Risky Business

One troubling aspect of the extreme risk-taking amongst bankers, traders, and other assorted wo/men of finance leading up to the crash was that everybody basically did what they should have done. I don’t mean that in the sense that it was responsible behavior – it was criminally irresponsible, and their actions preceding, during, and following the crash have been almost without exception despicable – but in the sense that there was nothing else for them to do. If they didn’t deal in derivatives and other risky products and generally throw economic caution to the wind, they wouldn’t have done well. They would have made less money than the competition, been seen by their investors as insufficiently profitable, and would have lost business. Risky business was the name of the game, and if you didn’t want to engage in it then you were better off in another industry.

Which makes the implications of the expected news that Goldman Sachs made a ton of money this quarter really, really unsettling. This, from an NYT story on the firm:

Richard Bookstaber, a former hedge fund executive and author of a “A Demon of Our Own Design,” wonders if Goldman’s resurgence will prompt other banks to push once again into riskier forms of trading, possibly at their peril.

“Someone takes risks and makes money — maybe they were smart, maybe they were lucky,” Mr. Bookstaber said. “But then everyone else feels like they need to take the same risks.”

While others are shying away from risks, Goldman is courting them. A common measure of risk-taking at Goldman and other banks is known as value at risk, which estimates how much money a firm might lose on a single day. At Goldman, that figure rose by more than 20 percent in the first quarter. Analysts predict Goldman’s V.A.R. ran high in the second quarter as well.

For Goldman, this risk-taking has apparently worked out well so far. Which is good, I guess, for them. But if and when other firms that have been avoiding such gambles – like Morgan Stanley, for example – start taking slack for posting losses and not reaping the huge sums that Goldman is, you could start seeing the type of risk cascades that can have pretty dire consequences for the economy as a whole.

In other economy-related news, Paul Krugman unsurprisingly had another good column today.

Surge Fail

While Iraq has all but fallen off the MSM’s radar, it’s worth noting that things (still) aren’t working out too well there. Violence is on the rise again and the political reconciliation that was supposed to happen, a non-starter from the get-go, is an even more distant possibility as the Kurds are now pushing for de facto independence. And, as Stephen Walt points out, this piss poor state of affairs means that it’s past time to issue a verdict on the surge – it was a failure.

The surge did work in the sense that it temporarily reduced levels of violence (though partly for reasons not related to the surge) – that, however, was only half of its stated objectives. The second one, and intrinsically linked to the reduction in violence, was to free up the country for political reconciliation. This hasn’t happened, and it’s looking as if it won’t be happening anytime in the near future (and certainly without much American involvement). And when only one part of a two-part mission kind of succeeds, it’s fair to call it a failure.

That, however, hasn’t stopped conservatives from calling it a success in the past, and it certainly won’t stop them in the future. And, as Walt notes, this will all involve a healthy chunk of self-serving, morally atrocious history-rewriting.

With the passage of time, the “surge” should be seen as a well-intentioned attempt to staunch the violence temporarily and let President Bush hand the problem off to his successor. Hawks will undoubtedly try to pin the blame on Obama by claiming that we were (finally) winning by the time Bush left office, in the hope that Americans have forgotten the strategic objectives that the “surge” was supposed to achieve. It’s a bogus argument, but what would you expect from the folks who got us in there in the first place?

Speaking of Iraq, I saw ‘The Hurt Locker’ last night, and it was incredible. For my money, it’s the first really good non-documentary about the Iraq war, and you should all see it right now. I wouldn’t be surprised if the film picks up some hardware – it’s really, really good – and it features some of the best performances I’ve seen in a minute (especially Jeremy Renner).

*Map from University of Texas.

War on drugs quickie…*

I don’t have much time to post today, but I am mid way through Mother Jones’ cover package on the war on drugs and it’s good thus far. Here’s one of the bigger pieces in it on freedom of the press in Mexico and how it intersects with the war on drugs – it’s pretty scary stuff. Excerpt below:

There are two Mexicos.

There is the one reported by the US press, a place where the Mexican president is fighting a valiant war on drugs, aided by the Mexican Army and the Mérida Initiative, the $1.4 billion in aid the United States has committed to the cause. This Mexico has newspapers, courts, laws, and is seen by the United States government as a sister republic.

It does not exist.

There is a second Mexico where the war is for drugs, where the police and the military fight for their share of drug profits, where the press is restrained by the murder of reporters and feasts on a steady diet of bribes, and where the line between the government and the drug world has never existed.

The thrust of the cover package thus far is that, in addition to being a monumental waste of taxpayer dollars and time, the war on drugs is also rapidly turning Mexico into another Columbia-like failed narco state. It’s not uplifting reading, to say the least. But ch-ch-check it out for sure.

*An odd title, I know.

Russia Win

While the word is still out on his efforts on the domestic front – climate change and health care legislation will be make it or break it there – Obama continues to do some very solid work on the foreign policy front. His Russian summit with Medvedev and Putin has already achieved some real results in a framework between the two countries agreeing to cut warheads down to as few as 1,500 each:

Obama and the Russian prime minister, Dmitry Medvedev, signed a framework deal aimed at cutting warheads to a maximum of 1,675 within seven years of a nuclear arms reduction treaty coming into force.

