Japan's lessons for a world of balance-sheet deflation

Martin Wolf - FT.com

What has Japan's "lost decade" to teach us? Even a year ago, this seemed an absurd question. The general consensus of informed opinion was that the US, the UK and other heavily indebted western economies could not suffer as Japan had done. Now the question is changing to whether these countries will manage as well as Japan did. Welcome to the world of balance-sheet deflation.
As I have noted before, the best analysis of what happened to Japan is by Richard Koo of the Nomura Research Institute.* His big point, though simple, is ignored by conventional economics: balance sheets matter. Threatened with bankruptcy, the overborrowed will struggle to pay down their debts. A collapse in asset prices purchased through debt will have a far more devastating impact than the same collapse accompanied by little debt.
Most of the decline in Japanese private spending and borrowing in the 1990s was, argues Mr Koo, due not to the state of the banks, but to that of their borrowers. This was a situation in which, in the words of John Maynard Keynes, low interest rates - and Japan's were, for years, as low as could be - were "pushing on a string". Debtors kept paying down their loans.
How far, then, does this viewpoint inform us of the plight we are now in? A great deal, is the answer.
First, comparisons between today and the deep recessions of the early 1980s are utterly misguided. In 1981, US private debt was 123 per cent of gross domestic product; by the third quarter of 2008, it was 290 per cent. In 1981, household debt was 48 per cent of GDP; in 2007, it was 100 per cent. In 1980, the Federal Reserve's intervention rate reached 19-20 per cent. Today, it is nearly zero.
When interest rates fell in the early 1980s, borrowing jumped (see chart below). The chances of igniting a surge in borrowing now are close to zero. A recession caused by the central bank's determination to squeeze out inflation is quite different from one caused by excessive debt and collapsing net worth. In the former case, the central bank causes the recession. In the latter, it is trying hard to prevent it.
Second, those who argue that the Japanese government's fiscal expansion failed are, again, mistaken. When the private sector tries to repay debt over many years, a country has three options: let the government do the borrowing; expand net exports; or let the economy collapse in a downward spiral of mass bankruptcy.
Despite a loss in wealth of three times GDP and a shift of 20 per cent of GDP in the financial balance of the corporate sector, from deficits into surpluses, Japan did not suffer a depression. This was a triumph. The explanation was the big fiscal deficits. When, in 1997, the Hashimoto government tried to reduce the fiscal deficits, the economy collapsed and actual fiscal deficits rose.
Third, recognising losses and recapitalising the financial system are vital, even if, as Mr Koo argues, the unwillingness to borrow was even more important. The Japanese lived with zombie banks for nearly a decade. The explanation was a political stand-off: public hostility to bankers rendered it impossible to inject government money on a large scale, and the power of bankers made it impossible to nationalise insolvent institutions. For years, people pretended that the problem was downward overshooting of asset price. In the end, a financial implosion forced the Japanese government's hand. The same was true in the US last autumn, but the opportunity for a full restructuring and recapitalisation of the system was lost.
In the US, the state of the financial sector may well be far more important than it was in Japan. The big US debt accumulations were not by non-financial corporations but by households and the financial sector. The gross debt of the financial sector rose from 22 per cent of GDP in 1981 to 117 per cent in the third quarter of 2008, while the debt of non-financial corporations rose only from 53 per cent to 76 per cent of GDP. Thus, the desire of financial institutions to shrink balance sheets may be an even bigger cause of recession in the US.
How far, then, is Japan's overall experience relevant to today?
The good news is that the asset price bubbles themselves were far smaller in the US than in Japan (see charts below). Furthermore, the US central bank has been swifter in recognising reality, cutting interest rates quickly to close to zero and moving towards "unconventional" monetary policy.
The bad news is that the debate over fiscal policy in the US seems even more neanderthal than in Japan: it cannot be stressed too strongly that in a balance-sheet deflation, with zero official interest rates, fiscal policy is all we have. The big danger is that an attempt will be made to close the fiscal deficit prematurely, with dire results. Again, the US administration's proposals for a public/private partnership , to purchase toxic assets, look hopeless. Even if it can be made to work operationally, the prices are likely to be too low to encourage banks to sell or to represent a big taxpayer subsidy to buyers, sellers, or both. Far more important, it is unlikely that modestly raising prices of a range of bad assets will recapitalise damaged institutions. In the end, reality will come out. But that may follow a lengthy pretence.
Yet what is happening inside the US is far from the worst news. That is the global reach of the crisis. Japan was able to rely on exports to a buoyant world economy. This crisis is global: the bubbles and associated spending booms spread across much of the western world, as did the financial mania and purchases of bad assets. Economies directly affected account for close to half of the world economy. Economies indirectly affected, via falling external demand and collapsing finance, account for the rest. The US, it is clear, remains the core of the world economy.
As a result, we confront a balance-sheet deflation that, albeit far shallower than that in Japan in the 1990s, has a far wider reach. It is, for this reason, fanciful to imagine a swift and strong return to global growth. Where is the demand to come from? From over-indebted western consumers? Hardly. From emerging country consumers? Unlikely. From fiscal expansion? Up to a point. But this still looks too weak and too unbalanced, with much coming from the US. China is helping, but the eurozone and Japan seem paralysed, while most emerging economies cannot now risk aggressive action.
Last year marked the end of a hopeful era. Today, it is impossible to rule out a lost decade for the world economy. This has to be prevented. Posterity will not forgive leaders who fail to rise to this great challenge.
* The Holy Grail of Macroeconomics (John Wiley, 2008)

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• The Fed's interest rate experiments (money.cnn.com)
• Flying Blind (nytimes.com)
• Does Japan's Fall Presage Our Own? (mydd.com)
• How is Japan Relevant to U.S.? (paul.kedrosky.com)
• Gavyn Davies: Deflation is now a more serious threat than inflation (guardian.co.uk)

