Friday, December 06, 2002

Excellent Essay

David Warren has a fantastic essay on his experience with Islam. It is quite long but well worth the read. Print it out and read it on the train or car. Unless you are David Warren I guarantee you will learn something.
Like attracts like, and the political fanatic gravitates naturally to the political part of town: that is not really a paradox. Robbers choose banks, despite the inconvenience, because that's where the money is. Likewise, the power-hungry naturally gravitate to where the power is.

Rumors

I heard a rumor that Phil Gramm is being considered for one of the new spots. He recently took a job at UBS. I can not think of a better person to be in the White House. He would be a rock-star.

Heads Are Rolling

Larry Lindsey resigns. Well this is good news. Who is going to replace this clown? Hopefully, somebody with more brass.

Who is next?

UPDATE: Stocks have rallied on the news. How funny. Voting with your check book.

O'Neill Resigns

Paul O'Neill, US Treasury Secratary is resigning according to Bloomberg. Poor Paul, he seemed like such a nice guy.

Should be good for the USD.

Ali-Baba and Forty Year-old Mullahs

I spoke with a friend of mine yesterday, an Iranian ex-pat, about the events in Iran. In the past he has been very sad about Iran and its prospects, it may be in his character to be pessimistic, so keep that in mind.

But he did offer an interesting perspective, one you don't get from reading Ledeen (in the National Review) or any other source that I have seen. He has always been suspicious of the "reformer" president Khatami. As far as he was concerned Khatami was another Mullah. A wolf in sheeps clothing. Khatami was of the theocratic establishment and would never fight to necessary fight. Having seen the intensely different perspectives from the West of the Soviet world, I discount individual personal accounts much less than media accounts.

Now it appears his overall sentiments have been on target with regard to Khatami. Khatami has been progressively criticized by the Student movement for not pushing harder for reform. And now it seems there has been a somewhat official split.
TEHRAN -- President Mohammad Khatami of Iran confirmed Wednesday his separation from the bulk of the students, who used to be his main power base, when he announced that he would not attend the Students Day, which falls on 7 December.

Mr. Khatami did not provide any reason for his abstention to attend the Students Day and address the students, as he used to do in the past five years, but observers said the "divorce" had taken place months ago, with its origin going as far back as the students uprising of July 1999 when Mr. Khatami sided with the leader, Ayatollah Ali Khameneh'i, who had ordered the revolutionary guards and the Basij volunteers to crush the students demonstrations.

"The students have abandoned not only the President, but also the whole of the reformists, leaving them to their fate", commented Mr. Qasem Sho’leh Sa’di, a former outspoken MM (Member of the Majles) and a prominent lawyer.

As Mr. Khatami was making the surprise announcement during an impromptu press conference at the end of the cabinet meeting, Tehran Governor announced that he would not authorise the students to stage demonstrations in the streets of the capital.

"Students left Mr. Khatami after they realised that they could no longer trust neither him or the official reformists, whom they consider a liability, a source of the present uncertain situation in Iran", Mr. Sho’leh Sa’di told the Persian service of Radio France Internationale (RFI).
The situation has four actors. The "hard-line", "reformers", "students", and "public". The "hard-line" and "reformers" are spawned from the theocracy and the struggle against the Shah. They are of the same generation. The "hard-line" is in the top seats of power, the "reformers" are in the lower seats of power. The "students" have no official power, but they are organized. The "public" is the least committed of the other three (by definition).

The "reformers" had been allied with the "students" and trying to attain the higher seats of power. They have not been successful. Ultimately, they have failed because their perspective is not that different from the "hard-line" and they are not willing to take the necessary risks of confronting the "hard-line". The predictions and complaints that Khatami was not interested in reform, but only paid lip-service to it seems to have been correct.

The recent death sentence of Dr H. Aghajari by the "hard-line" is another manifestation of the struggle between "hard-line" and "reformers". Apparently, Aghajari was one of the students that took part in the US Embassy hostage taking (I have tried to get some link that validates this claim, but with no success). So now the alliances in the struggle seem to be changing. The "students" and "reformers" are no longer allies and it seems the "reformers" are moving back towards the "hard-line". The "reformers" really cannot survive alone, and when the pressure starts to build you would expect their ties to be stronger to the "hard-line" than the "students".

The "students" have some serious advantages though, demographics. Personally I am very hesitant to use demographics as an indicator of anything, but almost half of Iran's population is less than 35. It is not clear how much of this population allies itself with the "students", but there is probably a generational magnet. If the "hard-line" and "reformers" are able to break the back of the "students", how long before the "students" rise again?

UPDATE: I have been misunderstanding Mike Ledeen's points. Reading his latest shows his perspective is in synch with the ex-pat.
Aghajari is a marginal figure in this struggle, as is another of Friedman's heroes, the so-called President Khatami. Like Khatami, Aghajari is a hero of opportunity for the demonstrators, a vessel into which the rage of the Iranian people has been poured, but who is certainly not a leader of the revolution.

The revolution is being led by students, workers, intellectuals, and military officers and soldiers who can no longer bear the misery of the Iranian people, the corruption and hypocrisy of the Iranian leaders, and the awful degradation of the country. The battle for the minds and souls of the Iranian people has already been won by the opponents of the regime. The battle now underway — the battle that should be concerning our own leaders and intellectuals — is for the streets and institutions of the country.

