Letter #87: reflexiones sobre un funeral mexicano en inglés

Dear everyone,

Well, now that politics is out of your face, if not my system, onto México we go. About two weeks ago, I went to the funeral service for the mother of a close friend from my office. My friend and colleague, Magda (short for Magdalena, as in Mary Magdalen) has been so gracious to me in my tenure here.  Magda edited the booklet I put together, with the much needed help of seven experts (six in the Peace Corps), as well as the core of my weekly letters to the science center where I serve.  Her children are lovely and never fail to treat me like the long lost eccentric uncle, turned gringo.

It has been over ten years since I last attended a funeral and that was in the United States.  There have been five or six memorial services for fallen soldiers or private security personnel (including Gurkas) along the way in Iraq and Afghanistan.  While moving, these services are different since the casket is not present; that damn box is the material reminder that, while some things may be eternal, people are not.  While feelings run high with the acknowledgement of loss at a memorial service, it lacks that feeling of severing the life-presence that a funeral does.

When my father died after a long and valiant struggle against a foe he could not defeat (i.e., cancer), we kept the casket closed.  After all, chemotherapy is a war of attrition.  Either cancer or the patient dies.  My brother-in-law is right: it resembles the medieval quackery of bleeding patients in the hope of draining the disease along with the blood.  With his body ravaged as much by the failed cure as the triumphant disease, we decided that dad should rest in peace and out of direct sight.

On the day of the funeral, we had the opportunity to view the body one last time before the service and burial.  I had refused one such opportunity before, at the beginning of the visitation.  At the last second, I decided on impulse to do it. And I was glad I did.  My father’s body had been well taken care of; but THAT was not my dad.  That moment enabled me to accept that he was gone, really gone.  Which brings me back to service I attended in Querétaro. 

Unlike any other funerals I had attended, and to my surprise, the casket was open during the service.  When I took communion, I was on the side from which I could not see the body because I was behind the open lid. The pall-bearers stood round the casket as if it were a body lying is state.   That was a touch of arguably maudlin wisdom – leaving the casket open.  The wisdom lies in the body reminding the congregants that the deceased is truly gone but the communion refuses to commend the soul of the dead to the nullity of nothingness (i.e., non-existence).

My colleagues were surprised to see me in the line.  Yes, I am no longer Catholic, nor even Christian, and I often take communion when I attend church for two conscious reasons.  First, I need all the help I can get. Second, if it is an action that merits burning in Hell, trust me in saying that I have done far worse things and so I am a goner in any case.  So that leads to a third reason of conscience, reserved for weddings or funerals.

That is, I want to honour the family in a time of profound change: one as a door opens to two people properly conjoined in the eyes of God and the other when the chapter has closed on someone’s life.  These acts of taking the sacrament are something like spiritual syntax.  Is what I do hypocritical? Almost certainly it is.  Nevertheless, I will continue to do it.  Besides, taking communion is often the only visible support, especially at a funeral, that I have the opportunity to give my mourning friend or familiares. 
 

A couple of days later, I wrote the most solicitous note that I could.  One aspect of getting distance on the odometer lies in the fact that I have conveyed all of these thoughts before and so I needed only to translate. Their repetition makes them feel hackneyed at best and phony at worst.  Yet I do mean them and have to rest content with accepting that my words of solace are trite but true, even in my limping second language. 

Truthfully, I had a lot of free time at the service since the acoustics rendered unintelligible  a language I normally do not understand when native speakers whipped through it. I had time to think.  I looked closely at the altar.  Emblazoned in gold-leaf and dedicated not to the bleeding Christ but to his mother, the queen of this earthly existence of mourning, noon and night.  Usually, in most churches I have been to, above the altar is a crucifix or a cross.  The only exceptions I remember are chapels, perhaps not even all of them.  

When I think of chapels my thoughts revert to the breathtaking beautiful Heinz Chapel / la Sainte Chappelle which, if memory works, do not have any altar or at least no cross or crucifix at the head.  Yet, this was a church and, while virgin queen of all queens adorned the sacred canopy, the cross or crucifix did not dominate.  Now, this catholic-protestant split may seem like quibbling over details.  It really is not; the distinction is mission-critical to the core beliefs of the two broad strains of faith.

The crucifix is the cross with the dead and drooping body of Christ draped on it while the cross is the only the cross.  The former signifies the path to glory through sacrifice, pain and martyrdom, not so dramatically for us these days but through mortifications of the flesh (i.e., mini-sacrifices of the self to God by way of fasting, retreating to desolate surroundings, etc.).  That is to say: class is not exactly a barrel of laughs with Sister Mary Elephant in charge. 

The cross, at least as my Christian friends have stated to me, represents the gift of salvation that Christ gave to us, not so much by dying on the cross, but by leaving the cross as a vacant symbol of oppression through His resurrection.   Therein lay the new covenant, based not on suffering but on liberation.  While I can not really buy into either of these narratives, they deserve my respect, nevertheless.

These symbols – along with the various beliefs they punctuate – have brought solace to billions over the millennia, just as they did for Magda and her grieving family that hot, humid day in the midst of Querétaro’s rainy season.  Yet, I continued to stare at the altar and canopy, overflowing with precious metals and presided over by a woman.  And, for some reason, that made sense to me.  The southern Mediterranean societies tend to have a matrilineal dimension, especially in Spain where, traditionally, the surname of the father is followed by that of the mother. 

So the Marianism seen in Spain and even Italy – where a lousy Pope but good Italian (Pius XII) tentatively placed Mary into the R.C. godhead in 1950 – could quite easily show up in México.  Supporting this manifestation would be the more naturalistic reverence accorded to women in the indigenous cultures of México; and that is where the flaunting filigree of the gold-leafed canopy in that church came home to me.  The alter and canopy obviously reeked of Romanesque over-show.

On the other hand, the tastefully metallic majesty hinted at something else, something older than Catholicism in México.  Perhaps, the altar and canopy, for all their finery, represented something not quite lost with the conquistadors, that is, a lingering hint of the Azteca culture of gold and sacrifice. Some say the genius of the Roman Catholicism lies in its simplicity in that there are four levels between God and man: Pope, cardinal bishop, priest.  That is simply not true. 

