Belmont Club

Belmont Club

While You Were Sleeping

July 6th, 2015 - 6:12 pm

On the morning after a financial collapse things will look almost exactly as when you went to sleep. The elm tree and mailbox will stand where they were, the scene will appear unchanged all the way to the horizon.  On the Day After the outward world is unchanged.  What will have altered beyond all recognition are the invisible claims on that physical world.

The homely mailbox, for example, may no longer be yours, nor the land on which the elm tree is growing.  It could have reassigned while you were sleeping. If one can imagine the world in terms of a balance sheet, the immediate post-crash world assets start unchanged.  It’s the liabilities which have been rearranged.  The write down process will not be uniform.

In the bubble world there are more claims on assets than can be satisfied.  In the pre-crash world this is unnoticed. As in the game of Musical Chairs, it is not obvious till the music stops.  Only when the tune is interrupted, in the post-crash world, does the audience will see there is one chair short.

Politicians and unscrupulous politicians are in the profession of overselling capacity, but ensuring they always have the chair.  Politicians for example, promise the same taxpayer dollar several times over to different constituencies.  And it goes along swimmingly as long as they can kick the can down the road.

For example Obamacare was created to save Medicaid from bankruptcy.  Now Medicaid expansion is used to prove Obamacare is working.  Obamacare was funded by reductions from Medicare.  Now the Medicare “doc fix” shortfall will be funded by obtaining “savings” from Obamacare. It’s circular process where the same dollar moves from chair to chair.

Banks operate on the same principle. Banks lend out more than the deposit dollar.  They can do this sustainably for as long as the extra chairs can be provided by the real rate of interest.  An extra chair will be created in the future, but only as many as the actual rate of growth will provide.

But sometimes people get greedy and overpromise returns.  Then if everyone with a claim on a chair came to the bank and demanded a stool, there would be a shortage of stools. This is called a bank run. In  that case the system relies for its continued viability on keeping the music playing.  Once the needle is lifted from the record, forcing the players to scramble for a seat, it will be obvious that somebody will have to be kicked out of the game.

On the day after a crash the most important question is: who gets the chair when the music stops? Ben Stell and Dinah Walker, writing in the Council of Foreign Relations blog explain how the French got the Italians and Spaniards to hold the bag through the simple device of turning  French exposure in Greece into someone elses’, a process called “mutualization”

In March 2010, two months before the announcement of the first Greek bailout, European banks had €134 billion worth of claims on Greece. French banks, as shown in the right-hand figure above, had by far the largest exposure: €52 billion – this was 1.6 times that of Germany, eleven times that of Italy, and sixty-two times that of Spain.

The €110 billion of loans provided to Greece by the IMF and Eurozone in May 2010 enabled Greece to avoid default on its obligations to these banks. In the absence of such loans, France would have been forced into a massive bailout of its banking system. Instead, French banks were able virtually to eliminate their exposure to Greece by selling bonds, allowing bonds to mature, and taking partial write-offs in 2012. The bailout effectively mutualized much of their exposure within the Eurozone.

The impact of this backdoor bailout of French banks is being felt now, with Greece on the precipice of an historic default. Whereas in March 2010 about 40% of total European lending to Greece was via French banks, today only 0.6% is. Governments have filled the breach, but not in proportion to their banks’ exposure in 2010. Rather, it is in proportion to their paid-up capital at the ECB – which in France’s case is only 20%.

In consequence, France has actually managed to reduce its total Greek exposure – sovereign and bank – by €8 billion, as seen in the main figure above. In contrast, Italy, which had virtually no exposure to Greece in 2010 now has a massive one: €39 billion. Total German exposure is up by a similar amount – €35 billion. Spain has also seen its exposure rocket from nearly nothing in 2009 to €25 billion today.

In short, France has managed to use the Greek bailout to offload €8 billion in junk debt onto its neighbors and burden them with tens of billions more in debt they could have avoided had Greece simply been allowed to default in 2010. The upshot is that Italy and Spain are much closer to financial crisis today than they should be.

