DAWN - Opinion; October 08, 2008

Published October 8, 2008

Scraping the fuselage

By Rabel Akhund

“I SAW the angel in the marble and carved until I set him free,” said Michelangelo. Alas, the $700bn rescue package put together by the Republican administration lacks the imagination of Michelangelo and, one fears that no angels will be set free for a long time to come.

It is the kind of government intervention that is not needed. In an attempt to socialise losses, the current US administration has effectively trampled on Adam Smith’s invisible hand.

It would seem that the decade-long stagnation in Japan is completely lost on the current US administration. In the late eighties, Japan also had an asset-price bubble. When the bubble burst, it exposed weaknesses in the Japanese banking system which had a very heavy burden of non-performing loans. A similar problem exists in the US today.

Instead of rapidly dealing with failed banks, the Japanese government tried, in vain, to keep those bad banks propped up, slowly trying to unburden their bad debt books. This was mainly done due to political considerations. It resulted in a prolonged period of stagnation and the Japanese economy only started to recover at the turn of the century.

No one wants to see a wholesale failure of the banking system. However, the current crisis is not the banking system’s hell, only its purgatory. There is an alternative to the rescue package that has been put together, one which can avoid moral hazard. The weakness of the rescue package is that no one knows how to price the toxic assets of banks. If they are priced too low, banks will be unwilling to sell them to the US government.

If they are priced too high, the taxpayer will end up bearing the losses. The alternative is to recapitalise the balance sheets of those banks which have sound management and whose failure will risk hurting the banking system. Others with weak management should be allowed to fall, provided that their fall does not pose any systemic risk.

A better way to recapitalise banks will be for the US government to take equity participation in the relevant banks by subscribing for preferred stocks with convertible warrants. The injection of such equity will go some way in addressing the credit crunch crisis and reinstating much-needed confidence in banks.

It will also give taxpayers the possibility of an upside. Alternatively, the US government could give immediately refundable tax credits to banks that write off their bad debts rather than acquiring such bad debts at the cost of the taxpayer. Perhaps a combination of the aforementioned options is necessary, neither of which carry significant moral hazard.

Inevitably, such an approach will result in the failure of a number of moribund financial institutions. Speaking to friends who are securitisation lawyers, one feels that we are not even halfway through the current crisis. No one should have any illusions that by the time this crisis is over, the global financial services industry will look very different. The only question is how long will the crisis last?

Herodotus, the fifth century BC Greek historian wrote in his book one of Histories: “most [human settlements] which were important in the past have diminished in significance now, and those which were great in my own time were small in times past … [because] human happiness never remains long in the same place”. Free market economics, like nature, drives towards efficiency. Those unable to compete, be it because of bad judgment or adverse market forces, will and should fall. Those who are more robust carry on.

That is the way of the world and any forced or ill-considered intervention can have adverse consequences. Financial institutions with strong international brand names that are also well managed like Citibank, Goldman Sachs and Morgan Stanley will survive — either because of petrodollars or US money. The weaker ones should be allowed to fail if their managements have made bad decisions.

Nothing will prevent a drastic economic downturn in the US and western Europe. The $700bn rescue package is not designed to avert a downturn. It will, it is hoped, merely soften the landing. Flying enthusiasts know that when a plane is in a nosedive, the best the pilot can hope for is a sudden pull as the plane approaches the ground in the hope that he or she will only scrape the fuselage. That is the hope with this rescue package but it is too optimistic.

Political considerations have weighed in on market economics. In an attempt to hurriedly put together a rescue package, US politicians have demonstrated that they are no different from their counterparts in other countries. They are only looking toward the short term. The result of this rescue package will be that instead of going into a V-shaped recession curve — a sharp downturn, bloodletting at the bottom and a swift recovery — the US is heading for an L-shaped recession curve, one where the economy goes south sharply and stays there for the foreseeable future.

Perhaps it is time to coin a new phrase — balanced market economics. This should be the system where governments inevitably, either through regulation or incentives or both, guide markets which have a bad habit of getting themselves into trouble in order to protect their most vulnerable citizens. The Paulson plan is teetering on the brink of socialism. Advocates of alternatives are moving towards balanced market economics. “Capitalism without losses is like religion without hell,” according to Dan Mitchell of the Cato Institute. Bailing out banks for their mistakes without any accountability or obtaining the possibility of having a say in how they are run is misconceived. Helping banks in a way that also protects the taxpayers’ interests is more appropriate.

Unfortunately, with the Paulson plan the US economy will be scraping the fuselage for a long time. One can only hope that when the time comes to pull the control stick and push the thrust levers the plane will lift off.

The writer is an international commercial lawyer.

Action or intelligence?

By Cyril Almeida

BUSH already has; Obama says he will; Hillary Clinton said she would; Palin thinks she absolutely should; and McCain probably will but won’t talk about it.