That structure derives from the Book of Exodus with Jethro – as history’s first and, perhaps, only effective management consultant – instructing Moses to delegate his burdens for the faithful to groups of ten or fifty (priest), hundreds (bishop) and thousands (cardinals) and the whole congregation (Pope, the first of whom was Moses, not Saint Peter).  To tell you the truth, I really do not know enough to identify all that endures in Catholicism from the mother-faith. 

But a lot does.  As a priest once pointed out to me before my ‘fall’, that peculiar genius of the mysticism in the machinery lies in the ability and willingness of the Roman Church to absorb and integrate alien cultures – some say, less than flatteringly, coöptation – into the symbology as well as calendar and, to a lesser extent, the liturgy of the Church. 

This genius lies with another Jew, Saul of Tarsus (later, Saint Paul), who made a tribal religion open to the world of his day, as well as to Constantine, a tough emperor nevertheless drowning in Wiley’s momism, who imposed it as the church of the State.  The genius of Catholicism, as of any mainline religion with its own depth of tradition and varying degrees of dogma, that I witnessed that day was a whole lot more basic than organizational structures or the coercive canon of empire. 

The genius lay in the comfort that a good and decent woman, my Magda, and her husband and children could be part of something far larger: a sacrament centuries in its uniform application, millennia in the making.  You see, it was more than the Son of Man; more than the Martyr of God; and even more than a thoughtful rabbi and ridiculed revolutionary whose arm was around Magda’s shoulder that day.  It was God Himself, with uttering His sympathies with that peculiar Spanish from the Bajío, the central highlands of México.

Letter #86 to friends & familiares: parting thoughts on politics

Dear everyone,

It really is time for me to right-size my ego; George Stephanopolis, I aint…not sure I can even spell it. Perhaps, like other volunteers, I have a lot of free time and so I wile away the hours bloviating. Since two months remain in my three years here, it is time move ahead with some essays on México. Part of the challenge here is that I take little time to travel and discover the country. By the time the week-end arrives, it seems I am just too tired to be anything but lazy.

Before I turn to writing about México, however, permit me one last note about the political world for parting reflections on two current topics of discussion: Benghazi and the N.S.A. These two issues have taken on high visibility, partly because of President Obama’s mismanagement and partly because of Edward Snowden’s revelations. They exist in the popular conscience as festering sores, harmless in themselves, that are picked into infection.

Benghazi. Some of the most valuable evidence has come out piece-meal and key data often get lost in the shuffle. Piecing everything together, at least from the accumulation of information I have come across, indicates that our civilian leadership did not act in bad faith during the event itself, though the lying to families and manipulated narrative afterward are troubling. The case that President Obama should have been micro-managing this crisis is appealing but unconvincing.

At least for me, Benghazi has turned out to be what I thought it was in the first place: a horrifically tragic and avoidable event. Trying to rescue these people against all odds might have forestalled a second attack. The Department of State might have honoured more security requests. The Department of Defense might have mobilized rapid response units at the first sign of trouble. Might, might, might: subjunctivitis doth make idiots of us all.

Had I been on the look-out for Benghazi before the fact – had I been the Ambassador or the foreign service officer – I would have thought, when making the decision whether or not to lay over for that last night, that the likelihood of the eventual outcome was about 5-10%, which it probably was. Yet, by expected values, that would come out to me being 10% killed (e.g., losing an arm). Of course, when the attacks came, the whole outcome occurred as tragic as that was.

The N.S.A. data sweep.  The N.S.A. debate is welcome and well overdue. That said, however, the matter of impropriety or abuses of power comes down to whether or not we trust these government officials. Call me lenient, if you like, but I tend to give them the benefit of the doubt for a few reasons.

• I believe that both F.B.I. Director Robert Mueller and General Keith Alexander are overtly honorable.
• James Clapper is too cool and rehearsed to be taken at face value; still, I sense that he is largely telling the truth.
• C.I.A. Director John Brennan is more difficult to trust because of his involvement with the drone-strike campaign; I may be being superficial because he looks menacing.
• Admittedly, most of my comfort derives from Keith Alexander, Robert Mueller and, to a lesser extent, James Clapper
• A colleague pointed out that Edward Snowden may have hopped from job to job to de-compartmentalize his clearance so he could disseminate a lot of information.
• Lastly, credit card companies invade people's privacy far more than anything alleged of the N.S.A., and far more regularly. Their data-mining for marketing peers into content more than any of these agencies do. I do not recall Capital One, MBNA or Providian seeking people's consent.

All that said, I believe President Obama has lost his credibility; funny, I actually find Attorney General Holder and C.I.A. Director Brennan to be more trustworthy. To be sure, each of Muller, Alexander and Clapper has been caught in giving misleading information. Too bad we do not live in a world where people never feel compelled to lie for reasons larger than themselves or their professional standing. 

Nevertheless, the inconsistencies were small and, if my memory serves me well, matters of degree more than kind. Additionally, I also believe that everybody I know would likely have done the same thing; each set the record straight, when busted or when appropriate. In short, they did what spies do but managed to keep their hand on the tiller of inward integrity, at least from what I have seen.

In closing, I sincerely hope that conservatives tamp down the publicity-mongering. If there are investigations to be carried out, do so as one would do them normally. If something big turns up, it will become public soon enough.

Letter #85: Ethics, the Capital Markets, and Retro-innovation

This is yet another political letter home.  This letter discusses a  mundane topic: banking as a public utility.  Traditional banking services arguably act like utilities in that they are ‘natural’ monopolies, like municipal water companies or local electric utilities.  That is to say: their unhindered interest in providing these services is to maximize economies of scale to make themselves a ‘market of one’ reaching out to the limits of a self-contained service area. 

In earlier times, with the prevalence of community banks, these areas were most often cities or towns. As communications made the world a village, states and regions became that perimeter of self-containment.  Finally, globalism and the inter-net turned much of the world into a rumpus room. Big banks got even bigger, spanning continents and occasionally spreading financial incontinence.

Speculative ‘hot-money’ currency trades and, later, derivatives, questionable value propositions and corrupted ‘gain-on-sale’ accounting fueled these dislocations. The derivatives were particularly hazardous because they frequently were not hedges but the means by which an institution could squeeze a few basis points (i.e., per-cents of a per-cent; e.g., one basis point of $100 being a penny) out of an efficient market through algorithms. 

