Thursday, October 30, 2008

Obama Expected to Carry Pakistani-American Vote

Though polls on Pakistani-American voters are non-existent, all of the anecdotal evidence from various sources, including Pakistani-American periodicals' opinions, conversations at community events, news coverage, interactions on social networks such as Facebook, suggests that Barack Obama will sweep the Pakistani-American vote on coming Tue, Nov 4, 2008. While none of them like Obama's rhetoric on attacking inside Pakistan, most seem willing to give him a pass for other reasons unrelated to Obama's Pakistan stance. After eight disastrous years of Bush-Cheney administration which have seen perpetual war, shredding of the US constitution and the Bill of Rights, and the recent financial crisis, Pakistani-American voters are joining forces with the mainstream voters to punish all Republicans. Even John McCain, a moderate and maverick Republican, is being tarred and feathered as another George W. Bush or Dick Cheney. While John McCain did vote for the Iraq war (as did Hillary Clinton and Joe Biden), he has been very critical of the extreme Bush policies including Americans' surveillance, prisoner torture and the conduct of Iraq war.

At a recent Eid Reunion in San Francisco Bay Area organized by Pakistani-American Cultural Center, Charlotte Buchen of PBS Frontline World talked to a number of attendees about this Tuesday's election. Here is how Charlotte reported the conversation I had with her at the event:

"Pakistanis are extremely sensitive now about the U.S. role there," said Haq. "The situation seems to be escalating dangerously right now. We talk about Iraq War -- I think this situation could get far worse very quickly. And it could actually become a regional war."

A registered Democrat who has never voted for a Republican presidential candidate, Haq is voting for John McCain because of his concerns about U.S. policy in his fragile homeland.

"McCain is handling the situation in Pakistan gently. He understands not to make open statements, and he has been around for a long time," Haq said. "To me, Obama is a novice like GW was back in 2000. And it's still an imperial Presidency so Obama can make mistakes as Bush has."

Here's the link to Frontline's coverage of the PACC event, including a video.

The latest financial crisis has clearly added to the Republicans woes. Based on all of the polling data, it appears that a super majority of of 60 or more Democrats in the US senate and Democrat Barack Obama in the White House together will enjoy absolute concentration of power, unhindered by the fear of fillbuster or the veto pen of the president to stop misguided spending and legislation.

Can the US afford total control by Democrats at a time of huge national debt and large budget deficits? The history tells us that Social Security and Medicare, the two massive entitlement programs, were created during Democratic administrations of FDR and LBJ. Now, more than half of the $3 trillion budget is allocated to these programs. Another $250b pays for interest on the national debt, but it is growing rapidly with the debt. The rest covers everything else. The discretionary spending accounts for less than one-third of total US spending. Such figures limit any reasonable options open to the incoming administration. However, given the absolute control over both the executive and the legislature, will Democrats exercise restraint? Given their past record, the chances are that Democrats will go for big spending programs, including new, popular entitlements such as a massive national healthcare program for all. Cutting discretionary spending will not free up enough dollars for it. Ending Iraq war or cutting military budget will not do it either, particularly if Obama makes the expensive mistake of following through on his hawkish statements to send troops in to Pakistan. Of necessity, Democrats are going to have to dramatically increase taxes or heavily borrow from foreigners. Either of these two options will hinder economic recovery.

Democrats, like Republicans before them, will likely abuse their power in the executive and the legislature to enrich themselves and their friends at the expense of ordinary Americans. After having given George W. Bush almost a blank check for most of the last eight years, Americans appear ready to make an even bigger mistake: Give Democrats total control of the U.S. government for the next several years.

Wednesday, October 29, 2008

Will Absolute Power Corrupt Democrats Absolutely?

Latest polls indicate Democrats are maintaining significant leads in the big ten battleground states such as Florida and Ohio, in addition to Michigan and Pennsylvania. While it is understandable after eight disastrous years of Bush-Cheney administration, it is ironic that John McCain, a moderate and maverick Republican, is being tarred and feathered as another Bush. The latest financial crisis has clearly added to the Republicans woes. Based on all of the polling data, it appears that a super majority of of 60 or more Democrats in the US senate and Democrat Barack Obama in the White House together will enjoy absolute concentration of power, unhindered by the fear of fillbuster or the veto pen of the president to stop misguided spending and legislation.

Can the US afford total control by Democrats at a time of huge national debt and large budget deficits? The history tells us that Social Security and Medicare, the two massive entitlement programs, were created during Democratic administrations of FDR and LBJ. Now, more than half of the $3 trillion budget is allocated to these programs. Another $250b pays for interest on the national debt, but it is growing rapidly with the debt. The rest covers everything else. The discretionary spending accounts for less than one-third of total US spending. Such figures limit any reasonable options open to the incoming administration. However, given the absolute control over both the executive and the legislature, will Democrats exercise restraint? Given their past record, the chances are that Democrats will go for big spending programs, including new, popular entitlements such as a massive national healthcare program for all. Cutting discretionary spending will not free up enough dollars for it. Ending Iraq war or cutting military budget will not do it either, particularly if Obama makes the expensive mistake of following through on his hawkish statements to send troops in to Pakistan. Of necessity, Democrats are going to have to dramatically increase taxes or heavily borrow from foreigners. Either of these two options will hinder economic recovery.

Democrats, like Republicans before them, will likely abuse their power in the executive and the legislature to enrich themselves and their friends at the expense of ordinary Americans. After having given George W. Bush almost a blank check for most of the last eight years, Americans appear ready to make an even bigger mistake: Give Democrats total control of the U.S. government for the next several years.

Monday, October 27, 2008

Democrats Must Share Blame for Worst Financial Crisis

The Bush administration has been the target of attacks by Democrats for the international financial crisis that began on Wall street earlier this year. The critics' main argument is that the Bush-era anti-regulation environment allowed unregulated derivatives contracts, called "weapons of mass destruction" by Warren Buffett, to grow into a mushroom cloud.

While it is true that the dramatic growth of derivative contracts such as credit default swaps happened on Republicans' watch, the fact is that the seeds of the current crisis were sown during Clinton years. It all began with an obscure but critical piece of federal legislation called the Commodity Futures Modernization Act of 2000. And the bill was a big favorite of the financial industry it would eventually help destroy.

It not only removed derivatives and credit default swaps from the purview of federal oversight (on page 262 of the legislation), Congress prohibited the state and local governments from enforcing existing gambling and bucket shop laws against Wall Street.

As the recent CBS 60 Minutes segment explained, "In retrospect, giving Wall Street immunity from state gambling laws and legalizing activity that had been banned for most of the 20th century should have given lawmakers pause, but on the last day and the last vote of the lame duck 106th Congress, Wall Street got what it wanted when the Senate passed the bill unanimously." Though CNN has only picked Senator Phil Gramm as one its top 10 Culprits of Collapse, the entire senate is responsible for it.

Clearly, the unanimous Senate passage of the Commodity Futures Modernization Act of 2000 demonstrated the power of Wall Street over both Republicans and Democrats. In fact, the data of the financial services industry's recent campaign contributions shows that two of the top three recipients of the largess from Wall street are Democrats Barack Obama and Hilary Clinton. John McCain is in a distant third position. Overall, Sen Obama's campaign is awash with record, massive cash contributions.

Since the current financial crisis has its roots in easy, plentiful mortgages and the housing bubble facilitated by the Democrats' unabashed and reckless support for home ownership via Fannie and Freddie and community re-investment legislation, a larger share of the blame for the current crisis should be assigned to the Congressional Democrats such as Barny Frank and Chris Dodd.

Sunday, October 26, 2008

Aziz Leads IMF Criticism as Crisis Grows

The International Monetary Fund has come under severe criticism as the financial crisis that started on Wall Street is spreading to the developing world. IMF is the most important multi-lateral financial institution. It is responsible for overseeing the global financial system and the economic policies of its 185 members. The IMF is supposed to act as an early warning system for markets and economies. The institution is also charged with diagnosing economic problems and proactively regulating and stabilizing the international financial system to prevent and manage the kind of financial crisis the world is facing now.

Pakistan's former Prime Minister Shaukat Aziz, credited with reviving Pakistan's economy, is taking the IMF to task for being absent, or at least tardy. Mr. Aziz accused the International Monetary Fund last week of failing to show leadership during what he described as a "historic" global financial crisis.

As world leaders met to shore up distressed financial institutions, Mr Aziz charged that "this global institution which is supposed to look at everything going on was not even in the room where meetings are going on."

Speaking at an international business conference in Manila, the former Wall Street banker said interest rate cuts, recapitalization of banks and liquidity injections, while helpful, would not be sufficient to solve the problem.

"The very fabric of the global financial system is under threat," Aziz said, according to AFP.

Mr Aziz suggested there was a need to boost the IMF's regulatory powers and create a more powerful body.

