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Showing posts from October, 2008

Democrats and Republicans Must Share Blame for Financial Crisis

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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 ex…

IMF Reforms Imminent as Crisis Intensifies

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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 financ…

Are Jews Responsible for Financial Meltdown?

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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 Citcigroup 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 ha…

Karachi Stocks Poised for Major Crash

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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 f…

Credit Markets Bet on Pakistan Default

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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

Pakistan Building Humvees for US Troops?

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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…

India in Moon Race with Big Asian Dogs

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"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 sa…

Can Pakistan Avoid IMF Bailout?

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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 …

Son of Kashmir Named to Rescue US Economy

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"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 th…

India-based Debt Collection Business Soars

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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 …

No Money, No Energy, No Government

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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 Pakistan watcher, views this NIE leak with suspicion. He says, "I'm suspicious that …

A Preview of Obama's South Asia Policy

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Lately, Senator Barack H. Obama has been taking a tough, even hostile stance toward Pakistan. He is threatening to send US ground troops into FATA if there is "actionable intelligence" to end "terrorists' safe haven" inside Pakistan. His opponent, Senator John McCain has said Obama "doesn't understand" the situation in FATA and chided him for being naive and "talking loudly" about Pakistan. Many Obama supporters dismiss Obama's tough talk as merely designed to assert his commander-in-chief credentials to appease his critics.

Is Obama's tough talk just an act? Or is it based on considered advice from the experts of the liberal think tanks to whom Democrats generally outsource policy? While there is a small chance that Obama does not really mean what he says, it is also a fact that foreign policy experts such as Bruce Reidel are advising Obama on South Asia policy.

Riedel says that there will be a renewed focus on Afghanistan and P…

Manmohan Says India Loves Bush

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"The people of India deeply love you", said Indian Prime Minister Manmohan Singh to President Bush on a recent visit to the White House.

The Prime Minister continued with the theme of affection and gratitude by adding, “In the last four and half years that I have been Prime Minister, I have been the recipient of your generosity, your affection, your friendship. It means a lot to me and to the people of India.”

Later, India's Foreign Secretary Shiv Shankar Menon explained: “I think, if you look at the public opinion polls, the ratings for President Bush are higher in India than in any other country. That is the factual basis.”

The Program on International Policy Attitudes (PIPA) poll that Mr. Menon referred to shows that India tops the world in its admiration for President Bush who is deeply unpopular in the United States and most of the rest of the world. The survey found that 62% of Indians thought his second term as US president was positive for global security.

Another …

Zardari Signals Policy Shifts, Wants $100b Bailout

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Mr. Asif Ali Zardari, Pakistan's new president, spoke to Brett Stephens of the Wall Street Journal last week. His interview covered a wide range of subjects including the ongoing insurgency, Afghanistan, FATA, and relations with US and India. He repeatedly brought up the subject of financial help for his government from the US and the world to deal with Pakistan's growing economic crisis. He is clearly pleading for a US-led economic bailout of Pakistan to halt rapid deterioration and to consolidate his power.

Here are some of the key points Mr. Zardari made:

1. India is "not a threat" to Pakistan. "India has never been a threat to Pakistan," he said, adding that "I, for one, and our democratic government is not scared of Indian influence abroad."

2. Those fighting Indian rule in Kashmir are "terrorists". He spoke of the militant Islamic groups operating in Kashmir as "terrorists" -- former President Musharraf would more likely h…