In the late 1990s, after wearing down regulations argued to be archaic, the U.S. Congress finally knocked out the last of the bank laws legislated sixty-six years before. The Bank Act of 1933 (37 pages long and known as ‘Glass-Steagall’, to honour its Congressional sponsors, Senator Carter Glass, D-VA, and Representative Henry Steagall, D-AL) had split the investment banks from the commercial banks for a very good reason. 

Investment banking tended to bet money while traditional banking (think Bailey Home Loan from It’s a Wonderful Life) tended to preserve it, through savings accounts, and intermediate it. In other words, in earlier times, when investment banks underwrote securities, they often assumed the ‘market risk’ of the stock or bond issue.  That is to say: the institution effectively purchased all of the securities, for a cheaper price than expected in the market, directly from the company raising money through the re-sale of stocks or bonds.  These investment banks then re-sold those securities to the larger capital market at the anticipated price. 

Sometimes, the pricing did not work out, leading to losses by the investment bank.  Though it is not often assumed anymore, this underwriting risk of a securities offering presents us with an instructive example of proprietary trading.  Most securities trading is similar to traditional banking: brokers intermediate funds between people selling securities and others buying them with a few basis points skimmed (i.e., the bid-ask spread) by the broker-dealer for handling fees.

When, however, the institution represents one side of the trade without offsetting it in a symmetrical transaction (i.e., funds are not intermediated, as they were not in a bond underwriting) in which an institution expends some of its ‘capital’ on a trade in the capital markets, that bank or broker is making a bet by assuming the risk inherent in its particular side of the transaction. 

These bets, more like educated guesses most of the time, have higher profit margins than the less glamorous, more prudent service of intermediation.  Yet these bets entail higher risks because losses can burn through the institutional capital very quickly.  Since most brokers and banks make the bulk of their business from intermediation, they tend to lend out all but a small amount of funds taken in as capital and deposits (i.e., as a safety margin).

So there is little capital left to burn through before the ship is sunk.  These one-sided 'proprietary' banking transactions, these bets, explained events like cornered gold markets and the crashes that accompanied them in the 150 years before the Great Depression.  The consequences would ripple or metastasize through the financial system since intermediation, in mature markets, meant that almost everybody had a piece of the action by re-lending out funds received.

(Nowadays, the securitization of risks via sales of existing portfolios of loans and computer-driven trading accelerates this metastasis.) Such betting, intuitively, ought not to involve others’ money, especially without their knowledge and consent.  Thus, for many years, these activities involved partnerships in which people bet their own money or funds entrusted by people whom they knew and who understood the risks involved. 

For the rest of us, the only loans from the banks were often secured; that is, there were fixed assets pledged as collateral (i.e., the house in a mortgage). If the borrower reneged on his commitment to repay the loan, the bank would re-possess the collateral for sale to generate the proceeds to repay much or all of the debt still to be re-paid.

Investment banks often had to pledge securities, usually issued by well-respected companies (i.e., traded frequently and indicative of underlying value), as collateral with a significant haircut (a 20-50% discount from the market price on the date of the pledging). If collateral values dropped sufficiently, the investment banking / trading partnership or individual investor in the 1920s had to put up more collateral. 

If there were a long and proven history of cash-flows able to absorb short-term borrowings for working capital, some large corporate borrowers would need to pledge collateral, as valued net of its 'hair-cut', at less than the full amount of the borrowing (i.e., all the way down to no collateral for 'unsecured' loans). This traditional, lower-risk financial intermediation, based on a skinny-income business model, made banks natural utilities.  

That is, the ideal supplier would be one giant generic bank for a market that minimized non-intermediation expenses relative to the customer-base and income generation. But, like any monopoly, the bank would then elevate prices (interest rates on loans) to its market to maximize profits for its owners (be they partners or shareholders).  Like any ‘monopsony’ (i.e., one purchaser, the bank taking deposits, versus a splintered array of sellers, average-Joes with their pay-checks, etc.), the bank could get away with paying little or no interest on people’s savings. 

As a natural monopoly fulfilling a vital function in the larger economy, banks came to be viewed, and, under the provisions of the Banking Act of 1933, regulated as public utilities. Like any utility – and particularly one that took on debts to produce more debt (as opposed to taking on debt to provide water or electricity) – banks required a sufficient capital base (i.e., money sitting in the vault) to withstand occasional shocks to the system. 

Remember the scene in It’s a Wonderful Life when George Bailey pulled the last dollar out of his pocket to pay off a depositor withdrawing money and, in doing so, dissuaded others from withdrawing funds?  The newlyweds, George and Mary, forfeited their honeymoon to save his bank and their town. That was a classic bank run since, pre-New Deal, banks would lend out almost every dollar they got to earn interest, thus leaving them unable to honor more than a modest spike in withdrawals. 

While Frank Capra’s family film may seem innocently simple to us today, the mechanics were not all that different in 2008, except for the level of sophistry flowing around the market and the business news circles to justify a similar impulse toward speculation heedless of the longer term fall-out.  So the New Deal, under a lot of heat these days, brought in two new key measures and reinforced another to stop the three banes of banking and investment banking:

• a tendency of traditional banks to start taking speculative positions in a search for more income after a market had been fully exploited – a brand extension strategy that seems logical but entails a discrete change in the risk profile from that of a pure monopoly to a book-maker;

• a run on the bank when depositors lose confidence in the bank and want to get their money out before others do, lest there be none left for them (i.e., the slower fool theory); as well as,

• abusive pricing or speculative practices, in lending or in attracting deposits, of a natural monopoly if left unchecked.

As an inherently high-risk proposition, rational capital markets professionals assumed that investment (or merchant) banking activities would be best left to smaller groups of partners investing what they could afford to lose or those funds entrusted to them by others of means and similar risk appetites. 

That is to say: a market where people knew they were preserving most of their assets and betting what money they could manage without.  The only market related risk among these partnerships was the hazard of perpetrating frauds on unsuspecting investors.  So, what did the New Deal do to try to prevent a repeat of the 1930s?

While I am not familiar with the laws and have forgotten the alphabet soup of regulations from the Federal Reserve, the régime built on traditional usury laws (to prevent over-charging on interest levied against borrowers) with three basic pillars, one dependent upon the other:

• splitting investment banking from traditional financial intermediation;

• capping rates paid to depositors; and,

• insuring people’s deposits. 