Thursday, December 05, 2002

Frightful

Boy am I glad I don't have to demonstrate in this weather.

But seriously, demonstrations in Venezuela against Hugo Chavez continue apace and El Sur is on top of it. Please check it out.

BTW, if you need to do anything with a government office today is the day. With all the snow the DMV is probably deserted.

Brother, Can You Spare A Dime

According to Price Waterhouse Coopers (pdf) venture capital firms have disbursed $4.5 billion in 2002 Q3. Thats a 26% drop from Q2. The last time investment was at this level was 1998 Q1 (not adjusted for inflation). The peak was 2000 Q2, ~$29 billion.

Deflation

Everybody and their mother seems to be throwing around the word deflation. Simply speaking this is an increase in the value of money versus other goods. Most talking heads, and maybe even the Fed, don't think we have been in the grips of deflation for the last few years. But they are keeping a very close eye on it. BTW, that was sarcasm. One of the tell-tale signs of deflation is an increase in bankruptcies. Now, an increase in bankruptcies does not mean we are or have experienced deflation, necessarily, but it is something to keep in mind.

According to the Administrative Office of the US Courts total bankruptcies (PDF) have hit 1.5 million filings, in a 12 month period ending in June, for the first time in history.

YearTotalChap 7Chap 11Chap 12Chap 13Other
20021,505,3061,053,23011,401367440,23177
20011,386,606972,65910,272206403,41851
20001,276,922885,4479,947732380,77026
19991,391,964993,4148,684829389,00433
19981,429,4511,015,4539,613845403,50139

The reason deflation increases bankruptcies is because bankruptcies are used to settle debt obligations. Debt must be serviced with money. If money becomes more valuable you must sell more of what ever you produce to earn the same amount of money as before. A plumber must do more plumbing, a builder build more homes, a lawyer bill more hours, coal miner mines more coal. There are only so many hours in the day, and only so much plumbing that needs to be done, so the worse the deflation the more likely you will not be able to service your debt, increasing the likelihood of bankruptcy.

Tuesday, December 03, 2002

UK-Iran Kiss And Make Up

A while back, Dec 2001, England appointed a zionist pig as ambassador to Iran. Well, naturally the Iranians were a little peeved and politely asked the Brits to reconsider. I think it went something like "we don't want no zionist pigs in our little filthy paradise". So after much gnashing of teeth, and several visits to the dentist, the UK has appointed a different our-man-in-Iran. Her Majesty presents Richard Dalton.

Best wishes Dick.

Monday, December 02, 2002

China

What is going on in China? It seems a lot. A lot has changed since the end of the Cultural Revolution, which ended only ~1976. Heck, a lot has changed in the last 10 years it seems. Cisco, Motorola, Qualcomm, GE, GM, basically every major American and European company has invested some money in China.

Recently a colleague who specializes in Emerging Market finances went to China on vacation and came back agog. He is going to teach his children (when ever he has them) Chinese. Apparently, he was impressed and I was surprised and confused by his story.

Here is a country which has no respect for life, liberty and property. It censors everything (including internet content), sells executed prisoners' organs, executes for tax evasion, women are forced to have abortions, children execute their parents, millions have been killed in purges, and all sorts of other horrors. How could this type of country be experiencing anything resembling prosperity?

I was more prepared to here something along the lines of what I heard a few months ago. When China was going to enter the WTO I caught a program on the radio. The program was a call-in show that took callers from China itself, the callers usually called from pay-phones for personal safety. Callers were retirees, students, doctors, shop keepers a seemingly a broad group, albeit small sample. Some callers thought entry into the WTO would benefit China some did not. They all agreed that it was of secondary importance for them, the primary concern was corruption. The thing that impacts all of them is having to pay your local CCP official, tax collector, etc.. Anybody familiar with eastern-Euro and Soviet (or post Soviet for that matter) workings has heard this before.

The problem with answering any questions about China is that there is no way to know anything about China. China's media is tightly controlled by the CCP. The media often puts out carelessly contradictory statistics so one cannot even be gullible and take their word for it. Is the private sector 50% of GDP or 25%? Do they export $77 billion or $116 billion? Don't know. On top of that statistics are gathered by the CCP from each district, each district offers up statistics that fall in line with the CCP's earlier stated plan. The statistics are not collected (in the normal sense) they are decided by CCP members sitting around a table and deciding what the numbers should be. Anybody familiar with Eastern European and Soviet administration should not be surprised by this. Things like this seem to give credence to drawing some parallels between China and euro-Communist governments. After all we know more hard facts about European communism in the recent past than we do about communism in China today.

Is China following in the footsteps of the Soviet Union? Hopefully not. But all the signs of the Soviet and post-Soviet kleptocracy are there. The only thing different so far is the CCP's hold on power does not seem to be waning.

What about my original question, what is going on in China? It is just as brutal, still corrupt, but what about the economy. My best guess is that the boom we have seen has been the low-hanging fruit. The country went from a system where tight state control for decades created shortages and intensified poverty, to a system where small businesses are tolerated and foreign businesses are encouraged to invest. In the extremely repressive China these modest policies changes make a huge difference. Eventually all the efficiencies available in the current framework will be achieved and the CCP will be faced with making further liberalization choices.
No rest for the wicked.