China’s own savings. Cautious after years of instability and unused to the panoply of credit facilities we have in the West, Chinese households save a high proportion of their rising incomes, in marked contrast to Americans, who in recent years have saved almost none at all. Chinese corporations save an even larger proportion of their soaring profits. The remarkable thing is that a growing share of that savings surplus has ended up being lent to the United States. In effect, the People’s Republic of China has become banker to the United States of America.

The Chinese have not been acting out of altruism. Until very recently, the best way for China to employ its vast population was by exporting manufactured goods to the spendthrift U.S. consumer. To ensure that those exports were irresistibly cheap, China had to fight the tendency for its currency to strengthen against the dollar by buying literally billions of dollars on world markets. In 2006, Chinese holdings of dollars reached 700 billion. Other Asian and Middle Eastern economies adopted much the same strategy.

The benefits for the United States were manifold. Asian imports kept down U.S. inflation. Asian labor kept down U.S. wage costs. Above all, Asian savings kept down U.S. interest rates. But there was a catch. The more Asia was willing to lend to the United States, the more Americans were willing to borrow. The Asian savings glut was thus the underlying cause of the surge in bank lending, bond issuance, and new derivative contracts that Planet Finance witnessed after 2000. It was the underlying cause of the hedge-fund population explosion. It was the underlying reason why private-equity partnerships were able to borrow money left, right, and center to finance leveraged buyouts. And it was the underlying reason why the U.S. mortgage market was so awash with cash by 2006 that you could get a 100 percent mortgage with no income, no job, and no assets.

Whether or not China is now sufficiently “decoupled” from the United States that it can insulate itself from our credit crunch remains to be seen. At the time of writing, however, it looks very doubtful.

Back to Reality

The modern financial system is the product of centuries of economic evolution. Banks transformed money from metal coins into accounts, allowing ever larger aggregations of borrowing and lending. From the Renaissance on, government bonds introduced the securitization of streams of interest payments. From the 17th century on, equity in corporations could be bought and sold in public stock markets. From the 18th century on, central banks slowly learned how to moderate or exacerbate the business cycle. From the 19th century on, insurance was supplemented by futures, the first derivatives. And from the 20th century on, households were encouraged by government to skew their portfolios in favor of real estate.

Read Niall Ferguson’s prescient article on today’s financial woes, Empire Falls (November 2006).

Economies that combined all these institutional innovations performed better over the long run than those that did not, because financial intermediation generally permits a more efficient allocation of resources than, say, feudalism or central planning. For this reason, it is not wholly surprising that the Western financial model tended to spread around the world, first in the guise of imperialism, then in the guise of globalization.

Yet money’s ascent has not been, and can never be, a smooth one. On the contrary, financial history is a roller-coaster ride of ups and downs, bubbles and busts, manias and panics, shocks and crashes. The excesses of the Age of Leverage—the deluge of paper money, the asset-price inflation, the explosion of consumer and bank debt, and the hypertrophic growth of derivatives—were bound sooner or later to produce a really big crisis.

It remains unclear whether this crisis will have economic and social effects as disastrous as those of the Great Depression, or whether the monetary and fiscal authorities will succeed in achieving a Great Repression, averting a 1930s-style “great contraction” of credit and output by transferring the as yet unquantifiable losses from banks to taxpayers.

Either way, Planet Finance has now returned to Planet Earth with a bang. The key figures of the Age of Leverage—the lax central bankers, the reckless investment bankers, the hubristic quants—are now feeling the full force of this planet’s gravity.

But what about the rest of us, the rank-and-file members of the deluded crowd? Well, we shall now have to question some of our most deeply rooted assumptions—not only about the benefits of paper money but also about the rationale of the property-owning democracy itself.

On Planet Finance it may have made sense to borrow billions of dollars to finance a massive speculation on the future prices of American houses, and then to erect on the back of this trade a vast inverted pyramid of incomprehensible securities and derivatives.

But back here on Planet Earth it suddenly seems like an extraordinary popular delusion.

Niall Ferguson is Laurence A. Tisch Professor of History at Harvard University and a Senior Fellow of the Hoover Institution at Stanford, and the author of The War of the World: Twentieth-Century Conflict and the Descent of the West.