Japan's lessons for a world of balance-sheet deflation

Martin Wolf - FT.com

What has Japan's "lost decade" to teach us? Even a year ago, this seemed an absurd question. The general consensus of informed opinion was that the US, the UK and other heavily indebted western economies could not suffer as Japan had done. Now the question is changing to whether these countries will manage as well as Japan did. Welcome to the world of balance-sheet deflation.
As I have noted before, the best analysis of what happened to Japan is by Richard Koo of the Nomura Research Institute.* His big point, though simple, is ignored by conventional economics: balance sheets matter. Threatened with bankruptcy, the overborrowed will struggle to pay down their debts. A collapse in asset prices purchased through debt will have a far more devastating impact than the same collapse accompanied by little debt.
Most of the decline in Japanese private spending and borrowing in the 1990s was, argues Mr Koo, due not to the state of the banks, but to that of their borrowers. This was a situation in which, in the words of John Maynard Keynes, low interest rates - and Japan's were, for years, as low as could be - were "pushing on a string". Debtors kept paying down their loans.
How far, then, does this viewpoint inform us of the plight we are now in? A great deal, is the answer.
First, comparisons between today and the deep recessions of the early 1980s are utterly misguided. In 1981, US private debt was 123 per cent of gross domestic product; by the third quarter of 2008, it was 290 per cent. In 1981, household debt was 48 per cent of GDP; in 2007, it was 100 per cent. In 1980, the Federal Reserve's intervention rate reached 19-20 per cent. Today, it is nearly zero.
When interest rates fell in the early 1980s, borrowing jumped (see chart below). The chances of igniting a surge in borrowing now are close to zero. A recession caused by the central bank's determination to squeeze out inflation is quite different from one caused by excessive debt and collapsing net worth. In the former case, the central bank causes the recession. In the latter, it is trying hard to prevent it.
Second, those who argue that the Japanese government's fiscal expansion failed are, again, mistaken. When the private sector tries to repay debt over many years, a country has three options: let the government do the borrowing; expand net exports; or let the economy collapse in a downward spiral of mass bankruptcy.
Despite a loss in wealth of three times GDP and a shift of 20 per cent of GDP in the financial balance of the corporate sector, from deficits into surpluses, Japan did not suffer a depression. This was a triumph. The explanation was the big fiscal deficits. When, in 1997, the Hashimoto government tried to reduce the fiscal deficits, the economy collapsed and actual fiscal deficits rose.
Third, recognising losses and recapitalising the financial system are vital, even if, as Mr Koo argues, the unwillingness to borrow was even more important. The Japanese lived with zombie banks for nearly a decade. The explanation was a political stand-off: public hostility to bankers rendered it impossible to inject government money on a large scale, and the power of bankers made it impossible to nationalise insolvent institutions. For years, people pretended that the problem was downward overshooting of asset price. In the end, a financial implosion forced the Japanese government's hand. The same was true in the US last autumn, but the opportunity for a full restructuring and recapitalisation of the system was lost.
In the US, the state of the financial sector may well be far more important than it was in Japan. The big US debt accumulations were not by non-financial corporations but by households and the financial sector. The gross debt of the financial sector rose from 22 per cent of GDP in 1981 to 117 per cent in the third quarter of 2008, while the debt of non-financial corporations rose only from 53 per cent to 76 per cent of GDP. Thus, the desire of financial institutions to shrink balance sheets may be an even bigger cause of recession in the US.
How far, then, is Japan's overall experience relevant to today?
The good news is that the asset price bubbles themselves were far smaller in the US than in Japan (see charts below). Furthermore, the US central bank has been swifter in recognising reality, cutting interest rates quickly to close to zero and moving towards "unconventional" monetary policy.
The bad news is that the debate over fiscal policy in the US seems even more neanderthal than in Japan: it cannot be stressed too strongly that in a balance-sheet deflation, with zero official interest rates, fiscal policy is all we have. The big danger is that an attempt will be made to close the fiscal deficit prematurely, with dire results. Again, the US administration's proposals for a public/private partnership , to purchase toxic assets, look hopeless. Even if it can be made to work operationally, the prices are likely to be too low to encourage banks to sell or to represent a big taxpayer subsidy to buyers, sellers, or both. Far more important, it is unlikely that modestly raising prices of a range of bad assets will recapitalise damaged institutions. In the end, reality will come out. But that may follow a lengthy pretence.
Yet what is happening inside the US is far from the worst news. That is the global reach of the crisis. Japan was able to rely on exports to a buoyant world economy. This crisis is global: the bubbles and associated spending booms spread across much of the western world, as did the financial mania and purchases of bad assets. Economies directly affected account for close to half of the world economy. Economies indirectly affected, via falling external demand and collapsing finance, account for the rest. The US, it is clear, remains the core of the world economy.
As a result, we confront a balance-sheet deflation that, albeit far shallower than that in Japan in the 1990s, has a far wider reach. It is, for this reason, fanciful to imagine a swift and strong return to global growth. Where is the demand to come from? From over-indebted western consumers? Hardly. From emerging country consumers? Unlikely. From fiscal expansion? Up to a point. But this still looks too weak and too unbalanced, with much coming from the US. China is helping, but the eurozone and Japan seem paralysed, while most emerging economies cannot now risk aggressive action.
Last year marked the end of a hopeful era. Today, it is impossible to rule out a lost decade for the world economy. This has to be prevented. Posterity will not forgive leaders who fail to rise to this great challenge.
* The Holy Grail of Macroeconomics (John Wiley, 2008)

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• The Fed's interest rate experiments (money.cnn.com)
• Flying Blind (nytimes.com)
• Does Japan's Fall Presage Our Own? (mydd.com)
• How is Japan Relevant to U.S.? (paul.kedrosky.com)
• Gavyn Davies: Deflation is now a more serious threat than inflation (guardian.co.uk)

Apocalypse now: California Lawmakers Struggle to Strike Budget Deal

Image by Thomas Hawk via Flickr

Paul Krugman - NYTimes.com

Everyone should be paying attention to the political/fiscal catastrophe now unfolding in California. Years of neglect, followed by economic disaster -- and with all reasonable responses blocked by a fanatical, irrational minority.
This could be America next.

NYTimes.com

The state of California -- its deficits ballooning, its lawmakers intransigent and its governor apparently bereft of allies or influence -- appears headed off the fiscal rails.
Republican senators reconvened Monday after negotiations over the weekend ended in the rejection of a budget deal. Since the fall, when lawmakers began trying to attack the gaps in the $143 billion budget that their earlier plan had not addressed, the state has fallen into deeper financial straits, with more bad news coming daily from Sacramento. The state, nearly out of cash, has laid off scores of workers and put hundreds more on unpaid furloughs. It has stopped paying counties and issuing income tax refunds and halted thousands of infrastructure projects.
Twenty-thousand layoff notices will go out on Tuesday morning, Matt David, the communications director for Gov. Arnold Schwarzenegger, said Monday night. "In the absence of a budget we need to realize this savings and the process takes six months," Mr. David said.
After negotiating nonstop from Saturday afternoon until late Sunday night on a series of budget bills that would have closed a projected $41 billion deficit, state lawmakers failed to get enough votes to close the deal and adjourned. They returned to the Capitol on Monday morning and labored into the evening but still failed to reach a deal. They planned to reconvene at 10 a.m. Tuesday to go at it again.
California has also lost access to much of the credit markets, nearly unheard of among state municipal bond issuers. Recently, Standard & Poor's downgraded the state's bond rating to the lowest in the nation.
California's woes will almost certainly leave a jagged fiscal scar on the nation's most populous state, an outgrowth of the financial triptych of above-average unemployment, high foreclosure rates and plummeting tax revenues, and the state's unusual budgeting practices.
"No other state is in the kind of crisis that California is in," said Iris J. Lav, the deputy director of the Center on Budget and Policy Priorities, a liberal research group in Washington.
The roots of California's inability to address its budget woes are statutory and political. The state, unlike most others, requires a two-thirds majority vote in the Legislature to pass budgets and tax increases. And its process for creating voter initiatives hamstrings the budget process by directing money for some programs while depriving others of cash.
In a Legislature dominated by Democrats, some of whom lean far to the left, leaders have been unable to gather enough support from Republican lawmakers, who tend on average to be more conservative than the majority of California's Republican voters and have unequivocally opposed all tax increases.
And then there is Governor Schwarzenegger, whose budget woes far outweigh those of his predecessor, Gray Davis, whom he drummed from office in a 2003 recall that stemmed from the state's fiscal problems at the time. The governor has failed to muster votes among lawmakers in his own party, whom he often opposes on ideological grounds, resulting in more scorn from Democrats.
Furthermore, Republican leaders in the Senate and the Assembly who have agreed to get on board with a plan have been unable to persuade a few key lawmakers to join them. The package needs at least three Republican votes in each house, to join with the 51 Democrats in the Assembly and the 24 Democrats in the Senate.
For months Republicans have vowed not to raise taxes, which in California means no increase in either the sales, gas or personal income tax.
"It is a dramatic time," said Darrell Steinberg, the State Senate's president pro tempore. "The solvency of the state is on the line. It is really quite a system where the fate of the state rests upon the shoulders of a couple of members of a minority party. The system frankly needs to be changed."
In the meantime, drivers are met with "closed" signs at Department of Motor Vehicles offices two days a month, environmental programs are left unattended, piles of dirt mark where highway lanes are to be built to ease the state's infamous traffic congestion, school systems mull layoffs and counties prepare to sue the state for nonpayment of bills.
Last week, Mr. Schwarzenegger and the four legislative leaders concurred on a series of bills that included $15.1 billion in budget cuts, $14.4 billion in tax increases and $11.4 billion in borrowing, much of it subject to voter approval.
The Senate Republican leader, Dave Cogdill, said he thought he had all the votes needed to get the deal done in each house. But on Sunday, two Republican senators -- Dave Cox, who was originally thought to be the last vote needed, and Abel Maldonado, whom Mr. Schwarzenegger had been able to woo into voting against his party in the past -- said they would reject the plan.
Democrats, who had already given into Republicans' long-held dreams of large tax cuts for small businesses and for some of the entertainment industry and a proposed $10,000 tax break for first-time home buyers, balked at Mr. Maldonado's request that the Legislature tuck a bill into the package that would allow voters to cross party lines in primaries.
"I think with an open primary, we would have good government that would do the people's work," Mr. Maldonado said.
Sunday evening ended in frustration and exhaustion for lawmakers, who returned to work on Monday facing the state's uncertain future.
"My boss will continue to work toward a responsible budget solution," said Mr. Cogdill's spokeswoman, Sabrina Lockhart. "There are real risks and real consequences for not passing a budget."

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Apocalypse now: California Lawmakers Struggle to Strike Budget Deal

Image by Thomas Hawk via Flickr

Paul Krugman - NYTimes.com

Everyone should be paying attention to the political/fiscal catastrophe now unfolding in California. Years of neglect, followed by economic disaster -- and with all reasonable responses blocked by a fanatical, irrational minority.
This could be America next.

