The arrest of Karadzic removes the condition for Serbia to join European Union.  This arrest is another evidence an individual cannot escape the will of a state.  Karadzic has been successful to remain free for 13 years (since 1995).  What makes arresting war crime suspect so difficult?  What does this arrest say about Dafur?

A NATO raid back in 2005 July could not capture Karadzic.  That is because one can only evade this long if state institutions are protecting him.  Once the incentives of arresting him, i.e. European Union membership for Bosnia, out weighs the incentives of protecting him, i.e. protecting the co-founder of Serbian Democratic Party and the intellectual advocate of Serbian nationalism. 

Of all the war crimes, genocide has the most difficulty to try because of the definition of the crime.  Genocide is defined as “acts committed with intent to destroy, in whole or in part, a national, ethnical, racial or religious group”.   The difficulty lies with the word “intent”.  The wording “in part” also gives trouble to prosecutor. 

Karadzic will be tried by the International Criminal Tribunal for the former Yugoslavia (ICTY), i.e. not International Criminal Court.  Why is that?  Well, the United States of America never supported the idea of Internal Criminal Court.  America favors courts appointed for a specific war conflict.  In doing so, America has a better control as to the scope of the trial, the suspects the court will try, the timing of court creation, budgeting, judge appointments and so on.  What risks do these items pose to America that America would want to assert so much control rather than simply control the funding of ICC?  America is involved in a lot of military conflicts.  It is only a matter of time that someone will fall under the definition of war crime.  Having a court that is originated from one military event makes the court to have defined end.  Thus, it is far safer than having a court that serves a never ending purpose (as long as there are military conflicts, there will be potential of war crime).  Besides, once an international court gets its own budget, it becomes institutionalized and it has own life that America can never truly end.  It has been said that Kissinger does not travel overseas because he wants to avoid being served for war crime arrest from individual countries (not ICC). 

The prosecution of Omar al-Bashir will make the Sudan government elite more insecure.  This in turn will make the government more inflexible in any peace negotiation.  If not, then what will happen to Dafur if indeed there will be no UN presence?  How bad will it be?  Who will then be responsible elevate the pain and suffering in that area?  There will not even be a third party to monitor and document the activities in Dafur.  How will the prosecution be helpful in elevating atrocities then?  If the purpose of trial cannot be achieved by this prosecution and this prosecution will serve as an impediment to peace process, then what purpose does it serve?

Exactly for that reason, African Union wants a delay in this prosecution.  So are Arab League and Organization of the Islamic Conference.  Of course the latter two have other motives as well, namely Sudanese government is run by Muslims. 

Obama is touring outside of America to audition for the job while the jury is sitting before the TV box.  Media attention is drawn to foreign policies of the candidates.  This is the opportune time to compare the central themes of both McCain and Obama’s foreign policy platform and how it relates an ordinary voter.

This is only looking at the effect of the foreign policy.  A candidate may have other items on the platform that work against the effect of foreign policy to an industry. 

McCain holds a set of values that forms the basis of the relationship between America and individual countries: A democratic country has a much warmer relationship with America and vice versa.

Obama keeps the interests of America in minds more than a set of values.  Dictatorship or human rights abuse are not as important as the interests of America. 

Relationships with Iran, Cuba and North Korea may finally get a breakthrough under Obama, if Bush will not rush to the glories before the end of his term first.  Relationship with China may become more manageable under Obama since Obama is more interested at interest exchange than McCain. 

Since McCain is more value driven, more state actions will require military strength to back up.  Therefore, defense and surveillance (Stanley Associates, NSYE: SXE) industries will fare better, although not as good as the Bush 2 years.  This of course will bring up the fiscal expenses.  Therefore, bonds will do well (i.e. Lehman Brothers).  Credits may become more expensive in the multi-year time frame.  Government domestic spending and domestic demand will continue to be stressed.  Since political risk in the Middle East will stay more less the same level, the profit at oil exploration companies and commodity speculators will continue to stay high.  