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The House votes against the bailout bill but the world does not end

2008-09-29T16:47:00.000-04:00

Why should the world end?
I am thrilled the House voted down the bailout bill.
Democracy in action.
It was a misguided idea.
I am sure Paulson will keep coming back to Congress till they vote for something.
In the meantime, the FDIC seems to be fixing this mess without any help from the proposed bailout bill. In just two days they have overseen the dispostion of two giant banks - Wachovia and Washington Mutual - at little or no cost to the taxpayer.
Jamie Dimon of JPMorgan said they would not have been able to do the WaMu deal if the bailout legislation had been in place.
Let the system work.
Paulson has been wrong about the crisis since the beginning. Enough is enough.

Wachovia and marking mortgage loans to market

2008-09-29T13:52:00.000-04:00

Wachovia Finds Itself in ARMs' Way

By PETER EAVIS

Here's betting James Dimon isn't very popular with certain other bank chief executives right now. Particularly Wachovia's CEO, Robert Steel.

Mr. Dimon's J.P. Morgan Chase scooped up the remains of Washington Mutual after it was seized by the Feds. Lancing the WaMu boil was a boon for financial markets, but may make life tough for some of Mr. Dimon's peers.

As part of the deal, J.P. Morgan forecast large losses on $176 billion of WaMu's mortgages. Applying J.P. Morgan's projections to other large banks implies higher losses for those with WaMu-like assets.

Associated Press

Wachovia CEO Robert Steel

Wachovia looks pretty ugly under this approach.

This may be one reason why Wachovia's shares plunged Friday.

Take option-adjustable-rate-mortgages. On these, J.P. Morgan foresees additional losses equivalent to around 20% of the total. Adding losses already taken by WaMu leads gives a cumulative loss rate of 25%, according to Morgan Stanley analysts.

By contrast, Wachovia, with $122 billion of Option-ARMs, is forecasting a 12% loss-rate. Ratcheting that up to 25% implies as much as $15 billion in extra losses.

J.P. Morgan's numbers, meanwhile, imply that the loss rate on WaMu's home-equity loans could hit 31%.

Granted, investors should be careful with this approach. First, there is a potential incentive for J.P. Morgan to set loss forecasts at a high level at the time of the deal. Doing so can help make its WaMu acquisition look more profitable over time.

Also, banks might soon be able to drastically lessen their exposure to toxic mortgages by selling them to the government.

Next, investors need to remember that WaMu grew particularly fast during the mortgage boom, so its lending may have been less discriminating, leaving it with worse borrowers and higher losses than peers.

Then again, looking at Wachovia's Option-ARM borrowers, it is hard to make the case that the bank's portfolio is going to perform better. Some 20% of its Option-ARMs were made to deep subprime borrowers with FICO credit scores under 620 and another 21% had scores below 700.

Losses can't be looked at in isolation. Some banks might be able to absorb higher-than-expected credit costs because they raised surplus capital and have strong earnings coming from their healthy businesses.

What's more, banks don't mark down their loans every quarter like brokers. Instead, they build loan-loss reserves, a more incremental approach that, in theory, gives banks time to heal themselves.

But credit markets, where banks do some of their funding, are impatient. Banks that have moved quickly in this crisis have fared better than those that have dawdled. If WaMu had sold itself to J.P. Morgan in the spring, it wouldn't have been seized this week. And Merrill Lynch now looks smart for selling out to Bank of America.

Wachovia is in preliminary deal talks with several suitors. But to deal with Wachovia's balance sheet, a buyer needs to be strong, not just big.

Median home prices to median family income

2008-09-26T15:01:00.000-04:00

September 3, 2008, 1:38 pm

Home-Price Bottom May Still Be a Year Away

Home Depot Inc. CEO Frank Blake told a Goldman Sachs retail conference that some recent housing trends indicate “we’re getting awfully close to the bottom” of the current correction, but economists at Credit Suisse say that one of the major metrics — home prices — aren’t going to reach lows for at least a year.

Blake pointed to trends showing private residential investment has fallen to about 3.5% of gross domestic product at the end of the second quarter from a peak of about 6.25% at the end of 2005. Other housing data, such as mortgage equity withdrawal rates, also indicate “a lot of the over-exuberance in our market is getting squeezed out,” Blake said. “We don’t think we’re at the bottom yet, but we think you can see it from here,” he said.