NYTimes.com

The state of California -- its deficits ballooning, its lawmakers intransigent and its governor apparently bereft of allies or influence -- appears headed off the fiscal rails.
Republican senators reconvened Monday after negotiations over the weekend ended in the rejection of a budget deal. Since the fall, when lawmakers began trying to attack the gaps in the $143 billion budget that their earlier plan had not addressed, the state has fallen into deeper financial straits, with more bad news coming daily from Sacramento. The state, nearly out of cash, has laid off scores of workers and put hundreds more on unpaid furloughs. It has stopped paying counties and issuing income tax refunds and halted thousands of infrastructure projects.
Twenty-thousand layoff notices will go out on Tuesday morning, Matt David, the communications director for Gov. Arnold Schwarzenegger, said Monday night. "In the absence of a budget we need to realize this savings and the process takes six months," Mr. David said.
After negotiating nonstop from Saturday afternoon until late Sunday night on a series of budget bills that would have closed a projected $41 billion deficit, state lawmakers failed to get enough votes to close the deal and adjourned. They returned to the Capitol on Monday morning and labored into the evening but still failed to reach a deal. They planned to reconvene at 10 a.m. Tuesday to go at it again.
California has also lost access to much of the credit markets, nearly unheard of among state municipal bond issuers. Recently, Standard & Poor's downgraded the state's bond rating to the lowest in the nation.
California's woes will almost certainly leave a jagged fiscal scar on the nation's most populous state, an outgrowth of the financial triptych of above-average unemployment, high foreclosure rates and plummeting tax revenues, and the state's unusual budgeting practices.
"No other state is in the kind of crisis that California is in," said Iris J. Lav, the deputy director of the Center on Budget and Policy Priorities, a liberal research group in Washington.
The roots of California's inability to address its budget woes are statutory and political. The state, unlike most others, requires a two-thirds majority vote in the Legislature to pass budgets and tax increases. And its process for creating voter initiatives hamstrings the budget process by directing money for some programs while depriving others of cash.
In a Legislature dominated by Democrats, some of whom lean far to the left, leaders have been unable to gather enough support from Republican lawmakers, who tend on average to be more conservative than the majority of California's Republican voters and have unequivocally opposed all tax increases.
And then there is Governor Schwarzenegger, whose budget woes far outweigh those of his predecessor, Gray Davis, whom he drummed from office in a 2003 recall that stemmed from the state's fiscal problems at the time. The governor has failed to muster votes among lawmakers in his own party, whom he often opposes on ideological grounds, resulting in more scorn from Democrats.
Furthermore, Republican leaders in the Senate and the Assembly who have agreed to get on board with a plan have been unable to persuade a few key lawmakers to join them. The package needs at least three Republican votes in each house, to join with the 51 Democrats in the Assembly and the 24 Democrats in the Senate.
For months Republicans have vowed not to raise taxes, which in California means no increase in either the sales, gas or personal income tax.
"It is a dramatic time," said Darrell Steinberg, the State Senate's president pro tempore. "The solvency of the state is on the line. It is really quite a system where the fate of the state rests upon the shoulders of a couple of members of a minority party. The system frankly needs to be changed."
In the meantime, drivers are met with "closed" signs at Department of Motor Vehicles offices two days a month, environmental programs are left unattended, piles of dirt mark where highway lanes are to be built to ease the state's infamous traffic congestion, school systems mull layoffs and counties prepare to sue the state for nonpayment of bills.
Last week, Mr. Schwarzenegger and the four legislative leaders concurred on a series of bills that included $15.1 billion in budget cuts, $14.4 billion in tax increases and $11.4 billion in borrowing, much of it subject to voter approval.
The Senate Republican leader, Dave Cogdill, said he thought he had all the votes needed to get the deal done in each house. But on Sunday, two Republican senators -- Dave Cox, who was originally thought to be the last vote needed, and Abel Maldonado, whom Mr. Schwarzenegger had been able to woo into voting against his party in the past -- said they would reject the plan.
Democrats, who had already given into Republicans' long-held dreams of large tax cuts for small businesses and for some of the entertainment industry and a proposed $10,000 tax break for first-time home buyers, balked at Mr. Maldonado's request that the Legislature tuck a bill into the package that would allow voters to cross party lines in primaries.
"I think with an open primary, we would have good government that would do the people's work," Mr. Maldonado said.
Sunday evening ended in frustration and exhaustion for lawmakers, who returned to work on Monday facing the state's uncertain future.
"My boss will continue to work toward a responsible budget solution," said Mr. Cogdill's spokeswoman, Sabrina Lockhart. "There are real risks and real consequences for not passing a budget."

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• California Budget is run by "Girly Men" (crooksandliars.com)
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MSNBC's Rachel Maddow: Congress Meets Wall Street

MoveOn.org

MSNBC's Rachel Maddow: Congress Meets Wall Street

MoveOn.org

Clerics urge new jihad over Gaza

BBC NEWS

At a weekend meeting in Istanbul, 200 religious scholars and clerics met with senior Hamas officials to plot a new jihad centred on Gaza. The BBC's Bill Law was the only Western journalist at the meeting. In a hall crowded with conservative Sunni Muslim sheikhs and scholars, in a hotel close to Istanbul's Ataturk Airport speaker after speaker called for jihad against Israel in support of Hamas.
The choice of Turkey was significant. Arab hardliners were keen to put aside historic differences with the Turks. As one organiser put it: "During the past 100 years relations have been strained but Palestine has brought us together."
Many delegates spoke appreciatively of the protest by Turkish Prime Minister Recep Tayyip Erdogan, who stormed out of a Davos debate on Gaza two weeks ago. " Gaza gives us power, it solves our differences... Palestine is a legitimate theatre of operations for jihad ". The conference, dubbed the Global Anti-Aggression Campaign, also gave impetus to Sunni clerics concerned about the growing power of Hezbollah, the Shia movement backed by Iran, which rose to international prominence in its own war with Israel in 2006.
"Gaza is a gift," the Saudi religious scholar Mohsen al-Awajy told me. He and other delegates repeatedly referred to the Gaza war as "a victory. Gaza," he continued, "gives us power, it solves our differences. We are all now in a unified front against Zionism."
In closed meetings after sessions delegates focussed on the creation of a "third Jihadist front" - the first two being Afghanistan and Iraq. The intensity of the Israeli attack had "awakened all Muslims," Mr Awajy claimed. "Palestine is a legitimate theatre of operations for jihad (holy war)," he added.
Road to liberation
Mohammed Nazzal, a senior Hamas leader based in Damascus, challenged Arab governments to "open their borders and allow the fighters to come." Delegates from all over the Middle East, and from Somalia, Sudan, Pakistan and Indonesia applauded as he stabbed the air with a raised finger and declared: "There will be no agreement with Israel... only weapons will bring respect."
Mr Nazzal told his audience: "Don't worry about casualties."
The 23 days of bombardment of Gaza, in which some 1,300 people, many of them civilians and nearly 300 of them children, are believed to have died, was "just the beginning" of the struggle, Mr Nazzal said. To laughter in the audience, another speaker noted that twice as many babies were born as children were killed during the war. Every death, I was told, was a martyrdom on the road to liberation.
For the hardline sheikhs, it was an opportunity to underline what they see as the growing gulf between Arab regimes who are hesitant to back Hamas and the people of the region who, they say, embrace Hamas as heroes fighting against overwhelming odds. More importantly, this conference represented something of a coup for Hamas. They were promised weapons, money and fighters. The question remains whether such rhetoric can or will be translated into action. Israel keeps a tight blockade on the Gaza Strip, where Hamas exercises de facto control, and Israel's other borders are also heavily guarded.
But at the very least this statement of intent from Sunni hardliners poses new challenges, not just to the Israelis and to Western efforts to broker a peace deal but to Arab regimes as well.
Story from BBC NEWS:
http://news.bbc.co.uk/go/pr/fr/-/2/hi/middle_east/7895485.stm
Published: 2009/02/17 19:01:50 GMT
© BBC MMIX
Print Sponsor

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• War of words between Israel, Turkey escalates (cnn.com)