Launch raids in Fata on ‘actionable intelligence’ to capture or kill high-value terrorist targets, that is.

The debate is as old as the war in Afghanistan; however, it was given a public face by Barack Obama last summer. Locked in a bitter contest with Hillary Clinton, Obama was being pummelled for suggesting he would meet leaders of rogue nations without preconditions in his first year as president; Clinton even accused Obama of being “irresponsible and, frankly, naive”. Obama used a major speech at the Woodrow Wilson Centre last August to respond. It was there that he uttered the fateful words on actionable intelligence.

For those Pakistanis who fear being caught in the crosshairs of the American military juggernaut it was an astonishing speech. Not so much because Obama said anything contrary to Washington conventional wisdom, but that he — a candidate with a realistic chance of capturing the White House and therefore having to deal with Pakistan — was laying down such a clear marker against Pakistan. In the speech meant to unveil his foreign policy and national security agenda, Obama used the word ‘Iraq’ 24 times, ‘Afghanistan’ 14 times — and ‘Pakistan’ 13 times. The senator promised to “wage the war that has to be won” by “getting out of Iraq and on to the right battlefield in Afghanistan and Pakistan.” Suddenly, a major non-Nato ally had been declared a battlefield.

Then came the sentence that shook Pakistan: “If we have actionable intelligence about high-value terrorist targets and President Musharraf won’t act, we will.” With it Obama’s foreign policy became ‘muscular’ and the Democratic agent of hope and change had outdone the brashest of Republican. Obama has since repeated his formulation countless times, albeit replacing Musharraf with Pakistan after the general’s forced resignation. It has taken on a life of its own in the media echo chamber and given some Pakistanis recurring nightmares of a Democrat, traditionally viewed as weak on foreign policy, trying to out-macho the Republican Bush.

Some have seen restraint in the ‘if you won’t act, we will’ caveat. But most have overlooked the actionable intelligence part, which is arguably where the idea originated from. Three weeks before Obama’s speech at the Wilson Centre, The New York Times (NYT) made a dramatic revelation: in early 2005, a secret American military mission to capture top Al Qaeda leaders, including Ayman Al Zawahiri, in North Waziristan was aborted by Defence Secretary Rumsfeld.

Zawahiri and co had allegedly arrived in North Waziristan to attend a meeting but Rumsfeld aborted the ‘snatch and grab’ mission at the last minute — after “members of a Navy Seals unit in parachute gear had already boarded C-130 cargo planes in Afghanistan”. The NYT story claimed Rumsfeld was concerned that sending several hundred troops (necessary to secure the mission) would convulse US-Pakistan relations, with unpredictable consequences. Political expediency had apparently trumped a potentially great military success.

This was the interpretation that Ben Rhodes, a 30-year-old wunderkind who is Obama’s chief foreign policy speechwriter, clearly leapt on as he prepared Obama’s speech. Indeed, the sentence immediately before the ‘if they won’t act, we will’ warning is: “It was a terrible mistake to fail to act when we had a chance to take out an Al Qaeda leadership meeting in 2005.”

Unfortunately for Pakistan, Rhodes ignored a vital part of the NYT story: two and a half years after the aborted raid, American intelligence was still “not certain” if Zawahiri had been present in North Waziristan. The actionable intelligence on which the Americans came perilously close to acting — and perhaps committing a terrible mistake — was based on communications intercepts that simply gave intelligence officials “unusually high confidence” that Zawahiri was at the meeting. A recurring theme of the NYT story was how poor the American intelligence has been in Fata; in fact, to shore up poor intelligence, “in early 2006, President Bush ordered a ‘surge’ of dozens of CIA agents to Pakistan.”

Some may recall the infamous Damadola strike. On Jan 13, 2006, Predator missiles struck Damadola, a village in Bajaur Agency. The target? Ayman Al Zawahiri, allegedly visiting the home of one Bakhtpur Khan. The Pakistan government claimed that four foreign militants were killed; however, locals claimed that the nearly two dozen dead were civilians, including children. Musharraf stuck to the American script even a month later, telling tribal elders in Charsadda that “five foreigners were killed in the US attack on Bajaur”.

Conventional wisdom had by then identified four of the ‘dead’ Al Qaeda men: Midhat Mursi Al Sayid Umar, an Egyptian with a $5m bounty on his head; Abu Obaidah Al Masri, an Egyptian responsible for plotting attacks in the West; Khalid Habib, a field commander in Afghanistan; and Zawahiri’s son-in-law, Abdul Rahman Al Maghribi.

It was a lethal hoax. American actionable intelligence had done its worst. From The Washington Post in September 2007: “US and Pakistani officials now say that none of those al-Qaeda [sic] leaders perished in the strike and that only local villagers were killed.” Given time to reflect, Mahmood Shah, Fata security chief in 2006, had changed his mind: “I just think the information was not correct.”