The French now have a chair.  It is the Spaniards and Italians who will have to hop around some.

In Greece itself the relevant question is: who has a claim on what is left in the banks when they reopen, assuming there is anything left. Ma and Pa Greece who put their savings or investments on the system the Day Before will find the birds chirping in the Attic trees as usual.  But what happened in the virtual world while they were sleeping?


The Wonderful Wizard of Oz

July 5th, 2015 - 5:30 pm

The Greeks have decisively voted to reject the EU bailout agreement.  The drama of the confrontation and the richness of its historical context (“Das ist … Sparta!!”) have overshadowed a potentially more consequential unfolding event: the meltdown of the Chinese stock market.  Nearly a quarter of Chinese investors have suffered 50% losses.  An estimated $2.8 trillion has already gone up in smoke.

This does not diminish the importance of the Greek tragedy.  According to some reports, there’s only a billion euros left in the Greek banking system — about 90 euro for every man, woman and child in Greece.  Unless the European Central Bank lends them money, there’ll literally be no money left on Tuesday for the ATMs to dispense. The Guardian says the economy is already freezing up.

Less than 72 hours have elapsed since banks were closed and capital controls imposed on Greece, but the effect has been devastating.

An economy, already labouring under an unprecedented liquidity squeeze, has come to a juddering halt.

Shops have closed, factories have stopped operating and firms have told employees to take enforced leave until the country holds a referendum on July 5 over the terms of further financial assistance from international creditors. Many larger companies have refused to pay staff altogether.

“Consumption has dropped by 70%,” said Vassilis Korkidis, who heads the National Confederation of Hellenic commerce.

“No one trusts anyone anymore, so no transactions are taking place between wholesale and retail,” he said.

Authorities in Athens have threatened to print scrip and EU authorities are meeting late Tuesday to decide which way to go next. Apart from the fact that there’s no money in the Greek banks, the next most pressing problem is decide what to do with the money that should be there. The widespread fear is that Greek bank depositors will be given a “haircut”, bankspeak for “your money ain’t there no more”.

Daniel Altman at Foreign Policy tries to construct a plausible “worst-case scenario” for coming week but cannot be certain of the probabilities, so great are the uncertainties.

Let me start by saying that I have no idea what the worst-case scenario looks like, as indeed no one does. Because of unexpected events — black swans, unknown unknowns, or, to use the term of the moment, Knightian uncertainty — it’s impossible to know just how bad things could get in the global economy. But a few dominoes could fall that might make things very uncomfortable in the markets, and it’s worth considering what the world would look like then,



July 3rd, 2015 - 7:00 pm

A picture doing the rounds of Facebook  shows a picture of Supreme Court justice Clarence Thomas and actor George Takei, who called Thomas “a clown in blackface” for dissenting with the majority decision on gay marriage.  The caption says: “Thomas votes for the party that freed his ancestors.  Takei votes for the party that put him, personally, in an internment camp.”  The irony comes from the fact that there is often something more powerful than experience.  That impulse is the need to belong.  Intern me, only let me belong.

The Hill has an article showing Democratic presidential candidate Bernie Sanders drawing a huge crowd in Madison, Wisconsin.  His popularity among Democrats is an indication that the grassroots liberals are dissatisfied with the leftist status quo. Contrary to the administration’s claims, things are not going well for most people.  Many of those who vote Democratic don’t want Obamacare, but think Single Payer is the answer. They know Obama’s foreign policy isn’t working yet believe that even more appeasement provides the solution. They understand times are tough yet are convinced that more “free government” programs will help.

In short they are like patients feeling the symptoms of a dread disease but think that Doctor Miraculo’s Wonder Elixir holds the cure. Things are not hunky dory. Quite the contrary. The disease is real; it’s the nostrum that’s fake.  Yet the rapturous crowds are unlikely snap out of the spell, no matter how many times they beggared, interned or lied to. The true believers never came to a moment realization in Jonestown and they won’t in Greece. Those who survived Jonestown  couldn’t convince their fellows to stop chugging the Kool-Aid, they just edged away into the jungle and ran for their lives.