Clerics urge new jihad over Gaza

BBC NEWS

At a weekend meeting in Istanbul, 200 religious scholars and clerics met with senior Hamas officials to plot a new jihad centred on Gaza. The BBC's Bill Law was the only Western journalist at the meeting. In a hall crowded with conservative Sunni Muslim sheikhs and scholars, in a hotel close to Istanbul's Ataturk Airport speaker after speaker called for jihad against Israel in support of Hamas.
The choice of Turkey was significant. Arab hardliners were keen to put aside historic differences with the Turks. As one organiser put it: "During the past 100 years relations have been strained but Palestine has brought us together."
Many delegates spoke appreciatively of the protest by Turkish Prime Minister Recep Tayyip Erdogan, who stormed out of a Davos debate on Gaza two weeks ago. " Gaza gives us power, it solves our differences... Palestine is a legitimate theatre of operations for jihad ". The conference, dubbed the Global Anti-Aggression Campaign, also gave impetus to Sunni clerics concerned about the growing power of Hezbollah, the Shia movement backed by Iran, which rose to international prominence in its own war with Israel in 2006.
"Gaza is a gift," the Saudi religious scholar Mohsen al-Awajy told me. He and other delegates repeatedly referred to the Gaza war as "a victory. Gaza," he continued, "gives us power, it solves our differences. We are all now in a unified front against Zionism."
In closed meetings after sessions delegates focussed on the creation of a "third Jihadist front" - the first two being Afghanistan and Iraq. The intensity of the Israeli attack had "awakened all Muslims," Mr Awajy claimed. "Palestine is a legitimate theatre of operations for jihad (holy war)," he added.
Road to liberation
Mohammed Nazzal, a senior Hamas leader based in Damascus, challenged Arab governments to "open their borders and allow the fighters to come." Delegates from all over the Middle East, and from Somalia, Sudan, Pakistan and Indonesia applauded as he stabbed the air with a raised finger and declared: "There will be no agreement with Israel... only weapons will bring respect."
Mr Nazzal told his audience: "Don't worry about casualties."
The 23 days of bombardment of Gaza, in which some 1,300 people, many of them civilians and nearly 300 of them children, are believed to have died, was "just the beginning" of the struggle, Mr Nazzal said. To laughter in the audience, another speaker noted that twice as many babies were born as children were killed during the war. Every death, I was told, was a martyrdom on the road to liberation.
For the hardline sheikhs, it was an opportunity to underline what they see as the growing gulf between Arab regimes who are hesitant to back Hamas and the people of the region who, they say, embrace Hamas as heroes fighting against overwhelming odds. More importantly, this conference represented something of a coup for Hamas. They were promised weapons, money and fighters. The question remains whether such rhetoric can or will be translated into action. Israel keeps a tight blockade on the Gaza Strip, where Hamas exercises de facto control, and Israel's other borders are also heavily guarded.
But at the very least this statement of intent from Sunni hardliners poses new challenges, not just to the Israelis and to Western efforts to broker a peace deal but to Arab regimes as well.
Story from BBC NEWS:
http://news.bbc.co.uk/go/pr/fr/-/2/hi/middle_east/7895485.stm
Published: 2009/02/17 19:01:50 GMT
© BBC MMIX
Print Sponsor

Related articles by Zemanta

• War of words between Israel, Turkey escalates (cnn.com)

