Ian Welsh

The violence in Mexico is generating significant negative externalties.  Business Week reports that the violence related to the multiple cartel on cartel and government versus the collective cartels wars is having a significant drag on economic growth:

The violence is shaving 1.2 percentage points off the economy annually, Finance Minister Ernesto Cordero said today. That’s more than the government’s previous estimate of 1 percentage point….

Moody’s currently rates Mexico Baa1, the third-lowest investment grade rating. Mexico’s rating was cut one level by Standard & Poor’s in December and one level by Fitch Ratings in November after tumbling oil output and the worst recession since the 1930s swelled the budget deficit….

Violence is shaving 20% to 25% of potential economic growth in Mexico.

And that is before the cartels or any other non-state actors have started to target the Mexican governments’ hard currency cash cows of oil exports, light manufacturing exports, tourism and remittances.  Most of the violence has been concentrated at the cartel versus cartel turf establishment and stealing level or the cartel versus government security force strategically defensive level.

We are starting to see signs of violence spreading out of the major drug cartel home bases and into Monterrey and other major manufacturing cities.  Blockades and bandhs are being used to restrict movement, impose uncertainty taxes and channel security forces into predictable patterns in Monterrey.  Foreign owners, consultants as well as highly skilled Mexican workers are under an increasing kidnapping for ransom threat.  If there are take-downs of the electrical transmission infrastructure that moves power from the hinterlands to the urban core, Monterrey’s export engine falters.  If kidnapping for ransom increases, the cost of doing business in Monterrey increases in comparison to safer locations like China.

The cartels have just begun to innovate and move into the deployment of effective improvised explosive devices.  If they go the path of Sunni Arabs in Iraq, or MEND in Nigeria, they can hammer the internal fuel distribution network as well as elements of the oil export network.  If that happens, both the industrial production of the north is hampered as oil prices spike due to the distribution premium and the Mexican federal budget goes south quickly as oil revenue makes up over a third of the budget.  Car bomb and IED attacks against popular tourist towns would put a significant crimp on that revenue stream as well.

The cartels are already able to exact a fairly significant economic cost.  I do not expect significant escalation from cartels that are relatively happy and successful under the current environment.  However the cartels and other criminal/non-governmental armed actors that believe they are losing under the current rule set have significant and readily achievable escalation options that could inflict significant costs on the Mexican government, population and economy.

I’ll be talking about oligopolies, the economy in general, what Obama could have done and could do, and where we go from here, among other things.  You can listen to me and Jay Ackroyd here.

We were told that the Iraqi insurgencies were desperate from 2003 to today despite most of those groups achieving one of their primary objectives,  forcing the United States out of Iraq, or at least out of their region and their hair.

High levels of US casualties were a sign of desperation.  Low levels of US casualties were a sign of desperation.  Successful IED attacks were a sign of desperation, unsuccessful IED attacks were a sign of desperation.  Effective assassination campaigns as well as a four year choke-hold on Iraqi oil exports through the Kirkuk-Ceyhan pipeline were definitely signs of desperation.  Boycotting elections and participating in elections were both signs of desperation.  They were desperate at all times despite denying the United States its maximal goal set.

Now it looks like the Taliban is officially getting ‘desperate:’

The number of US wounded in Afghanistan is reaching the same levels as the number of wounded needed to retake Fallujah in the Fall of 2004.

As the U.S. troop buildup in Afghanistan continues, Landstuhl is experiencing an increase in wounded patients to levels unseen since the 2004 battles in the Iraqi city of Fallouja.

The complexity and severity of wounds are also increasing, said Army Col. John M. Cho, a chest surgeon who is the hospital’s commander. On a medical rating scale, the number of patients above a level considered extremely critical has increased 190% in the last two months, he said.

November 2004 saw intense house to house fighting between heavy infantry against dug-in opponents who had months to prepare positions for the anticipated assault.  Afghanistan has not had any large division size assaults against prepared positions that will grind up infantry and spit out dead and wounded.  So if Afghanistan’s wounded levels are comparable to the wounded levels seen during the Fallujah assault, the frequency and intensity of combat is most likely as high or higher than it had been at any point in Iraq when those insurgents were desperately fighting the US to a strategic draw.