Since Obama is more interest driven, international trade and industries that have long been shut with Iran and Cuba (say oil and sugar) will benefit.  High tech with China will benefit.  The support to Taiwan may become weaker.  Military sale to Taiwan may become smaller in both amount and scale.  Obama is more interested at international carbon emission trade.  Therefore Merrill Lynch’s involvement in carbon trading will continue to benefit.   The short term effect on oil companies by political risk will ease.  However, the political risk on oil exploration companies rests on the source of energy, i.e. regulatory risks, rather than geopolitical risks.  Of course, a lower geopolitical risk opens up more oil fields to supply oil to the world market instead of being shut out by embargos.   A lower spending on military may ease up the fiscal pressure, reversing the dollar free fall trend.  Consequently, the inflation pressure may become lower or even more predictable.  The direct beneficiary will be Walmart since a stronger dollar will bring the importing prices to Walmart lower.  A more predictable credit will help the banks, especially banks that are both above $200B capitalization and mostly domestic operating.  For that reason, companies like Home Depot, Lowe, Toll Brother (NYSE: TOL), Lennar (NYSE: LEN), KB Home (KBH), Ryland Group (NYSE: RYL) will get a better opportunity to unload some of their inventories.  

A lot of industries will get into a better shape just because the Bush 2 administration will end.  And there are companies that are well hedged against political risk, such as Goldman Sachs.  A case in point: Treasury Secretary Paulson is from Goldman Sachs (NYSE: GS), so is former Treasury Secretary Rubin under Clinton administration.  Of all the international financial institutions, political risk originating from America will have the least impact on HSBC since its operation is the much more diversified than most of its competitors, especially the ones from America.  

Obama is travelling overseas.  However, this is not about vacationing.  He is still selling himself to his home audience.  He wants to show that he is able to represent the United States, he will not be treated like kid.  Part of his weakness is he lacks the credential in foreign affairs.  This trip is address that. 

However, for most of us, we are more interested at our wallets.  What do you want to ask to the candidates?

Sen. John McCain’s top economic adviser, Doug Holtz-Eakin, will meet with Forbes magazine’s reporters and editors next week.  Forbes is inviting questions from the general public.  The same invitiation is sent to Obama as well. 

Here is the link for your submission:

http://blogs.forbes.com/trailwatch/2008/07/your-economy-yo.html?cid=122822586#comment-122822586

My questions directly correspond to the content from McCain’s website. McCain’s material is quoted first and then my questions.

John McCain Will Help Americans Hurting From High Gasoline And Food Costs. Americans need relief right now from high gas prices. John McCain will act immediately to reduce the pain of high gas prices.

Would McCain consider the idea of cutting taxes through increasing personal exempt instead of cutting corporate would increase aggregate domestic demand, off set the price increase in gasoline?

Would McCain consider the idea of levying taxes at the oil, coal and nuclear buyer level so that energy producers while cutting income tax both at personal and corporate level at the same time since it would create the incentives for energy producers to be more efficient, and thus decrease the consumption of those commodities without affecting consumers’ preferences?  Basically, would McCain tax oil as if they were cigarettes and decrease income tax elsewhere?

McCain:
John McCain Will Keep Tax Rates Low. Entrepreneurs are at the heart of American innovation, growth and prosperity. They create the ultimate job security – a new, better opportunity if your current job goes away. Entrepreneurs should not be taxed into submission.

Questions
Would you agree that if income tax cuts can off set the recent increase in energy, it will create sufficient demand for American manufacturers to manufacture energy efficient products to be internationally competitive and save more jobs?  Our automobile industry is a great example: If we wish to sell more cars overseas (or even domestically), producing energy efficient products is to equivalent to stay competitive. China is now the largest solar panel producer in the world by footage and India now exports windmills to America.

John McCain Will Reward Saving, Investment And Risk-Taking. Low taxes on dividends and capital gains promote saving, channel investment dollars to innovative, high-value uses and not wasteful financial planning. John McCain will keep the current rates on dividends and capital gains and fight anti-growth efforts by Democrats.

