Iran's political fissures
Taking sides
A former president’s speech shows the widening splits between Iran’s rulers
TEHRAN University was packed on Friday July 17th to hear Akbar Hashemi Rafsanjani, a former president, give his first sermon since Iran’s disputed presidential election in June. Mr Rafsanjani has emerged as perhaps the most powerful supporter of Mir Hosein Mousavi, Mahmoud Ahmadinejad’s main opponent, and a leading critic of the embattled ruling establishment.
Many came to hear him speak. Thousands more protesters gathered in the streets outside, chanting “Allah-u Akbar” and “death to the dictator”. They had come to show their support for Mr Mousavi who, along with Mehdi Karroubi, another defeated candidate, was also in attendance. Video footage, apparently showing the crowds outside the university, wearing the green that has become the symbol of Mr Mousavi’s campaign, was quickly posted on the internet. Members of the baseej, the thuggish Islamic militia, whose members have supported Mr Ahmadinejad with their voices and their batons, were out in force too. The police used tear gas to disperse the protesters.
Some had hoped this could be a defining moment in the protests against the election results. But the sermon offered few surprises. Mr Rafsanjani held back from criticising by name Ayatollah Ali Khamenei, the supreme leader, or Mr Ahmadinejad. This came as a disappointment to those hoping for a more explicit challenge to the regime.
Mr Rafsanjani did, however, cast further doubts on the election results and went on to describe the situation in Iran as a crisis. He echoed Mr Mousavi’s appeals for the release of those protesters who have been arrested and called for the media to be allowed to operate freely. He warned that people had lost their faith in the regime and argued that the government had to regain the trust and consent of the people. He signed off by stressing that all Iranians are part of the same family and must remain friends and allies.
Mr Rafsanjani avoided sounding too confrontational but there was enough in his speech to worry Mr Khamenei and Mr Ahmadinejad. Unlike Mr Khamenei’s speech at Friday prayers a month ago, Mr Rafsanjani’s address was not broadcast on state television though it did go out on radio. That it was not shown on television (as Friday prayers usually are) suggests that the government is still nervous about the aftermath of the contentious election. Opposition rallies have largely died down since July 9th but on Friday protesters turned out in their thousands despite warnings from the authorities not to use the occasion as “an arena for undesirable scenes”. This reinforces the depth of anger felt by Iranians about the election and all that has followed.
Mr Ahmadinejad was notably absent at the Friday prayers. He was meant to be in Egypt this week for a meeting of the non-aligned movement but sent his foreign minister, Manouchehr Mottaki, in his place. His decision not to attend suggests that he is still anxious about Iran’s unstable politics.
The fissures at the top of the Islamic regime show no signs of healing. With more senior clerical figures coming out in support of Mr Mousavi, the ruling elite is looking increasingly divided between the clerics and the military. The criticism from clerics is particularly galling for Mr Khamenei who has always felt insecure about his religious credentials. The Revolutionary Guard has stuck by Mr Khamenei and Mr Ahmadinejad so far.
This month has seen the execution of 13 or 14 members of Jundullah, a Sunni group, in south-east Iran and of 20 people accused of drug trafficking. The executions are a reminder of the power the regime is prepared to wield against its enemies. The authorities may well be hoping to create an atmosphere fear in the Islamic republic that will dissuade Iranians from protesting any more about the elections. So far, it does not seem to be working.
Is Wall Street back to normal?
Keeping up with the Goldmans
Goldman Sachs’s record profits are not a signal to relax
TO THE survivors, the spoils. That is the cry going up at Goldman Sachs after it chalked up recession-defying—nay, record-breaking—quarterly profits on July 14th. Minting more than $3 billion in three months, so soon after its own near-death experience in the wake of Lehman Brothers’ demise, will enhance Goldman’s reputation as Wall Street’s overachiever. But it will also strike some as obscene given the scale of public support needed to keep the firm and its peers from buckling last year.