And the Taliban has expanded its presence into non-Pashtun dominated areas over the past couple of years:

Petraeus acknowledged the spread of Taliban influence, especially to parts of the formerly peaceful north, but said the campaign to counter the insurgency was nearing its final stages.

“I don’t think anyone disagrees that the footprint of the Taliban has spread,” he said, adding the insurgents had “reconnected in various safe havens and sanctuaries outside and inside the country,” a reference to Pakistan.

Fighting has expanded from the Pashtun south and east to the entire ring road including areas where NATO/ISAF forces had long considered to be relatively secure.  This is putting pressure on governments whose forces have low domestic backing for the Afghan deployment in a bind as the north was the easy deployment zone.  Now German, Swedish, Norwegian and Danish forces are in routine combat and are taking politically very difficult casualties.  Those nations are likely to draw down their forces, like the Dutch did, because the political costs are not worth the minimal security benefits.  Peak foreign forces is either this week or last week, and foreign forces will draw down significantly even if the US does not.

So the only conclusion that one can rationally draw from this evidence is that the Taliban is desperate:

Petraeus said the intensified fighting was a reflection of the militants’ desperation as the alliance poured in more resources in an effort to speed an end to the war which began in 2001 when a US-led invasion toppled the Taliban regime.

The day before the Obama Inaguaration, I outlined the Republican strategy and its payoff matrix:

The stimulus has non-symmetrical political pay-offs.  Seeing positive impacts of the stimulus package and voting for or against it still leaves the GOP rep SOL.  The big project is a Democratic Branded project, almost all benefits will accrue to the Democrats.  Voting for the stimulus and seeing a fairly crappy economy in the summer of 2010 deprives an incumbent of a good sledge hammer.  The only positive political outcome is to oppose the bail-out and be proven right about your wisdom….

Caving and hoping that the popular opponent screws up without destroying your own credibility as a critic is amazingly stupid political strategy (Hi John Kerry, Dick Gephardt, Hillary Clinton, Tom Daschle etc) as well as a predictor of crappy results.

The stimulus as passed in ARRA was necessary but insufficient.  It was too small at the topline number for the size of the output gap we actually faced (as the recession was deeper than the earlier data showed) and poorly designed with too much money going to AMT fixes and ineffective lump-sum tax-cuts.  The effective parts were pared back to please Sens. Collins, Snowe and Nelson.  And this was because the Republican Party realized they were the opposition and the job of the opposition is to oppose.  It also was because the Obama Administration likes to punch dirty fucking hippies, especially when they are right on the math and the political outcomes.

We are likely to see the same dynamic next year as the Republican strategists read political scientists. Presidential re-elections are primarily determined by disposable personal income growth and job approval levels.  Those two variables are correlated variables.  Republican chances (including Sarah Palin) are much higher if the economy continues to suck for another two years.  And if they have a majority in the House, and a minimal blocking coalition in the Senate, they can guarantee a shitty economy for another two years.

Bruce Bartlett, via the Big Picture, says this is the Republican plan:

“Clearly, a weak economy in 2012 will be very good for whoever the Republican presidential candidate is. It’s hard to see how the Republicans lose by blocking stimulus.”

Opposition politics means millions of people will get hurt worse than they need to, but those people will vote Republican because Obama, Democrats, and unfortunately the dirty fucking hippies who were right and punched for being right, will get the majority of the blame for the state of the economy in 2012.  And that is how we could get President Palin.

A zombie argument is going around about why Obama hasn’t accomplished liberal and progressive ends to the extent many would have liked him to:

Obama can’t do anything because he needs 60 votes in Congress and he doesn’t have them because Republicans and Dems like Lieberman and Nelson won’t vote for his programs.

This argument is misleading in one sense and incorrect in another.  It is misleading in that it misrepresents how things get done in Congress.  It is incorrect in that many liberal policies do not require the consent of Congress.

Let’s examine the misconceptions this zombie argument is built on.