Powerful social movements do not promote diversity, except superficially.  What they sell is membership in a group.  That is the core product of religions, clubs, political parties — and until recently, nations.  The left is no different.  It doesn’t want its members to think independently but follow the party line, to parrot the narrative. The party line must be served, no matter when, no matter what.

Just a few hours ago an illegal immigrant gunned down a young female tourist on Embarcadero wharf.  ”The man … was in a Bay Area jail less than four months ago and should have been turned over to federal immigration officials upon his release, instead of being set free, according to the Department of Homeland Security.”  But Bay Area authorities couldn’t turn him over they explained, because it would have run counter to the prevailing political narrative.

But that’s not the way the San Francisco County Sheriff’s Legal Counsel Freya Horne sees it. In an interview Friday with NBC Bay Area, she said the city and county of San Francisco are sanctuaries for immigrants, and they do not turn over undocumented people – if they don’t have active warrants out for them – simply because immigration officials want them to….

Sanchez, who law enforcement say is either 45 or 46 and has about a dozen aliases, was taken into custody after witnesses described him to police. According to Immigration and Customs Enforcement, he is an undocumented immigrant with a long criminal history who has previously been deported to Mexico five times, the last time in 2008.

“It’s a tragedy,” Horne said. “We all recognize that. But we followed city policy.”

The Bay Area defense for allowing a killer to run loose is compulsion, citing “city policy”.  We had to do it. Diversity became the right to wear different colors of the same handcuffs. The phrase “government is a word for things we choose to do together” is really one step from asserting that from here on, things will be governed by policy, by unwritten club rules.


Southern Flank

July 1st, 2015 - 5:06 pm

Suddenly NATO’s southern marches are astir with trouble. The European Union’s heady advance into Eastern and Southern Europe has produced serious challenges. The most obvious flashpoint is Greece. Robert Kaplan writes in the Wall Street Journal that admitting Greece to the EU was a mistake, but now that Brussels has turned it into a cornerstone of its edifice there is no prising it out.

On purely economic grounds, Greece should never have been admitted to the European Union in 1981 and might have been ejected from the eurozone months ago.

But what many European policy makers know—even if few articulate it—is that Europe will be increasingly vulnerable to Russian aggression if its links to Greece are substantially loosened. Greece is the only part of the Balkans accessible on several seaboards to the Mediterranean, and thus is a crucial gateway to and from the West.

NATO can’t afford to lose Athens. “Greece spiraling into chaos would be a significant strategic disruption for Europe and therefore for the U.S.,” retired U.S. Admiral James Stavridis, a former NATO supreme allied commander, said in an interview. “There’s more to this crisis than money and the financial markets.”  Not that anyone knows of a way to keep Greece solvent inside the EU, but that’s where it has got to stay anyway.  Brussels has created an insoluble problem and bet the alliances’ southern flank on it.  All of a sudden the unstoppable expansion of the EU has turned into a fight for survival.

One can conceive of an arc that starts in the Ukraine, descends through the Black Sea to Turkey and Iran then follows the coast of the Mediterranean around through Syria, Lebanon, Israel and Egypt. That whole arc is now trembling on its foundations, while president Obama celebrates the supposed best week of his two terms.

Southern Flank

Southern Flank

Starting from the top, aerial drone footage has found a complete Russian forward operating base inside Ukraine.  ”What’s significant about where this Russian FOB is located is that it’s sandwiched between (Ukrainian-held Volnovakha) and (separatist-held) Telmanovo, and would therefore play a lead role in any forthcoming Russian offensive on Mariupol, the port city on the Sea of Azov which also happens to the economic powerhouse in the Donetsk region.”

John McCain warns there’s trouble brewing. “U.S. Senator John McCain (R-AZ) released the following statement today on new aerial footage released by the Ukrainian volunteer regiment Dnipro-1 showing a Russian military camp in the Donetsk region of eastern Ukraine.”