What the New Deal did, I believe, is exercise regulatory power in the manner it should be applied: by establishing universal and perceptible ground-rules in a market, leaving enforcement latitude to the Central Bank. The beauty of the simplicity of the New Deal banking régime was that its basic pillars reinforced each other. 

The bettors kept betting, but through partnerships meant to remain small enough not to bring down an entire system when they failed, as many would over the normal course of time and betting.  The Federal Reserve either received the power or was encouraged to assume the power of direct intervention to maintain the orderly function of the capital markets, when these partnerships got to be big enough to disrupt the markets, as they did by the 1950s.

Through Glass-Steagall, banks became the public utilities they were all along by virtue of being natural monopolies. Like such monopolies, the public interest was served by enumerating clear and universal pricing limits (like those imposed on the water company for pricing its services). 

Finally, the base of the utility (i.e., people’s savings and deposits) was insured to forestall bank runs; that is, people could trust the public utility. This system worked very well.  Depositor insurance was extended to people with savings invested through broker-dealers. 

This interview with Senator Elizabeth Warren (D-MA), backs up an unmistakable track-record of good regulation done right.  To be sure, there was more than one exception to the success of Glass-Steagall, a lot more.  Yet, by drilling down in cases as diverse as Hutton, Continental-Illinois, Barings, Long-term Capital, Drexel and the rest, one will see a variant of one of two reasons underlying these spectacular collapses:

• taking the eye off the ball and over-leveraging money relative to risk assumed; or,

• actions that betrayed or lost the confidence of the market.

That is to say: good rules make markets work better but can not prevent occasions of stupidity or malfeasance.

In fact, in the majority of these collapses, the very depositor insurance often gave the struggling bank a deep and stable deposit base, thanks to the New Deal programs, to buy enough time for them to muddle through (Mellon) or merge with somebody else (Hutton). 

In those cases where this was not the case – Barings, Continental-Illinois, Long-term Capital – regulators could intervene and proceed with an orderly recapitalization (Continental) or liquidation of a partnership (Barings and Long-term Capital). In the case of Long-term Capital, the Federal Reserve used its discretion artfully, just as it failed to do in 2008.

After thirty years of work-arounds, loop-hole arbitrage and gradual erosion, Glass-Steagall finally fell.  The rationale was not greed but efficient capital markets.  The big reason I heard back then for repealing Glass-Steagall was that the obsolete structure was an economic friction and disadvantage for U.S. money-center banks in the now supra-nationalized global banking market. 

The argument basically stated that money was a form of capital and for capital to create wealth, it had to be mobilized. In the information age, with "business @ the speed of thought”, the higher the mobility (or velocity) of money, the more projects or purchases it could finance and the more growth enjoyed by everyone.  At least, that's how I think the argument proceeded: the swirling dollar becoming a whirling dervish.

The division of banks and investment banks decreased the hallowed free-flow of this capital and, therefore, diminished the profitability for which financial institutions thirsted in an era of a perceived market discipline of grow-or-die.  As long as Glass-Steagall remained in place, depositors’ insurance need not be a visible moral hazard because banks tended to be limited to traditional lending. 

True, that frame-work did not prevent stupidity but it had largely assuaged cupidity, as spectacular exceptions – like The Bank of New England – proved the rule.  Since depositors’ insurance was, by the 1990s, as American as apple-pie, its repeal would almost certainly never occur.  As long as Glass-Steagall remained in place, it did not need to go anywhere.  The problem became one of identity.

Over time, senior executives (at least a large enough number) of the traditional banks saw themselves less as stewards of a public utility and more the captains of industry bent on a profit that would reward them handsomely in bonuses and symphony chairmanships. Investment banks, in their turn, looked ravenously at the deep pools of money (i.e., capital and deposits) languishing on banks' balance sheets. 

That damn Glass-Steagall stood in the way.  The thinking went something like this: look at all of that dormant capital those fat sluggish banks are sitting on!  Boy, if we could only get at that pot of money. That ‘archaic’ New Deal law slowed the flow of money and, therefore, profits, jeopardizing New York’s pre-eminence of the global financial hub (or so the argument went). 

Besides, with the on-rush of globalism ushered in by the E.U. and N.A.F.T.A., American banks were at a ‘systemic disadvantage' to European and Japanese banks that brooked no such 'petty' distinctions.  (Now let us take a generational view of what happened to European and Japanese banking.  Neither system has fully recovered from a leveraged betting binge.)

So, good-bye Glass-Steagall BUT NOT depositor insurance with the Gramm, Leach Bliley Act of 1999.  The two together created the moral hazard that caused the meltdown within a few years.  Here’s why the dynamic duo of free-wheeling financial betting and depositors' insurance was dynamite.

1. As long as Glass-Steagall remained in place, insured deposits tended to be passive, adding a 'soft' layer to the utilities’ capital base. 
2. If Glass-Steagall were repealed along with depositors’ insurance, at least in theory, bankers would have to look over their shoulders, lest their excesses in betting would precipitate runs on the banks they mismanaged.
3. Lastly, the repeal of Glass Steagall and the retention of depositors’ insurance allowed the bettors to mobilize, or leverage, all that ‘dormant’ capital through proprietary trading (i.e., betting) and corporate finance to earn higher margins than had been realized by antiquated banking practices.

This 'reform' and 'modernization' enabled financial speculators to bet with other people’s money, knowing that almost all, if not all, of the other people would get completely bailed out by depositors’ insurance. To be sure, at the time as an international banker, I felt ill-at-ease with the undoing of this New Deal pillar of sound finance.

My mentality was more that of the lazy mind of the middle-manager: "if it ain't broke, don’t fix it."  Yet, whenever I questioned the wisdom of this ‘reform’, I endured a torrent of verbal abuse for being a reactionary idiot. Upon conceding my double-digit I.Q. and pressing on for explanations, none that really seemed coherent came along. It all sounded like so much peer pressure to smoke cigarettes at sixteen. 

Confessing to being a curmudgeon before my time did not work, either.  When it came to questioning the economics and mechanics of derivatives trades, particularly credit derivatives, I will 'not even go there' when it comes to the words that came bouncing back to me at times.  So, like Winston Smith in 1984, I swallowed hard on the fake gin, suppressed a tear of surrender and went along with the true-speak.