Negotiation 101

Let’s look at how things get done in Congress. Obama apologists make the excuse that Obama couldn’t have passed a larger stimulus because he was forced to reduce the stimulus by $100 billion as it was.  This line of reasoning demonstrates a misunderstanding of how negotiation (or Congress) works.

If Obama had wanted a $1.2 trillion stimulus, say, he should have asked for a $1.6 trillion stimulus.  Then “moderate” Republicans and Dems could have negotiated him down $400K.  This is basic negotiation, which anyone who has ever negotiated in a third world bazaar knows—you start off with an offer far higher (or lower) than what you’re willing to accept, and leave room for the inevitable haggling.

The same is true of health care reform.  If you’re negotiating for a public option—if you actually want one, then you don’t throw single payer advocates out. You act as if that’s something you’re seriously considering, you talk about polls showing it has majority support, and you then “compromise” to a public option.

This sort of self-defeating, pre-negotation concession has been a repeated pattern for the Obama administration (assuming that Obama does seek Liberal ends).

Force It Through

Many liberal policies do not require the consent of congress.

The Bush tax cuts were pushed through under reconciliation.  Most of health care reform, including a public option could have been accomplished the same way.  The tactical choice was entirely at the discretion of the Democratic leadership.

If Obama and Reid can’t hold 50 votes, then the problem is them, not the policies themselves, or “how congress works”.

Congress: Who Cares about Congress?

Now, let’s talk about other issues.  There are many areas where Obama does not need Congress’s approval.

Don’t Ask, Don’t Tell: Obama can issue a stop loss for any soldiers any time he wants. Bang, that’s it, at least for as long as he’s President.

HAMP (the program supposedly intended to help homeowners, which hasn’t):  This program is totally under administrative control.  If Obama wanted it to work, there’s nothing to stop him.

Habeas Corpus: Obama can give everyone in Gitmo their day in court.  Restoring habeas corpus is totally at his discretion, and he has chosen not to.

Social Security: After Congress voted down a debt and deficit commission, Obama went ahead and created one anyway–and stacked it with people with track records of wanting to slash Social Security.

In short, Obama has managed to side-step Congress in order to work against Democratic policy positions (e.g., Social Security), but otherwise has ignored executive privilege when he wanted to continue Bush-era policies (e.g., detention without trial at Gitmo) or to ignore the rights and needs of everyday Americans (e.g., HAMP and DADT). To the Obama administration, Congress is a very selective obstacle.

Going Forward: What Obama Can Still Do

Not only could Obama rectify DADT, HAMP, Habeus Corpus, and his Social Security commission with a stroke of his pen, he can still do a great deal to help the economy. If he wants to.

TARP: Obama has complete control of the TARP funds, the majority of which have not been spent. (We’re talking over $500 billion in slush funds.) $ 500 billion is a lot of stimulus, if it’s done right.  Cash for Clunkers, representing a tiny fraction of the total stimulus funds, massively goosed GDP while it was in effect.

Leaving aside direct stimulus, there are plenty of other helpful things Obama could do.  For example, as a friend of mine noted, most distressed debt today is selling to collection agencies for less than 10 cents on the dollar (often under 5 cents).  The Treasury could buy up $100 billion of that distressed debt at 10 cents on the dollar.  Reclaim the money at 15 cents on the dollar through the IRS, and otherwise just write it off.  You won’t make 50% profit, because some people can’t pay even 10%, but you’ll almost certainly make some profit.  Roll the money over and buy up more debt.  Keep doing it.  (N.B. In the past such debt didn’t sell so cheap, mainly because in the past, pre-Bankruptcy “reform”, people who really couldn’t pay would declare bankruptcy, but now they can’t.  Obama never made fixing that horrible bankruptcy bill a priority at all.) Folks would be absolutely thrilled by a way to deal with distressed debt.  With the debt off their backs, they could spend again, so it would also be stimulative.  There are plenty of other things that could be done with over 500 billion dollars to help ordinary people and goose the economy.

Breaking the Banks (and getting lending going again): The banks have been pretty ungrateful for the massive bailout they received.  They have unilaterally increased credit card rates to gouge customers, have been gaming the market (so much so that one quarter many banks didn’t lose money on their trading operations even one day of the quarter), have fought against financial reform, and have generally acted against the interests of the majority of Americans.  One might say “well, now that they’re bailed out, there is nothing we can do about it.”

