by David Steven | Nov 4, 2007 | South Asia
Reacting to the crisis in Pakistan, Ali Eteraz, over at the Guardian, argues that only opportunistic opposition politicians, a handful of lawyers, and decadent democracy-addled Westerners are likely to get too upset by events of the past few days.
Ordinary people yearn for stability, he says, and are enjoying the economic good times Musharraf has inspired. Even ‘democracy-promoting analysts’ (spit) are forced to admire the President’s economic management, he argues.
Victor Davis Hansen, writing from the other side of the Atlantic (and across a rather big political divide), is a reluctant supporter of democracy (‘ultimately our only choice’), but an ardent critic of Pakistan and its people:
It would be hard to think of a bigger mess than Pakistan: nuclear; half the population radically Islamic; vast sanctuaries for the architects of 9/11; a virulent anti-Americanism in which aid and military credits are demanded but never appreciated; dictatorship at odds with America’s professed support for Middle-East constitutional government.
But are these beliefs backed up the facts?
According to the best available polling – conducted every six three months by the International Republican Institute – no. According to the latest poll (pdf), conducted in September, when the situation in the country was deteriorating, but not yet critical:
Pakistanis were deeply concerned by the direction in which their country was heading, with 73% believing things were getting worse. What is striking is how rapidly pessimism had grown. Only 44% had believed things were going downhill a year ago; 59% just three months back.
Contrary to Davis Hansen’s belief, the population seemed highly agitated by rising extremism. 74% agreed that it was a serious problem for the country, only 21% disagree. 57%, meanwhile, believed that Taliban and Al Qaida operations in Waziristan were a serious challenge.
However, economic concerns were much more pressing. Asked about the key issues they’d vote for in an election: inflation came top (37%), followed by unemployment (20%); poverty (11%); and law and order (10%).
But contra Eteraz, Pakistanis were hurting economically. 56% believed they were worse off financially than a year before (up from 34% three months previously).
Little surprise then that Musharraf’s approval rating, which was above 60% in 2006, had tanked to 21% (this would be bad even for George Bush).
In September, most people thought their President should go, with 70% sure he should resign and another 8% thinking that maybe he should. Only 23% wanted him re-elected President even if he had ‘doffed’ his uniform. No matter – the President bullied his way back into power, keeping the uniform on.
A state of emergency, the poll suggests, will have gone down like a lead balloon. In September, only 8% thought declaring an emergency would be a good idea, while 62% wanted the army completely out of politics.
In justifying suspending the constitution, Musharraf went out of his way to attack the media (“contributed to this downslide, this negative thinking, this negative projection”) and the courts (“the judiciary has interfered”).
The media and the courts are, of course, Pakistan’s most popular institutions, with an 80% and 77% approval rating respectively.
So, in a country whose population is demoralized and suffering economically, we have a spectacularly unpopular President taking on the country’s two most trusted institutions.
So where will Musharraf get his support? From the army? Maybe, but even it is losing its lustre (approval down to 70% from 82% in three months).
Or parliament? He’s left the National Assembly in place (a ‘shrewd move’ Eteraz reckons, which will keep people off the street), but it has an approval rating of only 42%. And let’s hope he doesn’t need the police. They are the most hated of all at 13%.
“If I have your companionship,” he told the Pakistani people yesterday in the Urdu portion of yesterday’s televised address. “I have no doubt, God Willing, Pakistan will be back to the forefront and this derailed train will be, God Willing, back on track.”
Perhaps Musharraf will get away with this desperate attempt to cling to power. But companionship with the people? That, I think, is one eventuality we can rule out.
by Alex Evans | Sep 17, 2007 | Global system, Influence and networks
Given the obvious risk of self-fulfilling prophecy when terms like ‘bank run’ start being bandied about in the midst of a low level consumer panic, sensible commentators try to err away from being too lurid in what they say to the mainstream media during a crisis.
A pity, then, that Will Hutton just couldn’t resist when the opportunity for some publicity came knocking. Yesterday, he was in the Observer, arguing that:
This is a full-blown run on a bank, something we have not seen on such a scale since the 19th century, and a measure of the depth of mismanagement, non-regulation and structural dysfunctionality of today’s financial system.
By this morning, he clearly felt that he hadn’t gone far enough, so he decided to go on the Today programme (RealPlayer stream; fast forward to 10.30) and announce to the nation that unless the government improved the depositors’ insurance scheme, got the interbank loan market moving “at all costs”, was willing to “stand behind structured investment vehicles” and “re-regulate the markets”, and was prepared to nationalise Northern Rock if push really came to shove, then
“…there is a really serious risk that there could be a bank run that spreads beyond Northern Rock.”