Fast-forward to the night before the 2008 election, when I looked up the respective stands on the financial crisis of Senators John McCain (R-AZ) and Barack Obama (D-IL).  By then, I was out of banking and on tour in Iraq for the State Department. In truth, I had already decided on Senator McCain because he had been a war-hero but, impressed with the first African-American presidential candidate, I made one last due-diligence check. 

Senator Obama’s ideas on the detestable bail-out of Wall Street seemed unclear and muddled to me; Senator McCain was much more in line with what I felt.  By then, I had accepted the fact that President Bush had had one day to react for the first banking bail-out; that is, he took the immediate course, the only one open to him to buy the time for more comprehensive reform.  Any president would have done what President Bush had done, though doing so was a regrettable necessity. 

But I was damned if another bail-out was going to happen because people had made other people’s money into an ingredient of intellectual tinker-toys (i.e., structured finance) yet would not face up to the consequences of the cultural malaise, if not corruption, pervasive within so many banks. What I recall as being the big argument for another bail-out was that Main Street needed to be protected from Wall Street’s mess. 

One way the money center banks had skimmed a few pennies, seemingly for free, was in overnight lending to smaller banks to balance out the books of the banking system on a daily basis. That vital utility of local banking would go away without the bail-out to preserve overnight lending, so the argument seemed to go.  That premise sounded tinny and rather false to me. 

In fact, since the largest wire-transfer systems were under, or easily placed under, the control of the Federal Reserve, there was no reason why the Federal Reserve could not take that money, proposed under T.A.R.P., to liquefy the overnight market and keep it functioning, under its direct auspices rather than pump fictitious greenbacks into flagging Banks. 

The big-bank theory (of bail-outs) could be shattered as the institutions filed for bankruptcy (under an express plan) and got to work on re-building the compromised public utility. During that Chapter-11 catharsis, the banks would disgorge their money drains (securities structuring and underwriting as well as proprietary trading) as well as spin their bad assets off into trusts so they would re-emerge as the utilities of the Glass-Steagall era. 

The Federal Reserve might need to guarantee bank capital for a while to absorb the accounting losses incurred with 'sunk' funds being securitized at 20-40¢ on the dollar.  Such losses from spinning off squidgy assets would be book-keeping in nature, since the money financing them was already gone forever. That guarantee until organic recapitalization could occur, however, would not be nationalizing the banks in the sense of managing them.

The T.A.R.P. money would not go – as it eventually did – to the banks for purchasing assets or, as it turned out, to sit idly on the balance sheets matched by preferred stock, both of which created money out of thin air.  Investment banking and trading would be dead, but only for a short while until hedge funds would begin to see opportunities in the bundled baddies being mis-priced and new companies came to the market (savings banks?), etc.

In fact, Senator McCain’s thinking, informed by his ordeal during the savings and loan crisis of twenty years before, was far closer to a regulatory philosophy of ground rules in an open arena rather than trying to control people through rules-based behaviors. Wall Street Reform and Consumer Protection Act, ('Dodd-Frank' per the legislative sponsors) with its 848 pages, was D.o.A., a ready victim to human nature and frailty, not to mention the blah blah blah ad blauseam inherent in most contemporary legislation. 

Much of Dodd-Frank may make sense over time; let that be legislatively ingested incrementally.  But, as Blaise Pascal observed so long ago, men may be as weak as reeds (grass blown over by the wind) but men are thinking reeds... dammit. Regulation should empower oversight to be equally clever in reigning in those thinking reeds who are 'too clever by half'. 

After all, clear and explicit ground rules, enforced with latitude to respond to unique ‘next-war’ circumstances, enable limited and rational government. The recent bill introduced by Senators Elizabeth Warren; Angus King, I-ME; and, John McCain answers that necessity of republicanism.  This tri-partisan trifecta is overdue and welcome.  

Bringing back Glass-Steagall will not be a panacea for human failings but it will lead to reasonable incentives and behaviors for a sector of the economy rightfully deemed as key public utility. And, no, Wall Street has not learned.  The hearings led by Senator Levin (D-MI) on the ‘whale-trade’ derivatives portfolio in London of J.P.Morgan of six months ago reminded me so much of the type of evasiveness I encountered from people who did not know, or refused to say, the answers to my questions as a risk manager, tedious as they were.  

Finally, I should have known the jig was up with the hope that bankers had shed their hubris when, in the preceding year, J.P.Morgan Chairman, Jamie Dimon, testified to a Congressional Committee that revoking Glass-Steagall had not precipitated key problems underlying the 2008 melt-down. Masterfully, Dimon was half-right, it was that revocation without a simultaneous end to deposit insurance – accelerated by corrupted micro-incentive structures – that did.

Letter #84 to Friends and Familiares: the Proof may be in the Putin...

It is time to listen our country’s leadership and to inform our respective Representatives and Senators of what we – each one of us – really believe to be the appropriate course of action with respect to Syria.  My opinion is plain and remains unchanged, variously categorizing me as smart, stupid or simply self-involved.  http://nedmcdletters.blogspot.mx/2013/08/letter-83-thoughts-on-syria-case-for.html That is not the purpose of this note to my loved ones. 

The best note of skepticism I have come across is that of one politician whom I trust, though his politics differ sharply from mine. http://www.huffingtonpost.com/dennis-j-kucinich/syria-war-questions_b_3870763.html  The arguments in favor are being presented capably by Secretary of State Kerry and Secretary of Defense Hagel. http://www.c-span.org/flvPop.aspx?id=10737441229  My interest lies not in those two but in General Dempsey, Chairman of the Joint Chiefs of Staff.

This letter, too, is about Syria. But not about Syria herself. Rather, I want to discuss just why Russia is acting the way she is.  For days, I have scratched my head in puzzlement as to why Russia is being almost provocative in the face of terrible depredations, evidently attributable to the régime she supports categorically.  This afternoon, when I was composing my weekly letter to my compañeros in the engineering research center where I serve, I was thinking about a question several colleagues had posed to me as "their" norteamericano.

That question was why the U.S. government is not listening at all to the government of Vladimir Putin.  Admittedly, there is far more interest around me in why the National Security Agency is monitoring the various communications of Presidents Peña-Nieto and Rousseff, respectively.  (My response being because it is easier to spy than ‘google’, a dumb joke that wrests the requisite chuckles).  Nevertheless, as I tied together the Syria debate with technology transfer in Mexico (?¿?¿?), President Putin’s view came into focus.

