A big shake-up in the Chinese Communist Party leadership. Bo Xilai, Chinese Communist Party chief in the municipality of Chongqing, was fired from his position, although we don’t yet know if he was also purged from the Politburo. Mr. Bo was an up and coming leader who did not fit the mold of the traditional Chinese part official–he craved publicity and was regarded as someone who wished the party to return to more Mao-like policies (in the US, we would probably use the term “populist” to describe his policies even though the term doesn’t quite make sense in terms of Chinese politics). Leaders like Mr. Bo don’t usually disappear for long–we’ll have to see how he charts his return.
There is a little bit of movement in Syria. The UN has announced it is sending a humanitarian mission to Syria to assess the situation. We’ll see how much access the UN Team has and how cooperative the Assad regime is. I am not optimistic, but would be overjoyed to be wrong on this.
The nuclear equivalent of economic sanctions has been leveled against Iran: it has been banned from electronic banking transactions. Now no Iranian banks will be able to conduct transactions with non-Iranian banks, leaving only the option of barter, gold, or short-term promissory notes. The Iranian economy is already in pretty rough shape because of the earlier sanctions; these new restrictions will squeeze the Iranian people even more. Now a diplomatic solution to the nuclear program impasse looks a little more promising.
The Guardian, a British newspaper, received thousands of emails purportedly from the Assad family in Syria. We will have to wait until the authenticity of the emails is verified, but reading them is quite chilling. They portray a family completely out of touch with what is going on in Syria. The disconnect between a government and its people powerfully explains why the people of Syria have risked so much to change the government.
James Fallows, a defense analyst who writes for The Atlantic, has gone out on a limb and predicted that there will be no attack on Iran. His core argument, not made until the end of the essay, is that the Iranian matter was plumped up by Netanyahu to divert attention away from the Palestinian issue. His analysis is intriguing a worth a close read.
The US Defense Department spends a lot of money protecting the Middle Eastern oil fields. But it is also a huge consumer of the oil it protects. In fact, the US Department of Defense is the single largest consumer of petroleum in the world. Is the dog wagging the tail or vice-versa?
The atrocities in Syria continue to mount. The most recent reports suggest the systematic killing and raping of civilians by the Syrian military. Whether these reports will move Russia and China remains to be seen. Even if those two states do ultimately support come sort of intervention, it is not clear what shape that intervention would take.
The Greeks are being asked to cut even more. This process cannot have a good ending–the only question is which bad ending will emerge: revolution? complete social disintegration? the end of the EU?
Forbes magazine has published its list of the world’s richest people. There are 1,226 billionaires worth $4.6 trillion. That’s 7% of the world’s total wealth held by 0.000000175% of the world’s population. (not a quiz post)
Stephen Walt, my favorites realist, has a great critique on how the media has handled the Iranian nuclear issue. Walt asks great questions and is appropriately skeptical.
The massacre of Afghan civilians by an American soldier is perhaps the end of the NATO mission in Afghanistan. The troops will not be precipitously withdrawn, but it is hard to imagine what their future missions might be like. There is certainly no opportunity for a policy of capturing hearts and minds.
There are many contesting territorial claims in the South China Sea, and the region has seen frequent military clashes as different countries have tried to establish their credentials as legitimate owners. Vietnam is trying a new approach that will certainly provoke a Chinese response over the Spratley Islands.
I am a big fan of unorthodox thinking, but I think I reached my limit in an article in The Atlantic entitled “How Engineering the Human Body Could Combat Climate Change.” At some point, many of you might find yourselves pondering these questions seriously. (not a quiz post).
The quiz on 14 March will be on the blog articles from 8-12 March 2012 and the FDR memo to Cordell Hull, 24 January 1944.
Life in the West Bank has never been normal since 1967, and the rules of military occupation are usually quite strict. A program sponsored by the EU to bring electricity to some residents of remote rural areas is being stymied by Israeli authorities, and it is difficult to justify those restrictions since the electrification project hardly seems to be of any military significance. One of the big losses in the recent meetings between President Obama and Prime Minister Netanyahu was the total absence of any discussions of the Palestinian issue. That oversight is not defensible.
One of the big fears of the economic slowdown affecting the world over the last three years is that there may be a return to protectionist pressures that will only aggravate the slowdown. Fortunately, the moves to impede economic activity across national borders have been quite small. But it appears as if this year’s election cycles may intensify those protectionist pressures. President Sarkozy has broken ranks with most of the other European states and is calling for what can only be described as protectionist measures. If Sarkozy goes, can his competitors be far behind?
We often wonder to what extent we can legimitately expect human beings to agree upon certain codes of moral behavior. The Economist suggests that we have a long way to go on what should be an obvious contender for unanimity. I must confess that I was astounded by the degree to which different societies accept what ought to be regarded as abhorrent behavior.