"The world is becoming increasingly specialized," he said, adding that existing systemic threats beyond the agency's traditional monetary policy role must be addressed. "A robust regulatory regime must touch all the stakeholders," he said, with reference to the credit rating agencies that have come in for criticism amid the crisis.

Mr. Aziz was pointing out the fact that the banks and capital are now global. Most major financial institutions operate in multiple countries on different continents, and it is hard to draw national boundaries on regulation. In such an environment, international regulatory regime and international action to correct problems are required.

In its defense, it can be said that the IMF is not alone in being taken by surprise by the depth of the crisis, said Mr. Michael Mussa, IMF's former Chief Economist. Even Alan Greenspan, the former US Federal Reserve Chairman, has expressed shock and disbelief at the extent and the speech at which the crisis has grown.

The Bank for International Settlements, which groups the world's central banks, and the Paris-based Organization for Economic Cooperation and Development did not fully realize the gravity of the situation either.

"The explosion of the crisis, particularly in the past few weeks, is something that was not anticipated by anyone in official circles," Mr Mussa says, according to a BBC report.

As the unprecedented credit crunch hits even the countries with a good record of managing their economies, the IMF is considering urgent measures and reforms to rapidly respond to the developing crisis. According to the Associated Press, among the ideas under discussion is to provide a credit line in hard currency to countries that otherwise would have no access to foreign capital.

The IMF's 24-member executive board is expected to meet next week to examine the various proposals under consideration.

The immediate beneficiaries would be developing nations with good economic track records such as Turkey, Brazil and South Korea that normally have no difficulty borrowing but have seen access to money dry up as Western banks simply stopped lending.

Another idea under consideration is to let member countries borrow against the amount they have contributed to the fund, known as a quota. For example, if South Korea borrowed against its quota, it could obtain almost $22 billion.

The IMF already is discussing loan packages with close to a dozen countries and is examining ways to speed up the process in line with instructions it received this month from its policymaking committee.

IMF loans often serve as an incentive to other lenders, generating other financing from private and public sources such as the multilateral development banks.

The loans also come with stringent conditions that involve budget cutting and other belt-tightening measures that some governments have said should be eased in the current crisis. Many developing nations and NGOs have criticized the IMF for its insistence on cuts that hurt the poor the most. IMF supporters counter that the developing nations require close IMF supervision because they have not been good stewards of their economies.

A case in point is Pakistan. It has just returned to ask for IMF's help after a break of several years when its economy was considered one of the fastest growing in the world. But times are different now. The country's economy is in freefall. Inflation is running at about 30%. The rupee has devalued by about 25% in just three months. The fiscal deficit is a whopping 10% of GDP. Foreign-exchange reserves cover just six weeks of imports. A $500m Eurobond matures next February, but the market has already decided it is junk. The country needs at least $3 billion immediately, and a further $10 billion over the next two years to plug a balance-of-payments gap. Without it, default abroad might well coincide with political anarchy at home.

In the first loan made in the current global economic turmoil, Iceland and the IMF tentatively agreed to a $2 billion loan over two years in response to the collapse of the country's banking system.

The government said the deal, which still must be approved by the IMF's board in Washington, also will give Iceland immediate access to $830 million to head off the financial threat to its entire economy.

The IMF has helped several troubled developing economies earlier this decade. IMF was also very active during the Asian financial crisis of 1997-98. In the current financial crisis, Iceland became the first Western country to borrow from the IMF since Britain in 1976.

Other countries thought to be close to reaching a loan agreement with the IMF include Hungary, Ukraine and Pakistan, even though Pakistani government publicly denies it.

The head of the IMF, Dominique Strauss-Kahn, said this month that the fund has more than $200 billion available for bail out and could obtain additional resources quickly if needed. The consensus among the experts is that IMF will need a lot more than $200 billion as the list of countries lining up for IMF help grows longer by the day, including non-traditional borrowers such as Iceland.

Friday, October 24, 2008

Are Jews Culprits of Collapse on Wall Street?

The high-profile role played by Jews on Wall Street has never been a secret. Many of the wheelers and dealers responsible for shaping the current US financial system are Jewish, including former AIG CEO Hank Greenberg, former Citigroup CEO Sandy Weill, recently-retired Lehman Bros. CEO Richard Fuld, former Fed chairman Alan Greenspan, former Treasury Secretary Bob Rubin, current Fed chairman Ben Bernanke,etc. One of the "weapons of mass destruction" described by the legendary investor Warren Buffet is the Credit Default Swap. Greenberg's AIG is the biggest purveyor of CDS. In spite of the warnings by Buffet in 2006, Greenspan and his successor Bernanke argued against regulating derivatives such as credit default swaps. Unregulated financial derivatives are now considered the biggest cause of the financial collapse.

Credit derivatives is one of the most successful innovations of financial engineering over the last ten years. The current active credit derivatives market has produced an array of new products. For example, credit-default swaps are an indicator of the cost of bond "insurance" that varies with the risk of bond default. Credit default swaps are privately traded derivative contracts usually bought by bond holders from CDS issuers like AIG, Ambac, FGIC, and MBIA and other entities. Like other derivatives, CDS are not regulated by government agencies. The CDS issuers are expected (not gauranteed or back-stopped by governments) to reimburse bondholders in case the bond issuing companies or governments default. A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year. The buyers of CDS do not have to be bondholders. Any one can buy a CDS to bet on the probability of default by debt issuers. Once issued, the credit default swaps are bought and sold like any other contract. Many of these derivative contracts were bought to bet that the housing bubble would pop and many homeowners would default on their mortgages. That is exactly what happened this year. These derivative contracts have produced enormous profits for Wall Street firms in the last decade. But now the Fortune magazine calls these derivatives "a $55 tillion problem".

The world of finance is not unique in the dominant role played by Jews. Other businesses including media and entertainment and professions such as medicine, law and accounting have powerful Jewish presence. American Jews are disproportionately over-represented in the US Congress, the Senate and the Supreme Court as well. US policies in all spheres are heavily influenced by the Jewish minority in the United States. The exclusive club of Nobel laureates is dominated by its Jewish members, a testament to Jewish culture of hard work, commitment and achievement. Many significant levers of power are controlled by American Jews, a constant that does not change with election winners or losers in Washington, where AIPAC is the most powerful lobby. Both Obama and McCain teams boast of powerful Jews as key policy advisers on foreign affairs, finance and national security. Robert Rubin and Dennis Ross are advising Obama. Joe Lieberman is advising McCain.

When former President Pervez Musharraf of Pakistan addressed a dinner meeting of the American Jewish Congress in September 2005, his Jewish audience were described as the American business, political and social elite.

When things go wrong in any of the major US businesses or institutions, people looking for scapegoats often blame influential Jews because of the large Jewish presence in each of them. The current financial crisis is no exception.

Abraham Foxman, President of Anti-Defamation League, has written in Jerusalem Post about the recent "anti-semitic" response to the financial crisis. He writes, "It never fails. Whenever there is a financial crisis or trading scandal in the stock markets, the anti-Semites come out of the woodwork. The classic stereotype of the Jewish Shylock out to have his Christian pound of flesh dies very hard, if at all. The Jew as economic opportunist sucking the financial life-blood out of a nation or of the whole world is continually reborn".

Mr. Foxman does have a point. Stereotypes, whether Jewish or Muslim, are hard to change. The reality is that there are only three Jews on the CNN's latest top ten list of the culprits of collapse even if one argues that these three are the most important of the top ten. They are: Former Fed Chairman Alan Greenspan, Current Fed Chairman Ben Bernanke and the Lehman Brothers CEO Richard Fuld. As some of us blame the few who made serious mistakes and happen to be Jewish, let us not forget that a large number of Jewish workers and investors on Wall Street are victims of the financial meltdown. Many Jews have lost their jobs while others are suffering major declines in their investment portfolios.

Related Links:

Jewish Lobby Blamed for Economic Crisis

Financial Crisis Brings Out Anti-Semites

Jews on Wall Street

The Israel Lobby and US Foreign Policy

The Rise of Jewish Power-Nothing Short of Astounding

Jewish Tribal review

Wall Street's WMDs

Credit Default Swaps

$55 Trillion Problem

Jewish Domination of Mass Media

Thursday, October 23, 2008

Are Karachi Stocks Poised for Major Crash?

Karachi stock market is fearing the worst as the authorities contemplate removing an artificial floor of 9144 for KSE-100 imposed on August 27, 2008.

Karachi stocks have remained unscathed through the meltdown of major stock market indices around the world in the last few weeks. This has happened in spite of the precipitous drop in Pakistan rupee and the widely feared default on sovereign debt by Pakistan.