The first half of 2009 was fertile territory for investment bankers as markets rebounded and companies (not least banks themselves) rushed to raise debt and equity. But none of the banks due to report after The Economist went to press, not even a resurgent JPMorgan Chase, was expected to come close to Goldman’s blowout performance. Having incurred smaller losses than rivals, it is still prepared to deploy risk capital where others fear to tread.
Goldman claims that most of its profit came not from “proprietary” trading, or punting its own money, but by acting as a middleman, making markets for clients in everything from bonds and shares to currencies and commodities. Such business, barely profitable in the boom years, has become a gold mine as competition has dwindled and bid-ask spreads (the money dealers pocket on trades) have ballooned. A bank with the capital and cojones to deal mortgage-backed securities issued by Fannie Mae or Freddie Mac can earn 10-15 times more than before the crisis.
Goldman, a dyed-in-the-wool trading firm, is grabbing such opportunities with glee, taking business from once ubiquitous but now reeling rivals such as Citigroup and UBS. It also helps that its arch-rival Morgan Stanley has pulled in its horns. By contrast, Goldman’s value-at-risk number—an imperfect but popular measure of risk appetite—hit a new high in the second quarter. But with spreads so high the firm no longer needs to use so much borrowed money to get results. Its leverage ratio has fallen to 14, half its pre-crisis level but still higher than a typical commercial bank’s.
Big profits mean big payouts. For the year to date Goldman has set aside $11.4 billion for compensation and benefits, more even than in the halcyon first half of 2007. Its ratio of pay to revenues continues to hover near the dizzying 50% level that was the norm on Wall Street before the meltdown (see article).
For a firm that probably would have collapsed without government capital, debt guarantees and fast-track approval to turn itself into a commercial bank (not to mention a multi-billion-dollar payout as a counterparty of American International Group), such largesse looks cheeky at best. It has already drawn rebukes on Capitol Hill, even though Goldman has repaid the government’s $10 billion preferred-equity investment. “They can’t continue along these lines or there will be outrage,” thundered Jon Tester, a Democratic senator.
The windfall will eventually dwindle. Goldman and other survivors will continue to benefit from the coming wave of debt issuance by federal, state and local governments. But dealer spreads are sure to shrink as markets normalise and those that have retreated return to the fray. This is likely to be only partially offset by a pickup in businesses tied more closely to economic growth, such as advising on mergers and acquisitions.
Wall Street also faces tighter shackles. Regulators are on the warpath against commodities speculators. A clampdown is coming in credit derivatives; America’s Department of Justice has joined those probing that market. The largest financial firms face higher capital requirements. These changes may not bring Goldman back to earth but they will clip its wings.
Markets remain fragile. Even Goldman would struggle to make money without the array of government backstops propping up the system. Others are struggling just to survive. As The Economist went to press, CIT, a liquidity-crunched lender to small and middling companies, was scrambling to avert bankruptcy by lining up emergency loans from its debtholders after the government pulled out of rescue talks. Officials had looked at several options but concluded that the firm was too sick to save—and small enough not to pose a systemic threat. But some policymakers worry that the financial system is still in no state to absorb even modest shocks.
And although a few on Wall Street are reaching for the champagne, most Main Street lenders are more inclined to drown their sorrows. Credit-card losses, fuelled by rising rates of unemployment, are at a record high. Mortgage delinquencies have yet to stabilise, with supposedly high-quality “prime” loans now also souring fast and loan-modification schemes having little impact.
Losses are also accelerating in commercial property, on which banks of all sizes loaded up in the fat years. This was the biggest stain on Goldman’s ledger, accounting for $1.4 billion of mark-to-market losses. Unnervingly for other banks, many of which carry their commercial-property loans at close to par value, Goldman marks its portfolio at a mere half that.
A Federal Reserve financing programme was recently extended to commercial mortgage-backed securities but many are or will become ineligible under its present rules because of ratings downgrades. Meanwhile, a public-private scheme to take troubled loans off banks’ books has stalled, partly because of accounting-rule changes that give the banks more leeway in valuing their assets. A sister programme for toxic securities finally got going this month, albeit in substantially scaled-down form.