Wrong.

The Fed still holds over $2 trillion in toxic waste from the banks.  The banks still hold trillions of dollars of toxic waste.  If sold on the open market this stuff would sell for, oh, about 5 cents on the dollar.  If forced to mark the assets they are keeping on their books at inflated prices to their actual market value, I doubt there is a single major bank in the country which wouldn’t go bankrupt.  Including Goldman Sachs.

So here’s what you do.   As the Federal Reserve you sell $100 billion of the toxic waste on the open market.  Set an actual price for it.  Then you make the banks mark their assets to market value.  They go bankrupt. You nationalize them. (Why not?–They are actually bankrupt after all, and they haven’t increased lending like they were supposed to;  in fact, they have decreased it.)  You make the stockholders take their losses and the bondholders too, then you reinflate the banks. (If the Fed can print trillions to keep zombie banks “alive” it can print money to reinflate nationalized banks.)  The banks lend under FDIC and Fed direction, at the interest rates the Fed directs.  The FDIC and Fed eventually break the banks up into a reasonable size.  And while they’re at it, they get rid of the entire executive class which caused the financial crisis, and have the DOJ go over all the internal memos and start charging everyone who committed fraud. (Hint: that’s virtually every executive at a major bank.)  Again, this is completely up to Obama–the DOJ answers to him.

Think Obama can’t do this without Bernanke?  Wrong.  Obama can fire any Fed Governor for cause and replace them during a Congressional recess with no oversight.* (”Cause” is never defined, but Obama can note that the Fed’s mandate includes maximum employment and not stopping the financial crisis in the first place is certainly plausible as cause as well.)

Obama had the power. Obama had the money. Obama has the power–and the money.

The idea that Obama, or any President, is a powerless shrinking violet, helpless in the face of Congress is just an excuse.  Presidents have immense amounts of power: the question is whether or not they use that power, and if they do, what they use it for.

Obama has a huge slush fund with hundreds of billions of dollars and all the executive authority he needs to turn things around.

If Obama is not using that money and authority, the bottom line is it’s because he doesn’t want to.

Putting aside the question of what Obama could have accomplished already, if he wants to help everyday Americans, turn around Democratic approval ratings in time for the midterm elections, and leave behind him a legacy of achievemant, he can still do it. If he wants to.

read more…

As Bill Scher points out, Beck’s rally was pathetic:

Glenn Beck: 87,000,  Louis Farrakhan 837,000 ‘03 anti-war protests 1,000,000

But the media chooses to massively highlight Beck’s pathetic numbers.  Why is that?

The two answers I see are as follows.  The media has a right wing bias and Beck’s followers include a number of crazies, his movement has the implicit cloud of violence hanging over it, and it’s smart to pay attention to idiot ideologues with guns.

I like Borderland Beat, they provide a great round-up in English about the drug violence in Mexico.  However, one of their recent posts concerning both a massacre of migrants and the execution of a Monterrey area mayor posits nihilism or boredom as a motivator of violence.

Los Zetas have also been implicated in the kidnapping and murder of Mayor Edelmiro Cavasos Leal (Noticieros Televisa).

What could Los Zetas possibly gain from both tragedies?

The answer is very simple, and it doesn’t take a rocket scientist or an expert criminologist to figure them out: They don’t gain or lose anything and it’s obvious that they couldn’t care less about it.

Mayor Cavasos Leal, from Santiago, Nuevo Leon, was simply doing his job (something most politicians in Mexico don’t do), he chastised local police officers and cut their salary, unfortunately, what the mayor did not know is that these officers were also working for Los Zetas. So they kidnapped an innocent man, who clearly had an enormous amount of potential and whose presence would have contributed to a brighter future for Mexico (given the fact that he refused to get involved with any criminal organization), and executed him.

Let us assume that Mayor Leal was clean and non-corrupt. What would the point of the killing him be? Purely boredom and or nihilism?