The new Fallujah up close and ugly

Image via Wikipedia

Asia Times Online

Driving through Fallujah, once the most rebellious Sunni city in Iraq, I saw little evidence of any kind of reconstruction underway. At least 70% of that city's structures were destroyed during massive US military assaults in April, and again in November 2004, and more than four years later, in the "new Iraq", the city continues to languish.
The shells of buildings pulverized by US bombs, artillery or mortar fire back then still line Fallujah's main street, or rather, what's left of it. As one of the few visible signs of reconstruction in the city, that street - largely destroyed during the November 2004 siege - is slowly being torn up to be repaved.
Unemployment is rampant, the infrastructure remains largely in ruins, and tens of thousands of residents who fled in 2004 are still refugees. How could it be otherwise, given the amount of effort that went into its destruction and not, subsequently, into rebuilding it? It's a place where a resident must still carry around a US-issued personal biometric ID card, which must also be shown any time you enter or exit the city if you are local. Such a card can only be obtained after US military personnel have scanned your retinas and taken your fingerprints.
The trauma from the 2004 attacks remains visible everywhere. Given the countless still-bullet-pocked walls of restaurants, stores and homes, it is impossible to view the city from any vantage point, or look in any direction, without observing signs of those sieges.
Everything in Fallujah, and everyone there, has been touched to the core by the experience, but not everyone is experiencing the aftermath of the city's devastation in the same way. In fact, for much of my "tour" of Fallujah, I was inside a heavily armored, custom-built, $420,000 BMW with all the accessories needed in 21st century Iraq, including a liquor compartment and bulletproof windows.
One of the last times I had been driven through Fallujah - in April 2004 - I was with a small group of journalists and activists. We had made our way into the city, then under siege, on a rickety bus carrying humanitarian aid supplies. After watching in horror as US F-16s dropped bombs inside Fallujah while we wound our way toward it through rural farmlands, we arrived to find its streets completely empty, save for mujahideen checkpoints.
To say that my newest mode of transportation was an upgrade that left me a bit disoriented would be (mildly put) an understatement. The BMW belonged to Sheik Aifan Sadun, head of the Awakening Council of Fallujah. Thanks to the Awakening movement that began forming in 2006 in al-Anbar province, then the hotbed of the Sunni insurgency - into which American occupation forces quickly poured significant amounts of money, arms and other kinds of support - violence across most of that province is now at an all-time low. This is strikingly evident in Fallujah, once known as the city of resistance, since the fiercest fighting of the American occupation years took place there.
Today, 34-year-old Sheik Aifan may be the richest man in town, thanks to his alliance of self-interest with the US occupation forces. Aifan's good fortune was this: he was the right sheik in the right place at the right time when the Americans, desperate over their failures in Iraq, decided to throw their support behind the reconstitution of a tribal elite in the province where the Sunni insurgency raged with particular fierceness from 2004-2006.
In the 'construction business'
Don't misunderstand. This wasn't a careful, strategically laid, made-in-the-USA plan. It was a seat-of-the-pants, spur-of-the-moment quick fix. After all, by the time US planners decided to throw their weight behind the Awakening Movement, it was already something of a done deal.
In late 2006, roughly speaking, months before George W Bush's "surge" strategy sent 30,000 more American troops into Baghdad and surrounding areas, the US began making downpayments on the cooperation of local al-Anbar tribal sheiks and started funding and arming the Sunni militias they were then organizing. As a result, the number of insurgent attacks quickly began to drop, and so the Americans widened the program to other provinces. It grew to include nearly 100,000 Sunni fighters, most of whom were paid $300 a month - a sizeable income in a devastated city like Fallujah with sky-high unemployment rates.
The program was soon hailed as a success, and the groups were dubbed anything from The Awakening, to Sons of Iraq (al-Sahwa), or as the US military preferred for a time, Concerned Local Citizens. Whatever the name, most of their members were former resistance fighters; many were also former members of Saddam Hussein's Ba'ath Party; and significant numbers were - and, of course, remain - both.
There was an even deeper history to the path the Americans finally chose to tame the insurgency and the homegrown al-Qaeda-in-Iraq (AQI) groups that had spun off from it. In an interview with David Enders and Richard Rowley, colleagues of mine, in the summer of 2007, Sheikh Aifan laid this out quite clearly: "Saddam Hussein supported some tribes and some sheiks. Some of those sheiks, he used their power in their areas. The first support came by money. He supported them by big projects, by money, and he made them very rich. So you see, they can deal with anyone in Iraq with money. The Americans, they made the same plan with all the sheiks."
The main goal of the Americans was never the reconstruction of devastated al-Anbar province. That was just the label given to a project whose objective - from the US point of view - was to save American lives and to tamp down violence in Iraq before the US presidential election of 2008.
Today, leading sheiks like Aifan will tell you that they are in "the construction business". That's a polite phrase for what they're doing, and the rubric under which a lot of the payouts take place (however modest actual reconstruction work might be). Think of it this way: every dealer needs a front man. The US bought the sheiks off and it was to their immediate advantage to be bought off. They regained a kind of power that had been seeping away, while all the money and arms allowed them to put real muscle into recruiting people in the tribes they controlled and into building the Awakening Movement.
The reasons - and they are indeed plural - why the tribal leaders were so willing to collaborate with the occupiers of their country are, at least in retrospect, relatively clear. Those in al-Anbar who had once supported, and had been supported by, Saddam, and then had initially supported the resistance became far keener to work with occupation forces as they saw their power eroded by al-Qaeda-in-Iraq.
AQI proved a threat to the sheiks, many of whom had initially worked directly with it, when it began to try to embed its own fierce, extremist Sunni ideology in the region - and perhaps even more significantly, when it began to infringe on the cross-border smuggling trade that had kept many tribal sheiks rich. As AQI grew larger and threatened their financial and power bases, they had little choice but to throw in their lot with the Americans.
As a result, these men obtained backing for their private militias, renamed Awakening groups, and in addition, signed "construction" contracts with the Americans who put millions of dollars in their pockets, even if not always into actual construction sites. As early as April 2006, the Rand Corporation released a report, "The Anbar Awakening", identifying America's potential new allies as a group of sheiks who used to control smuggling rings and organized crime in the area.
One striking example was Sheik Abdul Sattar Abu Risha, who founded the first Awakening groups in al-Anbar and later led the entire movement until he was assassinated in 2007, shortly after he met with president George W Bush. It was well known in the region that Abu Risha was primarily a smuggler defending his business operations by joining the Americans.
Not surprisingly, given the lucrative nature of the cooperative relationship that developed, whenever an Awakening group sheik is assassinated, another is always there to take his place. Abu Risha was, in fact, promptly replaced as "president" of the Anbar Awakening by his brother Sheik Ahmad Abu Risha, also now in the "construction business".
Dreaming of the new Dubai