To courage more saving, would McCain consider the idea of allowing people to cash out their 401k as down payment to complement the first home buyer program, with a cap, without tax implications?  This probably would revive the demand in the real estate market.  The tax revenue impact to the government would probably be smaller than increasing the tax credit as it current stands.

Gore’s speech highlighted a point raised here earlier, that is energy is the intersection of issues in this election: gas price, national security and environment.  Gore specifically picked to deliver this speech at the Society of Daughters of American Revolution because he wants to equate the importance of energy independence as to the American Revolution.  Gore is not having this speech on any random day.  He is affecting politics to the best he can.  He is a politician.  He understands how to make the most political impact of one man’s effort.  This post is not about the content of the speech, but rather to emphasize that he is showing techniques how the rest of us can make a difference in a critical time like this.  

Obama is getting $52M in the month of June, according to his federal election filing.  Given a large proportion of his donors are small monthly donors, a fraction of this amount can already be accounted for next month.  In addition, Obama seems to be able to integrate a good portion of Clinton’s donors.  Although we hear news about the discontent of some of the Clinton fundraisers, it looks like that probably is a minority of loyal supporters of Clinton.  However, by no means the accusations against Team Obama’s arrogance against Clinton’s fundraisers are false.  It is probably more likely that more of Clinton’s fundraisers are complacent to the arrogance and are willing to stay in order to become as a “Door to the President”.  

Gore sees that he still has influence in the public.  He is trying influence as many people as possible to see that energy is the determinant of America’s future.  Of course he is thinking from an environmentalist point of view.  However, what it really matters is what argument convinces other to the direction Gore seeks.  He found the right angle: our wallet is affected by energy (not only gas price at the pump but inflation in general); national security buffs like this energy talk; and the environmentalists of course.

Gore probably sees that Obama has a good shoot at it.  And that’s why he remains in the spot light.  For if Obama does not (perceived by Gore), Gore would see that arguments raised by him in the public probably has smaller influence over the voters McCain is courting.  Gore would then be less active publicly. 

There are always five elements to an electoral campaign: candidate, platform, money, field and message.  The content of the speech is trying to affect platform.  However, there is very little Gore can do about that.  His delivery is not about platform either.  For if he were, he would have found a specialist (i.e. hint: surrogate) to participate in Obama’s platform team.  Gore has no field operation to speak of since he has been out of politics for so long.  What Gore is really trying to get to is the message part.  He is trying to tilt the theme of this election toward the solutions of the problems. 

What can we learn from it?  We can do better than one vote.  We do not have to be Al Gore to make a difference.  Many local organizations have their issues at stake in elections, although no necessarily national election.  State and county elections are also in play.  Every candidate needs some volunteers.  These fellow volunteers are the ones we want to engage.  The message that actually gets to candidate and the operatives are filtered through the volunteers by their daily interactions with others.  This is how candidates react to the field (one of the 5 elements above).  For a county candidate, the same opinion from a few volunteers may have a decent impact already.  

No, not a bank insolvency but bank insolvencies.  It is not just Indymac, but also Freddie and Fannie.  

Taking over will also create more national debt, by 1/3.  This will make USD fall even further; gas goes higher; imports more expensive.  Euro is getting lower.  TSE is also falling.  This latest hit in the US may start a domino effect (finally) of global correction.

It is likely 2009 will see more government involvement, possibly through tax dollars.

With the collapse of Indymac, this may make the legislature get into the speed of passing the appropriate housing bill.  The sign is that house republicans are likely to pass anything democrats ask for to save their seats, although bush wants to have advantages for banks and investors, rather than retail consumers and mortgagors.  However, the house democrats may want to drag it longer for the presidential election. 

Frank-Dodd bill is looking at a higher likelihood of passage into law. The bill would provide a federal guarantee for refinanced mortgages where the principal had been written down below the value of the underlying property.