Small wonder then that David Viniar, Goldman’s finance chief, admitted on a call with analysts that “we are way far away from being out of the woods”. The firm may be scooping up market share, but the bigger picture is still far from pretty.
The coming days
The week ahead
Iraq's Kurds go to the polls, and other news
• THE chairman of America's Federal Reserve, Ben Bernanke, delivers his semi-annual monetary-policy testimony to the House Financial Services Committee in Washington, DC, on Tuesday July 21st. Mr Bernanke may shed more light on how far he believes that America is bouncing back from the financial crisis and economic downturn. Mr Obama recently spoke of signs that the “economic storm” is waning and Timothy Geithner, his treasury secretary, has talked about “very encouraging” indications that confidence is returning to the financial system. The administration has decided not to bail out CIT, a struggling commercial lender, reinforcing its own confidence that the financial system can withstand a bankruptcy filing that could come soon.
For background, see article
• BARACK OBAMA is set to meet Nuri al-Maliki, Iraq’s prime minister, in Washington on Wednesday July 22nd. Discussion are sure to centre on the security situation in Iraq since American forces withdrew from the country's towns and cities last month, as part of a security pact that will see American troops withdraw for the country in 2011. Meanwhile, Hillary Clinton, America’s secretary of state, is travelling to Thailand where she will attend a meeting of regional foreign ministers. The twin threats of swine flu and North Korea are sure to head the agenda.
For background, see article
• A VERDICT may be delivered in the trial of Aung San Suu Kyi for breaking the terms of her house arrest after closing arguments on Friday July 24th. The leader of Myanmar’s pro-democracy movement is likely to be found guilty of harbouring an uninvited American at her home, the excuse the regime needed to prosecute her afresh ahead of a planned election next year. Myanmar recently agreed to grant an amnesty to political prisoners before the election, at the request of Ban Ki-moon, the UN secretary-general. Even if it does make good on the promise, the chances of Miss Suu Kyi’s release look slim.
For background, see article
• IRAQ'S Kurds go to the polls on Saturday July 25th to vote for a regional assembly and a president. The Kurdistan Democratic Party and the Patriotic Union of Kurdistan have dominated Kurdish politics since the region gained self-rule in 1991 and control of Kirkuk and other oil-rich areas remains an important issue. But the two parties have come under increasingly criticism of late, accused of corruption and cronyism and they face a challenge in this election from a new group, Goran (Change), though polls suggest that its impact will be limited.
For background, see article
• PAKISTAN'S army may be poised to continue its battle against Taliban forces, this time in Waziristan. The tribal area adjoins the country’s lawless North-Western Frontier Province, where a previous offensive is in its final stage. Some of the 2.4m displaced by the fighting in the Swat Valley, which began in April, have started to return home under army protection. But confronting the Taliban, under its commander Baitullah Mehsud, in remote and mountainous Waziristan, on the border with Afghanistan, is a tricky prospect. Mr Mehsud may have as many as 30,000 fighters at his disposal so a campaign may have to wait until American forces are deployed over the border in Afghanistan to support Pakistani troops.
For background, see article
Friday, July 17, 2009
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09:25 - GOLDMAN SACHS´ RECORD PROFITS - A BAD SIGN:
Goldman Sachs´ record $3.44 billion profit has been welcomed as a sign that the crisis is about to end. But as Wall Street Journal points out, it is probably a sign that all the new government guarantees and bailouts have distorted tha banks´ incentives even more. It´s now in their interest to take enormous risk because potential losses can be sent to taxpayers:
"Goldman´s traders profited in the second quarter from taking advantage of spreads left wide by the disappearance of some competitors (Lehman, Bear Stearns) and the risk aversion of others (Morgan Stanley). Meantime, Goldman´s own credit spreads over Treasurys have narrowed as the market has priced in the likelihood that the government stands behind the risks it is taking in its proprietary trading books...
