The American Culprit

The AIG controversy gave slimmer of hope to American population to finally lay blame of current credit crises on someone. Alas, the pop fizzled out so quickly that the joy of revenge didn’t last long. Traders based in US returned their money and traders based in Europe didn’t even bother to take notice of this hoopla. After spending or rather printing, literally, two trillion dollars, getting $80 million back into government coffers was like dark comedy. But it shows the lack of understanding regarding current crises amongst the masses. Worse it shows how US government is running out of any better ideas to pull economy out of trouble. The current debacle in the financial market not only shook the very foundation of financial hegemony of US over rest of the world but it dealt severe blow to the American swagger that they are pioneers of finance wizardry.

It’s easy to blame the whole trouble on few people on Wall Street. They were greedy and they did stupid stuff. But technically speaking none of that was illegal. Unlike in Enron- where the top management was deeply embroiled in cooking books- here, the whole credit cycle process as well as Securitization processes was absolutely legal. Now whether that structure was sustainable or not is a different question. (It wasn’t!) That makes average Joe (common man in US lingo!) is confused that if he is loosing his pension plan and on the verge of loosing his job then how come the techniques that brought down the house is legal? The answer is not that simple. The game has been going on for long time and our average Joe inadvertently ended up playing a major role.

The American economy has been reshaped into a consumer based behemoth that gobbles everything and anything produced around the globe. The insatiable demand wasn’t fueled by higher earnings but rather illusion of earnings. People were borrowing heavily for everything. Right from the clothes to house everything was paid by credit. The credit cards were thrown at people like fliers. The houses were made available to everyone. And all though availability of resources and luxuries to everyone is a noble goal, the bitter truth is that the responsibility was bartered for greed. The saving rate was in negative – a fact lawmakers as well as general populace should be worried about. But not in this land of free! The definition of freedom was twisted in such an ugly manner that government in fact supported this binge consumption on borrowed money. And, why not, the government itself was borrowing money from foreign countries by selling debt to them. The chief of Federal Reserve was spreading the euphoria by telling everyone that this kind of debt restructuring (including securitization) is heralding new age of prosperity to American life. The first part was indeed true, the second, not so much! People borrowed more money by putting their houses as collateral. ‘Flipping’ houses became rage. Folks with no knowledge of financial juggernaut behind housing market or for that matter housing market itself bought houses after houses. In the initial years huge profits were made. But the simple rule of supply and demand is like gravity. It always catches up with you and brings you down. Usually with the loud thud!

The juggernaut didn’t just stop there. Financial firms got into the business they didn’t understand either. Creating securitization business, selling CDO’s, CDO’s of CDO’s, tranching, slicing, creating SPE and then buying insurance to find solace went on for really long time. With limited number of players in the market (both in terms of buyers and sellers) they effectively traded with each other creating a manor of cards. The house was meant to come down.

In short it’s all most impossible to pin-point a culprit. If Americans want to know who is the culprit then they need to stand in front of mirror and open their eyes. The reflection ain’t that pretty!

Analysis Of Recent Developments in Pakistan

I am kind of tired of writing about Pakistan but somehow these buggers manage to keep themselves in the news and that too for wrong reasons. I mean spreading terror around the world does take some efforts!

Things are moving so furiously in Pakistan that the repercussions will soon be felt throughout the world. I think another major terrorist attack is due soon. I don’t think the so called democratic government knows what’s going on but what’s worse is that even their military brass is clueless about these happenings. Dealing with devil is always a loose-loose contest. Pakistan should have known better!

Pakistani Government recently signed a peace accord with Talibani fighters in Swat region of Pakistan. In doing that they effectively gave away a part of their country to Taliban. Pakistani laws will be useless in that region and ultimate decider of anything that happens in that region will be Talibani fighters. I am surprised to see it hasn’t raised much of hackles in international media. There are articles about it in all the major publications but if that’s the maximum exposure even to of this proportion is getting then that’s more worrisome that the actual event.

Since getting their ass kicked by US forces Taliban has made North-West Frontier Province of Pakistan as their new home. Not knowing how to deal with these people Pakistan army allowed them to set up the base in their country. All though Taliban was Pakistani Armies creation the purpose was always to take over Afghanistan. The myopic leadership of Pakistan army can’t think beyond the boogie-man of India attacking them. They were worried that Afghanistan being friendly with India will support Indian invasion. So they created Taliban to take over Afghanistan in order to create strategic reserve in case if India attacks. India never attacked but now the chickens are coming home to roost.

The events of 9/11 were entirely unexpected for Pakistan army on many levels. One, it put the spotlight of whole world on them. Practically the whole world realized that the tumor of terrorism flourishes in Pakistan and Afghanistan. Second, they got dissociated from India. That is, news stopped taking Pakistan and India in same breath. For International media Pakistan became a problem child and that has nothing to do with India. And third US army is sitting solidly right next to their door. Pakistani army couldn’t disown Taliban nor could it support them. The pressure from international community was immense and they had limited options to maneuver.US army as well as political leadership is getting impatient. US drones regularly intrudes into Pakistani soil and few months ago US soldiers entered Pakistani soil in pursuit of Taliban. That must have sent Pakistani army brass into seizure. So they turned to their favorite enemy for help! The spurt in bomb blasts in India was their desperate attempt to deflect attention from them. The brazen attack in Mumbai was height of their frustration. But it didn’t do any good for them.

Coming back to our original point we can look at the peace accord between Talibani fighters and Pakistani military in two ways. One, Pakistani army is playing another game with US. They are showing to US that unless US stop pressurizing them they will have to do peace accord with Talibani elements. That way they can check-mate US into submission. Basically Pakistan is telling US that you better listen to us or we will screw you by openly befriending your enemies. Or, the second more scary situation is Pakistani army really don’t know how to fight with Taliban anymore. They are outsmarted by Taliban and getting daily beatings from them. With US on one side and supposedly Pakistan on other, I wonder how on earth Taliban is getting state of the art guns and ammunition! Does that mean there is a fissure in Pakistani army itself with one flank supporting Taliban and other fighting with them?

Reading the conflicting messages emanating from Pakistan leadership aftermath of Mumbai attacks as well as attack on Lankan cricket team tilts me towards the second scenario. That is, Pakistani leadership has no clue what the heck is happening.

Terrorist attacks happening around the world and them knowing everything was scary but them not knowing anything and attack still happening is worse!