If the question is if there will be mortgage relief bill, then the answer rests with House Speaker Nancy Pelosi.  The only way to see that a good bill passed ASAP is the house democrats see the urgency of showing their homework to voters.  News on Monday is that Pelosi wants to get this done.  If indeed the case, then this should be done in weeks.  This cannot get drawn into the election.  Else, this legislation will get too much volatility into the race, and thus more tubulence int he market as well.  The draw will be the effect on the next administration.  Which fix will be considered handicapping the next President?  Is the neighbourhood item too fiscally expensive for a Republican president?  Or too “Democratic” to provoke more right wing votes?  Will the item of bank’s consent to write down as too Republican?  It will become too difficult for any candidate to get a grip on this issue. 

Where should money go? 

Consumer is down.  Financials are also down.  Manufacturers are getting beaten up by Chinese manufacturers who are also closing down due to the down turn in the US.  That leads back to the necessities: commodities. 

If the question is if the economy will get over soon, then the answer is the same as stated before in this blog, not yet.  Will more banks close?  Treasury does not want to bail any one any more.  He would rather see insolvencies than bail.  His famous line is going to be this one: “For market discipline to effectively constrain risk, financial institutions must be allowed to fail.”  Well, read his press release here.  There are many reasons banks will close, but there will be very few reasons this year, since the government regulator is unlikely to force more closures by anything other than insolvency.

North Korea is the next news item after G8.  Six-party talk starts on 07.10.  This is expected to be a minister level meeting.  Therefore, some big items are to be discussed.  Bush needs to accomplish something more than Iraq and Afganistan.  North Korea also wants to cash out something out of a desperate President and then start the next round of talks.  Some results will come out before11.04.  Some real progress can be made in the next Six-Party talk.  What does it matter? 

This will produce a lot of long term effect.  Short terms are logistics and symbolic, such as an agreement, declaration of some sort (peace), exchanging offices, etc.

A minister level meeting is an indication that a conclusion is in sight.  This is not just about sanctions, economic aid or light water reactor.  They are, literally small potatoes, for a minister level meeting.  Will the end of Korean War finally be an agenda item?  Finalizing the border between North and South Koreas? 

If these questions are on the table, then the outcome will give us a sketch of what the unification process for North and South Koreas will be.  If the meeting will not reach to that point, then it would be interesting to see what derails since Japan has no clout in Six-Party talk; South Korea has no position against North Korea; China is generally believed to want a nuclear free Korea peninsula. 

Of course, if all goes well, South Korea can finally convince itself that peace is here.  Fiscal spending can decrease.  The ripple effect will be: what about the military bases?  If they will stay, who pays?  The same question can be asked about the bases in Japan.  What will China’s position be in the middle of all this?

What about the border that defines South Korea and Japan?  If there will be mutual recognition of the two Koreas, they need to agree to each other’s boundary.  What will North Korea’s position on the border dispute between Japan and South Korea?  Will North Korea even drag the WW2 war crime into the agenda too?  How far will and can North Korea stretch Japan?  What is the price to pay to get the Japanese abductees back to Japan?

Or, will the talk turn first to the commercial projects?  Does Russia want more investors at the eastern end of Siberia?  How is that Siberia oil pipeline going?  Will this be a pre-text for some Northeast Asia security mechanism or trust building exercise?  Will this bring up the border dispute between Russia and Japan? 

Any kind of Northeast Asia security mechanism leads to re-balancing the response time of US military.  How will Japan react to that?  Since these border disputes are created by the final days of WW2, will the end of Six – Party talk pull out a long overdue clean-up talk?  That is something Japan wants to avoid badly.

If Okinawan independence movement is an institutionalized movement, then this is the time to plot their moves.  The end of Six – Party inevitably leads to Taiwan Strait, another WW2 antique problem. 

If so, a behind the scene negotiation between China and America is the real determinant.  In that context, North Korea is really the pivot of a lot of things.

Everyone has been blaming speculators as the source of oil price increase.  No one has a clue what to do with it yet.  CNN’s news story contributes the fall of prices on dollar increases, among others, while saying these factors are all short term.  If speculation is the reason, then Italians got it right this time.  And Italians got a solution that can last for more than a few days. 

