I’m out in China, where I’ve just spent a couple of weeks visiting Hong Kong, Beijing and the rural province of Yunnan. Some observations on China and sustainable development to follow in a separate post, but for now let’s focus on the big news of the week: the latest burst of financial meltdown. Lehman Brothers have filed for bankruptcy protection; Merrill Lynch have been bought out; the US Treasury has bailed out Fannie Mae, Freddie Mac and today AIG; every time I look at my blackberry, some new catastrophe seems to be unfolding.
As I’ve been chugging around China, I’ve been re-reading James Kynge’s excellent China Shakes the World – and noting with interest what Kynge has to say about the issue of bad debts. For example:
The ‘big four’ banks, which control more than half the country’s deposits and loans, are all owned by the state … The central bank, which regulates the banking industry alongside the recently established China Banking Regulatory Commission, has a track record of bailing out the ‘big four’ every time they need it … If the various cash infusions and bad debt relief for the state banks over the last five years are added together, it transpires that China has allocated nearly $250 billion to clean up its banking system.
But now fast-forward to today, a mere couple of years after Kynge’s words were first published. Fannie and Freddie have already been bailed out – a move which, according to Nouriel Roubini, at a stroke injected around $200 billion of capital into the two of them, and took on $6 trillion of debt. As Roubini concludes,
The nationalization of Fannie and Freddie is the most radical regime change in global economic and financial affairs in decades. For the last twenty years after the collapse of the USSR, the fall of the Iron Curtain and the economic reforms in China and other emerging market economies the world economy has moved away from state ownership of the economy and towards privatization of previously stated owned enterprises. This trend was aggressively supported the United States that preached right and left the benefits of free markets and free private enterprise.
Today instead the US has performed the greatest nationalization in the history of humanity. By nationalizing Fannie and Freddie the US has increased its public assets by almost $6 trillion and has increased its public debt/liabilities by another $6 trillion. The US has also turned itself into the largest government-owned hedge fund in the world: by injecting a likely $200 billion of capital into Fannie and Freddie and taking on almost $6 trillion of liabilities of such GSEs the US has also undertaken the biggest and most levered LBO (“leveraged buy-out”) in human history that has a debt to equity ratio of 30 ($6,000 billion of debt against $200 billion of equity).
So now Comrades Bush, Paulson and Bernanke (as originally nicknamed by Willem Buiter) have now turned the USA into the USSRA (the United Socialist State Republic of America). Socialism is indeed alive and well in America; but this is socialism for the rich, the well connected and Wall Street. A socialism where profits are privatized and losses are socialized with the US tax-payer being charged the bill…
And that was before today’s news that the US Treasury is taking on AIG as well, to the tune of another $85 billion, which (as the BBC observes) is “viewed by some as the most radical intervention in private business in [the Fed’s] history”. For Roubini, this is just confirmation of the worst fears:
At least in the case of Fannie and Freddie these two institutions were semi-public to begin with as they were Government Sponsored Enterprises (GSEs). Now we get instead the first pure case of a fully private company, actually the largest insurance company in the world, being nationalized. So the US government is now the largerst insurance company in the world. So the transformation of the USA into the USSRA goes a step further.
From where I’m currently sitting in Hong Kong, it’s hard not to cast your mind back a decade to 1997/8 and the South East Asian economic crisis, when the Washington Consensus still prevailed and liberalisation was the war cry. As Steely Dan sagely put it: “those days are gone for ever; over a long time ago…”
LARRY KING: The question about the money spent on Iraq was a fair question, Chuck. Isn’t that a lot of money?
CHUCK NORRIS: … we can debate the question of whether we should be in Iraq or not, but we are there and we gotta take care of the situation there. I’ve been there twice, Arianna. I’ve done two tours over there. I know what’s going on over there. You haven’t been there.
This latest revelation must surely secure a place in the most popular facts about Chuck Norris. The current list (in case you’re wondering):
1. If you have five dollars and Chuck Norris has five dollars, Chuck Norris has more money than
2. There is no ‘ctrl’ button on Chuck Norris’s computer. Chuck Norris is always in control.
3. Apple pays Chuck Norris 99 cents every time he listens to a song.
4. Chuck Norris can sneeze with his eyes open.
5. Chuck Norris can eat just one Lay’s potato chip.
6. Chuck Norris is suing Myspace for taking the name of what he calls everything around you.
7. Chuck Norris destroyed the periodic table, because he only recognizes the element of surprise.
8. Chuck Norris can kill two stones with one bird.
The DNI Open Source conference this morning saw a fascinating debate on the implications of the information explosion for privacy.