“Two weeks ago, I traveled to eastern Ukraine and visited with the Dnipro-1 volunteer regiment, where I was shown and briefed on new video footage captured by a Ukrainian drone, which shows Russia’s continued buildup of tanks, armored vehicles, rocket launchers, and military personnel inside Ukraine. This new evidence, now public, further demonstrates that the ceasefire between Russia and Ukraine is fiction, and that Russia is deepening its military involvement in Ukraine.

“Standing idly by and ignoring the mounting evidence of Russia’s duplicitous war on Ukraine signals weakness, potentially inviting the very aggression we seek to avoid. The United States must take immediate steps to deter Russia by increasing the military costs of its aggression, starting with the provision of the defensive weapons and other assistance the Ukrainians desperately need. Vladimir Putin must be forced to determine how long he can sustain a war he tells his people is not happening.”

To be fair Washington, like Putin, is not saying anything either, the Obama administration being currently too busy blocking a new Redskin’s stadium because it objects to the name to do much.  It seems to work this way: Putin pretends not be advancing and Obama pretends not to be retreating.  The press in both countries seem willing to support the line.

But in actuality Washington,  like the Brussels, ain’t what it used to be. Like a lonely heart at a clip joint it is resorting to paying for company.  Jay Solomon of the Wall Street Journal  in an article titled “Secret Dealings With Iran Led to Nuclear Talks” describes how Obama bribed the Ayatollahs to pick up the phone.

Iran secretly passed to the White House beginning in late 2009 the names of prisoners it wanted released from U.S. custody, part of a wish list to test President Barack Obama’s commitment to improving ties and a move that set off years of clandestine dispatches that helped open the door to nuclear negotiations.

The secret messages, via an envoy sent by the Sultan of Oman, also included a request to blacklist opposition groups hostile to Iran and increase U.S. visas for Iranian students, according to officials familiar with the matter. The U.S. eventually acceded to some of the requests, these officials said, including help with the release of four Iranians detained in the U.S. and U.K.: two convicted arms smugglers, a retired senior diplomat and a prominent scientist convicted of illegal exports to Iran.

The exchanges through 2013 helped build the foundation for the first direct talks between the two nations since the 1979 Islamic revolution, current and former U.S. officials involved in the diplomacy said.

Obama is paying for bottle service with a bearded ayatollah. All the same, the area from the Ukraine, Turkey and Tehran has the solidity of crumbling limestone. If the Russians advance, even with slow motion hybrid warfare, what will stop them? Which brings our survey to the map to Syria.


Who’s In Charge of the Oncoming Train

June 30th, 2015 - 1:22 am

A sense of palpable depression came over conservative America after the Supreme Court upheld Obamacare subsidies and decided that gay marriage was a constitutional right.  Many felt as if the America they knew and loved had been abducted by space aliens and replaced with something new and hostile.  In contrast to this emotional devastation the left seemed buoyed by euphoria.

“Look ma, I’m on top of the world!” Yet over the same period the liberal landscape fell apart even faster.The last decade has witnessed a vertiginous decline in Washington’s economic, political and military power.  The economic engine of liberalism was dying under them, sustained only by the vapors of deficit spending and illusionism.

Its political dominance was being challenged by totalitarian regimes in China and Russia.   Even the triumphant tide of liberal values was being offset by the rise of neo-Nazi parties in Europe and the spread of Islamic ideas throughout the world. Justice Kennedy’s decision was answered in the real world by the Turkish police breaking up the Gay Pride parade in Istanbul.  Elsewhere its adherents were experiencing rapid descents from multistory buildings in without the benefit of an elevator at the hands of ISIS executioners.

If the world that conservative Americans once cherished has diminished; it has not been as rapid as the shrinkage of the liberal universe.  Both aspects of old world are dying  never to come back.  The post World War 2 era of Franklin Roosevelt has nearly run its course.  The difference is that the conservatives are more aware of its passing and may become more active in building what replaces it.