Current treaties allow for a maximum of 2,200 warheads, though both sides are thought to have more than that deployed, or capable of launch. According to some expert estimates of current numbers, the new commitment would mean each side scrapping almost 1,000 warheads.

This is important stuff, not least of all because it involves a diplomacy that focuses on issues of cooperation rather than just issues of contention. If Obama had come in bellowing about Iran and Georgia and NATO membership for the Ukraine the prospects of ‘resetting’ the relationship, as Medvedev described the results of the summit, would have been nil. By focusing on both, Obama was able to register displeasure while also paving the way forward for future negotiations and potential (and fruitful) compromises between the two countries on important issues. It’s not attention grabbing, and it certainly won’t please the woefully misinformed peanut gallery in the GOP, but it works. As Fred Kaplan notes:

At least Obama seems to be stepping into this arena with eyes wide open. In all his remarks about dealing with Russia, the key word is interests. He doesn’t fantasize about peering into Putin’s soul (like Bush); it’s inconceivable that Putin or Medvedev could con him by whispering in his ear about God’s wishes (as Leonid Brezhnev did with Jimmy Carter, when he said, on the eve of SALT II talks, that God would never forgive them if they failed); nor does he confuse cordial personal relations with diplomatic breakthroughs (as Bush 41 and Bill Clinton were sometimes inclined to do).

And the nuclear issue is extremely important. It leaves the U.S. with more than enough of a nuclear deterrent, it points the way toward Obama’s desired nuclear weapon-free future, and it will help diminish any longing on China’s part to accumulate the type of nuclear arsenal proportionate to its geopolitical status. By demonstrating both Russia and the U.S.’s willingness to reduce their arsenals, China will feel more secure that it’s not falling behind in the arms race, which can – in turn – reduce other potential strategic arms race cascades in India, Pakistan, and beyond.

Of course, these reductions haven’t come to pass yet – but the mere establishment of a framework for them is a very good thing, and one worth noting.

Robert McNamara

There have already been hundreds of official and semi-official obituaries on McNamara, and I don’t have too much more to offer. While it’s pretty clear that he was an incredibly intelligent man, his mismanagement of the Vietnam War – which killed 3 million people, including 58,000 Americans – will rightfully define his disastrous legacy. His attempts over the ensuing decades to justify his decisions in the war and rationalize his role in the deaths of millions of people have been mixed at best. I suspect, like Marc Cooper, that a good chunk of his inability to convincingly do so is because the sheer moral weight of his crimes is impossible to come to terms with – I, too, would likely to do my best to rationalize such horrors. 

I don’t care so much, though, and neither does Stephen Walt, who has written the best semi-obituary on McNamara I’ve read yet. American foreign policy, and those who have played a role in its execution, is littered with errors in judgment, misguided policy, and heinous crimes. Unfortunately, as Walt notes, this hasn’t prevented its poorest, most reckless architects – McNamara, Henry Kissinger, and, more recently, Dick Cheney come to mind – from spending their post-office careers doing their best to condone their actions and defend the considerable damage they have done. It’s an unfortunate combination of hubris and misplaced self-confidence, and Walt correctly calls McNamara and similarly minded ex-office holders to task for their predictable, public mea culpas and unsolicited (and unwarranted) advice. 

McNamara may have been a gifted analyst and corporate executive, blessed with a lot of raw smarts, but he was also one of those people who could not imagine being wrong or resist the desire to tell the world what to do. Failure in Vietnam did not teach him humility; he ran the World Bank with same ego-driven sense of infallibility he had brought to the Pentagon (and with predictably mixed results). Yet this second experience with failure did not temper his love of the limelight or his desire to prescribe How Things Should Be Done. He spent the last decades of his life offering high-profile advice on various aspects of nuclear weapons policy — with the same degree of self-assurance he had always displayed — and he sought the spotlight once again with a belated memoir on his role in Vietnam. As always, however, it was filled with “lessons” for others; to the last, McNamara retained an unwarranted confidence in his own ideas as well as an inability to keep quiet.

Overall, McNamara’s post-Vietnam behavior raises a broader question about the role of former officials who have led their country into major disasters. Ordinarily, we should respect the men and women who have devoted years of their lives to public service and listen carefully to the counsel of those who have the benefit of long experience. Moreover, someone who is no longer competing for a job in Washington may be more likely to give honest advice than someone who is still worrying about the questions she might face at a confirmation hearing.

But in some cases — and a lot of former Bush administration officials come to mind here — the failures are of sufficient gravity as to render all subsequent advice suspect. And when a government official’s repeated errors have left thousands of their fellow citizens dead or grievously wounded, along with hundreds of thousands of other human beings, it would be more seemly for them to remain silent, in mute acknowledgement of their own mistakes. And if they persist in pontificating — as Elliot Abrams, John Bolton, and Dick Cheney are now doing — a nation that understood the importance of accountability might have the good sense to pay them the attention and respect they deserve. Which is to say: none.

Read the rest of his post (I highly recommend it) here.