However, any bottom call in housing will hinge on the direction of prices, which have been on the decline for three years. Finding the low point for home prices is difficult, as there isn’t just one index to track, but at least three major gauges — the S&P/Case-Shiller index, the Ofheo home-price index and the National Association of Realtors median existing-home price data — that all have advantages and shortcomings. Economists at Credit Suisse looked at the different indexes compared to several metrics and see equilibrium being achieved in 12 to 18 months.

One of the key comparisons was the NAR median existing-home price (seasonally adjusted by Credit Suisse) to median family income. The ratio maintained a relatively narrow range from 1981 to 2000, when it started to explode. Assuming that trends in prices and incomes remain constant, Credit Suisse forecasts that home price will return to the historical range some time late next year.

“What’s evident is that a substantial down payment on the housing adjustment has already been made, although there still appears to be wood left to chop,” Credit Suisse said in it research report. –Phil Izzo

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Financial Crisis

2008-09-25T10:35:00.000-04:00

As far as the financial crisis goes, Mr Paulson has been wrong about the crisis since it began and he is wrong now. It is not the end of western civilization as we know it, but the normal functioning of the economic cycle. There are always booms and busts in capitalist systems - does anyone remember the dot com boom and bust? This is just the busting of the housing boom in America with the added twist of the explosion of subprime mortgages and their securitizaton and spread all over the financial system. Paulson does not need $700 billion to buy all the toxic assets. Let the banks write them off and raise new capital. Paulson is just a drama queen and is trying grab more power for the US Treasury.

The lesson of the Great Depression as set forth by Friedman and Schwartz in their groundbreaking "Monetary History of the United States" is that the Federal Reserve made the depression worse by allowing the money supply to contract drastically as hundreds of banks went under in the 1930s. Applied to today's crisis, that would mean that the Fed should keep lending to banks by accepting any assets they have as collateral for loans. The Fed is already doing that.

We are already in a recession and the unemployment rate will probably hit 7% in the next year. Economic cycles are a fact of life and there is no way to avoid them. By trying to avoid the consequences of the dot com bust earlier in the decade, Greenspan's Fed flooded the system with liquidity. That created the conditions for the lending boom of this decade and the subprime debacle.

Punchdrunk Paulson

2008-09-21T22:46:00.002-04:00

There is no rhyme or reason to all the interventions from Washington.
Why save AIG, and not Lehman Brothers?
Why give JPMorgan $29 billion to buy Bear Stearns?
All this is being done on an ad hoc basis with no overarching philosophy.
A Republican administration has presided over the most far reaching intervention in the financial markets since the Great Depression in the 1930s.
Why have they forgotten the lessons that Milton Friedman drew from the Great Depression? None of the Keynesian pump priming worked. The reason the Depression was so severe was that the Fed did not know what it was doing and destroyed 30% of money supply by liquidating foreclosed banks.
The lesson for this crisis is for the Fed to keep the system liquid by injecting Fed Funds and keeping money supply stable.
The attempt to buy mortgages in an RTC Part II is misguided - it does not allow the excesses to be cleared out, and it inflates federal government borrowing.

Is Barack Obama going to make it?

2008-09-21T22:44:00.000-04:00

A Bad Bank Rescue

2008-09-21T22:41:00.001-04:00

This piece from Sebastian Mallaby in the Washington Post is excellent on why the Paulson bailout is a bad idea.
http://www.washingtonpost.com/wp-dyn/content/article/2008/09/20/AR2008092001059.html

A Bad Bank Rescue

By Sebastian Mallaby
Sunday, September 21, 2008; B07

With truly extraordinary speed, opinion has swung behind the radical idea that the government should commit hundreds of billions in taxpayer money to purchasing dud loans from banks that aren't actually insolvent. As recently as a week ago, no public official had even mentioned this option. Now the Treasury, the Fed and congressional leaders are promising its enactment within days. The scheme has gone from invisibility to inevitability in the blink of an eye. This is extremely dangerous.

The plan is being marketed under false pretenses. Supporters have invoked the shining success of the Resolution Trust Corporation as justification and precedent. But the RTC, which was created in 1989 to clean up the wreckage of the savings-and-loan crisis, bears little resemblance to what is being contemplated now. The RTC collected and eventually sold off loans made by thrifts that had gone bust. The administration proposes to buy up bad loans before the lenders go bust. This difference raises several questions.