A basic question – a serious question – about the Syria discourse remains unaddressed.  Specifically, the reasons I have heard about why President Putin is acting like a jerk are unconvincing.

1. Vladimir likes to “poke America in the eye”.  This argument seems weak and does not get any stronger with the re-telling ad nauseam.  It is hard to believe that a man who has survived the rough-and-tumble politics of the U.S.S.R. and of Russia would allow his personal feelings to affect his judgement and behavior when the stakes are so high.  Poking in the eye is reserved for things like Mr Snowden but to risk a regional war or worse? No, I don’t think so.
2. Russia needs a Mediterranean port for her navy to maintain her status as a world power.  This thinking, at least as far as the port is concerned, makes more sense.  Yet why did President Putin not offer a deal: “Hello, Joe, we will support your meddling in Syria if you guarantee that we retain the right to our base in beautiful downtown Tartous?
3. Back in the U.S.S.R.  This sentiment tends to link onto the previous idea of naval access to the Mediterranean.  It argues that President Putin rues, misses and aims to restore the lost status of a super-power.  Nevertheless, setting out the great-power swap would play better into this fantasy as co-equals negotiating the fate of another bastard-child of the Sykes-Picot affair.
4. Economics.  This argues that dueling pipelines through Turkey versus the Caucusus is driving this pariah status assumed by Russia.  Honestly, I know too little to address that question.  This trade-off could well be true but I wonder if it would rise to the level of great power confrontation.  Additionally, given the harrowing destruction of the one-time jewel of the region, it may be a very long while before any business runs through Syria, except for illegal arms, of course.

So, unconvinced by any of these reasons for the great bear’s growling obstinacy, I pondered – indulging myself in a fruitless exercise – about what I would be thinking if I were President Putin.  That I cannot do.  The cultures of Russia and the United States are so different as to make direct empathy impossible. The intricate nature of Russian politics and President Putin’s role in it make empathy sheer speculation; frankly, I would trust more my chances at playing darts without my coke-bottle glasses.

So, I went to a second line of thought. In looking at the Syrian dilemma, I asked myself, “Now, hot-shot, why do you think President Putin would be so stubborn in his support for an unseemly régime that likely has used poison gas on its people, especially as refugees swell in number and dwell in suffering?”  Then a thought crossed my mind.  It was one of those moments I flashed back in time, thirty-three years ago, when I was a senior in college.

It was Clark Mollenhoff’s class in journalism and contemporary political issues in the winter semester at Washington and Lee in early 1980.  It had been snowing one of those damp Blue Ridge snows that made Lexington, Virginia almost celestial in its small-town splendor.  But it made getting to class a soft-shoe in Hell.  So, I was late, already well on my way to getting the only hook ever administered by Mr Mollenhoff, a retired, if not retiring, investigative reporter for the Des Moines Register. 

Mr Mollenhoff was a kind man, not least for his grading students on a pass-fail basis: A = PASS; B = fail.  Yet I found a way to a precedent-setting ‘C’.  Leave it to me to prove myself so exceptional as to prove the Mollenhoff grading rule.  That day, the contemporary political theme was the then-recent invasion of Afghanistan by the U.S.S.R. along with the U.S. response to it (i.e., wheat embargo, Olympics boycott, etc.).  Back then, the widely discussed reasons for that invasion revolved around a desire for Soviet a deep-water port.

 

That seemed nutty to me, even then.  The idea of invading a land-locked country to wrest docking rights in Pakistan strained my wretched little mind into a migraine.  So far-fetched.  There were other things flitting through my mind that day: recent taking of hostages in Iran; the attack and take-over of the Mecca mosque by extremists; and, other reports of rising Islamic extremism.  The U.S.S.R. had a large population of Muslims. 

 

So, in class that day, I said that the U.S.S.R. attacked Afghanistan to send a message to its large, apparently restive Muslim minority: “Hey, if we are willing to take this flak in the United Nations and around the world by publicly invading this bozo country next door, imagine what we will do to you who are out of the public eye.  Sooo, quiet down…”  That idea was laughed out of the room because, well, I was well on my way to a hanging hook and the idea, admittedly, seemed outlandish.

Since then, I have found out that senior Soviet foreign policy leaders (supposedly in released Kremlin papers or interviews; I do not know which one, if either) have stated that the reason I had cited was one of, of course, several reasons, the simultaneity of which prompted the follow-trhough of an already-planned invasion.  The point I am making is that the Russians today, sans les Stans, have reason to be anxious with what happens in Syria.  So why would President of Russia be one petty Putin?

• The Russian sphere of influence most definitely still extends strongly to the south via the Commonwealth of Independent States (http://en.wikipedia.org/wiki/Commonwealth_of_Independent_States).
• There are some twenty million Muslims living in today’s Russia and up to another eighty million in Tajikistan, Azerbaijan, Uzbekistan, Georgia, Turkmenistan and Kyrgyzstan, largely living under secular authoritarianism.
• Russia has already lived through a civil war and a bloody insurgency in Chechnya and, perhaps, Dagestan.

Where would al Qaeda go next once it were to triumph in Syria?  With possibly the largest stockpile of chemical weapons in the world? You make the call.  Before doing so, please also ponder the more general question of what motivates nations in the anarchy of international relations.  My guess would be fear and the prospect of aggrandizement. Perhaps we have an inkling of what President Putin’s answer might be: a desire to keep that navy base and a fear of Islamaoists, armed with convenient instruments of mass murder headed his way. 

Since some of the toughest jihadists around come from Chechnya, where might these people look for their next indulgence in blood-drunk blood-sport of stamping out takfiris and combatting the heresy of secular governments, especially one under the possible thrall of those awful orthodox Christians?  So, President Assad’s remaining in power may not be the worst-case scenario in the Russian mind; instead, the great Russian bear may want to defend her cubs far away from home.

