Monday, 21 December 2009
On Monday, three U.S. Drug Enforcement Administration agents—Forrest Leamon, Chad Michael and Michael Weston, all from the Washington area—were killed in a helicopter crash in western Afghanistan. U.S. officials have released few details about the incident. The Times of London reported that the aircraft was shot down following a raid on the compound of a prominent Afghan drug lord.
On Wednesday, The New York Times reported that the CIA has been making regular payments to a suspected major figure in the Afghan opium trade: Ahmed Wali Karzai, the brother of President Hamid Karzai. The newspaper quoted sources alleging that Ahmed Wali Karzai—who denies any involvement in the drug business—collects “huge” fees from traffickers for allowing trucks loaded with drugs to cross bridges he controls in the southern part of the country.
So is it our policy to attack the Afghan drug trade while we also line the pockets of one of its reputed kingpins? Who is going to explain this to the families of agents Leamon, Michael and Weston?
Afghanistan’s status as a narco-superpower is another reason why President Obama would be wrong to deepen U.S. involvement. Opium is the one booming sector of the Afghan economy: Poppy fields in the south and west of the country produce the raw material for an estimated 90 percent of the world’s heroin. Money from the opium trade supports the resurgent Taliban, which is fighting to expel U.S. and NATO forces. Therefore, a blow against the drug business is a blow against the enemy.
Except when it isn’t. Except when the “good guys” who are supposed to be our allies—and many of the Afghan citizens a counterinsurgency strategy would try to protect—are dependent on the drug trade as well. Except when the corruption that is an intrinsic element of the drug business not only blurs the line between friend and foe, but also obscures the difference between right and wrong in a thick fog of moral ambiguity.
As The Washington Post’s South America correspondent during the administration of George Bush the Elder, I watched firsthand our government’s costly and futile crusade against the cocaine industry. We tried attacking the problem in the coca fields—I visited a U.S.-financed military base in Peru’s Upper Huallaga Valley, where at the time 60 percent of the world’s coca was grown. We tried going after the processors—in Colombia, police took me to a jungle camp where chemists had been hard at work just hours earlier. We tried breaking up the trafficking cartels—I was served lunch at a Medellin prison by three cocaine bosses whose comfortable incarceration was almost like an extended stay at a hotel.
Nothing worked. All the U.S. managed to do was shift the coca fields from one valley to the next and break the big cartels into smaller ones. Profits from the drug trade still sustain a guerrilla insurgency in Colombia that has controlled huge swaths of the countryside for more than four decades. Meanwhile, cocaine is readily available throughout the United States. The illegal drug industry is driven by demand: As long as some people want drugs, other people will find ways to supply them.
DEA officials have said they are sharply increasing the agency’s presence in Afghanistan. Wisely, the Obama administration is abandoning the George W. Bush-era strategy of trying to eradicate the poppy fields; eradication, which robs rural communities of their only livelihood, may be the quickest and surest way to turn apolitical farmers into anti-American insurgents. The focus now is on the middlemen who buy, transport and process the drugs—which creates a different kind of problem.
Those middlemen logically seek, and obtain, official protection. In Latin America, they approach police and government officials with an offer of plata o plomo—silver or lead—meaning the officials can choose to accept the bribes they are being offered, or they can choose to be shot. In a country as poor as Afghanistan, with such weak central authority, the U.S.-backed government is vulnerable to bribery at almost every level.
The inevitable future is one in which we attack and support the Afghan drug trade at the same time. Is this a policy for which we can ask DEA agents to give their lives?
Eugene Robinson’s e-mail address is eugenerobinson(at)washpost.com.
– Paul Fitzgerald and Elizabeth Gould, a husband and wife team, began their experience in Afghanistan when they were the first American journalists to acquire permission to enter behind Soviet lines in 1981.
By ANDREW COCKBURN
Those who respect the law and love sausage should watch neither being made.
AMENDMENT TO THE PETERSON SUBSTITUTE FOR H.R. 3795 (a) OFFERED BY MR. PETERSON OF MINNESOTA (b) Page 21, after line 25, insert the following:
(19) by adding at the end the following:
‘‘(50) ALTERNATIVESWAP EXECUTIONFACILITY. (c).—The term ‘alternative swap execution facility’ means a service that facilitates (d) the execution ortrading of swaps between two persons through any means of interstate commerce, but which is not a designated contract market (e), including any electronic trade execution or confirmation facility (f) or any voice brokerage facility (g).’’