The reason why Karachi stocks have not suffered has nothing to do any "strong" fundamentals seen by astute investors. It is because of an artificial floor imposed on KSE-100 by the authorities. Fearing a complete meltdown of stock prices at Karachi Stock Exchange, Pakistan's Securities and Exchange Commission imposed a floor of 9144 for the market's benchmark KSE-100 index. The index closed at 9144 level on Wednesday, Aug 27, the day the KSE and SEC announced their decision to not allow the KSE-100 to trade below this arbitrary level. This extraordinary action, the first of its kind since the exchange opened its doors in 1948, came after investors pushed down the index to its lowest level in more than two years. Since this highly unusual action, the trading volume at Karachi has been extremely low. Daily trading volume dropped to a record low level last week to less than a million shares.

As a precaution before the KSE-100 floor is removed and to soften the blow for investors, the government is offering a Rs. 50 billion fund to bail out the shareholders. The fund will likely be used to offer "put options" worth Rs 30 billion to foreign investors. Pakistani stock brokers like the idea but they want at least Rs. 15 billion to cover losses by their Pakistani clients, according to media reports.

While Pakistan's Rs. 50 billion bailout package is laudable, it will be no more than a band-aid for a much more serious problem in Pakistan: Major loss of investor confidence. Unless the national leadership takes steps to get the economy on the right track and restore investor confidence, the rupee, the stock market and credit market and the whole financial system will continue to verge on collapse.

Will Pakistan Test Obama?

"Mark my words. It will not be six months before the world tests Barack Obama like they did John Kennedy. The world is looking," said Barack H. Obama's running mate Joseph Biden last Sunday in Seattle, Washington.

"Remember I said it standing here. if you don't remember anything else I said. Watch, we're gonna have an international crisis, a generated crisis, to test the mettle of this guy. And he's gonna have to make some really tough -- I don't know what the decision's gonna be, but I promise you it will occur. As a student of history and having served with seven presidents, I guarantee you it's gonna happen," Biden continued.

Biden is often described as a "gaffe" machine. So, it is not strange to see that it is Joe Biden, of all people, who "promised" the world of an "international crisis" that will "test the mettle" of his young running mate within six months. What a gift to the McCain campaign at this moment when Obama is enjoying double digit lead over McCain.

As expected McCain campaign jumped on it. "The next president won't have time to get used to the office. We face many challenges here at home and many enemies abroad in this dangerous world," John McCain said. "We don't want a president who invites 'testing' from the world at a time when our economy is in crisis and Americans are already fighting two wars."

McCain said it was even "more troubling" that Biden suggested supporters stick by Obama if the actions he takes are wrong or unpopular.

"Senator Obama won't have the right response, and we know that because we've seen the wrong response from him over and over during this campaign," he said.

While Biden did not elaborate on the likely scenarios that will test Obama, McCain's running mate Sarah Palin thinks Obama's Pakistan stance and the potential international crisis there that could be one of the test scenarios for Obama. Other crisis scenarios for young Obama include situations in Iran, Georgia, Iraq and Joe Biden's mouth!

Here's what she said in Reno, Nevada on Tuesday:

He told Democrat donors to mark his words – that there were “at least four or five scenarios” that would place our country at risk in an Obama administration. Thanks for the warning, Joe!

He didn’t specify what all those four or five scenarios will be, but for clues, let’s review the Obama foreign policy agenda.

Our opponent wants to sit down with the world’s worst dictators. With no preconditions, he proposes to meet with a regime in Teheran that vows to “wipe Israel off the map.” Let’s call that crisis scenario number one.

Senator Obama has also advocated sending our U.S. military into Pakistan without the approval of the Pakistani government. Invading the sovereign territory of a troubled partner in the war against terrorism. We’ll call that scenario number two.

He opposed the surge strategy that has finally brought victory in Iraq within sight. He’s voted to cut off funding for our troops, leaving our young men and women at grave risk. He wants to pull out, leaving some 25 million Iraqis at the mercy of Iranian-supported Shiite extremists and al Qaeda in Iraq. By his own admission, this could mean our troops would have to go back to Iraq. Crisis scenario number three.

After the Russian army invaded the nation of Georgia, Senator Obama’s reaction was one of indecision and moral equivalence – the kind of response that would only encourage Vladimir Putin to invade Ukraine next. That would be crisis scenario number four.

But I guess the looming crisis that most worries the Obama campaign right now is Joe Biden’s next speaking engagement. Let’s call that crisis scenario number five.

The real problem is that these warnings from Joe Biden are similar to his earlier assessment of Barack Obama. It wasn’t so long ago that he said Barack Obama wasn’t up to the job, and that, quote, “the presidency is not something that lends itself to on-the-job training.”

The same Joe Biden said he would be honored to run on the ticket with John McCain because, quote, “the country would be better off.” And here we have some common ground. I want a president who spent 22 years in uniform defending our country. I want a president who isn’t afraid to use the word “victory” when he talks about the wars we are fighting. I want a president who’s ready on Day One. I want a president with the experience and the judgment and the wisdom to meet the next international crisis – or better yet to avoid it. I want John McCain as our commander-in-chief.

I believe there will be massive challenges on diplomatic, economic and national security fronts regardless of who is elected to the While House this November. The new president will not have much of a honeymoon period. If the new president does not hit the ground running, no amount of expert advice will suffice. The new president will require both judgment and experience to respond quickly to potential crises.

Wednesday, October 22, 2008

Credit Markets Expecting Pakistan Default

Amidst a flurry of activity by Pakistani government to seek bailout from friendly nations and possible resort to IMF loans, the credit markets are betting that Pakistan will most likely default on its sovereign debt. Pakistan's sovereign debt now has the dubious distinction of being the riskiest, surpassing Argentina's sovereign debt.

According to The News, the price for insuring $10 million worth of Argentina's debt in September stood at $788,000 while the price to insure the Government of Pakistan-guaranteed debt skyrocketed to $950,000, something that has never happened before.

As recently as June this year, Pakistan sovereign debt credit default swaps (CDS) traded at 530 basis points in Hong Kong, meaning it cost $530,000 a year to protect $10 million of Pakistan's debt from default for five years. A jump from 530 to 950 basis points means the risk of default by Pakistan has almost doubled since June, 2008. The risk has particularly shot up since President Musharraf left office in August, 2008. It should be noted that Pakistan CDS traded at a record low of 146 basis points around the time of the February elections.

Credit-default swaps are an indicator of the cost of bond "insurance" that varies with the risk of bond default. Credit default swaps are privately traded derivative contracts usually bought by bond holders from CDS issuers like AIG, Ambac, FGIC, and MBIA and other entities. Like other derivatives, CDS are not regulated by government agencies. The CDS issuers are expected (not gauranteed or back-stopped by governments) to reimburse bondholders in case the bond issuing companies or governments default. A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year. The buyers of CDS do not have to be bondholders. Any one can buy a CDS to bet on the probability of default by debt issuers. Once issued, the credit default swaps are bought and sold like any other contract. Many of these derivative contracts were bought to bet that the housing bubble would pop and many homeowners would default on their mortgages. That is exactly what happened this year.

Lately, credit default swaps have come under heavy criticism for being the main contributor to the unfolding financial crisis around the world. Since credit default swaps are unregulated derivatives, they can be issued by any one. Many thinly-capitalized entities are in the business of issuing CDS to make a lot of money fast. In its recent issue, Fortune magazine reports that Wachovia and Citigroup are wrangling in court with a $50 million hedge fund located in the Channel Islands. The reason: A dispute over two $10 million credit default swaps covering some debt. What's most revealing is that these massive banks put their faith in a Lilliputian fund (in an inaccessible jurisdiction) that was risking 40% of its capital for just two CDS. Can anyone imagine that Citi would, say, insure its headquarters building with a thinly capitalized, unregulated, offshore entity?

Fortune compares the CDS market with casino gambling. It says that when you put $10 on black 22, you're pretty sure the casino will pay off if you win. The CDS market offers no such assurance. One reason the market grew so quickly was that hedge funds poured in, sensing easy money. And not just big, well-established hedge funds but a lot of upstarts. The ease and low cost of CDS encouraged a lot of lending and borrowing that would not have occurred otherwise. Both the lenders and borrowers believed they could easily transfer risk to a third party at relatively low cost.

The result of the rapid growth in credit default swaps is a $54.6 trillion problem. In spite of the massive global government intervention, including US government's takeover of AIG, the biggest CDS player, this huge problem will take considerable time and money to unwind. Meanwhile, it will get a lot harder for Pakistan and other economically troubled governments such as Ukraine, Kazakhstan, and Argentina get credit from any one other than the International Monetary Fund. Such credit usually comes with tough conditions and micromanagement of country's budget, taxes, spending and economy by IMF officials.

Related Links:

Pakistan Likely to Avoid Default

The $55 Trillion Question

Pakistan's Debt Riskiest

Can Pakistan Avoid IMF Bailout?

Why Obama Shies Away From Muslims?