A miniature representation of the crisis is being acted out in Greece where the left is embarked on a Battle Royale against reality. With reference to reality ‘we refuse to accept it,’ says the Greek government, vowing to block expulsion from the Euro. There are no reasons, no math, no proofs that 1+1 <> 2. Just refusals. Insistence has taken the place of facts, and is uttered in the confidence that Someone will provide it.  Yanis Varoufakis, the finance minister said:

“We are taking advice and will certainly consider an injunction at the European Court of Justice,” he told The Daily Telegraph.

“The EU treaties make no provision for euro exit and we refuse to accept it. Our membership is not negotiable.”

The defiant stand came as Europe’s major powers warned in the bluntest terms that Greece will be forced out of monetary union if voters reject austerity and reform demands in a shock referendum on Sunday.

Not that lawyers can restock the ATMs, the supermarkets or the gas stations. All they can produce is paper, of the kind the Supreme Court decisions are written on. But paper has its limitations — once past the world of paper  Greece is being ripped apart as a sacrifice to the European fantasy. It seems like Greece must die so the narrative may continue live as explained by Ivo Daalder, president of the Chicago Council on Global Affairs, in an NPR interview. Obama was working to keep Greece in the EU because it is part of the Plan.


Greece is the Word

June 28th, 2015 - 9:05 pm

News that Greece has closed its banks for an indefinite period has fueled anxiety among pundits that things are not going as well as expected.  Mohamed El-Erian, chairman of Barack Obama’s global development council, writes in the Guardian that “from the Greek crisis to Russia’s incursion in Ukraine, leaders must act fast to ensure that they can dissipate each crisis before it merges with the others.”  There’s a storm coming, he says, and Someone’s got to stop it.

Dark clouds are lowering over Europe’s economic future, as three distinct tempests gather: the Greek crisis, Russia’s incursion in Ukraine, and the rise of populist political parties. Though each poses a considerable threat, Europe, aided by the recent cyclical pickup, is in a position to address them individually, without risking more than a temporary set of disruptions. Should they converge into a kind of “perfect storm”, however, a return to sunny days will become extremely difficult to foresee any time soon. …

Already, Greek voters handed the far-left anti-austerity Syriza party a sweeping victory in January. France’s far-right National Front is currently second in opinions polls. The anti-immigration Danish People’s Party finished second in the country’s just-concluded general election, with 22% of the vote. And, in Spain, the leftist anti-austerity Podemos commands double-digit support.

There is an ironic sense of foreboding at the end of what Politico called a  “momentous week” when Obama’s presidency was reborn.  Bari Weiss was a witness to history.

On Friday my phone was blowing up with messages, asking if I’d seen the news. Some expressed disbelief at the headlines. Many said they were crying.

None of them were talking about the dozens of people gunned down in Sousse, Tunisia, by a man who, dressed as a tourist, had hidden his Kalashnikov inside a beach umbrella. Not one was crying over the beheading in a terrorist attack at a chemical factory near Lyon, France. The victim’s head was found on a pike near the factory, his body covered with Arabic inscriptions. And no Facebook friends mentioned the first suicide bombing in Kuwait in more than two decades, in which 27 people were murdered in one of the oldest Shiite mosques in the country.

They were talking about the only news that mattered: gay marriage.

By some cruel coincidence, while everyone was celebrating victories on really important issues like transfats, transgender and alternative marriage the world has suddenly had a conniption.  Aside from the perils the Guardian cited, there is ISIS, China’s economic troubles and the growing tension in the South China Sea. While awaiting Someone to fix things or bail them out, the Greeks are reduced to wondering what comes next. The BBC has a one-word German term for the Greek financial system. Kaput.


You are the Someone

June 27th, 2015 - 4:37 pm

Two news stories, each from a different side of the Atlantic, talk about the same thing but in different ways. The British Daily Mail has an article headed by a picture showing ISIS gunman Seifeddine Rezgui “with his AK47 – casually passing abandoned inflatables as a group of men keep their distance behind him”. Rezgui isn’t even holding his weapon at the ready.  He knew the men only 10 yards behind him wouldn’t sprint the distance to tackle him.