Now let’s see what went into this legislative sausage.
(a) Everyone agrees that the unregulated “dark markets” of Wall Street’s trading in over-the-counter derivatives such as credit default swaps moved the financial crisis from major problem to total disaster. Currently, most trades in these “products” are privately negotiated on the phone, dealer to dealer. It’s appallingly risky – that’s why we have a multi-trillion dollar bailout. But because the dealers at major banks can quote different prices to different customers, with huge spreads between buy and sell quotes, the banks are making huge profits and want to keep it that way.
So while congress is busy working on reform legislation, Wall Street’s lawyer-lobbyists in Washington are working hard to neutralize such efforts.
Who’s winning? Over lunch across town from Capitol Hill, I recently asked that question of a very smart attorney endowed with deep experience in keeping Washington safe for Wall Street. In answer, he pointed to this seven-line paragraph buried in a 26-page amendment to “HR 3795, Over-The-Counter Derivatives Markets Act of 2009,” passed in a voice vote by the House Agriculture Committee the night before. Following the vote, the committee had issued a press release hailing their vote for “strengthening” regulation.
On the contrary, said my friend, “I guarantee you that not a single member, and almost certainly no one else, apart from the traders on Wall Street and the lobbyist who inserted it on their behalf, understood the significance of this paragraph. It means that nothing will change.”
(b) Colin Peterson (D-MN) is the Chairman of the House Committee on Agriculture. He is on record as asserting “The banks run this place…It’s huge the amount they put into politics.”
(c) An “alternative swap execution facility” is intended by the original drafters of the bill to be a new, fully regulated market for trading over-the-counter derivatives – a technologically enhanced version of the various futures exchanges currently operating, such as the Chicago Mercantile Exchange, where transactions and prices are open for all to see.
(d) A beautiful word. Now the “execution” facility doesn’t have to be an actual exchange. It has just been redefined as merely something that “facilitates” the execution of a swap trade.
(e) Reinforces the point that a “facility” does not have to be one of those transparent exchanges. But wasn’t that what the bill is meant to make happen?
(f) In 2005 the major swaps dealers, under pressure from the New York Fed, set up an electronic “confirmation facility” to keep track of trades, which the dealers control. Not much openness here.
(g) “Voice brokerage.” This means a telephone, as used by a dealer setting prices that are not publicly disclosed. That’s what the dealers were doing the last time they led our financial system over a cliff, and that’s the system that is preserved by this one little paragraph.
But it is "crucial" that farmers are not encouraged to use productive cropland to grow biofuel crops, it says.
The UN Environment Programme (UNEP) launched an extensive literature review, combined with interviews with independent experts, in Nairobi last week (16 October). Its aim was to unravel the complex effects that biofuel production could have on carbon emissions and food production across the world.
Biofuels, produced mostly from plant matter ranging from corn to waste paper, have been touted by some as the solution to reducing carbon emissions. But other studies have suggested that their production will increase net carbon emissions, for example because of the deforestation required to clear land for their production, as well as competing with land for food production.
The report, the first produced by UNEP's International Panel for Sustainable Resource Management, concludes that nations' approaches to biofuels need to be more sophisticated. They should be placed within a broader framework assessing their effects on areas such as agriculture, climate and the environment, if they are to benefit society.
"Wider and interrelated factors need to be considered when deciding on the relative merits of pursuing one biofuel over another," said Achim Steiner, UNEP executive director, in a foreword to the report, 'Towards Sustainable Production and Use of Resources: Assessing Biofuels'. "Simplistic approaches are unlikely to deliver a sustainable biofuels industry nor one that can contribute to the climate change challenge."
For example, while sugarcane-based ethanol can reduce greenhouse gas (GHG) emissions by between 70 and over 100 per cent, the production of biodiesel from palm oil can actually increase emissions — by as much as 2,000 per cent, says the report. To avoid such disasters, it is important to use degraded, marginal and abandoned land for biofuel production – not productive cropland.