Following the strong Colin Powell statement in support of Muslim Americans rights and patriotism on NBC's Meet the Press, NY Times Columnist Maureen Dowd has criticized the Obama campaign for shying away from Americans of Muslim faith. By asking "So what if he (Obama) is Muslim?", General Powell has gone where no US politician , including Obama, has ever dared to go before him. Here's what Ms. Dowd wrote in her Oct 22, 2008 column titled "Moved by a Crescent":

Even the Obama campaign has shied away from Muslims. The candidate has gone to synagogues but no mosques, and the campaign was embarrassed when it turned out that two young women in headscarves had not been allowed to stand behind Obama during a speech in Detroit because aides did not want them in the TV shot.

Ms. Dowd followed up with General Powell on his Obama endorsement and reports as follows:

Powell got a note from Feroze Khan (father of Kareem Rashad Sultan Khan) this week thanking him for telling the world that Muslim-Americans are as good as any others. But he also received more e-mails insisting that Obama is a Muslim and one calling him “unconstitutional and unbiblical” for daring to support a socialist. He got a mass e-mail from a man wanting to spread the word that Obama was reading a book about the end of America written by a fellow Muslim.

“Holy cow!” Powell thought. Upon checking, he saw that it was a reference to Fareed Zakaria, a Muslim who writes a Newsweek column and hosts a CNN foreign affairs show. His latest book is “The Post-American World.”

While I wish that Obama would say something along the lines of what Powell did in his endorsement, the fact is that Obama himself and his campaign have practically treated the Muslim label as if it were an epithet.

The Obama campaign has been trying to deliberately distance their man from Muslim-Americans. What happened a few weeks ago when the campaign quickly dumped Chicago attorney Mazen Asbahi as director of Muslim Outreach raises serious questions about how genuine Obama's "Change" message is. Asbahi and James Zogby, president of Arab-American Institute, are not radicals by any stretch, and yet they are targeted because of who they are: Muslim-American and Arab-American. It's a big mistake to push away the moderates in this battle against the extremists within Islam. Extremists on both sides of any battle draw strength from each other by pointing to the excesses of the opposite side. Attacking and marginalizing the Muslim moderates only helps the extremes in the West and the Islamic world and perpetuates the ongoing man-made "clash of civilizations".

In response to the expected assault by the pro-war right wing pundits and commentators, the weakness shown by the Obama campaign represents a huge obstacle in the way of the "dialog of civilizations" needed to bring real "Change" from the madness that has characterized the last seven years of the Bush administration. How will President Obama pursue this all-important dialog if he caves in so quickly to the purveyors of hate in America?

Unless Mr. Obama and his campaign answer the fundamental questions raised here, it will be hard for most rational and thinking people to believe that Obama's talk of "Change" is sincere. Instead, all of his carefully crafted "change" messages will appear to be merely politically convenient slogans to win the upcoming elections. To demonstrate that he is genuine, Obama must stop being an overly cautious captive of his political handlers and show moral fortitude to bring about real "Change" in America and the world.

To make amends for his shabby treatment of Muslim Americans, I suggest to Mr. Obama to meet with Mr. Feroze Khan and thank him for his son's sacrifice. It will be a strong gesture to America and the world that Obama is serious about "Change" in America.

Tuesday, October 21, 2008

Pakistan Manufacturing Humvees for US Troops?

A report in Asia Times On Line claims that Pakistan has received secret orders from the US to build 1000 Humvees at HIT (Heavy Industries Taxila). These vehicles are needed urgently for the expected US troop surge in Afghanistan and possibly for more action in Pakistan's FATA region. The apparent reason for secrecy is the political sensitivity amidst strong anti-American sentiments prevailing in Pakistan after recent US military incursions and predator attacks in FATA.

ATOL's Syed Saleem Shahzad claims that the "work on the Humvees has already begun, although the task is being undertaken in secret".

Heavy Industries Taxila (HIT) is the backbone of Pakistan's Engineering Industry for the Pakistan Armed Forces, being a combination of multiple industries that has grown into a large military complex in the last decade. It has six major production units. Heavy Industries Taxila is one of the largest defense production facilities in Pakistan with a manpower of over 6500 highly skilled personnel and engineers trained in the field of defense production. Out of the 6500 employees, about 30% are uniformed personnel.

The Organization provides facilities for the overhaul, rebuilding and manufacturing of Main Battle Tanks, Armored Recovery Vehicles and Armoured Personnel Carriers and has recently developed and produces MBT-2000 Al-Khalid Tank. In addition it rebuilds, upgrades and modernizes Armored Vehicles of various origins.

Humvees for the US troops are currently produced by AM General, an American heavy vehicle manufacturer based in South Bend, Indiana. While HIT has been exporting heavy armaments to many countries, the reported Humvee order represents the first major HIT deal for the U.S.

Earlier in July of this year, Major General Mohammad Farooq, Director General of the Defense Export Promotion Organization, had indicated that collaboration with the United States had increased in manufacturing armored personnel carriers "with transfer of technology".

According to a July report in Pakistan's Dawn newspaper, General Farooq claimed that Pakistan’s defense exports have tripled to around $300 million because of the quality of its ammunition, anti-tank guided missiles, rocket launchers and shoulder-fired surface-to-air missiles. He said exports to South Asian, Middle Eastern and African countries had increased significantly.

General Farooq said optical instruments like night vision devices, laser range-finders and designators, laser threat sensors, artillery armor mortars and munition, mine detectors, anti-tank rifles, missile boats, different types of tear gases, fuses of unarmed vehicles, security equipment and sporting and hunting guns were also being manufactured in Pakistan.

“The fuses are being purchased by countries like Italy, France and Spain,” he said.

In reply to a question, he told Dawn, Pakistan’s military exports were higher than India’s. “Indians started working on Arjun tank but, they are yet to induct it in their army, while Pakistan has built and handed over Al Khalid tank to the army, although it started the program later,” he said.

Lately, Pakistan has come under severe criticism by human rights groups for being a leading manufacturer and exporter of land-mines, cluster bombs and depleted uranium munitions.

While the reported US order for a thousand Humvees is an opportunity for Pakistan to earn badly needed foreign exchange, it could become a serious political headache for Zardari administration. The deal could also raise hackles of those in the United States who oppose any vehicle-related outsourcing when the US auto industry is in deep trouble.

Monday, October 20, 2008

Pakistani-Americans Ask Obama to Cool it

Pakistani-Americans ask Obama to ease rhetoric about bombing targets in Pakistan

By Noreen S. Ahmed-Ullah

Chicago Tribune

October 10, 2008

A group of Pakistani-Americans and anti-war activists delivered a letter Thursday to the Chicago office of Sen. Barack Obama, calling on him to cool political rhetoric about bombing targets in Pakistan.

"We are particularly concerned with your public pronouncements earlier this week in support of violating the borders of our ally, the country of Pakistan. . . . You must understand the sweeping dismay that your avowed support for U.S. military incursions into Pakistan . . . has elicited among untold numbers of Pakistani-Americans and peace activists across the country," the letter stated.

During his debate Tuesday with Sen. John McCain, Obama said he was not calling for the invasion of Pakistan. But Obama added, "If Pakistan is unable or unwilling to hunt down [Osama] bin Laden and take him out, then we should."

Ifti Nasim, host of a Pakistani radio show in Chicago called "Sargam," said the U.S. was "making a mistake" by "attacking Pakistan and making Pakistan your enemy."

He and other protesters criticized U.S. military incursions into Pakistan's tribal areas in the northwest part of the country to attack Taliban and Al Qaeda targets. They also decried the Bush administration's use of unmanned military drone aircraft, which have resulted in civilian deaths.

Nasim said McCain wants to continue the policy. The group plans to send a similar letter to the Arizona senator.

According to Said Umar Khan, his hometown of Mardan outside Peshawar in Pakistan's troubled North-West Frontier Province has seen a wave of displaced people escaping fighting in the tribal areas.

On Thursday, Obama campaign officials restated his comments from the debate this week. They said Obama understands Pakistan is an "important ally" and is calling for a partnership with the South Asian nation through increased U.S. aid for health, education and security.

Pakistani-Americans and other immigrant and anti-war groups such as the Chicago Coalition Against War and Racism are planning an anti-war march at 2 p.m. Saturday at Devon Avenue and Leavitt Street.

India Competes with Big Dogs in Moon Race

"If you want to run with the big dogs, you have to stop pissing with the puppies". These words are attributed to Robert Blackwill, former US Ambassador to India, in his oft-repeated lectures to the Indian government earlier this decade. The "puppies" reference here is apparently a dig at India's obsession with Pakistan.

Finally, after years of futile focus on Pakistan, India is heeding the advice of Ambassador Blackwill. The country began the countdown Monday to the launch of its first unmanned mission to the moon that will signify a major catch-up step with Japan and China in the fast-developing Asian space race, according to media reports published today.

"Everything is going perfectly as planned," the center's associate director M.Y.S. Prasad told AFP from Sriharikota, 80 kilometers (50 miles) north of Chennai, after the official countdown began in the early hours of Monday.