He is walking with the confidence of a wolf among sheep.

One commenter wondered what Someone was doing while this ‘tragedy’ occurred. “How come there was an alarm raised, carrying that machine gun, it was obvious to the onlookers in the picture. Somebody could have prevented another tragedy in the name of this perverse and ancient religion.”

On the American side of the Atlantic, Rukmini Callimachi has a long piece in the New York Times describing how a “lonely” American girl was gradually converted to Islam by an ISIS interlocutor on the Internet. “Alex, a 23-year-old Sunday school teacher and babysitter, was trembling with excitement the day she told her Twitter followers that she had converted to Islam.”

The only Muslims she knew were those she had met online, and he encouraged her to keep it that way, arguing that Muslims are persecuted in the United States. She could be labeled a terrorist, he warned, and for now it was best for her to keep her conversion secret, even from her family.

So on his guidance, Alex began leading a double life. She kept teaching at her church, but her truck’s radio was no longer tuned to the Christian hits on K-LOVE. Instead, she hummed along with the ISIS anthems blasting out of her turquoise iPhone, and began daydreaming about what life with the militants might be like.

“I felt like I was betraying God and Christianity,” said Alex, who spoke on the condition that she be identified only by a pseudonym she uses online. “But I also felt excited because I had made a lot of new friends.”

The NYT article calls the process enticing the lonely. The other phrase for it is filling the emptied. ”She felt as if she finally had something to do,” Callimachi wrote.

The West is filled with millions of people like Alex, all of them waiting for Someone. They are the product of a multi-decade campaign to deliberately empty people of their culture; to actually make them ashamed of it. They were purposely drained of God, country, family like chickens so they could be stuffed with the latest narrative of the progressive meme machine. The Gramscian idea was to produce a blank slate upon which the Marxist narrative could be written.

Too bad for the Gramscians that the Islamists are beating them to the empty sheets of paper.  And they are better at it too.  Maybe the old Bolsheviks could have given ISIS a run for its money, but today’s liberals have declined from their sires.  George Orwell observed the takeover of hardcore Bolshevism by the periphery in the 1930s.


The Fourth Continent

June 26th, 2015 - 6:43 pm

The New York Times calls the closely-spaced attacks on tourist beach resorts in Tunisia, a mosque in Kuwait and a gas plant in France an attack by ISIS on “three continents”.  The writers suggest the attacks reveal an ISIS “global strategy”  which is known to consist of three pillars.

  • inciting regional conflict with attacks in Iraq and Syria;
  • building relationships with jihadist groups that can carry out military operations across the Middle East and North Africa;
  • and inspiring, and sometimes helping, ISIS sympathizers to conduct attacks in the West.

The media has forgotten to mention the Islamic state’s attack on Kurdish Kobane “five months after the extremists were driven from the area with the help of U.S.-led airstrikes,” Liz Sly of the Washington Post reports.  ”By nightfall, most of the militants had been captured, killed or surrounded, and Kurdish forces were reported to be restoring order. But the attack was a reminder of the Islamic State’s continued ability to upset the battlefield even when it appears to be on the defensive.”  It is also a reminder of how bogus the president’s supposed victories are.

Responding to allegations that Ankara passed the ISIS strike force through its line “Turkish President Recep Tayyip Erdogan has denied allegations that authorities in Turkey facilitated an Islamic State (IS) attack on the Syrian border town of Kobane, which has resulted in what a monitoring group has described as a major civilian massacre.”  Regional politcs has been screwy for a while.  The borders which the 4ID was forbidden to cross are not so off-limits to passage by Islamists.

The Atlantic calls it the recent attacks a triumph of the “leaderless Jihad”. “The Times and others have pointed out that the attacks came three days after an ISIS spokesman, Abu Mohammed al-Adnani, appeared to call for heightened violence during the Muslim holy month of Ramadan in an audio message. Charlie Winter, a researcher at the London-based Quilliam Foundation, posted excerpts on Twitter.” The Atlantic believes, that to paraphrase Marx,  ”a spectre is haunting the West — the spectre of islamism.”