Additionally, increasing the production of biofuels could drive down biological diversity.
"Modelling the future diversity balance for different crops on different land types has shown that greenhouse gas reductions from biofuel production would often not be enough to compensate for the biodiversity losses from increased land-use conversion, not even with a time frame of several decades," the report says.
The key challenge for developing countries, says the report, is to strike a balance between the benefits of biofuels — such as increased energy supply — and negative environmental impacts.
"Biofuels are neither a panacea nor a pariah but like all technologies they represent both opportunities and challenges. One cannot talk of biofuels in generic terms and each country must ask itself specific questions," said Steiner.
"The report makes it clear that biofuels have a future role, but also underlines that there may be other options for combating climate change, improving rural livelihoods and achieving sustainable development that may or may not involve turning more and more crops and crop wastes into liquid fuels."
The report also points out that the rate of increase in food crop yields has slowed because of climate change in the past decades, particularly in semi-arid areas. Another depressive influence on crop availability is the conversion of cropland to biofuel production, particularly in Brazil and Indonesia.
However, crop yields could still shoot up in Sub-Saharan Africa where some farmers are successfully using improved agricultural technologies.
"Increasing agricultural yields will be required for both food and non-food production. Key is mobilising potential in regions where productivity increases have lagged, such as Sub-Saharan Africa," says the report.
Link to full report
Don’t get me wrong. The Obama administration’s “pay czar,” Kenneth Feinberg, is right to put a lid on compensation at the Not-So-Magnificent Seven: Citigroup, Bank of America, General Motors, Chrysler, GMAC, Chrysler Financial, and the unforgettable AIG. Twenty-five of the biggest earners at each of those firms will see their overall pay cut roughly by half, and most of that compensation will come as restricted company stock, not cash. This means that what they ultimately reap, when they are eventually allowed to sell the stock, will depend on how well the company performs—which will depend on how well the executives do their jobs.
Tying pay to performance: What a concept.
Feinberg even muscled outgoing Bank of America CEO Kenneth Lewis into accepting no pay or bonus for his work this year. But Lewis will still have an estimated $70 million retirement package to keep him warm at night, so hold your tears.
It’s nice to know that there must be some pooh-bah at B of A, Citigroup or AIG who will have to live without the new $90,000 Porsche Panamera he was planning to buy. But Feinberg’s writ of imperial decree doesn’t extend beyond those seven companies, and the rest of Wall Street gives no indication of remotely understanding what the big deal is about compensation. Goldman Sachs, for example, has a bonus pool this year of at least $16 billion and perhaps as much as $23 billion.
But all this is just a sideshow. The main event is the limited, far-too-modest attempt by the Obama administration and Congress to curb the irresponsible Wall Street practices that led to the financial meltdown—and, if unaddressed, will lead inexorably to the next crisis.
Deregulation allowed the Wall Street financial marketplace to evolve from an institution that served the overall economy—by allocating capital most efficiently to the companies that could put it to best use—into an institution whose primary mission was to serve itself.
The vast over-the-counter trade in instruments known as derivatives, nominally worth a staggering $500 trillion worldwide, is largely an exercise in make-believe. Firms make highly leveraged investments in exotic securities whose true value is opaque. Then they hedge these investments by buying insurance against potential losses, although the insurer doesn’t have a fraction of the money it would need to make good on all its promises.
All this investing and hedging generates huge transaction fees and big profits, which can be skimmed off the top each year. Everything’s fine, until there’s some disruption in the real economy—a downturn in the housing market, say. If the disruption is severe enough, the whole web of make-believe deals starts to unravel. At which point the government steps in and bails everybody out.
The White House and Treasury have proposed reforms that would ameliorate, but not eliminate, this ridiculous cycle. What the administration won’t do is outlaw some kinds of derivative products or transactions; officials say that if they went down that road, they would always be one step behind Wall Street’s inventiveness and greed. I think it would be worth a try.
The administration did propose that derivatives transactions go through clearinghouses and be conducted on transparent, regulated exchanges. But as reform legislation begins to work its way through Congress, Wall Street firms—including companies that received bailout funds—have boosted their spending on lobbying and political donations.