For those who wish to learn more about Credit Default Swaps, Barry Ritholtz, my favorite financial blogger, has published an op-ed piece in the Washington Post. It is a story of what can only be described as criminal behavior masked as legislation. (not a quiz post)
There is a renewed round of violence between the Israelis and the Palestinians in the Gaza Strip. The Israelis have launched air strikes against members of Hamas and the Palestinians have responded with rocket attacks. At this point, it could simply be the standard tit-for-tat between Israelis and Palestinians, or it could be a testing of defenses prior to an attack on Iran. Reports are that some of the rockets from the Gaza–the longer range Grad rockets–have been shot down by the Israeli missile defense system, Iron Dome. The Israelis could be trying to determine whether they could hold off a counterattack from Hamas in the event of an attack on Iran. We shall see how this round of violence evolves.
The Associated Press has published a very good fact sheet on the Iranian nuclear program. It is a substantive piece with the most authoritative information now available and worthy of your attention. Obviously it relies on published, verifiable information so it cannot reflect the secret intelligence that may or may not be available to governments.
Stephen Walt has published an interesting guest blog by a Chinese scholar on how to think about Chinese foreign policy. It raises some interesting parallels with American foreign policy.
For those of you very interested in the Greek debt crisis, John Mauldin has written a very substantive essay on where we stand now that Greece has defaulted. Because it is so detailed, I will not ask any quiz questions on it. But it is worth a close read.
Apparently, 85% of the Greek bondholders have accepted the Greek offer of a reduction of about 70% of the value of the bonds. The next step is for Greece to invoke what is know as a “collective action clause” which forces hold-out bondholders to accept the reduction in value. If the clause is invoked, then the percentage of bondholders “accepting” the reduction will increase to about 95%. The default, therefore will occur, but it will be an “orderly” default meaning that it not not necessarily trigger off a panic with respect to other countries in situations similar to Greece’s.
We will need to see if the ISDA will declare the default a “credit event.” If it does, then the credit default swaps (the insurance policies against default) will be honored. Such a determination will mean that some of the parties to the swaps will have to give up the collateral they had pledged as the “premium” for the insurance. So some of the banks and hedge funds will lose some money. How much money they lose depends upon how accurately they assessed the final value of the bonds after a default–a perfect assessment (30% + whatever value of the bonds Greece will offer as replacements for the defaulted bonds) would mean that the collateral would be worth exactly that amount. We doubt that anyone predicted exactly the right value for the collateral, but it is possible that many of the issuers of the swaps could have come close. The payout will be significantly less than the total amount of the defaulted bonds, but it may still be a hefty amount.
What is troubling is that the markets are now trying to figure out what the interest rates on the new Greek bonds (the ones that will be issued to pay the 30% of the old bonds that Greece has now defaulted upon). Runors abound, and The Financial Times says this:
“The new bonds that investors will receive on Monday have already started trading on the grey market and are quoted at yields of 17-22 per cent, a distressed level higher than any other country inside the eurozone.”
If accurate, the Greeks will very likely default again in the future.
Later in the day…….
The ISDA has in fact declared the default a “credit event” which means that the credit default swaps will be honored. We will find out in a few days how much will be paid out. At this time, I’m not sure if the counterparties to the swaps will be identified. I’ll try to find out.
The South China Sea keeps bubbling. The US and the Philippines have announced plans for a joint military exercise near disputed territory in the South China sea–a region with overlapping territorial claims by China, Vietnam, Malaysia, Brunei and Taiwan. The exercise is scheduled for late April. Keep tuned in.
A key official to the Assad regime has defected. This defection is the first crack in the regime since the protests have started. It is a hopeful sign, since most other options leading to the fall of the regime are problematic. We can hope that Western powers are sending all sorts of signals to other Syrian officials welcoming similar moves.
India’s ruling Congress Party has suffered a series of major election setbacks in important states. Increasingly, the chances for the election of the likely candidate for Prime Minster, Rahul Gandhi, in the 2014 general elections look shaky. It also suggests increasing discontent with the process of pro-market reforms and the lingering discontent over the issue of corruption.
Fifteen percent of humans and chimp DNA is closer to that to gorillas than to each other, a new study finds. I wonder which fifteen percent? (not a quiz post)
Just a brief update on the Greek debt situation. It appears as if there are a number of holders of Greek debt who might refuse to accept the Greek offer of a 70% cut. The bond holders include some Greek banks and pension funds who might refuse in order to trigger the credit default swaps they had previously purchased. We will find out at 3 pm on Thursday what the final percentage of bondholders who will accept the deal actually is. Here’s one version of what to expect (warning: Mish’s blog is extremely ideological but always fun to read)
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