Most politicians blame speculation as the greatest contributing source to increase in oil prices.  To combat this price increase, environmental groups point out that this is time for renewable energy while politicians contemplate tax rebate.  This is nothing new.  The new part is these argument get media attention, i.e. oil price increase is strengthening the cause of environmental groups.  To combat this price increase, Italian finance minister Giulio Tremonti proposed to increase the margin requirement for futures trading.  By increasing the margin, the amount of money required to speculate the same volume of commodity increases as well.  This suppresses the quantity of speculative trades.  Therefore, the oil prices will go down, if indeed speculation trading is the cause of high oil prices.  This is a very effective way to combat oil prices and working against the interests of the environmental groups because a lower oil price diminishes the incentives of renewable energy.  No money can buy this much media coverage for the environmental groups.  No money can buy (or political donation) this much air time from the politicians, even if they were committed to the cause.  On the issue of renewable energy, speculation trading is an important ally of environmental groups.  

The pro is great.  What about the con?

Increase the margin requirement makes money more expensive.  This will exacerbate the credit crunch.  A lot of these hedge funds and speculators are pension funds and mutal funds.  Making speculation expensive is to depress the returns on pension plans.  Who suffers?  Pensioners suffer the most. 

The other con is that this is still short term.  A solution is still not on the table.  This is a buy-time solution.

Every crisis is an opportunity to stay ahead of competitors.  Japan is trying to stretch this technology gap against America.  G8 is, like any other high publicized event, an excellent opportunity to promote products.  Japan is doing exactly that to promote their zero emission cars and buses.  Will this energy crisis get America to some action?  Both McCain and Obama are still thinking about what to do with the tax money.  This is so 1980’s: supply side economics.  Commercializable solution comes when there is sufficient demand for a product.  This high price is helping the demand for the green collar jobs Obama is talking about, not refunding the consumers.  

The possibility that green collar jobs may be years away is the source of talks about nuclear energy cooperation.  While it is true that one disaster event is too many, nuclear technology is available (versus renewable energy), operational and the cost being predictable and controllable.  Environmental groups focus should not be why nuclear energy is bad.  Environmetal groups focus on making the solution works: what will make the renewable energy technology commercializable and how to create those conditions.  If it is about the game rules of the market set-up (as in the case of margin requirement), then this is the prime to mobilize the organizational infrastructure, since it is election time.  

CNN’s G8 summit news story focuses on the criticisms against the emission control proposed by G8.  Both CNN (and other news sources) and environmental groups fail to recognize other more important items, some of them relevant to this climate change topic.  As a result, they misfired. 

While the G8 agreement is unproductvie, something else actually may have an impact.  This something else is against the interests of environmental groups.

Most politicians blame speculation as the greatest contributing source to increase in oil prices.  To combat this price increase, environmental groups point out that this is time for renewable energy.  This is nothing new.  The new part is this argument gets media attention, i.e. oil price increase is strengthening the cause of environmental groups.  To combat this price increase, Italian finance minister Giulio Tremonti proposed to increase the margin requirement for futures trading.  By increasing the margin, the amount of money required to speculate the same volume of commodity increases as well.  This suppresses the quantity of speculative trades.  Therefore, the oil prices will go down, if indeed speculation trading is the cause of high oil prices.  This is a very effective way to combat oil prices and working against the interests of the environmental groups because a lower oil price diminishes the incentives of renewable energy.  No money can buy this much media coverage for the environmental groups.  No money can buy (or political donation) this much air time from the politicians, even if they were committed to the cause.  On the issue of renewable energy, speculation trading is an important ally of environmental groups.  

G8 is, like any other high publicized event, an excellent opportunity to promote products.  Japan is doing exactly that to promote their zero emission cars and buses.  Every crisis is an opportunity to stay ahead of competitors.  Japan is trying to stretch this technology gap against America.  Will this energy crisis get America to some action?  Both McCain and Obama are still thinking about what to do with the tax money.  This is so 1980’s: supply side economics.  Commercializable solution comes when there is sufficient demand for a product.  This high price is helping the demand for the green collar jobs Obama is talking about, not refunding the consumers.  