As a result, legislation approved Wednesday by the House Agriculture Committee—which has jurisdiction over the futures markets—would exempt up to 30 percent of derivatives transactions from new regulations. A bill approved Thursday by the House Financial Services Committee that would create a new Consumer Financial Protection Agency, strongly opposed by most luminaries on Wall Street, was amended in the committee to exclude mortgage insurers, title insurers, accountants, lawyers and others.
Banks, meanwhile, are jacking up overdraft charges and instituting new kinds of credit card fees before any new limits kick in. Hey, get it while you can.
Capping salaries and bonuses is fine. But we need to pay attention to the guys in ski masks with bulging bags of money slung over their shoulders. They’re about to jump into the getaway car.
Eugene Robinson’s e-mail address is eugenerobinson(at)washpost.com.
The current-account deficit is down as Americans have cut back spending. But the deficit with China is hitting new records; companies are still shipping manufacturing jobs over there. The dollar is down, but not against the Chinese currency. Forget about Federal Reserve Chair Ben Bernanke, who warns against going back to the unsustainable trade imbalances that led us over the cliff. The old patterns are coming back.
Bernanke has announced that the recession is over, the recovery has begun. But to date, we are looking at a reversion, not a recovery. We've stopped the free fall, but we haven't changed direction. There can be no recovery to the old economy that crashed when the housing bubble burst. That economy depended on Americans spending more then they earned, borrowing ever greater amounts, treating their homes like at ATM machine, while the Chinese lent us the money to keep interest rates down so we could buy the goods our companies made with the jobs they shipped over there.
Now that old economy didn't work very well when it was growing. We lost high-wage manufacturing jobs during the supposed "recovery" under President Bush. Most Americans lost ground even while the economy was expanding. Household debts reached new highs. Inequality soared to Gilded Age extremes.
But now we can't even get back to that performance. Americans have lost some $13 trillion in assets. They are tightening belts and trying to pay down debts, terrified as jobs are lost, hours are cut and benefits are slashed. Consumers won't drive the U.S. economy, much less the world's. And businesses aren't investing because consumers are cutting back. They are increasing profits by laying off workers and cutting back expenses. States and localities are headed into severe layoffs of teachers and police. The economy isn't going to be buoyed by soaring exports to a world in recession. The only thing holding the economy up now is the deficit-financed stimulus plan and the automatic stabilizers like food stamps and unemployment benefits.
Where will the jobs come from? Wall Street can produce another bubble, but that won't put the 15 million without jobs to work, one-third of which have been out of work for at least six months.
Recovery requires fundamental reform of America's economic strategy. The old shibboleths of the conservative era—shrink government, cut top-end taxes, free multinationals to move jobs abroad, deregulate finance, wage war on labor unions, declare that trade deficits don't matter —have failed ignominiously. They must be discarded, like yesterday's rotted fruit.
Fundamental changes are needed. Trickle-down should be supplanted by public investment-led growth—large-scale public investments in areas vital to our future such as infrastructure, research and development, education and training. These investments should be deficit-funded until the economy actually starts putting people back to work, and then sustained and paid for through progressive tax reform. Tax speculative security transactions, generating $100 billion a year in revenue to invest in a 21st-century infrastructure that would put people to work and make the economy more productive. Raise top-end taxes, reduce inequality, and invest in making college affordable and exploring the green technologies of the future.
We've pursued tax cuts, promising private investments would flourish. But much of the productive investment and lavish consumption went abroad. In reality, public investment would be far more effective. We have a staggering public investment deficit that must be met for a world-efficient economy. Public investment is more likely to be invested, more likely to be spent here, more likely to create good jobs here, and far more likely to generate new technologies and productive private investments.
We need to complement this with a bold manufacturing strategy to make certain that we help lead the inevitable green industrial revolution, so the new technologies will be created and made in America. Shed the notion that we'll benefit by exporting windmills and solar cells and electric cars subsidized by China so that they are cheaper to us. We can't exchange dependence on foreign oil with dependence on foreign-made windmills. Make the public commitment to transition, and then use our purchasing power to invite the companies with the best technology to bid on contracts so long as they make it here in America. Not simply a timid-buy America policy satisfied with the final assembly of parts and technologies made elsewhere, but moving entire supply chains so that our workers and engineers and entrepreneurs are familiar with cutting-edge technologies that our inventors can soon surpass.
