My Observations

Friday, 19 December 2008

A Modern Bonfire of The Vanities

Filed under: Uncategorized — AE @ 11:00 am
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By Ali Ettefagh

The Great Economic Readjustment of the 21st Century is progressively turning tragedy to a farce as 2008 is nearing its end. The opaque and complex stories of Bear Stearns and the $700 billion bailout fund, the bankruptcy of Lehman Brothers and the unravelling of Detroit Three is baffling to most people. Alas, we are facing the start of a new chapter in epic scales of greed and grotesque human conduct. In New York, if not elsewhere that is yet to be uncovered, The Bonfire of The Vanities – 2008 edition – is blazing away as it makes all excesses of the 1980s, and Tom Wolfe’s novel, seemingly quaint.

Just during last week, we learned of two massive frauds– Mr. Bernard Madoff and his fleecing of investors to the reported tune of $50 billion or so, and attempts of a prominent Manhattan lawyer, Mr. Marc Dreier, to sell non-existing bonds worth about $380 million.

Both were classic “rock solid” reputation types, the kind you will inevitably meet if you hang around Manhattan long enough and circulate in certain circles. Most astonishingly, both men were at the height of their respective careers with all trinkets and aura of New Yorkers of a certain manner: Upper East Side apartments and homes in the Hamptons, exclusive club memberships with charity golf rounds, non-profit board seats, and staffed yachts. Mr. Madoff’s yacht was called Bull, perhaps a reference to markets or bull of some other kind! Mr. Dreier was an aggressive corporate lawyer, educated at Yale and Harvard, who regarded almost any tactic as acceptable provided he won. Contemporary art with their “brand name” multi-million dollar price tags oozed from the walls of in his offices around the world.

Neither men were 29-year-old, know-alls with a computer model fed with statistics– the kind that could not understand risks in finance because they had never seen a down year. Nor were they ignorant, inexperienced lucky dudes to land the right timing in an IPO. And their clients and contacts were not fools. Religious charities and rich Jewish retirees in Florida, Swiss private banks, billionaire families and large money management institutions are amongst their all-star bamboozled clients. Messrs. Madoff and Dreier simply exploited an era of insanity in finance.

But where did it all start? There must be many others in New York or London who, with a quick look in the mirror, will see traces of Dreier and Madoff in their own lives as they chase the same status, trophies and rewards. And how many of them might have taken a short-cut or two on the way up? More importantly, which ones will be found swimming naked when the proverbial tide goes out?
Perhaps this is where utter failures of basic policing and regulatory controls are most augmented. It was one thing for regulators to place (too much) trust in free markets, but to yield to pressure and under-regulate mortgage brokers, banks, auditors, ratings agencies and investment firms is quite a different matter of spectacular consequence.

Many people in the business were suspicious of Mr. Madoff. They could not understand how he made such consistent returns in good times or bad. His trading strategy and management structure was a mystery and disclosures were skimpy, but seemingly enough to game enforcement of laws. Twice the Securities and Exchange Commission investigated him, in 2005 and 2007, and twice they found nothing to stop his pretence. It took a man with a name straight from a Wolfe novel, Andrew Calamari, to announce the SEC’s belated complaint—but only after Mr. Madoff was turned in by his two sons (and deputies) in his firm.
The Dreier and Madoff affairs show us, more than the disintegration of investment banks or badly managed industrial companies, how the depth of greed in the past two decades has corroded the basic economic system and how corrupting it became to force men, of very comfortable lives, to grab for more in breach of decency and beyond the filters and early warning system of the law that must protect stakeholders in that system. They are also reminders that the system has failed to learn from the Enron or Worldcom jumbo frauds, despite the mandates of the Sarbanes-Oxley Act on more transparent bookkeeping and auditing. However, the most significant teaching might not be simply about purported rotten apples. The knock-on impact will evolve to a presumption that anyone who became insanely rich these past few years in the financial services sector is probably under suspicion.


Wednesday, 12 December 2007

America’s Devalued Image

Filed under: Uncategorized — AE @ 1:57 pm
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By Ali Ettefagh

From my PostGlobal Blog:

One thing a president, or a superpower, cannot afford is to be ridiculous. Nevertheless, George Bush lurched into that fatal category and true twilight of his presidency with all the discomfiture that he earned. The about-face of the National Intelligence Estimate (NIE), originally requested by Congress to update rudimentary knowledge of Iran, flew in the face of the fabrications, hallucinations and innuendoes pigeonholed as the “foreign policy” of a world power. Although it was finalized two months ago, the NIE was the subject of a drawn-out, agonized debate about leaks of such facts. (The Washington Post reported that the White House disclosed it to Congress and allies after sharing the report with Israel, a foreign nation.)