The first is whether the bailout is necessary. In 1989, there was no choice. The federal government insured the thrifts, so when they failed, the feds were left holding their loans; the RTC's job was simply to get rid of them. But in buying bad loans before banks fail, the Bush administration would be signing up for a financial war of choice. It would spend billions of dollars on the theory that preemption will avert the mass destruction of banks. There are cheaper ways to stabilize the system.

In the 1980s, the government did not need a strategy to decide which bad loans to take over; it dealt with anything that fell into its lap as a result of a thrift bankruptcy. But under the current proposal, the government would go out and shop for bad loans. These come in all shapes and sizes, so the government would have to judge what type of loans it wants. They are illiquid, so it's hard to know how to value them. Bad loans are weighing down the financial system precisely because private-sector experts can't determine their worth. The government would have no better handle on the problem.

In practice this means the government would make subjective choices about which bad loans to buy, and it would pay more than fair value. Billions in taxpayer money would be transferred to the shareholders and creditors of banks, and the banks from which the government bought most loans would be subsidized more than their rivals. If the government bought the most from the sickest institutions, it would be slowing the healthy process in which strong players buy up the weak, delaying an eventual recovery. The haggling over which banks got to unload the most would drag on for months. So the hope that this "systematic" plan can be a near-term substitute for ad hoc AIG-style bailouts is illusory.

Within hours of the Treasury announcement Friday, economists had proposed preferable alternatives. Their core insight is that it is better to boost the banking system by increasing its capital than by reducing its loans. Given a fatter capital cushion, banks would have time to dispose of the bad loans in an orderly fashion. Taxpayers would be spared the experience of wandering into a bad-loan bazaar and being ripped off by every merchant.

Raghuram Rajan and Luigi Zingales of the University of Chicago suggest ways to force the banks to raise capital without tapping the taxpayers. First, the government should tell banks to cancel all dividend payments. Banks don't do that on their own because it would signal weakness; if everyone knows the dividend has been canceled because of a government rule, the signaling issue would be removed. Second, the government should tell all healthy banks to issue new equity. Again, banks resist doing this because they don't want to signal weakness and they don't want to dilute existing shareholders. A government order could cut through these obstacles.

Meanwhile, Charles Calomiris of Columbia University and Douglas Elmendorf of the Brookings Institution have offered versions of another idea. The government should help not by buying banks' bad loans but by buying equity stakes in the banks themselves. Whereas it's horribly complicated to value bad loans, banks have share prices you can look up in seconds, so government could inject capital into banks quickly and at a fair level. The share prices of banks that recovered would rise, compensating taxpayers for losses on their stakes in the banks that eventually went under.

Congress and the administration may not like the sound of these ideas. Taking bad loans off the shoulders of the banks seems like a merciful rescue; ordering banks to raise capital or buying equity stakes in them sounds like big-government meddling. But we are in the midst of a crisis, and it shouldn't matter how things sound. The Treasury plan outlined on Friday involves vast risks to taxpayers, huge complexity and no guarantee of success. There are better ways forward.

smallaby@cfr.org

July 2007

2007-07-16T03:59:00.001-04:00

Barack Obama is now at about 40% versus 44% for Hilary Clinton.
What, you may ask?
These are the odds on Intrade of either of them capturing the 2008 Democratic Presidential nomination.
Barack Obama is doing really well - he was at 28% only six weeks ago, and Hilary Clinton has not budged.
Barack Obama has now led Ms Clinton for two quarters in fund raising.
How long before the odds favor him?

2007-07-16T02:47:00.001-04:00

alt="Price for 2008 Democratic Pres Nominee(Others on Request) at intrade.com"
title="Price for 2008 Democratic Pres Nominee(Others on Request) at intrade.com" border="0">

From Intrade

The Imperial Presidency 2.0

2007-01-08T05:05:00.001-05:00

January 7, 2007

Editorial from New York Times

The Imperial Presidency 2.0

Observing President Bush in action lately, we have to wonder if he actually watched the election returns in November, or if he was just rerunning the 2002 vote on his TiVo.

That year, the White House used the fear of terrorism to scare American voters into cementing the Republican domination of Congress. Mr. Bush and Vice President Dick Cheney then embarked on an expansion of presidential power chilling both in its sweep and in the damage it did to the constitutional system of checks and balances.