When Bush visited Iraq in September 2007, my host on my tour of Fallujah, Sheik Aifan, was delighted to meet him. Bush, he claimed, was "very smart and a brother". During the summer of 2008, he would meet Barack Obama as well. When asked what he thought of Obama, he told Richard Rowley, "US foreign policy tends not to change with a new president." A photo of him with Iraqi Prime Minister Nuri al-Maliki is proudly displayed, among many others, at his home in Fallujah.
To fully understand why tribal leaders like Aifan began working so closely with American forces, you also have to take into account the waves of staggering sectarian violence that were sweeping across Iraq in 2006. As Sunni suicide and car bombings slaughtered Shi'ites, so, too, Shi'ite militias and death squads were murdering Sunnis by the score on a daily basis.
Before the US invasion in 2003, Sunnis had been nearly a majority in Baghdad, the Iraqi capital. By 2006, they were a rapidly shrinking minority, largely driven out of the many mixed Sunni-Shi'ite neighborhoods that dotted the city and some purely Sunni ones as well. Hundreds of thousands of them were displaced from homes in Baghdad alone.
At his Informed Comment blog, Juan Cole reports that Sunnis may now make up as little as 10%-15% of the population of the capital. No wonder their tribal leaders, outnumbered and outgunned on all sides, felt the need for some help and, with options limited, found it by reaching out to the most powerful military on the planet. With their finances, livelihoods and even lives threatened, they resorted to a classic tactic of the beleaguered, summed up in the saying, "The enemy of my enemy is my friend."
The result today? Sheik Aifan is a millionaire many times over.
And his dreams are fittingly no longer those of a local smuggler. He wants to "make Anbar the next Dubai", he told two of my colleagues and I as we powered down the battered streets of Fallujah in reference to the glittering city that has grown out of the desert in the United Arab Emirates.
His house is a fittingly massive, heavily guarded mansion complete with its own checkpoint near the street, two guard towers, and even two heavy machine guns emplaced near the door to his office. A bevy of guards surround him at all times and live in the mansion full-time for his protection.
During our first visit to his home, my companions and I ended up spending the night, since we had not completed our interviews by the time the sun began to set. It was just days ahead of the recent provincial elections in which the list of Awakening members of which he was a part would take second place. As we munched on delicious kebabs, he proudly discussed his own campaign that he hoped would land him high in the city council. "I'm running," he insisted, "because if I don't, the bad people will keep their seats. We can't change things if we don't run."
With most Sunni groups boycotting the 2005 election, the Iraqi Islamic Party (IIP), a heavily religious group, took control of the seats of power in Fallujah. While I was with Aifan, he was visibly anxious and angered by rumors that the IIP was attempting to pressure voters and rig the elections. "We will fight with any means necessary if they win by fraud," he said adamantly - and, as I would soon find out, he was already taking the fight to the IIP.
John Gotti in Iraq
As the night grew late, Aifan suddenly decided that we should accompany him on a quick visit to the provincial capital, Ramadi. He wanted to consult with a compatriot, Sheik Abu Risha, in order to file a joint letter of complaint about the alleged fraud the IIP was conducting in the run-up to the elections. It was interesting to note that, only two years and a few months after the Awakening Movement was formed, the two sheiks feared a Sunni electoral party far more than al-Qaeda-in-Iraq.
En route he proudly showed off the BMW's extras, including its two-inch thick bulletproof windows (so useful if you fear assassination), the handy flip-out whisky compartment that held Johnny Walker and some sodas, and a top-of-the-line music system. As he drove, his cell phone in one hand and a walkie-talkie beside him a constant link to his security guards in SUVs which had us sandwiched front and back, he continued to talk enthusiastically with us. Riding in the front, I couldn't help but be exceedingly aware of the pistol that rested conveniently near him on the seat. In the back on the floor were a shotgun and an AK-47 assault rifle.
Abu Risha's compound in Ramadi was even larger than Sheik Aifan's mansion - and even more heavily guarded. We arrived to find an election official already waiting to take Aifan's written complaint on the rigging charges. The chief of police for the province was in attendance too, a sign of the power and influence of these two men who share a bond of power and money. (Abu Risha even owns a camel farm.)
Once the visit was concluded, we headed back for Fallujah and had a late night snack at Sheik Aifan's place before settling in for a night's sleep as his guest. His daughter, a shy girl of perhaps seven years of age, sat beside him as we ate. At one point, he suddenly peeled a crisp US $100 bill off a wad of bills that would have stunned any movie mafia boss, smiled benevolently, and added that she shouldn't let her mother know about the gift.
The sheik, of course, had $100 bills to spare, as millions of dollars for so-called construction projects have been funneled his way. It's how he pays the roughly 900 men that he estimates make up his private militia. For all of this he can thank the US military, which delivers regular installments of money - shrink-wrapped bricks of those $100 bills - because post-invasion Iraq remains largely a cash-only economy.
Before our journey to Ramadi, a patrol of US Marines had paid Sheik Aifan a visit. As the soldiers climbed the stairs to his meeting room, they took clips of ammunition away from the sheik's security team, and kept them until they left his compound. It was a gentle reminder of who still has the final say in this part of Iraq and of just how far the trust extends between these partners of necessity.
Sheikh Aifan offered a warm greeting to the marine commander, and the two men sat down to talk. Each was visibly distracted, anxiously looking around. Sheik Aifan toyed anxiously with his prayer beads, wiggling his legs like a nervous schoolchild, while telling his guest how well everything was going. The meeting was repeatedly interrupted by cell phone calls for the sheik who, at one point, left briefly to welcome another visitor.
After the meeting, platters of food were brought in and everyone feasted. As they were leaving, I asked one of the marines if meetings like these happened regularly. "This is our job," he replied. "We visit sheiks. And this guy is like John Gotti." (Gotti, labeled the "Teflon Don", ran the Gambino crime family in New York City before being jailed.)
I wasn't eager to stay the night, but the alternatives - at least the safe ones - were nil. Though in luxurious circumstances, we caught something of the newest Iraqi dilemma: we had "security" of a sort, but no freedom.
Outside the gates of Sheik Aifan's well-guarded compound, generators hummed in the night providing electricity in a land where, if you can't pay for a generator of your own or share one with your neighbor, you are in trouble. In Fallujah, like Baghdad, four hours of electricity delivered from the national grid is considered a good day. Generally, a self-imposed curfew kept the streets relatively traffic free after total darkness settled in.
The city in which Sheik Aifan lives, of course, still lies in rubble, its people largely in a state of existential endurance. The Awakening groups have earned the respect of many Iraqis by providing "security", but at what price?
Reconstruction has yet to really begin in Sunni areas and the movement, sheiks and all, only works as long as the US continues funneling "reconstruction funds" to tribal leaders. What happens when that stops, as it surely must with time? Will the people of Fallujah be better served? Or has this process merely laid the groundwork for future bloodshed?
Dahr Jamail, an independent journalist, has been covering the Middle East for more than five years and is the author of Beyond the Green Zone: Dispatches from an Unembedded Journalist in Occupied Iraq. To visit his website, click here.
(Note of thanks: Bhashwati Sengupta, Richard Rowley, Jacqueline Soohen and David Enders contributed research to this article.)
(Copyright 2009 Dahr Jamail.)
(Used by permission Tomdispatch)

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• Tribal Rivalries Emerge as Iraqis Seek Local Posts (nytimes.com)
• U.S. deaths in Iraq down 66% from last year (cnn.com)