But the Atlantic puts the case too high. As Michael Weiss and Hassan Hassan show in their book, The Rise of ISIS, as an historical force it is both an idea and a political movement. ISIS is the joint expression of Islamic sectarian conflict, despair at the failed politics of dictatorship in Africa and the Middle East, the Frankenstein monster of the intelligence services of Iran, Iraq, Syria and the Gulf states and the ineptitude of the West. Besides that, it is also an apocalyptic idea which attracts Arabs, Kurds, Turks, Persians and rootless Westerners. A recruit told Weiss and Hassan why he had joined.

A great number of ISIS members who were interviewed for this book echoed similar sentiments — and hyperbolic appraisals — of the terror army, which has mastered how to break down the psyches of those who it wishes to recruit, and then build them back up again in its own image. Abdulsattar’s reference to “intellectualism” may seem bizarre or even grotesque to a Western observer, but it refers to ISIS’s carefully elaborated ideological narrative, a potent blend of Islamic hermeneutics, history and politics.

What he described was no different from the total moral and intellectual immersion explained by Communists who later abandoned their faith in Marxism-Leninism. “We have thrown overboard all conventions, our sole guiding principle is that of consequent logic; we are sailing without ethical ballast,” Arthur Koestler’s Rubashov remembers in Darkness at Noon after facing his own interrogation by Party commissars. Minutes later, Rubashov is shot by the very dictatorship to which he had given his life for forty years.”

These two powerful paragraphs fail only in omitting the revivalist sense of the Jihad. ISIS represents not only what its followers see as new, but also promises to give back to them a lost heritage; a identity submerged by a Westernism they have to reject and despise.  It is a rebellion against not everything that modern political correctness holds profane — and therefore sacred; a hatred exceeded only by their contempt.



June 25th, 2015 - 4:25 am

News that president Obama will no longer threaten families that pay ransom with prosecution has pleased some, but worried others. USA Today reports, “President Obama unveiled new rules Wednesday that would basically allow families to offer private ransom payments for relatives kidnapped overseas.”

While the federal government will continue to refuse to make ransom payments, Obama and other officials said families will no longer be threatened with prosecution if they seek to do so privately.

“I’m making it clear that these families are to be treated like what they are — our trusted partners and active partners in the recovery of their loved ones,” Obama said in announcing the changes from the White House.

Before examining the pros and cons of this new policy it may be helpful to review the economics of ransom. Megan McArdle describes the problem succinctly in the Atlantic.

Economists would describe hostage negotiation as a bilateral monopoly price negotiation that is structurally just a special case of chicken. That is, unlike a barrel of oil or a freight car full of soybeans which can trade on an extremely liquid market with innumerable buyers and sellers, a hostage has exactly one seller (the kidnappers) and exactly one buyer (the employer and/or family of the hostage). When there is only one buyer, the opportunity cost for ransoming the hostage is zero. Likewise, the employer and/or family has no realistic alternative means to recover the hostage. In order for everybody to walk away happy, we need a cooperate-cooperate outcome: the kidnapper has to give up the hostage and the employer/family has to give up a ransom. This structure also characterizes art theft, which in practice is not a matter of fencing art on the black market but ransoming art to a museum’s insurance company.

The problem the hostage taker must solve is what can he charge? Only as much as the victim’s family and friends can pay.  If the kidnapper is unwilling to accept more than can be afforded and kills the hostage, he essentially gets zero from the transacation. The perp’s best bet is to hold out only for as much as he can realistically expect to be paid.

Back in the days when I worked staff support in negotiations with Muslim rebels in Mindanao the wives of kidnapped roadmenders used to rattle begging tin cans along the road trying to raise money to ransom their husbands or sons from the rebels. About $50 American would do it since rebels knew that was about as much as a destitute woman in Basilan could raise.  However, if the rebels believe they had a more valuable captive such as a public works supervisor, then they might ask for more.