Letter #83: Thoughts on Syria; a case for muscular humanitarianism

The West may be lurching toward armed intervention into Syria.  The stakes are higher than most Americans (e.g., me) can appreciate.  Policymakers live by a combination of historical analogies and, often, the ‘persistence’ method (i.e., repeating the same action as the last intervention).  The arguments have long been aired on this conflict.  The Administration of President Obama, rightfully cautious after the protracted conflicts of Iraq and Afghanistan, however, has hesitated too long.  With the added reticence expressed by the British Parliament, at least for now, the way forward seems difficult for the United States. 

1. If we act alone will we find ourselves in a rabbit hole of the colonial powers' making (i.e., the Sykes-Picot Agreement) of a century ago?
2. If we wait for the rest of the West to catch up, will the situation and misery become that much more unmanageable?

Disclaimer

These are serious questions elevated in the few hours since I wrote this first draft.  The situation is fluid, fraught with hazards for America. Nevertheless, decency has its demands and the Syrian civil war is at a cross-roads.  What I outline and propose in this letter must bear in mind my limited knowledge; my bias; and the 'serenity' prayer of Reinhold Niebuhr (http://skdesigns.com/internet/articles/prose/niebuhr/serenity_prayer/). 

That prayer is as famous as it is helpful.

God, give us grace to accept with serenity the things that cannot be changed, 

(I.e., we cannot control people's sympathy or enmity toward us or make al-Qaeda play fair.)

Courage to change the things which should be changed, and the

(I.e., we can alleviate suffering, educate children and help others re-build.)

Wisdom to distinguish the one from the other.

(I.e., we should be open to change at every blind step of the way forward.)

Buster’s last stand

More than half a year ago I wrote a letter home arguing against an invasion of Syria (http://nedmcdletters.blogspot.mx/2012/12/letter-72-why-invading-syria-is-bad-idea.html). Though I am better informed now, I still believe that an invasion would be all wrong for the following reasons.

1. The death toll, especially if these actions actually prolonged the killing, would be beyond the threshold of what civilized men and women, especially the millions trapped in or near Syria, could countenance.
2. Syria is a flashpoint for regional conflict since it is the cultural center of the Levant and Middle East and yet could be the precursor to a much larger Arab-Persian conflict. (http://www.washingtonpost.com/blogs/worldviews/files/2013/08/Levant_Ethnicity_lg-smaller1-zoom.jpg)
3. Logistically, the country would be hard to conquer and harder to occupy.
4. The United States can not afford another expensive conflict for anything but existential threats; this is not one.
5. The geopolitical challenges of the current-day Levant are of Franco-British making from a century ago.
6. U.S. actions in leading the eventual killing of Colonel Gadhafi in Libya go a long way toward explaining President Assad’s behavior now; Assad figures he has nothing to lose since he will likely end up dead no matter how nice he plays.

This ever larger conflict, while dissipating Israel’s enemies for now, may eventually be resolved by scape-goating the Jewish people and state, turning the fury of more than two hundred million people against the only viable, if flawed, but tiny democracy. Israël can still be an example of popular governance to aid people in that part of the world toward liberty.

The context

Before going into any thoughts on what I think will occur and what I think we should do, I would like to review certain antecedents that ought to inform whatever response we take.

1. The most fitting battle-space analogy might be a combination of World War I and the Balkans in the 1990s.  The ethnic groups are interspersed with a lack of secular granularity sufficient to aim missiles at the bad guys on the ground, subjectively targeted.  That fact translates into the current, brutal reality of street-by-street fighting with a lot of artillery and available chemical weapons, much like the trench warfare of 1917. (http://www.aljazeera.com/indepth/interactive/2013/07/20137188552345899.html)
2. A more immediate threat is the spill-over of the conflict.  The mainly Kurdish National Coordination Committee, centered in the northeast, has called for negotiations and may be a moderate voice.  Jordan and Lebanon are at their breaking points with refugees; Turkey feels the strain.
3. The Assad régime, being drawn from one minority has protected other minorities from persecution.  Conflict tends to harden and de-sensitize people.  After two years of truly awful bloodshed, radical Sunni Arabs and, perhaps, their Shi´ite opponents from the outside, have reportedly started persecuting Christians, Jews (if any), Druze, Alawites, Kurds. Wahhabis and their Salafists are particularly menacing since they see Shi´ites as apostates (apparently a deadly sin in Islam), collaborators and, otherwise, easy to bully bloodily.
4. The no-fly zones worked in Iraq.  Karl Rove is wrong in saying that no-fly zones will get us stuck in Syria as they did in Iraq.  What kept us stuck in Iraq was an unwillingness in the mid-to-late 1990s to deal firmly with Saddam Hussein who – like the Assad régime, the religious dictators of Iran and President Milosevich in Serbia – was never materially affected by the sanctions though his people suffered mightily for a decade.
5. Until petroleum became the desert king, Syria (including Lebanon) had been the focal point of U.S. attention in the larger region.  For the better part of two centuries, until the 1950s, various missionary groups set out for the Holy Land, setting up clinics, schools and hospitals.  These activities built up a reservoir of goodwill that has dissipated in the last fifty years.  Nevertheless, the ties remain deep.  (http://en.wikipedia.org/wiki/Power,_Faith_and_Fantasy).
6. Tens of thousands of officers and soldiers of the Syrian Army have deserted and are in refugee camps in adjacent countries, principally Jordan and Lebanon, or hiding with their clans inside the country.  These men are disciplined and can be ideal for a new police force to help maintain order after the fighting stops.
7. Not every Alawite has been living like a King.  At the face of things, one would find this statement stupid.  Truth is that I spent a great deal of time in Iraq stating to Shi´ites in Iraq that every Sunni had not been rich under Saddam Hussein; that many had suffered just as they had.  Such blanket perceptions are serviceable only to those who are bent on sectarian genocide.
8. The United States succeeded in Iraq, not only on the battle-field.  Through the surge of just U.S. troops that represented 0.1% of the Iraqi population, the U.S. prevented a sectarian genocide and empowered the moderates on both sides of the Sunni / Shi´a divide.  The saddening state of affairs now in Iraq has more to do with the current government’s power-grab and corruption opening up an opportunity for blood-drunk terrorists to do what they want to do: kill and maim in the name of G-d and the pursuit of mammon.
9. The United States has planted the seeds of long-term success in Afghanistan, much as she did in Viêt Nam.  That victory will take at least two generations to manifest in Afghanistan.  The key point is that the opportunity to change has been secured for the rising generation and its children.
10. The Afghanistan surge was a political exercise.  The lack of imagination of the surge displayed an insensitivity to topographical and cultural differences between Iraq and Afghanistan. Additionally, relieving two commanding officers in a year doomed the surge, guaranteeing that drone-flown assassinations would become the preferred method of counter-insurgency.  In short, the surge was an expensive and bloody agitprop as a means for the U.S. to appear to give the war 'a good college try' before leaving.
11. Community policing does work.  Since many insurgencies cover for crime-waves, top-down police-training – a worthwhile method for improving or setting standards of professionalism across a country – fails to harness the participation of the townies who know the people and activities of their areas.  That knowledge (i.e., field intelligence and situational awareness) is vitally necessary to stop the hard-to-detect activities of guerrillas, terrorists and less pretentious gangsters.
12. The disregard of Congress in policing actions has enabled presidential adventurism, often guided by political considerations.  Often these undeliberated initiatives have degenerated into quagmires, leading to national trauma in terms of lost treasure and personnel. (http://www.speaker.gov/press-release/boehner-seeks-answers-president-obama-syria)