The new Fallujah up close and ugly

Image via Wikipedia

Asia Times Online

Driving through Fallujah, once the most rebellious Sunni city in Iraq, I saw little evidence of any kind of reconstruction underway. At least 70% of that city's structures were destroyed during massive US military assaults in April, and again in November 2004, and more than four years later, in the "new Iraq", the city continues to languish.
The shells of buildings pulverized by US bombs, artillery or mortar fire back then still line Fallujah's main street, or rather, what's left of it. As one of the few visible signs of reconstruction in the city, that street - largely destroyed during the November 2004 siege - is slowly being torn up to be repaved.
Unemployment is rampant, the infrastructure remains largely in ruins, and tens of thousands of residents who fled in 2004 are still refugees. How could it be otherwise, given the amount of effort that went into its destruction and not, subsequently, into rebuilding it? It's a place where a resident must still carry around a US-issued personal biometric ID card, which must also be shown any time you enter or exit the city if you are local. Such a card can only be obtained after US military personnel have scanned your retinas and taken your fingerprints.
The trauma from the 2004 attacks remains visible everywhere. Given the countless still-bullet-pocked walls of restaurants, stores and homes, it is impossible to view the city from any vantage point, or look in any direction, without observing signs of those sieges.
Everything in Fallujah, and everyone there, has been touched to the core by the experience, but not everyone is experiencing the aftermath of the city's devastation in the same way. In fact, for much of my "tour" of Fallujah, I was inside a heavily armored, custom-built, $420,000 BMW with all the accessories needed in 21st century Iraq, including a liquor compartment and bulletproof windows.
One of the last times I had been driven through Fallujah - in April 2004 - I was with a small group of journalists and activists. We had made our way into the city, then under siege, on a rickety bus carrying humanitarian aid supplies. After watching in horror as US F-16s dropped bombs inside Fallujah while we wound our way toward it through rural farmlands, we arrived to find its streets completely empty, save for mujahideen checkpoints.
To say that my newest mode of transportation was an upgrade that left me a bit disoriented would be (mildly put) an understatement. The BMW belonged to Sheik Aifan Sadun, head of the Awakening Council of Fallujah. Thanks to the Awakening movement that began forming in 2006 in al-Anbar province, then the hotbed of the Sunni insurgency - into which American occupation forces quickly poured significant amounts of money, arms and other kinds of support - violence across most of that province is now at an all-time low. This is strikingly evident in Fallujah, once known as the city of resistance, since the fiercest fighting of the American occupation years took place there.
Today, 34-year-old Sheik Aifan may be the richest man in town, thanks to his alliance of self-interest with the US occupation forces. Aifan's good fortune was this: he was the right sheik in the right place at the right time when the Americans, desperate over their failures in Iraq, decided to throw their support behind the reconstitution of a tribal elite in the province where the Sunni insurgency raged with particular fierceness from 2004-2006.
In the 'construction business'
Don't misunderstand. This wasn't a careful, strategically laid, made-in-the-USA plan. It was a seat-of-the-pants, spur-of-the-moment quick fix. After all, by the time US planners decided to throw their weight behind the Awakening Movement, it was already something of a done deal.
In late 2006, roughly speaking, months before George W Bush's "surge" strategy sent 30,000 more American troops into Baghdad and surrounding areas, the US began making downpayments on the cooperation of local al-Anbar tribal sheiks and started funding and arming the Sunni militias they were then organizing. As a result, the number of insurgent attacks quickly began to drop, and so the Americans widened the program to other provinces. It grew to include nearly 100,000 Sunni fighters, most of whom were paid $300 a month - a sizeable income in a devastated city like Fallujah with sky-high unemployment rates.
The program was soon hailed as a success, and the groups were dubbed anything from The Awakening, to Sons of Iraq (al-Sahwa), or as the US military preferred for a time, Concerned Local Citizens. Whatever the name, most of their members were former resistance fighters; many were also former members of Saddam Hussein's Ba'ath Party; and significant numbers were - and, of course, remain - both.
There was an even deeper history to the path the Americans finally chose to tame the insurgency and the homegrown al-Qaeda-in-Iraq (AQI) groups that had spun off from it. In an interview with David Enders and Richard Rowley, colleagues of mine, in the summer of 2007, Sheikh Aifan laid this out quite clearly: "Saddam Hussein supported some tribes and some sheiks. Some of those sheiks, he used their power in their areas. The first support came by money. He supported them by big projects, by money, and he made them very rich. So you see, they can deal with anyone in Iraq with money. The Americans, they made the same plan with all the sheiks."
The main goal of the Americans was never the reconstruction of devastated al-Anbar province. That was just the label given to a project whose objective - from the US point of view - was to save American lives and to tamp down violence in Iraq before the US presidential election of 2008.
Today, leading sheiks like Aifan will tell you that they are in "the construction business". That's a polite phrase for what they're doing, and the rubric under which a lot of the payouts take place (however modest actual reconstruction work might be). Think of it this way: every dealer needs a front man. The US bought the sheiks off and it was to their immediate advantage to be bought off. They regained a kind of power that had been seeping away, while all the money and arms allowed them to put real muscle into recruiting people in the tribes they controlled and into building the Awakening Movement.
The reasons - and they are indeed plural - why the tribal leaders were so willing to collaborate with the occupiers of their country are, at least in retrospect, relatively clear. Those in al-Anbar who had once supported, and had been supported by, Saddam, and then had initially supported the resistance became far keener to work with occupation forces as they saw their power eroded by al-Qaeda-in-Iraq.
AQI proved a threat to the sheiks, many of whom had initially worked directly with it, when it began to try to embed its own fierce, extremist Sunni ideology in the region - and perhaps even more significantly, when it began to infringe on the cross-border smuggling trade that had kept many tribal sheiks rich. As AQI grew larger and threatened their financial and power bases, they had little choice but to throw in their lot with the Americans.
As a result, these men obtained backing for their private militias, renamed Awakening groups, and in addition, signed "construction" contracts with the Americans who put millions of dollars in their pockets, even if not always into actual construction sites. As early as April 2006, the Rand Corporation released a report, "The Anbar Awakening", identifying America's potential new allies as a group of sheiks who used to control smuggling rings and organized crime in the area.
One striking example was Sheik Abdul Sattar Abu Risha, who founded the first Awakening groups in al-Anbar and later led the entire movement until he was assassinated in 2007, shortly after he met with president George W Bush. It was well known in the region that Abu Risha was primarily a smuggler defending his business operations by joining the Americans.
Not surprisingly, given the lucrative nature of the cooperative relationship that developed, whenever an Awakening group sheik is assassinated, another is always there to take his place. Abu Risha was, in fact, promptly replaced as "president" of the Anbar Awakening by his brother Sheik Ahmad Abu Risha, also now in the "construction business".
Dreaming of the new Dubai
When Bush visited Iraq in September 2007, my host on my tour of Fallujah, Sheik Aifan, was delighted to meet him. Bush, he claimed, was "very smart and a brother". During the summer of 2008, he would meet Barack Obama as well. When asked what he thought of Obama, he told Richard Rowley, "US foreign policy tends not to change with a new president." A photo of him with Iraqi Prime Minister Nuri al-Maliki is proudly displayed, among many others, at his home in Fallujah.
To fully understand why tribal leaders like Aifan began working so closely with American forces, you also have to take into account the waves of staggering sectarian violence that were sweeping across Iraq in 2006. As Sunni suicide and car bombings slaughtered Shi'ites, so, too, Shi'ite militias and death squads were murdering Sunnis by the score on a daily basis.
Before the US invasion in 2003, Sunnis had been nearly a majority in Baghdad, the Iraqi capital. By 2006, they were a rapidly shrinking minority, largely driven out of the many mixed Sunni-Shi'ite neighborhoods that dotted the city and some purely Sunni ones as well. Hundreds of thousands of them were displaced from homes in Baghdad alone.
At his Informed Comment blog, Juan Cole reports that Sunnis may now make up as little as 10%-15% of the population of the capital. No wonder their tribal leaders, outnumbered and outgunned on all sides, felt the need for some help and, with options limited, found it by reaching out to the most powerful military on the planet. With their finances, livelihoods and even lives threatened, they resorted to a classic tactic of the beleaguered, summed up in the saying, "The enemy of my enemy is my friend."
The result today? Sheik Aifan is a millionaire many times over.
And his dreams are fittingly no longer those of a local smuggler. He wants to "make Anbar the next Dubai", he told two of my colleagues and I as we powered down the battered streets of Fallujah in reference to the glittering city that has grown out of the desert in the United Arab Emirates.
His house is a fittingly massive, heavily guarded mansion complete with its own checkpoint near the street, two guard towers, and even two heavy machine guns emplaced near the door to his office. A bevy of guards surround him at all times and live in the mansion full-time for his protection.
During our first visit to his home, my companions and I ended up spending the night, since we had not completed our interviews by the time the sun began to set. It was just days ahead of the recent provincial elections in which the list of Awakening members of which he was a part would take second place. As we munched on delicious kebabs, he proudly discussed his own campaign that he hoped would land him high in the city council. "I'm running," he insisted, "because if I don't, the bad people will keep their seats. We can't change things if we don't run."
With most Sunni groups boycotting the 2005 election, the Iraqi Islamic Party (IIP), a heavily religious group, took control of the seats of power in Fallujah. While I was with Aifan, he was visibly anxious and angered by rumors that the IIP was attempting to pressure voters and rig the elections. "We will fight with any means necessary if they win by fraud," he said adamantly - and, as I would soon find out, he was already taking the fight to the IIP.
John Gotti in Iraq
As the night grew late, Aifan suddenly decided that we should accompany him on a quick visit to the provincial capital, Ramadi. He wanted to consult with a compatriot, Sheik Abu Risha, in order to file a joint letter of complaint about the alleged fraud the IIP was conducting in the run-up to the elections. It was interesting to note that, only two years and a few months after the Awakening Movement was formed, the two sheiks feared a Sunni electoral party far more than al-Qaeda-in-Iraq.
En route he proudly showed off the BMW's extras, including its two-inch thick bulletproof windows (so useful if you fear assassination), the handy flip-out whisky compartment that held Johnny Walker and some sodas, and a top-of-the-line music system. As he drove, his cell phone in one hand and a walkie-talkie beside him a constant link to his security guards in SUVs which had us sandwiched front and back, he continued to talk enthusiastically with us. Riding in the front, I couldn't help but be exceedingly aware of the pistol that rested conveniently near him on the seat. In the back on the floor were a shotgun and an AK-47 assault rifle.
Abu Risha's compound in Ramadi was even larger than Sheik Aifan's mansion - and even more heavily guarded. We arrived to find an election official already waiting to take Aifan's written complaint on the rigging charges. The chief of police for the province was in attendance too, a sign of the power and influence of these two men who share a bond of power and money. (Abu Risha even owns a camel farm.)
Once the visit was concluded, we headed back for Fallujah and had a late night snack at Sheik Aifan's place before settling in for a night's sleep as his guest. His daughter, a shy girl of perhaps seven years of age, sat beside him as we ate. At one point, he suddenly peeled a crisp US $100 bill off a wad of bills that would have stunned any movie mafia boss, smiled benevolently, and added that she shouldn't let her mother know about the gift.
The sheik, of course, had $100 bills to spare, as millions of dollars for so-called construction projects have been funneled his way. It's how he pays the roughly 900 men that he estimates make up his private militia. For all of this he can thank the US military, which delivers regular installments of money - shrink-wrapped bricks of those $100 bills - because post-invasion Iraq remains largely a cash-only economy.
Before our journey to Ramadi, a patrol of US Marines had paid Sheik Aifan a visit. As the soldiers climbed the stairs to his meeting room, they took clips of ammunition away from the sheik's security team, and kept them until they left his compound. It was a gentle reminder of who still has the final say in this part of Iraq and of just how far the trust extends between these partners of necessity.
Sheikh Aifan offered a warm greeting to the marine commander, and the two men sat down to talk. Each was visibly distracted, anxiously looking around. Sheik Aifan toyed anxiously with his prayer beads, wiggling his legs like a nervous schoolchild, while telling his guest how well everything was going. The meeting was repeatedly interrupted by cell phone calls for the sheik who, at one point, left briefly to welcome another visitor.
After the meeting, platters of food were brought in and everyone feasted. As they were leaving, I asked one of the marines if meetings like these happened regularly. "This is our job," he replied. "We visit sheiks. And this guy is like John Gotti." (Gotti, labeled the "Teflon Don", ran the Gambino crime family in New York City before being jailed.)
I wasn't eager to stay the night, but the alternatives - at least the safe ones - were nil. Though in luxurious circumstances, we caught something of the newest Iraqi dilemma: we had "security" of a sort, but no freedom.
Outside the gates of Sheik Aifan's well-guarded compound, generators hummed in the night providing electricity in a land where, if you can't pay for a generator of your own or share one with your neighbor, you are in trouble. In Fallujah, like Baghdad, four hours of electricity delivered from the national grid is considered a good day. Generally, a self-imposed curfew kept the streets relatively traffic free after total darkness settled in.
The city in which Sheik Aifan lives, of course, still lies in rubble, its people largely in a state of existential endurance. The Awakening groups have earned the respect of many Iraqis by providing "security", but at what price?
Reconstruction has yet to really begin in Sunni areas and the movement, sheiks and all, only works as long as the US continues funneling "reconstruction funds" to tribal leaders. What happens when that stops, as it surely must with time? Will the people of Fallujah be better served? Or has this process merely laid the groundwork for future bloodshed?
Dahr Jamail, an independent journalist, has been covering the Middle East for more than five years and is the author of Beyond the Green Zone: Dispatches from an Unembedded Journalist in Occupied Iraq. To visit his website, click here.
(Note of thanks: Bhashwati Sengupta, Richard Rowley, Jacqueline Soohen and David Enders contributed research to this article.)
(Copyright 2009 Dahr Jamail.)
(Used by permission Tomdispatch)