Complement this with a new global trade strategy. We can't go back to current account deficits over 6 percent of gross domestic product, financed by borrowing from abroad. China, now some three-quarters of our manufactured goods deficit, is by far the hub of the problem. The president has wisely called on the international community to adjust cooperatively, challenging the Chinese and other mercantilist nations to expand domestic demand and reduce their reliance on exports, while the U.S. exports more and buys less. But that isn't going to happen so long as the Chinese are free to manipulate their currency, subsidize their exports, savage their workers and environment, and mandate global corporations transfer jobs and technology to them. So we'll need to show some bite. A bold manufacturing policy around new energy will encourage companies, including Chinese companies, to make things here. But we should be debating putting a lid on our deficits, and announcing that we will move slowly to balance our trade. If all adjust, we can have more trade, not less, but we can't go back to the old imbalances no matter what they do.
These must be complemented by financial reform that curbs the gambling and forces banks to make loans to Main Street again, and by a high-wage policy—empowering workers, lifting the minimum wage, extending the public social contract. Finally, our economic policy, both monetary and fiscal, must be targeted at sustaining full employment as a priority, without letting inflation get completely out of control.
These ideas—heresies in the old conservative times—are but the beginning towards defining a new course. They will face fierce resistance from entrenched interests. But perhaps the biggest obstacle is the encrusted hold of old, bad ideas that should already have been discarded. You can see that in the calls for balancing the budget and cutting spending while unemployment is reaching new heights. Or the Republican chorus about cutting taxes, as if they had learned nothing. Or conservative Democrats railing against limited buy-American policies. Or the administration proclaiming its opposition to industrial policy. Or conservatives railing against excessive regulation.
Inertia and interest drive us to revert, not reform. Only it won't work. The old standards don't play anymore. Sure, Wall Street can generate another bubble or two. But there is no recovery on that old path—only stagnation, crushing long-term unemployment, growing inequality, a devastated middle class and a social tinderbox increasingly ready to explode. Eventually, we'll have to change our course; the only question is how much pain we have to endure before we actually learn our lessons.
We've all seen the dismal reports of this recession in the papers. We all probably know someone who's personally felt its effects. Job losses in September reached 263,000, the worst in 26 years, and the real economy shows few signs of a near recovery.
Signs of a longer-term decline in real wages are also troubling: The 2001 recession was the first in which median incomes didn't bounce back afterward. A recent AFL-CIO report shows that only 31% of those under 35 make enough to cover their bills—and that the rates of unemployment and underemployment are much higher for younger workers.
At the same time, the United States is still mired in Afghanistan and Iraq. The U.S. government spent an estimated $624 billion on the military, plus $188 billion on the wars in Iraq and Afghanistan in 2008. This is about 12 times what the U.S. spent on education in 2008.
So we have billions of dollars going toward wars without a foreseeable end-point or concrete benefit, and thousands of U.S. citizens without jobs. Congress has long argued to keep military projects in their districts because they keep constituents employed. But is the military really the best way to create jobs?
Researchers at the Political Economy Research Institute at the University of Massachusetts-Amherst asked in a new study: What if the government took some of the money going toward the military and spent it instead on jobs in other sectors?
Commissioned by the Institute for Policy Studies and Women's Action for New Directions, the report shows that the federal government could generate thousands more jobs, both directly and indirectly, by focusing spending on health care, education, or clean energy rather than on defense.
"The study focuses on the employment effects of military spending versus alternative domestic spending priorities, in particular investments in clean energy, health care, and education," write the authors. "We show that investments in clean energy, health care and education create a much larger number of jobs across all pay ranges. Channeling funds into clean energy, health care, and education in an effective way will therefore create significantly greater opportunities for decent employment throughout the U.S. economy than spending the same amount of funds with the military."
For $1 billion, researchers found, the government could create 7,100 military jobs, 7,500 clean energy jobs, 10,400 health care jobs, and 16,900 education jobs. If Congress is serious about ending this recession, it's clear they need to take a closer look at the job creation potential of our taxpayer dollars.
To read the full report, "The U.S. Employment Effects of Military and Domestic Spending Priorities: An Updated Analysis," click here.