The possibility that green collar jobs may be years away is the source of talks about nuclear energy cooperation.  While it is true that one disaster event is too many, nuclear technology is available (versus renewable energy), operational and the cost being predictable and controllable.  Environmental groups focus should not be why nuclear energy is bad.  Environmetal groups focus should be what will make the renewable energy technology commercializable and how to create those conditions.  If it is about the game rules of the market set-up (as in the case of margin requirement), then this is the prime to mobilize the organizational infrastructure, since it is election time.  

Zimbabwe crisis has been going on for months.  US is not interfering with force since Zimbabwe involves no strategic resources.  In a way, most of the African leaders are supporting Mugabe, even though an unstable Zimbabwe is not to their interests.  Whose interests are at stake?  What is this debate about?

The strongest voice against Zimbabwe’s Mugabe is Britain.  Why?  Since Mugabe started its land reform, Britain suffers the greatest risk in Zimbabwe.  Three quarters of the most fertile land Zimbabwe are held by British descent, who are citizens of Britain.  They control a great portion of the economy, as well as livelihood of the citizens.

A land reform is inevitable.  It was only a matter of time and approach to the reform.  Mugabe’s land grab was brutal.  However, most of the African nations see the reaction to Mugabe’s regime as a return to the colonial time and a refusal to wealth distribution from colonialists to Africans.   

That is why African Union says it is an African problem.  Even India will not boycott cricket against Zimbabwe.  China and South Africa both blocked the UN sanctions against Mugabe and his relations.  Some even considered him a hero.

This is not a debate about democracy promoted by the west and the corruption and dictatorships supported by third world countries like China.  This is a debate of former colonialists protecting their interests and developing countries’ elites choosing their own path to solve their problems.  

Gallup published its newest polling results here while McCain just pulled out ads from anti-Obama campaigns.  Are there not even one anti-McCain campaign featuring Obama ads?  There is no surprise that this election has slowly morphing into an election all about Obama rather than an election about Americans.  Gallup’s poll actually says something similar in a way. 

Gallup’s poll says half of the Americans are not concerned with Obama’s presidency while only 31% of Americans are not concerned with McCain’s.  The biggest worry about Obama is if he is too liberal.  Now, how liberal is he?  Or how conservative is McCain?

Hilary got a strong support from the Reagan Democrats.  One may then assume Hilary is more conservative than Obama.  How much more liberal is Obama?  Well, really not much.  Statistical analysis (two dimensional Poole and Rosenthal spatial analysis) shows not only do both Obama and Clinton vote alike, but also within the center of Democrats voting records in the Senate.  

In 2007, they both were both present in the Senate votes 618 out of 654 times.  Of these 618 senate votes, they votes were different from each other only 42 times, less than 7% of the time.  They are representative of the main stream democrat ideology in the analysis.  

McCain is conservative in the liberal vs conservative dimension.  In fact, if the same analysis is performed on McCain’s voting recording, he is at about the center of Republican ideology, slightly left of the rest of the Republicans’ liberal vs conservative spectrum.  However, the interesting point about McCain, in this analysis, is that McCain votes with Democrats on social/lifestyle issues.  McCain is a maverick because he votes along with the Democrats at times.  He is closer to the political ideology center of the whole senate than the rest of his fellow Republican colleagues, as well as a lot of other Democrats in the senate.  McCain compromises to the center more often than Clinton and Obama.  

This unique characteristic makes McCain a maverick.  This compromising character is very important for a parliamentarian.  However, we are running an election for President.  On top of the fact that both candidates are senators with no executive experience, this election is run more like an American Idol than about issues, platforms and policies.  None of the positive characters identified by this study makes McCain more attractive to the general public.  However, it removes the worry about Obama’s extremism.  McCain probably should just enjoy the ride.