This is not to deny that a serious problem is underway; we published posts on both 22 August and 7 September quoting experts who were arguing that the situation was considerably worse than generally understood by generalist policymakers or the mainstream media. But Hutton’s shrill polemic is both uninformative and unhelpful, especially as it ignores the two key counter-arguments to his plan for a mega-bailout: moral hazard and the question of who picks up the tab.
If the Bank of England says it will prop up any bank or building society at risk of failure now that we’ve hit the first really serious bout of financial market turbulence since the turn of the decade, what kind of signal does that send? And his call for the government to “get the interbank market moving at all costs” seems similarly bizarre: given that the reason it has dried up in the first place is because banks don’t know who’s been left holding the bad loans now that the music’s stopped, is his suggestion that the Bank of England should pick up the tab for all of them?
Both of these issues have been widely – and soberly – debated in the press over the last few days. But by ignoring the nuances at the same time as upping the rhetoric, the risk that Hutton runs is of worsening perceptions of the problem without contributing to a consensus on solutions. There are serious structural issues of financial market regulation that clearly need to be addressed, yes. But there’s plenty of scope for a frank discussion of symptoms, causes and policy without tearing on to the Today programme to tell the nation about “financial tsunamis” and suggesting implicitly that perhaps we should all withdraw our cash from wherever it’s saved, convert it into gold sovereigns and stash it under the mattress.
by Alex Evans | Sep 7, 2007 | Cooperation and coherence, Global system
At the time of last winter’s World Economic Forum meeting in Davos, and at meetings of the WEF Global Risk Network (of which I’m a member) over the following months, much was said about the mismatch in the risk perceptions of the investment community and the policy community.
Then, it seemed as though the financial and investment community was full of the joys of spring – and apparently oblivious to all the risks that people in the policy community and the global commentariat were becoming increasingly concerned about. Risks like…
…how the US is badly bogged down in wars in Afghanistan and Iraq; an increasingly unstable Middle East and dangerous energy dependence; nuclear proliferation that has already occurred in North Korea and that is coming in Iran; the potential weakness of lame-duck political leaders in the US and other major democracies; record global trade imbalances and rising protectionist pressures; increased levels of public and private sector borrowing combined with record low saving in the US; falling home prices and middle class economic insecurity.
Yet, as former US Treasury Secretary Lawrence Summers (whose words are quoted above, from the FT on 26 December 2006) observed:
The new year will begin with the greatest divergence for a generation between the general view of global risks as reflected by conventional wisdom and the risks as priced in financial markets. While the commentariat has been more alarmed about the state of the world than global markets for some years, the gap increased in 2006 as markets became more serene and everyone else grew more anxious.
Fast forward to today, and the tables have turned through 180 degrees. The current crisis in the markets has made minimal impact on commentariats and non-financial policymakers. Newspapers other than the FT are not covering it on the front page (or indeed outside the business section); it has yet to make any serious impression in foreign affairs ministries; there is no buzz about it in on the international summit circuit (e.g. the forthcoming APEC summit).
Yet in the business and financial press, people are going nuts. Yesterday, the FT devoted five full pages to the crisis. A letter to the editor from the global head of market economics at BNP Paribas – admittedly one of the firms worst hit by the sub-prime crisis – showed signs of panic:
When the patient is in seizure and the extremities are starting to turn blue it is not the time to worry about the patient’s longer-term dietary plans or about undesirable side-effects of the current treatment. Yet I fear that this is what central banks will do. The next set of steps had better be convincing and decisive, otherwise a much wider financial market implosion and economic recession will become very likely.
As with the ‘red’ and ‘blue’ sections of the US, the apparent inability of the financial community to communicate with or understand the wider policy community – and vice versa – is something that ought to cause worry on both sides.
And here’s another thought. If this is what happens when just one of the chickens cited by Lawrence Summers comes home to roost, what are the prospects if more than one comes fluttering in at once?
by Alex Evans | Sep 7, 2007 | Global system
Here’s an alarming thought about the current turmoil in financial markets: what if the drivers of the crisis are so complicated that central bankers don’t actually understand what’s going on? That was the charge laid yesterday by Jon Moulton, head of private equity firm Alchemy, who was interviewed by the FT:
The private equity investor said the Bank was hampered in its efforts to manage the crisis by its sketchy knowledge of such important debt vehicles as collateralised loan obligations (CLOs). These are securities backed by leveraged loans, which can include US subprime mortgages and whose creditworthiness may be questionable.
Mr Moulton said that during a breakfast meeting with Bank officials “it became clear they did not know what a CLO was. I had to show a senior man [by drawing a diagram] on the back of a napkin.” Speaking ironically, Mr Moulton said: “It was really reassuring to see they did not know what was going to explode on them.”
The power of the Bank to control debt markets had been significantly reduced by the proliferation of securitised debt, according to Mr Moulton, who is the senior partner of Alchemy, a mid-market buyout firm. He said the Bank had “no weapons to control CLOs”. The Bank declined to comment on Mr Moulton’s criticisms.