What happened? Eight months before Damadola, Pakistani security agents, some allegedly dressed in burqas, nabbed Abu Faraj Al Libbi, a Libyan Al Qaeda leader. Libbi was handed over to the Americans (he is currently in Guantanamo) and is reported to have told interrogators that he met Zawahiri at Bakhtpur Khan’s house in Bajaur. Cue the Predator missiles — which exploded amongst families gathered to celebrate Eid.

Surely Rhodes, Obama’s speechwriter, knew at least some of this inglorious history of American actionable intelligence in Fata. Anthony Lake, a former national security adviser to President Clinton and Obama’s top foreign policy adviser, certainly did. Any regrets then for their dangerous prescription? On the contrary, they are proud of it. An Obama adviser had this to say to The American Prospect in March about the backlash against the senator’s comments: “He takes policy positions that are a break from both rigid orthodoxy and the Bush administration. And everyone says it’s a gaffe! That just encapsulates everything that’s wrong about the foreign policy debate in Washington and in Democratic politics.” Rhodes gushed that it was a “seminal moment”; Obama thought it was the right policy, claimed Rhodes.

Since then the Angoor Adda raid in South Waziristan has exposed the Obama canard of a break from Bush — and the continuing problems with actionable intelligence. Might McCain be a better friend to the hapless tribesmen of Fata? No. After the disastrous January 2006 Damadola strike, McCain said on CBS’s ‘Face the Nation’: “It’s terrible when innocent people are killed; we regret that…. We apologise, but I can’t tell you that we wouldn’t do the same thing again.”


Police and the community

By Abdul Khalique Shaikh

IN a modern civilised society it is the prime responsibility of the state to protect the life, liberty and honour of its people and dispense justice in an efficient and impartial manner.

The police service occupies a pivotal position among institutions of the state engaged in the discharge of this essential function.

The police force, however, is not expected to be a mere tool in the hands of the state to be used arbitrarily. While maintaining order in society it has to work with people, through people and for people. A police service bereft of community support is unlikely to achieve the desired goals.

Traditionally, the police in our society have been seen as an arm of the state and police-public relations have been marred by distrust and scepticism. This is not how it was supposed to be, for a close police-public participation was envisioned in the Police Rules when they were enacted in 1934. At the outset it was clearly stated that criminal law and the police organisation were both founded on the principle that public order depended essentially on the responsibility of every member of the community to prevent offences and to arrest offenders while remaining within the law. The magisterial and police set-ups were to enforce, control and assist this general responsibility.

However, relations between the police and the community have remained far from ideal. The police have not made much headway in gaining the trust of the general public. The distance between the police and the public has widened with the passage of time. This has happened despite the fact that a large number of policemen have lost their lives in the call of duty and others continue to work under terrible conditions for long and unpredictable hours for low wages.

Various reasons have been cited to explain the deterioration in police-public relations but one of the most important factors is the inability of the police to establish its impartiality. The framers of the Police Rules had set a perfect model to be followed. It was categorically declared that the ideal to be aimed at in respect of relations with the public was that every police officer, of whatever rank, should be regarded by every law-abiding person as a wise and impartial friend and a protector against injury to his person and property.

How can this be achieved if the police are seen as an instrument used by successive governments to crack down on the public for reasons that may or may not be justified? It is high time that the relationship between the government and the police, and between the community and the police, is redefined.For most citizens, the only interaction they have with the police is either as offenders when they come in conflict with the law or alternatively as victims of crime. The police’s role in society is not confined to enforcing the law; they are expected to provide relief in a variety of distressing situations. A police force engaged in service-oriented activities besides law enforcement is bound to be respected by the community as a whole.

The Police Order 2002 unequivocally laid down that it is the duty of a police officer to afford relief to people in situations of distress, particularly in respect of women and children; provide assistance to victims of road accidents; supply accident victims and their heirs or dependants with information and documents that would facilitate their compensation claims; and raise awareness among victims of road accidents of their rights and privileges. One example of the police department’s service-oriented activities is assistance through rescue centres like Madadgar 15. In areas where these rescue centres are better organised and efficient, police-community relations have improved considerably.

What can also go a long way in bridging the gap between the police and the community is the attitude of police officers. The Police Order makes it imperative that police officers interact with the public with due decorum and courtesy, promote amity, help individuals who are in danger of physical harm and assist all members of the public, particularly the poor, disabled or physically weak and children who are either lost or find themselves helpless on the streets or other public places.

However, it will require a great deal of work to walk the talk and take effectual practical steps to realise the avowed objectives of the Police Order 2002. The time has come to implement the people-friendly provisions of the Police Order and bring the police and the community closer.