If bandidos board a provincial bus they will most likely rob the passengers. As long as most of them are peons, none of them are worth the trouble kidnapping. Not at fifty bucks a head. But if they run into someone with blond hair and blue eyes the cry will go up, “a Gringo!!” and the game changes for that man because suddenly they have come upon a person worth kidnapping.  Being kidnapped is not always the worst outcome. If the bandidos had originally intended to kill everyone on the bus being the gringo might make the difference between living or dying.

The dynamics of perceived value was illustrated by a kidnapping that happened about 3 years back to someone I knew who stopped by some rebels. They took his cell phone and money and would have let it go at that before noticing some recognizable names when scrolling through the phone’s telephone directory. That changed his value.  He spent 2 years a prisoner until the negotiators could raise the demanded price.


Armies of the Dead

June 23rd, 2015 - 12:34 am

It’s a controversial symbol of racial supremacy, widely believed to have caused the death of millions.  Yet its standards still fly proudly in the center of a great capital city, arousing outrage in those who suffered at its hands. Despite its record of shame, people still flock to its memorials while high officials, including national leaders, regularly pay lip service to it. No we are not talking about the Confederate Battle Flag but the Yasukuni Shrine in Japan.

In Yasakuni’s hallowed precincts are venerated the memory of “1,068 war criminals; 14 of whom are considered A-Class”.  This has not stopped Japanese prime ministers from putting aside postwar reticence and paying symbolic tribute to the warrior gods of the shrine, much to the chagrin of 1.3 billion Chinese, whose symbol is the Five Star Red Flag. which itself fluttered over many a massacre.

The symbols of the past die hard.  But some are more potent than others. While it is doubtful whether the Confederate Battle Flag will every fly over anything but re-enactors again,  the Naval Ensign of the Imperial Japanese Navy has fluttered over what is now the 5th most powerful fleet in the world since 1954.  Wikipedia notes that “today’s JMSDF continues to use the same martial songs, naval flags, signs and technical terms as the IJN. For example, the official flag of the JMSDF is the same as that used by the IJN.”

Also, the JMSDF tradition of eating Japanese curry every Friday lunch originated with the IJN. The JMSDF still uses the Warship March, the old service march of the IJN, as its official service march. It also maintains the IJN bugle calls tradition, as every ship and shore establishment command maintain a platoon or squad of bugle players.”

Not to be outdone,  symbols of the Soviet Union are rising from the grave. After the Berlin Wall fell in 1989 many Eastern European countries initially demolished Soviet military memorials, which they regarded as hated symbols of oppression.  But there was one they failed to topple before it fell under the protection of a resurgent Kremlin.

One relic of the Soviet era was the so-called bronze statue – a monument more than two meters tall depicting a Soviet soldier bowing his head in mourning for those killed in the war. It was erected in a rather inconspicuous place in the centre of Tallinn in 1947 and for a long time received little attention. That only changed after Estonia became independent, when an increasing number of the Russian minority in Estonia began laying flowers at the statue every year on 9 May, Soviet Victory Day. For a long time this did not particularly bother anyone. …

But in May 2006 Estonia’s prime minister, Andrus Ansip, declared that the monument symbolised the occupation of the country and should therefore be removed. A few months later a law to this effect was passed, even though there had been repeated warnings that Russia would regard this as a provocation. …

When the decision went into effect on 27 April 2007 and the bronze statue was removed from the city and taken to a cemetery on the edge of town, riots that went on for several days broke out in Tallinn. Thereafter the Estonian embassy in Moscow was besieged by youth groups loyal to the Kremlin, relations between Estonia and Russia deteriorated dramatically.

Now Soviets symbols are potent again. To paraphrase HP Lovecraft, the past is like Cthulhu: ”dead but dreaming”. And occasionally it wakes up and walks around. For a few days each year Volgograd is restored to its former name. Stalingrad.