Earlier this year, India did a successful launch of a mission with 10 satellites from the Sriharikota space center to become a serious contender in the fast growing $2.5B commercial satellite launch business.

Beyond the Indian commercial ambitions, this milestone for India represents a strategic capability as an emerging economic and military power on the world stage. This is also a great comeback for ISRO about two years after a launch in 2006 had to be destroyed less than a minute after lift off when it veered from its path.

India still has a long way to go to catch up with China which, along with the United States, Russia and the European Space Agency, is already well-established in the commercial launch business. Chinese officials are already planning a manned mission to the moon in the future, after following the United States and the former Soviet Union last month by a successful space walk, although a more immediate goal is the establishment of an orbiting space lab. AFP reports that Beijing's long-term ambition is to develop a fully-fledged space station by 2020 to rival the International Space Station, a joint project involving the United States, Russia, Japan, Canada and several European countries. Japan has also been boosting its space efforts and has set a goal of a manned mission to the moon by 2020. Japan's first lunar probe, Kaguya, was successfully launched in September last year, releasing two mini-satellites which will be used to study the gravity fields of the moon among other projects. The development of a space race in Asia has both commercial and security implications, with the potential for developing military applications such as intelligence gathering and space-based weapons. Earlier this year, Japan ended self-imposed prohibition on militarization of space, hoping to remove any legal barriers to building more advanced spy satellites.

The Pakistan Space Agency or Space and Upper Atmosphere Research Commission (SUPARCO), the equivalent of ISRO in India, is the Pakistani state-run space agency responsible for Pakistan's space program. It was formed in September 1961 by the order of President Ayub Khan on the advice of Professor Dr Abdus Salam, Nobel Laureate, who was also made its founding director. The headquarters of SUPARCO is located in Islamabad, however with the development of Sonmiani it is expected that the new headquarters will be moved in the near future. The agency also has offices in Lahore and at Karachi (an engineering installation). SUPARCO has no launch capability of its own. It has relied on Chinese and Russian space agencies to launch its satellites Badr-1 and Badr-2.

SUPARCO saw major cuts in its budget in the 1980s and 1990s. Last year, its annual budget was a modest $6m. In fact, Pakistan had no communication satellites in space until 2003. The urgency to place its first satellite in a geo-stationary orbit was keenly felt in the middle of 2003, by which time Pakistan had already lost four of its five allocated space slots. The five slots were allocated to Pakistan by ITU (International Telecommunication Union) back in 1984, but the country failed to launch any satellite till 1995. That year Pakistan again applied for and received the five slots, but once again the government failed to get a satellite into orbit, losing four of it slots in the process. According to officials, if Pakistan had failed to launch its satellite by April 19, 2003, the country would have lost its fifth and last 38-degree east slot when the availability of these space slots is getting difficult every day.

With the current economic crisis, it is unlikely that Pakistan will boost space spending to try and follow its bigger, better funded neighbor into space.

Related Links:

Pakistan's Space Capabilities

Sunday, October 19, 2008

Powell: So What if Obama is Muslim?

Former US Secretary of State Colin Powell, a life-long Republican who served George W. Bush in his first term and argued for Iraq war at the UN, endorsed Senator Barack Obama to be the next president of the United States on NBC's "Meet the Press". While the endorsement was not unexpected, what caught my attention was the statement that Secretary Powell made about Barack Obama's faith. By asking "So what if he is Muslim?", General Powell has gone where no US politician , including Obama, has ever dared to go before him. Here's the relevant part of the transcript of Powell's statement:

I'm also troubled by, not what Senator McCain says, but what members of the party say. And it is permitted to be said such things as, "Well, you know that Mr. Obama is a Muslim." Well, the correct answer is, he is not a Muslim, he's a Christian. He's always been a Christian. But the really right answer is, what if he is? Is there something wrong with being a Muslim in this country? The answer's no, that's not America. Is there something wrong with some seven-year-old Muslim-American kid believing that he or she could be president? Yet, I have heard senior members of my own party drop the suggestion, "He's a Muslim and he might be associated terrorists." This is not the way we should be doing it in America. I feel strongly about this particular point because of a picture I saw in a magazine. It was a photo essay about troops who are serving in Iraq and Afghanistan. And one picture at the tail end of this photo essay was of a mother in Arlington Cemetery, and she had her head on the headstone of her son's grave. And as the picture focused in, you could see the writing on the headstone. And it gave his awards--Purple Heart, Bronze Star--showed that he died in Iraq, gave his date of birth, date of death. He was 20 years old. And then, at the very top of the headstone, it didn't have a Christian cross, it didn't have the Star of David, it had crescent and a star of the Islamic faith. And his name was Kareem Rashad Sultan Khan, and he was an American. He was born in New Jersey. He was 14 years old at the time of 9/11, and he waited until he can go serve his country, and he gave his life. Now, we have got to stop polarizing ourself in this way. And John McCain is as nondiscriminatory as anyone I know. But I'm troubled about the fact that, within the party, we have these kinds of expressions.

I admire General Powell for his clear statement followed by a reprimand of some of his party colleagues regarding the questions and rumors about Obama’s faith. In particular, I appreciate the argument General Powell makes about the Muslim Americans, willing to give the ultimate sacrifice for their nation, be given the same rights as Americans of any other faith. I wish his views were commonly shared and embraced by fellow Americans. And I also wish that Obama would say something along the lines of what Powell did in his endorsement. But, unfortunately, the fact is that Obama himself and his campaign have practically treated the Muslim label as if it were an epithet.

Let’s also acknowledge that it is easy for Powell to be “statesman-like” when he has nothing to lose. It reminds me of the many US presidents and secretaries of state who criticized Israeli policies and its treatment of the Palestinians only after they left office. It is much harder for someone like Obama to do what Powell has just done.

There is a lot of rhetoric about “Profiles in Courage” in America these days. Some engage in hyperbole describing Obama as a "Transformational Figure" or even extol him as "The Messiah" who has been "sent to change" the world. The sad reality is that the politicians of all stripes, including Obama, can not stand up to the powerful lobbies in America: right, left or center.

Here's a video clip of Secretary Powell's endorsement:

Can Pakistan Avoid IMF Bailout?

Pakistan may have to accept politically unpopular aid from the International Monetary Fund to ward off possible economic meltdown if wealthy nations turn it down, the government said Sunday.

Battered by high inflation and a plunging currency, nuclear-armed Pakistan needs up to US$5 billion to avoid defaulting on sovereign debt due for repayment next year.

Foreign Minister Shah Mehmood Qureshi said Sunday the "IMF was an option" but no decision had been made yet.

Shaukat Tareen, the finance official leading the country's efforts to secure the money it needs, said he was confident Pakistan would not default but that IMF aid may be needed as a "backup."

He predicted the country would soon receive more than US$4.5 billion through the acceleration of planned development loans and direct assistance from rich countries.

The crisis comes as the country's new civilian leaders struggle against Islamist militants in the northwest blamed for soaring violence at home and in neighboring Afghanistan.

Seeking help from the IMF would be politically difficult for the government because the agency's help is often on condition of deep cuts in public spending that can affect programs for the poor.

Pakistan hopes its front-line status in the war on terrorism will mean the international community will not have the stomach to see it default. But its plea for help comes as many countries are distracted by the global economic crisis.

President Asif Ali Zardari returned Friday from wealthy China with no public commitment of help.

Through much of its history, Pakistan has struggled with chronic economic instability and foreign debt, but the current crisis comes at an especially dangerous time.

The country has seen more than 90 suicide blasts since July last year.

Last month, a suicide bomber struck the Marriott Hotel in Islamabad, killing 54 and leading the U.N. and foreign embassies to withdraw the families of foreign staff.

Pakistan's overwhelmingly poor population of 160 million is already suffering from skyrocketing food and fuel prices and enduring daily power cuts caused by energy shortages.

Defaulting on debt risks shattering any remaining local and foreign investor confidence in the battered economy. It could escalate into an economic meltdown with out-of-control price increases, fewer jobs, more power shortages and a general breakdown in law and order.

"Bankruptcy, should it happen, could unleash a massive tidal wave of social unrest," the U.S.-based intelligence risk assessment agency Stratfor said in a report. "Exactly what the jihadists on both sides of the Afghan-Pakistani border would like to see to advance their goals."

The financial crisis was caused in part by the previous administration of President Pervez Musharraf, which subsidized fuel and food even as international commodity prices soared last year.

That created a huge hole in public finances, meaning the new government has had to borrow heavily from the central bank, stoking inflation that this month reached 25 percent.

The Pakistani rupee has lost about a third of its value this year. The benchmark 100-stock index had already fallen more than 40 percent from a record high in April when its board of directors put a floor under it at the end of August.


Associated Press writers Stephen Graham in Islamabad and Ashraf Khan in Karachi contributed to this report.