The NIE affirmed Iran’s consistent declarations and concurred with the IAEA’s negations of an atomic weapons program. In the same report, the NIE uncovered a massive breach of trust by America, ripped through deceptive urges for Cold War-era missiles in Poland and the Czech Republic, and busted the foundation of last two resolutions of Security Council against Iran.

The keeper of Guantanamo and purveyor of Freedom Fries, however, chose to confront this fatal instrument of humiliation — produced by sixteen agencies of his own government — with his “feelings” about Iran, presumably in an attempt to mimic Somali warlords. Ministers and cabinet officials are sent around the world to lecture on the need for raw, irresponsible delusions to negate tools of informed policy—who needs intelligence, research and reality? Or has the Cold War not ended inside the White House, where the goal is to sustain a phantasm and an enigmatic riddle about fictional evil villains?

In the real world, America must heed the substance and spirit of international laws. As a member state, its legal obligations under the United Nations and its Charter, the Non-Proliferation Treaty (NPT) and the function of IAEA are the law of the land. These must take precedence over the personal feelings of an elected politician in charge of executing (not fabricating or interpreting) laws.

The NPT is an international mechanism of supervision and disarmament. The Treaty enshrines the right of member states to develop civilian nuclear programs and to have access to technology. No part of the NPT justifies a scientific apartheid of knowledge in basic physics. All member states are obliged to assist other members to achieve their goals (see Article IV of NPT). Thus, obstructing Iran’s efforts to develop civilian nuclear facilities (including fuel enrichment for power generation) adds up to naked aggression and an attempt to breach Iran’s peace and sovereignty. Plainly, that is against the UN Charter as well as the Algiers Declaration, in which United States promised not to meddle in Iran’s internal affairs.

In contrast, President Bush reaffirmed his personal, aggressive prejudice against the Muslim world, even though such “dangerous” Iranian atomic weapons smell of Iraq’s ‘WMD’ — in the daydreams of dangerous foreign lobbies gaming Washington! However, the standard naturally turns on its head when dealing with North Korea, a non-democratic state that withdrew from the NPT, tested an atomic device and is now a negotiation and trading partner. The Dear Leader received a mollifying letter from President Bush the same week of the NIE release and the New York Philharmonic will be in Pyongyang for Valentine’s Day 2008!

We should recall the mid-1970s to understand the quandary. An American banker-turned-novelist, Paul Erdman, made the bestsellers list in 1976 with his novel, “The Crash of ‘79.” It is a political fictional thriller in which the King of Persia, portrayed as a demented megalomaniac ruler, secretly obtains nuclear weapons and launches a blitzkrieg to dominate the Middle East, cripple the world’s oil supply, and ruin the financial system. Erdman’s imaginary tale reflected American anxieties of that era– the confusion of post-war Vietnam, the adverse impact of that war on American finances that devalued the dollar and forced the abandonment of the gold standard, and the spike in oil prices that ensued. It also reflected the politics of the Kissinger era and the pronounced American awkwardness about a strong Muslim country as police of the Persian Gulf and a front against the “evil” USSR. Some three decades later, the same antiquated Cold War 1950’s rhetoric is hardened into a pseudo-paradigm and a riddle that frames America’s view of the Muslim world.

Most fascinating is that Mr. Erdman wrote this novel after being convicted and serving time in a Swiss prison for breach of trust and reckless currency speculation as the president of a Swiss bank. Is the world now suffering from yet another serious breach of trust? Or is it all a massive intellectual bankruptcy caused by a few deceptive speculators?

Wednesday, 28 November 2007

Hello World!

Filed under: General comments — AE @ 4:31 pm

There is always a beginning, and I suppose this is how addictions start.  I admit that the blog world is addicting, or is it the start of a completely different social convention?  It seems to be the reinvention of the old village pub online, where people can exchange views, comments and barbs!  

This is the first note on my personal blog.  I will use this page to record random observations and comments when I am not writing for PostGlobal in The Washington Post.  A fellow PostGlobal correspondent guided me to read her writings on wordpress.  That is how I got to this page.  As I said, addictions start in the most innocent ways!   

 So, feel free to leave me a message and let me know what you think.

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