In 2006, the voters sent Mr. Bush a powerful message that it was time to rein in his imperial ambitions. But we have yet to see any sign that Mr. Bush understands that — or even realizes that the Democrats are now in control of the Congress. Indeed, he seems to have interpreted his party’s drubbing as a mandate to keep pursuing his fantasy of victory in Iraq and to press ahead undaunted with his assault on civil liberties and the judicial system. Just before the Christmas break, the Justice Department served notice to Senator Patrick Leahy — the new chairman of the Judiciary Committee — that it intended to keep stonewalling Congressional inquiries into Mr. Bush’s inhumane and unconstitutional treatment of prisoners taken in anti-terrorist campaigns. It refused to hand over two documents, including one in which Mr. Bush authorized the Central Intelligence Agency to establish secret prisons beyond the reach of American law or international treaties. The other set forth the interrogation methods authorized in these prisons — which we now know ranged from abuse to outright torture.

Also last month, Mr. Bush issued another of his infamous “presidential signing statements,” which he has used scores of times to make clear he does not intend to respect the requirements of a particular law — in this case a little-noticed Postal Service bill. The statement suggested that Mr. Bush does not believe the government must obtain a court order before opening Americans’ first-class mail. It said the administration had the right to “conduct searches in exigent circumstances,” which include not only protecting lives, but also unspecified “foreign intelligence collection.”

The law is clear on this. A warrant is required to open Americans’ mail under a statute that was passed to stop just this sort of abuse using just this sort of pretext. But then again, the law is also clear on the need to obtain a warrant before intercepting Americans’ telephone calls and e-mail. Mr. Bush began openly defying that law after Sept. 11, 2001, authorizing the National Security Agency to eavesdrop without a court order on calls and e-mail between the United States and other countries.

•

News accounts have also reminded us of the shameful state of American military prisons, where supposed terrorist suspects are kept without respect for civil or human rights, and on the basis of evidence so deeply tainted by abuse, hearsay or secrecy that it is essentially worthless.

Deborah Sontag wrote in The Times last week about the sorry excuse for a criminal case that the administration whipped up against Jose Padilla, who was once — but no longer is — accused of plotting to explode a radioactive “dirty bomb” in the United States. Mr. Padilla was held for two years without charges or access to a lawyer. Then, to avoid having the Supreme Court review Mr. Bush’s power grab, the administration dropped those accusations and charged Mr. Padilla in a criminal court on hazy counts of lending financial support to terrorists.

But just as the government abandoned the “dirty bomb” case against Mr. Padilla, it quietly charged an Ethiopian-born man, Binyam Mohamed, with conspiring with Mr. Padilla to commit that very crime. Unlike Mr. Padilla, Mr. Mohamed is not a United States citizen, so the administration threw him into Guantánamo. Now 28, he is still being held there as an “illegal enemy combatant” under the anti-constitutional military tribunals act that was rushed through the Republican-controlled Congress just before last November’s elections.

Mr. Mohamed was a target of another favorite Bush administration practice: “extraordinary rendition,” in which foreign citizens are snatched off the streets of their hometowns and secretly shipped to countries where they can be abused and tortured on behalf of the American government. Mr. Mohamed — whose name appears nowhere in either of the cases against Mr. Padilla — has said he was tortured in Morocco until he signed a confession that he conspired with Mr. Padilla. The Bush administration clearly has no intention of answering that claim, and plans to keep Mr. Mohamed in extralegal detention indefinitely.

•

The Democratic majority in Congress has a moral responsibility to address all these issues: fixing the profound flaws in the military tribunals act, restoring the rule of law over Mr. Bush’s rogue intelligence operations and restoring the balance of powers between Congress and the executive branch. So far, key Democrats, including Mr. Leahy and Senator Richard Durbin of Illinois, chairman of a new subcommittee on human rights, have said these issues are high priorities for them.

We would lend such efforts our enthusiastic backing and hope Mr. Leahy, Mr. Durbin and other Democratic leaders are not swayed by the absurd notion circulating in Washington that the Democrats should now “look ahead” rather than use their new majority to right the dangerous wrongs of the last six years of Mr. Bush’s one-party rule.

This is a false choice. Dealing with these issues is not about the past. The administration’s assault on some of the nation’s founding principles continues unabated. If the Democrats were to shirk their responsibility to stop it, that would make them no better than the Republicans who formed and enabled these policies in the first place.