Source: International Herald Tribune

Saturday, October 18, 2008

Kashmiri-American Heads US Financial Rescue

"I'm a free-market Republican." said Neel Kashkari at an American Enterprise Institute conference on Sept. 19, 2008, just days before he was asked to lead an unprecedented and massive U.S. government intervention to rescue the U.S. financial system from total collapse.

Who is Neel Kashkari? He is the 35-year-old son of Kashmiri-Americans who grew up in Akron, Ohio. Trained as an aerospace engineer before attending Wharton Business School, he comes from a family of scientists. Father Chaman has a doctorate in engineering, and won a Presidential award for his work in getting water to African villages. Kashkari's mother, Sheila, is a retired pathologist, and his sister Meera, specializes in infectious diseases.

Kashkari has been a close adviser to Treasury Secretary Henry M. Paulson Jr. on the credit crisis and helped draft the legislation for the massive rescue plan. He has been designated as the Interim Assistant Secretary of the Treasury for Financial Stability. In this capacity, Mr. Kashkari is overseeing the Office of Financial Stability, including TARP, the $700b Troubled Asset Relief Program. As TARP chief, he will have the powerful position to determine what non-performing assets and out-of-favor mortgage-backed securities to buy and at what price. In a way, his decisions will have long term impact on how the US financial system performs now and in the future.

The choice of young Kashakari has come under criticism by the respected Wall Street Journal in a recent editorial. The editorial said: A problem now is that Treasury Secretary Hank Paulson still hasn't shown he knows how to use his new tool, and his appointment of a 35-year-old former Goldman Sachs employee as the auction czar doesn't call to mind Paul Volcker arriving at the Fed in 1979. With no disrespect to Neel Kashkari, who is Mr. Paulson's choice, a financial panic is a bad time to be introduced to global markets. At a minimum, Treasury should have done better than leak his name to the newspapers. This is the kind of roll out that needs to be better than seat-of-the-pants -- and continues the problem of weak execution at Treasury.

Time magazine says this about Kashkari in its recent issue: For a position this important, Kashkari, the American-born son of Kashmiri immigrants, may seem an unlikely pick: he's been in finance for only eight years, two as a student at the Wharton School and four as an executive in the San Francisco office of Paulson's old firm, Goldman Sachs. At Goldman, Kashkari was so low on the food chain that he only got to know Paulson well after they both moved to the Treasury in 2006.

But Mr. Kashkari has powerful defenders. A spokesman for Congressman Barney Frank, the liberal head of the House Financial Services Committee, calls him "very knowledgeable and very smart."

Kashkari's assignment offers him a great opportunity to learn to deal with tough issues in the company of the best, the smartest and the most experienced economic leaders with plenty of scars. But this is also a dangerous assignment with uncertain results. Young Kashkari's mettle will be mightily tested in his powerful but temporary job which will last at least until a new president is inaugurated in January 2009.

Kashkari is not the only high-profile South Asian making news in the midst of the biggest financial crisis US has faced since the Great Depression of the 1930s. Vikram Pandit, also an engineer and the current CEO of Citigroup, is credited with saving his firm from meeting the same fate as Lehman Brothers. He engineered the rescue without Uncle Sam's help. Recently, though, he suffered a setback when Wachovia spurned Citigroup's bid to buy it and chose to go with Wells Fargo instead.

With dozens of people of South Asian origin, including former Pakistani prime minister Shaukat Aziz, having served or serving in responsible positions in the US financial services industry, South Asian banking and finance expertise is coming of age.

India-based Debt Collection Business Soars

With the U.S. economy slipping into a potentially deep and prolonged recession, and increasing number of Americans unable to pay their debts, the debt collection call-center business in India is soaring.

According to a report in The Washington Post, India handles an estimated $16 billion -- or about 5 percent -- of delinquent U.S. accounts. More complicated health insurance bills and mortgage payments are still largely handled inside the United States, industry executives say. The debt collection business is expected to continue to grow as debt rises and companies look to cut costs, industry experts said. Aegis call center in New Delhi, which handles nearly a fourth of debt collection outsourced from the United States, is experiencing rapid growth. The company is setting up a second office building for 5,000 employees, many of them to be hired over the next few years. Most employees are college-educated and in their 20s. They earn about $5,000 a year, a competitive starting salary in India, but less than a quarter of what their counterparts in America make.

The International Herald Tribune has recently reported on Encore Capital Group, another debt-collection call center in India. "India will be the only place we grow this year," said J. Brandon Black, the CEO of Encore, collection company based in San Diego. India is Encore's largest operating area, with about half the company's collection force of more than 300.

Although the stereotype of a collector may be "some guy with chains and a cut-off shirt," Black is quoted by IHT, collectors in India are "very polite, very respectful, and they don't raise their voice." "People respond to that," he added.

There is almost a cult following of America among call center workers, a fantasy where hopes and dreams are easily achieved by people who live in a wonderland of well-paid jobs, big homes and expensive vacations. This perception seems to be changing, at least among the Indian debt collectors who regularly listen to sob stories of trouble in paradise.

U.S. household debt has increased from about 50% of GDP in 1980 to a peak of 100% in 2006, according to Harvard Business Professor Nial Ferguson who recently wrote a column for Time Magazine. In other words, households now owe as much as the entire U.S. economy can produce in a year. Much of the increase in debt was used to invest in real estate. The result was a bubble; at its peak, average U.S. house prices were rising at 20% a year. Then — as bubbles always do — it burst.

Professor Ferguson believes that U.S. banks and other financial institutions are in an even worse position: their debts are accumulating even faster. By 2007 the financial sector's debt was equivalent to 116% of GDP, compared with a mere 21% in 1980. And the assets the banks loaded up on have fallen even further in value than the average home — by as much as 55% in the case of BBB-rated mortgage-backed securities.

The heavy debt and deflating asset prices are now forcing "deleveraging", the sales of assets in a down market to pay debt that is contributing to an even greater drop in the value of stocks, bonds and real estate. With the banks trying to build up their capital reserves, they are not lending to even the most credit worthy customers, or to each other. Such caution is resulting in heavy job losses at businesses unable to borrow to meet their business needs. This climate has caused a significant loss of confidence among consumers, businesses and investors making matters worse. It is becoming a vicious cycle that the US Treasury and the Federal Reserve are trying to break by pumping over a trillion dollars into the banking system. However, the banks' continuing reluctance to lend is forcing a change in strategy by Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke. Both leaders are now buying stakes in the banks to try and change their behavior to relieve the continuing credit crunch.

The massive consumer and corporate debt and the unprecedented debt-addiction has brought the U.S. into this crisis. Ironically, it is the sudden withdrawal of debt that is making the situation worse. The contagion has now spread to the rest of the industrialized world. We are in uncharted waters now. Let us hope the captains of U.S. economy can navigate us out of the severe storm with as little damage as possible. Meanwhile, it is an opportunity for debt collectors in India to see the seamy side of the life in US while they make a few extra bucks to improve their own lives.

Friday, October 17, 2008

India Projects Maritime Power on High Seas

India says it will send warships to the Gulf of Aden to protect its container vessels from pirates operating off the coast of Somalia, according to a BBC report today.

Recently, there has been a dramatic increase in incidents of piracy off the coast of Somalia. In August, 18 Indian sailors were captured by the Somali pirates who claim they are protecting Somali waters. The Gulf of Aden has seen 13 incidents of hijack in the last two months. While some analysts have expressed fears of terror connections in lawless Somalia, others believe that the pirates are only interested in kidnapping for ransom. However, there are charges that some of the piracy proceeds have gone to al-Shabab, a Somali militia that the U.S. accuses of harboring the terrorists who attacked U.S. embassies in Kenya and Tanzania in 1998. Piracy off the coast of Somalia is estimated to have cost up to $30m (£17m) in ransoms so far this year, according to a recent report by a UK think tank. The pirates, some backed by warlords affiliated with the transitional government installed by Ethiopia with the US backing, have exploited the chaos.

The rise in piracy in Gulf of Aden is seen by some as an unintended consequence of the US war on terror, according to Newsweek magazine. Two years ago piracy in the Horn of Africa was almost stamped out. The Islamic group that took over Mogadishu and parts of Somalia in 2006 defeated several militias involved in piracy and warned others that they'd face punishment under a harsh version of the Sharia law. This tactic worked: "During the summer of 2006 there were no attacks [on ships] at all," says Pottengal Mukundan, director of the International Maritime Bureau.

The Indian Navy is the world’s fifth largest navy. It is proud of its "blue water" capability to operate on the high seas away from the Indian shores to project India's power in the Indian ocean and to "protect" major sea routes and "impress" its neighbors. It is a three-dimensional force consisting of sophisticated missile-equipped warships, aircraft carriers, minesweepers, advanced submarines and the latest aircraft in its arsenal. India's Naval forces are maintained and supported by modern dockyard facilities with state-of-the-art technology. The Indian Navy has two major Naval bases at Mumbai and Visakhapatnam on the two coasts of India. The Chinese PLA Navy, the other major power in Asia, has ambitious plans to become the world's largest force but it currently lacks any aircraft carriers.