Various factors have contributed towards widening the gap between the police and the community. These include the colonial legacy of the police as a force deployed against the public and not for the public; its oppressive use against the people for political reasons in the garb of maintaining public order; the bureaucratic way of working of police officers at the senior level and unfriendly attitudes prevalent in junior ranks; incompetence and corrupt practices; and slackness in adopting modern practices of community policing.

Community policing is the best way to bridge the gap between the police and the public. This is not just theory, for experiments have been successful in some crime-infested neighbourhoods of Karachi like Ferozabad and Bahadurabad. In these areas, citizens have pooled resources like patrol cars and manpower and have joined hands with the area police in prevention of crime. These neighbourhood watch programmes have not only significantly reduced crime in the selected areas but a bond of trust has developed between police officers and citizens. The downside of this model is that the police-community partnership is confined to certain affluent blocks of these areas. It has to be extended to less privileged neighbourhoods. The idea of involving citizens’ bodies in policing activities in not new. Mohalla committees, peace committees and even an organised body like the CPLC in Karachi have been functioning from time to time though with limited roles. The Police Order 2002 gives a formal role to citizens’ bodies in the shape of district public safety commissions, provincial public safety commissions and a National Public Safety Commission. It is a pity that public safety commissions could not play their due role as envisaged in the Police Order due to petty politics.

No police service can succeed in the prevention and detection of crime and maintenance of law and order without substantial support from the community. Investment in human resources and modern policing equipment in complete isolation from the community will be an exercise in futility and a sheer waste of money.

A police service accountable to the community and working in tandem with the people to be policed can do wonders even with meagre resources. The people expect the new government and the police leadership to deliver in this vital area.

The writer is a senior superintendent of police in Sindh.

Trading accusations

By Ewen MacAskill

BARACK Obama accused John McCain of resorting to smear tactics on Sunday as Republicans showed signs of alarm at the prospect of a Democratic clean sweep in both the White House and Congressional races on November 4.

His attack came after McCain’s team, in an unusual step, signalled at the weekend that it is to switch strategy towards more personal and nastier criticism of Obama.

McCain’s team offered an early glimpse of the new strategy by accusing Obama of being friends with a terrorist, Bill Ayers. He is one of the founders of the Weathermen, a radical underground group responsible for a bombing campaign in the US in the 1970s.

The aim of the McCain team appears to be to try to shift attention away from the economic crisis that has led to a haemorrhaging of Republican support over the last two weeks.

Having entered the final 30 days of the campaign, during which the views of undecided voters begin to consolidate, polls and reports from Democratic and Republican campaign staff on the ground suggest a seismic shift is taking place in the electoral map in favour of the Democrats.

The optimism in the Obama camp is based not just on the poll leads but on voter registration.

Obama has more staff and volunteers on the ground and has registered millions of new Democratic voters, an effort unmatched by the Republicans. The Democrats’ team revealed at the weekend it has registered 1.5 million new voters in swing state Pennsylvania alone.

Unlike in 2004, when the failed Democratic candidate John Kerry was slow to respond to personal attacks, Obama is countering fast. In a speech on the campaign trail in Asheville, North Carolina, Obama accused McCain of trying to divert voters from the economic crisis.

“Senator McCain and his operatives are gambling that he can distract you with smears rather than talk to you about substance. They’d rather try to tear our campaign down than lift this country up. It’s what you do when you’re out of touch, out of ideas, and running out of time.”

The Democratic candidate is making inroads into states once regarded as safe Republican areas, while the number of states in which McCain is competitive is narrowing, mainly because of the Wall Street collapse.

The Republican concern is that they stand to lose not only the White House but that the Democrats will also come out of the election with bigger majorities in the Senate as well as the House, giving them a rare dominance in Washington.

McCain is expected to raise questions about Obama’s character in a presidential debate in Nashville, Tennessee, — one of the dwindling number of chances for the Republican candidate to turn the race around.

The Obama campaign will follow up its candidate’s attack on smear tactics by airing an ad on cable television accusing McCain of being “erratic in a crisis” and out of touch, adding: “No wonder his campaign wants to change the subject.”Tim Pawlenty, the Republican governor of Minnesota and part of McCain’s inner circle, yesterday criticised Obama for attending a political event in Ayers’s home in Chicago. Pawlenty, who had been on the shortlist as a running mate for McCain, said Ayers was “an unrepentant domestic terrorist”.

Speaking to Republican sympathisers at a fundraiser in Colorado on Saturday, McCain’s running mate, Sarah Palin, also raised the link with Ayers. “Our opponent though is someone who sees America, it seems, as being so imperfect, imperfect enough that he is palling around with terrorists who would target their own country,” Palin said.

She added: “There is a time when it’s necessary to take the gloves off and that time is right now.” Ayers, who is now a professor in Chicago, worked on the board of a charity alongside Obama distributing educational funds. Although the relationship between the two was not close, a video is appearing on websites showing Ayers morphing into Obama. n

— The Guardian, London



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