Hell no. It is a violent form of messaging aimed at multiple audiences.  The first audience is an internal audience of Zeta foot soldiers.  The message is simple; the Zetas take care of their own and solve problems that are caused by being a loyal foot soldier.  The local cops were operating as look-outs, spotters and low level couriers for the Zetas as well as a rich vein of local intelligence.  The mayor was punishing them for that, and the Zetas took care of the problem.

The second and broader audience is the local political and governmental elite.  It is a very simple message; Don’t fuck with us.  Don’t do your job (at least don’t do it against Zetas.)  Don’t be clean, don’t be non-corrupt.  The state can not protect you or your family.

Indeed, the state’s guardians were involved in the plot against the mayor so it increases the fear, uncertainty and decision paralysis of other local officials who have to make daily decisions to do their job or to look the other way.  The downside risk to this message is that it could provoke a fear reaction from fence-sitters into banding together against the Zetas for their own self-protection, but that is a low probability event over any one assassination.

Violence is being used strategically to isolate and hollow out the state.  The Zetas, and other cartels, want a hollow state composed of local officials who are either completely co-opted or who know that they should only do their jobs on certain days against certain factions.

What makes me saddest of all things in the world is this: the vast majority of the time the right thing to do morally is the right thing to do in terms of broad self-interest, and yet we don’t believe that and we do the wrong thing, thinking we must, thinking that we’re making the “hard decisions”.

This spans the spectrum of issues.  It doesn’t matter whether you’re talking about foreign affairs, where the money used on Iraq and Afghanistan could have rebuilt America and made it more prosperous.  It doesn’t matter if you’re talking about health care, where everyone knew that the right thing to do was single payer or some other form of comprehensive healthcare, which would have reduced bankruptcies massively, saved 6% of GDP and massive numbers of lives.  It doesn’t matter if you’re talking about the financial crisis, where criminally prosecuting those who engaged in fraud (the entire executive class of virtually ever major financial firm) and nationalizing the major banks, wiping out the shareholders and making the bondholders eat their losses was the right thing to do, and didn’t happen.  It doesn’t matter if you’re talking about drug policy, where the “war on drugs” has accomplished nothing except destabilizing multiple countries and giving the US the largest prison population proportional to population in the entire world and where legalizing marijuana, soft opiates and coca leaves would save billions of dollars, reduce violence, help stabilize Mexico and would help tax receipts.  It doesn’t matter if you’re talking about food, where we subsidize the most unhealthy foods possible and engage in practices which have reduced the nutritional content of food by 40% in the last half century.  It doesn’t matter if you’re talking about environmental pollutants, which have contributed to a massive rise in chronic diseases so great it amounts to an epidemic.

And on, and on, and on.

Now the fact is that there is no free lunch.  When you spend money on war, you can’t spend it on education or health or crumbling infrasture or civilian technology.  When you allow oligopolies to control the marketplace and buy up politicians, the cost of that is a decreased standard of living.  When you refuse to deal effective with externalized health pollution, whether from soda pop or carcinogens, you pay for that with the death of people you care for from heart disease, cancer and other illnesses.

The response is “we have to do this to protect ourselves/to make a profit”.

No, you don’t. America would be more prosperous and just as safe if you didn’t waste trillions on wars and a bloated military whose purpose isn’t to protect you but to beat on foreigners (who is going to invade the US?  No one.  Next.)  You would be happier if you did not allow health pollution because you and your loved ones would be healthier and it’s damn hard to be happy when you or your loved ones get cancer, or diabetes, or asthma and so on.  Cheap consumer goods do not make up for it and the costs are so high that it’s questionable that the consumer goods ARE cheap—you’re just paying for them in illness and health care bills.

All of these things are moral wrongs.  We know it’s wrong to invade other countries that haven’t attacked us.  We know that it’s wrong to put illness inducing substances into the air or food. We know that we shouldn’t subsidize high fructose corn syrup and that if we’re going to subsidize food we should subsidize healthy food.  We know that’s immoral, yet we do it anyway.

One of the great ironies of human society is that we create it ourselves, but as individuals and even groups we feel powerless to control what we created.  We forged our own chains, and can’t get out of them.