So for the moment, Goldman Sachs -- or should we say Goldie Mac? -- enjoys the best of both worlds: outsize profits for its traders and shareholders and a taxpayer backstop should anything go wrong. We like profits as much as the next capitalist. But when those profits are supported by government guarantees or insured deposits, taxpayers have a special interest in how the companies conduct their business."
The most market-friendly solution would be to abolish guarantees and prepare a process for seizing and winding down failing giants. But if that is not possible, WSJ want to restrict proprietary trading done by guaranteed financial entities, or to introduce a bailout tax for those deemed too big to fail, so that those institutions would have to pay for the privilege themselves.
00:10 - MICHAEL MOORE WITHOUT THE LAUGHS:
I just read an attack on free markets that was even less impressive than the average anti-globalisation pamphlet. It´s terribly pretentious, but its strong, sweeping statements about the destructive role of markets and globalisation are never backed up with any evidence or statistics. It´s Michael Moore, without the laughs.
The text complains about poverty, without mentioning that poverty has been reduced everywhere where there has been economic freedom, and when it has to admit that some progress has been made in poor countries, it trivialises, mocks and even opposes the biggest poverty reduction in mankind´s history:
"In poorer areas some groups enjoy a sort of ´superdevelopment´ of a wasteful and consumerist kind which forms an unacceptable contrast with the ongoing situations of dehumanizing deprivation."
Instead it presents the usual complaint that free trade and institutional competition results in a race to the bottom, without presenting any new research to back it up:
"These processes have led to a downsizing of social security systems as the price to be paid for seeking greater competitive advantage in the global market, with consequent grave danger for the rights of workers, for fundamental human rights and for the solidarity associated with the traditional forms of the social State."
And part of the solution is said to be government intervention, forced redistribution and more power to trade unions, without ever analysing how these institutions have often undermined freedom, creativit and living standards.
But as I indicated, there is no reason to take this text seriously, because it just contains statements, and no arguments, statistics or research to back them up. Perhaps that´s because the writer relies completely on divine inspiration. It´s Pope Benedict XVI, in his Enclyclical Letter Caritas In Veritate.
It´s fitting, don´t you think, that the Pope combines his bizarre, reactionary thoughts on social issues with this unsubstantiated, reactionary attacks on free markets?
17:16 - KREATIVITET, INTE KVANTITET:
"Vad gäller USA:s undergång så kan man konstatera att detta inte är första gången den har förutspåtts. Först skulle Japan ta över världen, sedan Indien och nu Kina. Det man då glömmer är den oerhört entreprenöriella kultur som finns i det stora landet i väst. I princip samtliga nya helt revolutionerande affärsmodeller de senaste 20 åren kommer från USA.
Amazon, Google, Dell, Wikipedia, Ebay, Itunes, Iphone, Facebook, Twitter, alla dessa företag har skakat om branscher i grunden. Listan är ändlös. Landets kultur att uppmuntra entreprenörskap och att hylla framgång är ett recept som slår billig tillverkning och många högskoleelever många gånger om."
- Mats Qviberg ger oss hoppet om USA åter, i Expressen.
08:09 - PERSPEKTIVSKIFTE:
"Det får nästan alla andra göra", säger Lars Ohly när han tycker att kronprinsessan borde fixa sin bostad själv. Det är klart att hon borde, men varför sluta där? Ohlys "nästan" behövs därför att en grupp som slipper fixa är riksdagsledamöterna. Låt även dem fixa sina bostäder (övernattningslägenheter i Stockholm) själva, så skulle de nog snart införa en rimligare bostadspolitik.
09:59 - $288 000 000 000 TO DESTROY FOOD TRADE:
In another eloquent and intelligent speech Barack Obama says that he wants Ghana - and the rest of Africa - to get rich by be exporting food.
Talk is cheap.
The 2008 $288 billion US Farm Bill that Obama supported is expensive.
14:50 - BAD TIMING:
Do you wonder what happened to the US stimulus money? It´s slowly working its way through the political process and the economy so that it´s ready to stimulate and overheat the economy when it´s already improving.