As people live more of their lives on line and intelligence agencies become more sophisticated at tracking their digital trails, we move closer to the Panopticon, famously defined by Bentham as:
A new mode of obtaining power of mind over mind, in a quantity hitherto without example: and that, to a degree equally without example, secured by whoever chooses to have it so, against abuse.
Can there be any protection against this? Not according to one of the speakers, who argued that the surveillance society is now irresistible. Other panellists argued that the legal framework will protect privacy, striking a balance (though not necessarily a perfect one) between the rights of the individual and pressing security concerns.
But there’s a problem with this. These rights are only granted to ‘US persons’. Which makes me wonder: how sophisticated can US government surveillance become before ‘non-US persons’ begin to regard its intrusions as an unacceptable and hostile act?
And what impact will that have on the relationship the US has with the citizens of other countries?
I’m in Moscow for a few days, where the weather is miserable and the mood is worse. The stock market has lost 50% of its value since May, much of it since the Russian invasion of Georgia, which raised the political risk premium for Russian securities.
I happened to be here at the same time as the Valdai Group, an annual collection of some of the top Russia-watchers from around the world, who come here at the invitation of the government, to meet the Russian political elite. It’s arranged by Novosti, the state news agency. Yesterday the experts met with Putin, this morning they met with foreign minister Sergei Lavrov, and as I write they are meeting with Dmitri Medvedev, in the plush surroundings of GUM, the luxury department store next to Red Square. Why they’re meeting there I don’t know – perhaps Medvedev wants to show how rich and glamorous the new Russia is.
A friend of mine at Novosti let me in to the meeting with Lavrov this morning, on the strict understanding I didn’t directly report any of his comments, as all Valdai meetings are supposedly off-record, though I saw the Times’ diplomatic correspondent feverishly phoning in a story right after the meeting.
Anyway, a couple of interesting perceptions I came away with, which I think I can share without breaking my promise. Firstly, the title of Lavrov’s presentation was: ‘The World Geo-Political Revolution at the Beginning of the 21st Century: Russia’s role’. It made me laugh, because it was so grandiose. And yet it is also typically Russian – Russia has always been annoyed by the feeling it is young and immature compared to the West, and has always dreamt of in fact being in the vanguard, rather than bringing up the rear, and playing some sort of Messianic and revolutionary role in world affairs.
This is what Dostoevsky thought Russia’s role would be – the spiritual saviour of the world via Orthodox Christianity. This Messianism channelled itself easily into Bolshevism, and Russians took immense pride in the idea they were the vanguard of humanity, leading it towards a world geo-political revolution. And now, I guess, they are taking pride in the thought that they are leading a new geo-political revolution, from a unipolar to a multipolar world. Lavrov spoke about how many non-Western countries had expressed their support for Russia’s actions in Georgia, and even expressed nostalgia for the USSR, when the world was a balance of powers rather than unipolar.
The other thing that came up is Russia’s relationship with the UK. Lavrov mentioned an article he had seen, it was on the Telegraph’s blog, which quoted sources in the FCO saying Lavrov had held a very bad-tempered conversation with Miliband in which Miliband had been ‘forced to endure a four-letter-word tirade’. Apparently Lavrov had said ‘who are you to f- lecture me?’ and then asked Miliband whether he had the first idea of Russian history.
Lavrov denied such swearing took place, and said he had ordered the transcript of the conversation to be posted on the Russian Foreign Ministry’s website. I almost wish the story was true and he had told our uppity foreign secretary where to effing go. But you can tell clearly enough what he thinks of Miliband from his response to Miliband’s article in The Times here.
Lavrov must be getting tired of his private conversations with foreign ministers ending up in the press – another conversation with Condoleeza Rice ended up being made public in the UN Security Council, much to Russia’s chagrin.
Meanwhile, Miliband’s tough stance towards Russia just keeps getting tougher. Apparently, he cancelled the scheduled visit of some bag-pipers, who were going to play in a military parade on Red Square to celebrate Moscow Day. That’ll show them.
Don’t, please don’t, click on this link for the US government’s Open Source Center. If you do, awful things could happen to you…
You have reached a United States Government computer system. Unauthorized access is prohibited by U.S. Public Law 99-474 (the Computer Fraud and Abuse Act of 1986) and can result in administrative, disciplinary, and/or criminal proceedings. If you are not an authorized user, exit this system immediately. Use of this system constitutes consent to monitoring at all times.