What we should do

The antecedents and elements taken from my earlier essay, of December 2012, that argued against invasion basically point the way toward what I would like to see.  In previous discussions on Facebook and in counter-insurgency circles, I have stated just about everything that I state below, especially with respect to the very limited deployment of U.S. Special Forces (S.F.). Before that re-hash, I would like to focus upon two elements that have changed in recent days: no-fly zones and peaceful exile for the Assad family. 

That is to say: the efficacy of no-fly zones, if focussed carefully, in creating ink-blots of peace and the rule of law make that option compelling.  With respect to the Assad family, conditions may be ripe for negotiating toward a cease-fire, followed by reconstruction should the cease-fire hold.  The repeated use (of some fourteen instances) of chemical weapons, assuming the régime is primarily responsible, clearly represents a change in kind of warfare beyond the limits of long-standing international law.  But this viciousness may signal that the leadership is falling and desperate. 

As the map shows, such no-fly zones would not be large and could provide the air-cover for the new Syrian police force, basically those deserting soldiers trained by U.S. Special Forces (SOF), to re-enter those enclaves of Druze, Christians, Aramaic Chaldeans, Kurds and Armenians contiguous with Jordan, Turkey and Lebanon.  Later, should outside peace-keepers be deployed and manage to maintain peace in the rest of the country, this core police force could train other community police units, thus expanding the inkblots to counter a crime-wave, not an insurgency. 

Again, if the Assad régime is responsible for recent attacks of chemical weapons, as seems probable though yet to be confirmed, the dictator is likely to be desperate and may be open to exile because he is losing. It is worth a try.  Such an attempt at providing safe-passage and initiating a cease-fire will not take long to resolve one way or the other.  Such a determination will take less time than preparations for military action likely will.  Hence, checking out the possibility of a peaceful exit can be executed concurrently with military mobilization.  There would be conditions for that safe passage:

1. admission of guilt of a crime against humanity, if President Assad or a member of his government deployed those chemical weapons;
2. formation by President Assad an interim council to guide the country toward a new régime;
3. establishment by President Assad of something similar to the Truth and Reconciliation Council employed by South Africa when a minority régime surrendered power to a majority;
4. deployment of what remains of the Syrian Army to secure the stockpiles of chemical weapons; as well as, 
5. presidential order of the police to protect minority populations.

The rest of the scenario remains largely unchanged from previous comments made in other virtual venues (with details added from recent shifts in information and perspective):

• due presidential consultation with, and approval by Congress, per the Constitution, prior to military action;
  
• such congressional authorization to be, preferably, a declaration of war or, at least, an authorization to use military force;
• such declaration of war or authorization to be effective against the régime, not the Syrian people, only after a roll-call vote on prime-time television;
• transparent reporting and timing of deployments required by, or conducted under, any congressional authorization to be tightly aligned with the Wars Powers Resolution of 1973; 
• no-fly zones in the areas noted and enforced by N.A.T.O. air forces; 
• protection of the Alawite strongholds and, perhaps Lebanon, by the British and French navies (now, possibly in doubt, http://www.bbc.co.uk/news/uk-politics-23892783); 
• American S.F. deployments to the refugee communities in Jordan, Lebanon, Turkey and, if possible, Iraq to partner with forces from those host-countries to assure the delivery of humanitarian supplies; 
• S.F. partnerships with Jordanian, Turkish and Lebanese forces to police said refugee areas to try to push back on extremist intimidation of any form; 
• S.F. partnerships to train a new police, trained from the soldiers of the Syrian Army who have defected, for post-war Syria with forward deployment into areas protected under no-fly zones; 
• safe-passage, if negotiable and upon the conditions cited above, for the Assad family and those officials not involved in crimes against humanity into West with the aid of witness protection programs and a $10 million, thirty year annuity for the Assad family and $1 million, ten year annuities for the other civilian or military leaders and their families, with all illicit treasure in the national treasury and foreign banks (i.e., billions of dollars) repatriated to a Syrian reconstruction fund described immediately below; 
• freeze all assets of Syria in international financial institutions to be placed under the trusteeship of the International Red Crescent and Red Cross further to be administered by the U.N. aid mission in Syria for future development;
• American S.F. only, together with trained New Syrian police, to escort in peace-keeping troops from Muslim countries outside of the ‘Islamic belt’ (i.e., Middle East, North Africa, Turkey, the Caucasus and east through to Pakistan; that is, troops deployed from nations like Indonesia, Senegal and Malaysia, if they are willing); 
• American S.F.  to leave immediately upon settlement of peace-keepers (or escorting said peace-keepers out if the threat environment be too pronounced) if the number of the latter is adequate to secure and remove the chemical weapons;
• American S.F.  to remove chemical weapons if the peace-keeping force not adequate to the task;
• no further entry into Syria by S.F. contemplated and possible only with a second "prime-time" declaration by Congress; as well as,
• said peace-keepers to assure safe passage in of relief workers from credible non-governmental organizations, including Médecins sans Frontières, Mercy Corps, the International Red Crescent, the Grameen Foundation, etc. to accelerate reconstruction.

What I am afraid of happening
Blow up a few runways; fling a few drones; talk tough; and, bask in the balm of bombs with the pyro-theatrics of 24 / 7 television reporting.