Only 47 percent of the highly stimulative spending (only about 40% of the total package, the one with Keynesian multiplier effects) will be spent by the end of fiscal year 2010. A year later, more than a quarter is still not spent, according to the Congressional Budget Office.
08:29 - IMMIGRANTS AND CRIME:
Ok, the time has come to speak candidly about immigration and crime. American studies shows that there is a clear correlation: Immigrants are less likely to commit crimes than native-born. This is true for the nation as a whole, for cities with large immigrant populations and for cities along the US-Mexican border, as Radley Balko explains in Reason.
One reason is that immigrants have an important stake in society, and the costs of losing that is too large. That also points to another possible correlation: Crime is low as long as immigrants are welcome and can integrate into the economy. But if the signs say "Italians Need Not Apply" (as they did), they might have nowhere to go but into crime. So a Europe that is less welcoming and has a more regulated labour market might also turn more immigrants into criminals
It´s not you, it´s me.
(Thanks Johan)
11:52 - SWEDEN IN THE ECONOMIST:
In The Economist this week Charlemagne is impressed by Sweden´s combination of free markets and welfare state, and says that if Zurich were crossed with Sydney, you would get Stockholm (he picked a good, sunny week to visit). When explaining why Sweden works relatively well he turns to some thoughts of mine, and a forthcoming Cato essay that I have written on the subject:
"Sweden’s big state works because it is Swedish, not because it is big, says Johan Norberg, a liberal economist. The country has had an efficient bureaucracy for 200 years. The public sector expanded only in the 1950s, after a century of astonishing economic growth driven by free trade and free markets (from 1850 to 1950, average incomes multiplied eightfold, as a poor peasant society was transformed into one of the world’s richest countries)."
It would be hard to object to that (apart from the attempt to make an economist out of me).
11:02 - POWERPAREN :-):
Jag är inte bara gift med en förtjusande kvinna. Tillsammans har vi tydligen en hel del makt också...
10:43 - KONSERVATISM I MELLANMJÖLKENS FÖRLOVADE LAND:
Roland Poirier Martinssons korståg för konservatismens fortsätter, nu på DN Debatt, där han påstår att kristdemokraterna skulle kunna bli större om de blev mer konservativa. Men trots en påkostad opinionsundersökning och en rad fokusgrupper har Poirier Martinsson inte lyckats visa så mycket mer än att de flesta svenskar är emot daltande med brottslingar, för välfärdsstaten och arbetslinjen (och snusexport!).
Om det är konservatism så är det en "vi-gör-som-vi-alltid-gjort-och-tycker-aldrig-något-som-stör-bordsdamen"-mellanmjölkskonservatism och det täcks väl redan ganska väl in av fyra-fem partier med 80 procent av väljarna bakom sig (inklusive kd). Poirier Martinsson redogör inte för några siffror som tyder på att svenskar vill hindra aborter, missgynna alternativa familjebildningar, betona kristendomen i politiken mer el dyl.
Det är möjligt att kd skulle vinna på att bli mer antiliberalt i kultur- och livsstilsfrågor, men det finns inget i denna artikeln som ger stöd för den tron.
07:47 - MARY POPPINS AND THE US POSTAL SERVICE:
As you might have noticed from my absence I have left for Summer - I am on the west coast for my brother´s wedding and now on my way to the music festival in Arvika. But after I left Stockholm, The Economist´s Charlemagne travelled there, and was impressed by the public services: If it is a nanny state, it is a Mary Poppins nanny state.
I offer my own explanation: Bureaurcatic competence was there first, and that´s the reason why Swedes could get big government to work relatively well (relative to other countries). More government in the US would not get them a big version of Sweden, it would get them a big version of the US Postal Service.
And if you want the historical reason for Sweden´s exceptionalism I think that in a small, homogenous country without feudalism and invaders, people who became part of the bureaucracy didn´t see themselves as belonging to a more exclusive group with privileges, and people and voters never expected or allowed them to.
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