But the first step to freeing ourselves from our chains is to stop telling ourselves that the moral thing to do isn’t the right thing to do in practical terms.  The right thing to do… is the right thing to do.  When we refuse to do the right thing, instead we impoverish ourselves and our loved ones, we make ourselves sick and we kill ourselves.  When we do horrible things to other people, we make them hate us, and then they try and do horrible things to us.

Doing the wrong thing, the immoral thing, is almost never the practical thing if you care about the well-being of yourself, your children, your friends and your family.  It always blows back. If you’re lucky, you may die before the cost comes to bear, but that’s only if you’re lucky, and in the American context, if you aren’t dead yet, you probably aren’t going to get lucky.

So do the right thing.  Not just because it is the right thing morally, but because it’s the right thing to do for you and your loved ones in a very practical way.

This is exactly wrong mindset:

Time and again, the credit card industry has demonstrated its disdain for its customers. The Fed needs to press these companies to live up to the law.

No, they need to FORCE them.  And if they don’t, it needs to PUNISH them enough that it’s not worth their while.

Which comes down to this: in most cases, paying fines is fine by such businesses, it’s worth it, they make more money breaking the law than the price of the fines.  So you either have to change the law to allow for executive prison time, or you need to get passive-aggressive, which is to say the Fed starts making their lives really unpleasant in other ways and so does the DOJ.  The Fed can make any financial firm buckle.

If it wants to.

The Transitional Federal Government (TFG) in Somalia is in more trouble than it normally is

Its baseline state is that it is a hollow joke with international recognition.  In Mogadishu, the capital, the TFG controls the Presidential palace, a couple of blocks around that building, and a few roads to the airport and the seaport in Mogadishu.  It maintains control of these areas on the basis of the guns and tanks of foreigners, as the African Union has deployed a couple of brigades of infantry to support the TFG.  The only thing that the TFG has going for it is the United Nations, the US and the rest of the West is willing to recognize it as the legitimate government of more than a few square miles in Mogadishu and thus they are willing to send some cash every now and then.  Beyond that, it has minimal local legitimacy as it is only able to stick around due to foreign soldiers, it has no turf, and it has minimal credibility with anyone who matters.

And that is the TFG’s baseline state.

One of the TFG’s primary opponents is the Al-Shahab militia which is the radical wing of the Islamic Courts Union which once was able to be a de facto government and proto-state in Somalia under the Ethiopians invaded in 2006 at the urging of the US.  Al-Shahab has radicalized and has adapted some Al Quaeda franchise marks including the increased use of suicide bombers and medium enemy strikes such as the twin bombings in Uganda this summer.

The Christian Science Monitor reports that Al-Shahab is on the offensive to further isolate, concentrate and then smash the TFG.

A suicide strike by two bombers suspected to have belonged to an Al Qaeda-linked group in Somalia killed at least 32 people Tuesday, including six legislators from the country’s Western-funded parliament…

Tuesday’s attack came the day after Al Shabab warned of a massive war against “invaders” in Somalia, which appeared to be a reference to the 6,300 African Union (AU) peacekeepers from Uganda and Burundi who are protecting the government from collapse.

Al-Shahab’s attacks mean TFG elites will either ‘govern’ from a comfortable hotel overseas, thus decreasing legitimacy even more, or bunker down in increasingly harder targets, sucking up more AU soldiers for personal security while also increasing their distance from the day to day street life of the capital.  Either one is a win for Al-Shahab.

The TFG is a bad joke without a punchline.  Once they are either overthrown or more likely reduced to a side-show act at the Mogadishu airport, the United States and the rest of the West will need to come up with a strategy to deal with Al-Shahab.

Supporting another Ethiopian invasion is a dumb idea as the Ethiopians don’t want to destabilize Somalia any more at this time.  Continuing to recognize the TFG and sending in the Marines and the 82nd Airborne to seize Mogadishu is politically impossible and strategically counter-productive.  Coming to some type of arrangement with Al-Shahab and other anti-TFG groups on areas of common interest such as piracy suppression is a realistic and minimalist goal.  The US, and more importantly, the Obama administration won’t do that for fear of a Freeper led gnashing of teeth and Fox News attacks, so we’ll embrace an ineffective and hollow fiction instead.