In 2000, the Indian Navy deployed a fleet in the South China Sea for the first time, bringing rebukes from China. Just three years later, China deployed its ships to the Indian Ocean, conducting exercises first with the Indian Navy and then with its traditional partner and India's archenemy in the region, Pakistan. Pakistan Navy is a much smaller force but it claims to be a "four-dimensional" force including marine units. It is not capable of undertaking the kind of missions that the Indian Navy recently has. In 2002, the Indian Navy conducted patrols in the Strait of Malacca to guard high-value cargo ships from attack, relieving a U.S. vessel and freeing it for other missions related to U.S. Operation Enduring Freedom.

The US Navy has been operating in the Gulf of Aden for months, claiming some success in foiling hijacking attempts by the Somalis. The area in question is a 920- by 300-mile basin separating the Arabian coast from the Horn of Africa. It is used by about 250 ships a day, according to a U.S. Navy spokeswoman, Lt. Stephanie Murdock. The Associated Press has reported that the area was the scene of the deadly al-Qaida attack on the USS Cole off Yemen. And it is a hive of illegal activity, including gunrunning as well as people- and drug-smuggling. The Indian Navy along with navy ships from several other nation will probably be helpful in dealing with piracy. But can the naval power alone succeed in stemming the growing problem of robbery on the high seas in the Indian ocean? I seriously doubt it. The piracy problem is only a symptom of the core problem of lawlessness in Somalia. What is really needed is the restoration of a functioning government in Mogadishu to deal with this menace and other terror-related problems in the Horn of Africa.

Related Links:

Stuck in Somalia

US Targets Somali Pirates

India as a Maritime Power

Indian Navy

China's PLA Navy

Pakistan Navy

Thursday, October 16, 2008

Obama on His Muslim Heritage

Is Senator Barack Obama a Muslim? Why is his middle name Hussein? Did he attend a madrassa (Muslim religious school) in Indonesia? Does he have a soft corner for Muslims? What will his attitude be toward the Islamic world, Pakistanis and the war on terror? Is he "The Manchurian Candidate"?

All of these questions have come up in one way or another during the US presidential race this year. In the closing days of the race, the senator has written a letter talking about his Muslim heritage. Here is the text of the letter:

There has been a lot made in the recent weeks about the Muslim history of my family. Some of the things that have been said are true, others are false, so I am writing this letter to clear up the misunderstandings on this issue.

Yes, it is true that I have a name that is common amongst Kenyan Muslims where my father came from and that my middle name is Hussein. Barack is a name which means 'blessing and Hussein is a masculine form of the word beauty. Since there is nothing inherently wrong with the concept of blessings from God and the beauty He creates I fail to see the problem with these names. Some will say wouldn't it be a problem to have a president with a name similar to the deposed and executed former dictator of Iraq? My answer to this is simply no; rather it is the strength and beauty of America that the son of an African man with a 'funny sounding' name, born under British Colonial Rule, can now be a serious candidate for the presidency of the United States.

My father was a Muslim and although I did not know him well the religion of my father and his family was always something I had an interest in. This interest became more intense when my mother married an Indonesian Muslim man and as a small child I lived in Indonesia and attended school alongside Muslim pupils. I saw their parents dutifully observing the daily prayers, the mothers covered in the Muslim hijab, the atmosphere of the school change during Ramadan, and the festiveness of the Eid celebrations.

The man my mother was married to was not particularly religious; but he would attend the mosque on occasion, and had copies of the Quran in different languages in the home, and books of the sayings and life of the Prophet Muhammad. From time to time he would quote Islamic phrases such as 'no one truly believes until he wants for his brother what he wants for himself', 'oppression is worse than slaughter', and 'all humans are equal the only difference comes from our deeds'.

Growing up in Hawaii with my mother and her grandparents Islam largely escaped my mind. My mother installed(sic) in me the values of humanism and I did not grow-up in a home were(sic) religion was taught.

It was later while I attended college at Columbia University and Harvard Law that I became reacquainted with Muslims as both schools had large Muslims student populations. Some of them were my friends and many came from countries that our nation now has hostile relations with. The background I had from my early childhood in Indonesia helped me get to know them and learn from them and to me Muslims are not to be looked upon as something strange. In my experiences up until college a Muslim was no less exotic to me than a Mormon, a Jew, or a Jehovahs Witness.

After college I settled in my adopted hometown of Chicago and lived on the South Side and worked as a community organizer. Chicago has one of the largest Muslim populations in America (estimated to be around 300,000) and Muslims make-up some of the most productive citizens in the area. I met countless numbers of Muslims in my job as an organizer and later on in my early political career. I ate in their homes, played with their kids, and looked at them as friends and peers and sought their advice.

Therefore, when the tragic terrorist attacks of 9-11 occurred I was deeply saddened with the rest of America , and I wanted justice for the victims of this horrific attack, but I did not blame all Muslims or the religion of Islam. From my experience I knew the good character of most Muslims and the value that they bring to America. Many, who did not personally know Muslims, indicted the entire religion for the bad actions of a few; my experience taught me that this was something foolish and unwise.

Later I had the chance to visit the homeland of my father and meet Muslim relatives of my including my grandmother. I found that these were people who wanted the same things out of life as people right here in America and worked hard, strive to make a better way for their children, and prayed to God to grant them success.

This is what I will bring to the office of the Presidency of the United States. I will deal with Muslims from a position of familiarity and respect and at this time in the history of our nation that is something sorely needed.

Source: Middle East Times

Related Links:

Obama's Muslim Heritage

Obama's Race Dilemma

Obama Through Muslim eyes

Christopher Hitchens Supports Obama

Obama's Two Faces

Is US Headed Toward Dangerous Regional War?

Obamas Lampooned as "Flag Burning Islamic Terrorists"

Wednesday, October 15, 2008

No Money, No Energy, No Government

Draft of a new US National Intelligence Estimate (NIE), leaked to the media recently, paints a bleak picture of Pakistan.

A US official who participated in developing the report summarized the estimate's conclusions about the state of Pakistan as: "on the edge" with "no money, no energy, no government." According to him, the NIE report also talks about "Pakistani army's reluctance to launch an all-out crackdown" on the insurgents.

This latest US NIE seems to imply that the situation is far worse than the earlier reports of economic meltdown and President Zardari's plea for a $100b bailout request to the US and friends of Pakistan consortium.

The economic difficulties are compounded by growing insurgency, infighting within Pakistani government and deep mistrust between the civilian and the military leadership, according to the estimate.

Mr. Juan Cole, a South Asia watcher married to a Pakistani-American, views this NIE leak with suspicion. He says, "I'm suspicious that all the talk about instability and 'no government' is really a way of saying that US intelligence agencies liked having a military dictatorship there much better than they like having an elected parliamentary regime."

Mr. Cole adds, "American reports about Pakistan are schizophrenic, because they say the Pakistani army is not fighting the Taliban. But the Pakistani military has chased 300,000 from their homes in Bajaur, one of 7 tribal agencies, and has engaged in firefights with dissident Muslim groups there. I mean, what do the authors of the NIE want?"

The accuracy of the NIE and the motives behind it are hard to gage, but it is clear that the situation in Pakistan is very chaotic with growing unrest among the population because of the falling rupee, dwindling foreign exchange reserves and skyrocketing prices of food and fuel. President Zardari is trying to line up significant emergency economic aid from the US, the Europeans and the Chinese to bail out Pakistan. His government will probably not last long if he fails.

Tuesday, October 14, 2008

HEC University Rankings in Pakistan

Higher Education Commission in Pakistan released its first and only ranking of universities in Pakistan in October 2006. Prior to this HEC effort, there had been no formal attempts by any public or private group to establish a set of criteria and judge Pakistani institutions of higher learning. While this is a laudable first step in the right direction, it is clearly not the be all and end all of the universities' ranking process in Pakistan. It can be significantly improved. As expected, there is a genuine controversy swirling in Pakistan on the HEC ranking methodology and the results. This ongoing controversy may be the reason why the HEC skipped the annual rankings in 2007. The main criticism of the HEC assessment criteria is the emphasis of quantity over quality that unduly favors and rewards institutions with large graduate programs. Another key criticism is the lack of peer and employer assessments of the universities and their alumni.

NEDUET, being predominantly an undergraduate institution, is among the universities that have shown up near the bottom with a meager score of 18.65 out of 100. Since such rankings have only been done once, it is hard to say if the standards of any of the institutions on the list, including NED Engineering University, have risen or declined. You need at least two years of data to draw such conclusions based on the criteria used by the HEC.