Related articles by Zemanta

• Tribal Rivalries Emerge as Iraqis Seek Local Posts (nytimes.com)
• U.S. deaths in Iraq down 66% from last year (cnn.com)

Angry America and the Bailout

The Nation

Obtuse hardly does justice to the social stupidity of our late, unlamented financial overlords. John Thain of Merrill Lynch and Richard Fuld of Lehman Brothers, along with an astonishing number of their fraternity brothers, continue to behave like so many intoxicated toreadors waving their capes at an enraged bull, oblivious even when gored.
Their greed and self-indulgence in the face of an economic cataclysm for which they bear heavy responsibility is, unsurprisingly, inciting anger and contempt, as daily news headlines indicate. It is undermining the last shreds of their once exalted social status--and, in that regard, they are evidently fated to relive the experience of their predecessors, those Wall Street "lords of creation" who came crashing to Earth during the last Great Depression.
Ever since the bailout state went into hyperdrive, popular anger has been simmering. In fact, even before the meltdown gained real traction, a sign at a mass protest outside the New York Stock Exchange advised those inside: "Jump, You Fuckers."
You can already buy "I Hate Investment Banking" T-shirts on line. All the Caesar-sized salaries and the Caligula-like madness as the economy crashes and burns, all the bonuses, dividends, princely consulting fees for learning how to milk the Treasury, not to speak of those new corporate jets, as well as the government funds poured down the black hole of mega-mergers, moneys that might otherwise have spared citizens from foreclosure--all of this is making ordinary Americans apoplectic.
Nothing, however, may be more galling than the rationale regularly offered for so much of this self-indulgence. Asked about why he had given out $4 billion in bonuses to his Merrill Lynch staff in a quarter in which the company had lost a staggering $15 billion dollars, ex-CEO John Thain, typically, responded: "If you don't pay your best people, you will destroy your franchise. Those best people can get jobs other places, they will leave."
Apparently it never occurs to those who utter such perverse statements about rewarding the "best people," or "the best men," that we'd all have been better off, and saved some serious money, if they had hired the worst men. After all, based on the recent record, who could possibly have done more damage than the "best" Merrill Lynch, Wachovia, WaMu, Citigroup, AIG, Bank of America and so many other top financial crews had to offer?
The "Best Men" Fall
Now even the new powers in Washington are venting. Vice President Biden has suggested that our onetime masters of the universe be thrown "in the brig"; Missouri Senator Claire McKaskill has denounced them as "idiots...that are kicking sand in the face of the American taxpayer," and even the new president, a man of exquisite tact with an instinct for turning the other cheek, labeled Wall Street's titans as reckless, irresponsible and shameful.
To those who remember the history, all this bears a painfully familiar ring. Soon enough, that history tells us, Congressional investigators will start hauling such people into the public dock and the real fireworks will begin. It happened once before--a vital chapter in the ongoing story of how an old regime dies and a new one is born.
After the Great Crash of 1929, those at the commanding heights of the economy who had enriched themselves and deluded others into believing that, under their leadership, the United States had achieved "a permanent plateau of prosperity"--sound familiar?--were subject to a whirlwind of anger, public shaming and withering ridicule. Like the John Thains of today, Jack Morgan, Charles Mitchell, Richard Whitney, Albert Wiggins and others who headed the country's chief investment and commercial banks, trusts, insurance companies and the New York Stock Exchange never knew what hit them. They, too, had been steeped in the comforting bathwaters of self-delusion for so long that they believed, like Thain and his compadres, that they were indeed the "best," the wisest, the most entitled, and the most impregnable men in America. Even amid the ruins of the world they had made, they were incapable of recognizing that their day was done.
Under the merciless glare of Congressional hearings, above all the Senate's Pecora Committee (named after its bulldog chief counsel Ferdinand Pecora), it was revealed that Jack Morgan and his partners in the House of Morgan hadn't paid income taxes for years; that "Sunshine" Charlie Mitchell, head of National City Bank (the country's largest), had been short-selling his own bank's stock and transferring assets into his wife's name to escape taxes; that other financiers just like him, who had been hero-worshiped for a decade or more as financial messiahs, had regularly engaged in insider-trading schemes that made them wealthy and fleeced legions of unknowing investors.
The Pecora Committee was not the only scourge of the old financial elite. Franklin Delano Roosevelt, as publicly mild-mannered as and perhaps even more amiable and charming than President Obama, began excoriating them from the moment of his first inaugural address. He condemned them in no uncertain terms for misusing "other people's money" and for their reckless speculations; he blamed them for the sorry state of the country; he promised to chase these "unscrupulous money changers" from their "high seats in the temples of American civilization."
Jack Morgan, called to testify by yet another set of Congressional investigators, had a circus midget plopped in his lap to the delight of a swarm of photo-journalists who memorialized the moment for millions. It was an emblematic photo, a visual metaphor for a once proud, powerful elite, its gravitas gone, reduced to impotence, ridiculed for its incompetence and no longer capable of intimidating a soul.
What happened to Jack Morgan or later Richard Whitney--a crowd of 6,000 turned out at New York's Grand Central Station in 1938 to watch the handcuffed former president of the New York Stock Exchange be escorted onto a train for Sing Sing, having been convicted of embezzlement--was the political and social equivalent of a great depression. It represented, that is, a catastrophic deflation of the legitimacy of the ancien régime. It was part of what made possible the advent of something entirely new.
Speculators and Con Men
Under normal circumstances, most Americans have been perfectly willing to draw a relatively sharp distinction between the misguided speculator and the confidence man's outright felonious behavior. One is a legitimate banker gone astray, the other an outlaw.
Under the extraordinary circumstances of terminal systemic breakdown, that distinction grows ever hazier. That was certainly true in the early years of the first Great Depression, when a damaging question arose: just exactly what was the difference between the behavior of Charles Mitchell, Jack Morgan and Richard Whitney, lions of that era's Establishment, and outliers like "Sell-em" Ben Smith; Ivar Kreuger, "the match king"; Jesse Livermore, "the man with the evil eye"; William Crappo Durant, maestro of investment pool stock-kiting; or the onetime Broadway ticket agent and stock manipulator Michael Meehan--men long barred from the walnut-paneled inner sanctums of white-shoe Wall Street?
Admittedly, their daredevil escapades had often left them on the wrong side of the law and they would end their days in jail, as suicides or in penury and disgrace. Nonetheless, as is true today, many Americans then came to accept that between the speculating banker and the confidence man lay a distinction without a meaningful difference. After all, by the early 1930s, the whole American financial system seemed like nothing but a confidence game deserving of the deepest ignominy.
In that sense, Bernie Madoff, a former chairman of the NASDAQ stock exchange, already seems like a synecdoche for a whole way of life. Technically speaking, he ran a Ponzi scheme out of his brokerage firm, as strictly fraudulent as the original one invented by Charles Ponzi, that Italian vegetable peddler, smuggler and, after he got out of an American jail, minor fascist official in Mussolini's Italy.
Ponzi, however, was a small-timer. He gulled ordinary folks out of their five- and ten-dollar bills. Madoff's $50 billion game was something else again. It was completely dependent on his ties to the most august circles of our financial establishment, to major hedge funds and funds of funds, to top-drawer consulting firms, to blue-ribbon nonprofits and to a global aristocracy of the super-rich. True enough, people of middling means, as well as public and union pension funds, got taken too. At the end of the day, however, Madoff's scheme, unlike Ponzi's, was premised on a pervasive insiderism which had everything to do with the way our financial system has been run for the past quarter-century.
Once Madoff was exposed, everybody questioned the credulousness of those who invested with him: why didn't they grow suspicious of such consistently high rates of return? But the equally reasonable question was: why should they have? Not only did you practically need an embossed invitation before you could entrust your loot to Madoff, but the whole financial sector had been enjoying extraordinary returns for a very long time (admittedly, with occasional major hiccups like the dot-com bust of 1999-2000, which somehow seemed to fade quickly from memory).
Keep in mind as well that these lucrative dealings were based on speculative investments in securities so far removed from anything tangible or comprehensible that they seemed to be floating in thin air. The whole system was a Ponzi-like scheme which, like the Energizer Bunny, just kept on going and going and going... until, of course, it didn't.
Locked Into the Bailout State
After 1929, when the old order went down in flames, when it commanded no more credibility and legitimacy than a confidence game, there was an urgent cry to regulate both the malefactors and their rogue system. Indeed, new financial regulation was at the top of, and made up a hefty part of, Roosevelt's New Deal agenda during its first year. That included the Bank Holiday, the creation of the Federal Deposit Insurance Corporation, the passing of the Glass-Steagall Act, which separated commercial from investment banking (their prior cohabitation had been a prime incubator of financial hanky-panky during the Jazz Age of the previous decade), and the first Securities Act to monitor the stock exchange.
One might have anticipated an even more robust response today, given the damage done not only to our domestic economy but to the global one upon which any American economic recovery will rely to a very considerable degree. At the moment, however, financial regulation or re-regulation--given the last thirty years of Washington's fiercely deregulatory policies--seems to have a surprisingly low profile in the new administration's stated plans. Capping bonuses, pay scales and stock options for the financial upper crust is all well and good and should happen promptly, but serious regulation and reform of the financial system must strike much deeper than that.
Instead, the new administration is evidently locked into the bailout state invented by its predecessors, the latest version of which, the creation of a government "bad bank" (whether called that or not) to buy up toxic securities from the private sector, commands increasing attention. A "bad bank" seems a strikingly lose-lose proposition: either we, the taxpaying public, buy or guarantee these securities at something approaching their grossly inflated, largely fictitious value, in which case we will be supporting this second gilded age's financial malfeasance for who knows how long; or the government's "bad bank" buys these shoddy assets at something close to their real value, in which case major banks will remain in lockdown mode, if they survive at all. Worse yet, the administration's latest "bad bank" plan does not even compel rescued institutions to begin lending to anybody, which presumably is the whole point of this new financial welfare system.
Why this timidity and narrowness of vision, which seems less like reform than capitulation? Perhaps it comes, in part, from the extraordinary economic and political throw-weight of the FIRE (finance, insurance, and real estate) sector of our national economy. It has, after all, grown geometrically for decades and is now a vital part of the economy in a way that would have been inconceivable back when the United States was a real industrial powerhouse.
Naturally, FIRE's political influence expanded accordingly, as politicians doing its bidding dismantled the regulatory apparatus installed by the New Deal. Even today, even in ruins, many in that world no doubt hope to keep things more or less that way; and unfortunately, spokesmen for that view--or at least people who used to champion that approach during the Clinton years, including Larry Summers and Robert Rubin (who "earned" more than a $115 million dollars at Citigroup from 1999 to 2008), occupy enormously influential positions in, or as informal advisors to, the new Obama administration.
Still, popular anger and ridicule of the sort our New Deal era ancestors once let loose are growing more and more common, which explains, of course, the newly discovered voice of righteous anger of some of our leading politicians who are feeling the heat. Certain observers have dismissed popular resistance to the bailout state as nothing more than right-wing, Republican-inspired hostility to government intervention of any sort. No doubt that may account for some of it, but much of the anger is indeed righteous, reasonable, and coming from ordinary Americans who simply have had enough.
Progressive-minded people in and outside of government must find a way to make re-regulation urgent business, and to do so outside the imprisoning, politically self-defeating confines of the bailout state. Just weeks ago, the notion of nationalizing the banks seemed irretrievably un-American. Now, it is part of the conversation, even if, for the moment, Obama's savants have ruled it out.
The old order is dying. Let's bury it. The future beckons.
About Steve Fraser
Steve Fraser is a visiting professor at New York University, co-founder of the American Empire Project, and the author, most recently, of Wall Street: America's Dream Palace. more...
* Copyright © 2008 The Nation

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