Archive | April, 2009

Issue XXVI: The safest banking system of them all?

11 Apr

While watching the financial meltdown envelope the world economy and worry the heads of the CNBC crowd, some of you may wonder what a competently-run banking sector looks like.  Surely, it is not the United States or Japan given their massive past and present banking failures.  Europeans, accustomed to lecturing the world about Anglo-American capitalism, can no longer pretend they are doing too hot either with the banking meltdowns in Ireland, Britain, and Iceland.  In fact, their Basel II Accord loosened the amount of reserves and capital banks had to keep stored away in case of emergency more than America permitted.  Central and Eastern European banks have crashed under their Western owners while Latin America’s banks are also in the same situation.  Canada’s system is pretty safe, but who wants to talk about Canada?

The most interesting reversal in reputation is that of the Reserve Bank of India, the central bank of India, and the government-owned banking system of India.  Ever since Indira Gandhi nationalized the banks, 70% of banks in India are owned by the federal government but are independently run by a trust.  India’s chief central banker is Y.V. Reddy, and he (unlike the once-ludicrously overpraised Alan Greenspan) prevented Indian banks from speculating on real estate during the recent property boom in India.  I saw property values climb to ridiculous prices with my own eyes in Mumbai and Bangalore, but apparently the only ones who lost their shirts in the property crash were American and other foreign banks.  Off-balance sheet vehicles like securitization were banned, and interest rates were raised to cool the market (here interest rates were repeatedly left at historically low levels).

Also completely unnoticed by the Western financial press is the requirement that government banks open multiple branches in the countryside for every branch they open in the city, allowing even small towns and villages to have banks.  The biggest bank, State Bank of India, has 16,000 branches.  Banks cannot profit on the urban elite while not servicing the common man (70% of Indians live in villages).  Private banks, foreign or domestic, have no such requirement…. they skim the milk off the urban middle and upper classes.  As government workers, they don’t make the outrageous salaries that private bankers demand even though they run far bigger banks.

Yet this policy under very recently evoked scorn from the know-it-all investor class and their intellectual hacks in academia.  Even the very insightful Financial Times India correspondent, Edward Luce, complained in In Spite of the Gods that the government needs to open up the finance sector and that government banks were poorly run.  The Economist still doesn’t get it and whines on the Reserve Bank of India’s birthday that India’s banking system won’t be opening up anytime soon.  Of course, their interest in defending financial liberalization is more on behalf of their wealthy readers than average Indians.  Tellingly, they then advise how “outsiders [can] profit from India’s financial evolution.”

After years of lecturing from the Washington Consensus, it is India that has the last laugh.  From the Asia Times,

India’s feisty Commerce Minister Kamal Nath, the bane of US negotiators in the recent World Trade Organization Doha Round talks, even took a gloating potshot. “Those who preached us ‘best practices’ have not helped their own financial sector,” he told reporters asking him to comment on the US financial crisis, hinting perhaps that it’s time for know-it-all financial experts in the US to learn a few lessons from India.

Issue XXV: When Lieberman met Lieberman

4 Apr

Israeli President Shimon Peres asked for, and received, a new Israeli government led by the very right-wing Benjamin Netanyahu of the Likud Party.  Long ago (in February), the voters delivered a Knesset dominated by  right-wing and religious ultra-Orthodox parties in a country that was until recently run by the “centrist” Kadima Party and the social democratic Labor Party.

Israel’s political party system historically had two large parties: the socialist, secular Labor Party which founded Israel and ruled it for decades and the religious conservative Likud Party which first entered government in the 1970s.  Now the system is extremely fractured after a band of Laborites and Likudniks broke away to form Kadima in 2005; there are no real major parties anymore and about 5 medium sized parties with 7 minor parties.

A new political superstar has arisen from the ashes of Israeli polity to grasp the prize of the foreign ministry, former Moldovan nightclub bouncer Avigdor Lieberman.  Lieberman’s far-right Yisrael Beiteinu party beat out the Labor Party to become the third biggest party in Israel (15 seats out of 120) .  He demanded the plum job of foreign minister in exchange for supporting Netanyahu for Prime Minister (Likud only has 27 seats out of 120).  Lieberman campaigned on virulent anti-Arab racism by claiming that “only [he] speaks Arabic” (i.e. can teach the Arabs a lesson) while utterly rejecting the peace process.  He wants all Arabs who are Israeli citizens to sign a loyalty oath, or they will lose their right to vote.  Oh yeah, and he plans to “transfer” the Arabs out of Israel into the West Bank to keep Israel more Jewish.  Imagine if someone in America said that about African-Americans or Hispanics?  Arabs represent about 20% of Israel so this is not a small population he is talking about.

Lieberman started out in politics as a chief of staff for Benjamin Netanyahu, and recently entered government under Ehud Olmert as a security minister.  Olmert’s Kadima and the Labor Party had crushed the peace rejectionists in the 2006 elections only to falter and fail after the idiotic invasion of Lebanon and the corruption charges against Olmert.  Weakened, Ehud Olmert took Lieberman’s poisonous support and made him a minister, effectively ending any chance for peace.  The recent invasion in Gaza was seen as a political ploy to make the Kadima government good before the February elections, and it clearly failed.

In the first day in office, Foreign Minister Lieberman declared that the Annapolis peace meeting did not apply to Israel while on the second and third day he was questioned for bribery and money laundering.  Oh, and he has to be nice because last year he told the president of Egypt to “go to hell.”  J Street (a pro-Israel/pro-peace Jewish lobby group) has already started a campaign against the foreign minister calling him a racist and who goes against Jewish traditions of fairness and tolerance (while pointing out the prominent role Jewish Americans played in the Civil Rights movement). It seems that Senator Joe Lieberman and other American politicians had warm words for Avigdor Lieberman.

To be fair, Avigdor Lieberman and Benjamin Netanyahu may just be the more honest, warmongering, and openly racist face of what has been effectively been Israeli policy all along.  Both left-wing and right-wing governments never really moved to establish a viable Palestinian state; the left-wing governments just pay lip service to negotiations and a “peace process.”  Now that the government of Israel unequivocally is composed of rejectionists (and the impotent Labor Party), the rest of the world can no longer pretend that Israel is serious about ending the occupation.  In the end, it is up to a certain black man in the White House to make sure that the conflict and occupation ends.


Ha’aretz – “Israel will pay a heavy price for Lieberman’s mistakes – “Does Obama have the will to challenge Israel?

Ha’aretz – “U.S. pro-Israel lobby wages anti-Lieberman campaign