NED Alumni Convention 2008:

A panel discussion about "Declining Academic Standards at NEDUET", planned for the upcoming NED Alumni Convention 2008 in the US state of Connecticut, apparently accepts NED University's ranking and assessment of HEC on its face value. As an NEDian myself, I am not advocating denial or defensiveness in response to the low rank of NED by HEC. Instead, I firmly believe that there is a need for further exploration of this subject before reaching any definitive conclusions about "declining standards" or making any recommendations.

Why Rank Universities?

Some readers might ask why should the universities be ranked? I am not certain as to the HEC rationale for it, but I can see several reasons why it is a useful exercise. First, it helps the students and their parents select the institution they should attend based on a set of criteria. Second, if the criteria are clearly laid out and objectively measured, it helps the universities identify areas of improvement to become better at educating students and conducting research. Third, it can be used by the industry and the employers to target specific students, programs and projects for hiring and research.

Ranking Criteria:

One-size-fits-all ranking criteria that lump together graduate and undergraduate programs in a variety of unrelated disciplines are not particularly helpful to any of the potential users including students, parents, employers, researchers etc.

As an example, the ranking criteria used by US News and World Report, the most widely used rankings in the United States, separate out undergraduate programs from graduate programs. The USNWR graduate program criteria have heavy emphasis on research and publications while the undergraduate program criteria do not. Other key criteria used by USNWR include peer assessment and employers' and recruiters' feedback on the universities and their alumni.

USNWR Undergraduate Criteria:

1. Peer Assessment 25% weight
2. Student Retention Rate 20%
3. Faculty Resources: 20%
4. Admission Acceptance Selectivity: 15%
5. Financial Resources: 10%
6. Graduation Rate: 5%
7. Alumni Giving: 5%

USNWR Graduate Program Criteria:

1. Peer Assessment (25%)
2. Recruiter Assessment (15%)
3. Mean GRE Score (6.75%)
4. Acceptance Rate (3.25%)
5. Student-Faculty Ratio (7.5%)
6. Faculty with National Academy of Engineering Membership (7.5%)
7. Doctoral Degrees Awarded (6.25%)
8. Research Activity (25%)

HEC's Ranking Criteria for NEDUET Assessment:

Faculty 4.44/27 ( NED at 2.28/9 on ratio of Ph.D.s on faculty, 0.04/4 on research grants)

Research 2.79/26 ( NED got 0.17/4 on research published, 0.10/3 on research papers/faculty)

Students 5.52/17 ( NED received 0/4.0 on number of Ph.D.s produced, 0.44/5.0 on Student admission selectivity, 1.12/3 on M.Phil/16+ yrs ed)

Facilities 4.4/15 ( NED got 0.88/4 on number of books, 0.30/2 on equipment costing over $2m)

Finances 1.5/15 ( NED scored 0/4 on non-recurring expenditure/student, 0.05/2 amount of money generated through own resources)

Total Score: 18.65/100 NED Rank: 10/13 engineering universities

Pakistani Universities' Standing in the World:

Some India watchers such as Fareed Zakaria, an Indian-American who often acts as a cheerleader for India in the US, have expressed doubts about the quality of education at the Indian Institutes of Technology. In his book "The Post-American World", Zakaria argues that "many of the IITs are decidedly second-rate, with mediocre equipment, indifferent teachers, and unimaginative classwork." Zakaria says the key strength of the IIT graduates is the fact that they must pass "one of the world's most ruthlessly competitive entrance exams. Three hundred thousand people take it, five thousand are admitted--an acceptance rate of 1.7% (compared with 9 to 10 percent for Harvard, Yale, and Princeton)."

As a student of Karachi's NED University of Engineering and Technology in 1970s, I had similar assessment of my alma mater (and other UETs) in Pakistan as Zakaria's characterization of the IITs in India. NED Engineering College in 1970s was "decidedly second-rate, with mediocre equipment, indifferent teachers, and unimaginative classwork". However, given the fairly strict merit-based admission process, I found myself mostly surrounded by some of the best, most competitive students who had graduated with flying colors from Karachi's intermediate colleges and ranked very high on the Board of Education examination to make it into NED College. It was indeed the creme de la creme of Karachi's youth who have later proved themselves by many accomplishment s in various industries, including some of the leading-edge high-tech companies in America. Even in the 1970s, there were a small number of students admitted on non-merit-based special quotas. NED University today, however, appears to have significantly expanded such special, non-merit-based, quotas for entrance into the institution, an action that has probably affected its elite status, its rankings and the perceived quality of its graduates, while other, newer institutions of higher learning have surpassed it. Some of the special categories now include sons and daughters of employees, children of faculty and professional engineers and architects, special nominees from various ministries and an expanded quota for candidates from rural areas and the military.

Looking at the top 500 universities in the world, one can see a few universities from China, Japan, Singapore and India and a few more from Muslim nations such as Malaysia, Indonesia, Turkey, Iran and Pakistan. The notable institutions from South Asia include several campuses of the Indian Institutes of Technology and Pakistan's National University of Science and Technology (NUST), University of Lahore, Karachi University and Lahore's University of Engineering and Technology. The top Pakistani school on this list is National University of Science and Technology (NUST) at #376, followed by University of Lahore, University of Karachi, and UET Lahore. Many new universities are now being built in several Muslim nations in Asia and the Middle East, and they are attracting top talent from around the world. For example, King Abdullah University of Science and Technology (KAUST), scheduled to open on Sept. 23, is the country's attempt to create a world-class research university from scratch. It's hiring top scholars from all over the world. "Our goal is to kick-start an innovation-based economy," says Ahmad O. Al-Khowaiter, the university's vice-president for economic development. "We need a couple of success stories, and we think this will lead to one (collaboration with IBM Research)."


With the score of 18.65/100, NED University, the oldest institution of higher learning with many successful alumni and an illustrious history, is ranked at number 10 out of 13 engineering universities in Pakistan. NED University has been assessed by HEC on criteria that favor universities with strong graduate programs that award a large number of Ph.D. and M.S. degrees. It ignores recruiter (employer) assessment that speak to the quality of NED University alumni. It also discounts the accomplishments of NEDians diaspora that attest to the quality of education they received at NEDUET. Clearly, the NEDUET's low ranking is based on its lack of a strong graduate program. Under the current HEC criteria, more Ph.D. faculty and students enrolled means higher ranking. More research papers means bigger score. In fact, it would not be inaccurate to say that HEC is using the number of PhDs at various institutions as a proxy for the state of higher education in Pakistan.

It may be useful to encourage more and bigger graduate programs enrolling and producing more PhDs. But there is a danger in playing the numbers game. The quantity must not be allowed to degrade quality. Encouraging production of more Ph.D.s and research papers by HEC and its financial incentives have come under heavy criticism by Dr. Pervez Hoodbhoy and many others (See related links below). It has led to lowered standards for Ph.D.s and instances of plagiarized papers at Punjab University ranked number 2 among general universities, just below the top-ranked Quaid-e-Azam University with a large number of Ph.D. faculty members and students. According to Professor Hoodbhoy, there are as many as 18 PhD students registered with one supervisor in QAU's Physics department! In the QAU biology department, that number rises to 37 for one supervisor. HEC incentives have helped dilute PhD qualifying exams to the point where it is difficult for any student not to pass. HEC is reportedly paying as much as Rs. 5000 per month per Ph.D. student to supervisors as incentive to produce more Ph.D.s in Pakistan. HEC grants to universities are also based on the number of Ph.D. students enrolled.

The Way Forward:

HEC has made a good start by attempting to formalize a process by which academic institutions can be judged and ranked. But the HEC must not stop at rev 0. It must continue fine-tuning the ranking criteria and the process to provide better and more useful feedback to the institutions. HEC must initiate and manage the effort to make Pakistan's institutions of higher learning more competitive internationally, and help the students become better prepared to make greater contribution to society by responding to major national challenges such as the energy and food crises, poor governance, bad urban planning, climate change, etc. Just producing more PhDs will not be particularly helpful to a nation beset by multiple crises. I think it's important for the HEC to establish separate criteria for undergraduate and graduate engineering programs to be fair to all colleges and universities including NED University of Engineering and Technology. There should be two separate rankings published for undergraduate and graduate engineering programs. These should be completely separate from non-engineering universities. At the same time NEDUET should work to beef up its graduate program with more resources in terms of faculty, facilities, student enrollment and research and publications aimed at overcoming the major national challenges of the day. NEDUET leadership needs the vision to pick one or two major national challenges and respond to them by developing the expertise and excellence required to succeed. The NED alumni can, and should, help in this endeavor with a lobbying effort to improve NEDUET leadership and governance, an alumni-managed endowment fund and alumni-sponsored industry alliances around the world.

Related Links:

Higher Education in Pakistan

World's Top 600 Universities' Ranking

NED Alumni Convention 2007

Pakistani Universities: Problems and Solutions

Reforming Pakistani Universities

Plagiarism at Punjab University

HEC Scholars

More Speed Than Traction

Global University Rankings Video

HEC Postpones Ranking Universities