When I was living in Cairo, the transition to winter was sometimes smooth. The beastly oven of summer changed slowly into a bearable fall of cool-warm. The fall moved from the cool-warm to a few weeks of cold, or at least what was cold to Egypt. These were smooth changes. It [...]]]>
When I was living in Cairo, the transition to winter was sometimes smooth. The beastly oven of summer changed slowly into a bearable fall of cool-warm. The fall moved from the cool-warm to a few weeks of cold, or at least what was cold to Egypt. These were smooth changes. It seemed so normal. We even delighted in the cold evenings when we could wear sweaters while sailing on the Nile. It felt like a novelty the first time; then it was comfortable to change with the changes and dig out our sweaters in late November.
The recent cold winds to hit Cairo and Egypt came as a shock to some. These cold winds came from the decrees of President Mohamed Morsi. He was supposed to be the protector and developer of democracy according to many. He has turned out — for many — to be quite different. He essentially grabbed the powers of the judicial, executive and the legislative branches of the baby democracy that is developing in Egypt. He stole the candy from the baby, according to many in Egypt.
Morsi’s Muslim Brotherhood supporters cheered in delight. Just about everyone else felt the cold winds. They also felt that their revolution was falling prey to a manipulative, dangerous and very clever man. The person who the Brotherhood really wanted at first had the last name of Al-Shater, “the clever one”. The real clever one turns out to be the person that many called “the spare tire” — the American-educated “former” leader in the Muslim Brotherhood, Mohamed Morsi Isa El-Ayat. The last part of his name might give some in the west pause, if they are thinking.
Egypt for now is looking more like Iran in 1979 than ever before.
The liberals and intellectuals were the original igniters and leaders of the Egyptian revolution; the Muslim Brotherhood took it from them. There were discussions about inclusivity, but as the Copts, liberals, Wafd and others left, the Constitutional and other committees made no effort to reincorporate them. There was a collective crocodile sigh and the leadership went on with the committees.
The press, other media, academics, government officials and more are being packed by members of, or loyalists to, the Muslim Brotherhood. Discussions about applying a somewhat strict version of Sharia in Egypt get more heated by the day, while the opposition apparently continues to be sidelined from the game. The extremist Salafis seem to have more voice in the new Egypt than the academics or even the experienced umdas (village leaders) in some areas.
Sectarian tensions are mounting. The recently elevate Pope of the Copts has stated publicly that he rejects the mounting power of the extremists and wants his flock to be considered full members of Egyptian society. Given that the Copts make up around 8-10 percent of the country, that makes sense.
A working democracy requires inclusivity. It needs a sort of equality supported not just voting, but other civil and social rights too. It took the United States over a century to move toward greater voting and other rights for minorities. These were hard fought battles that started with the bloodiest war in American history, the Civil War, and went on into the 1960s with the various civil rights and voting acts. This process is ongoing.
Democracy is a fragile thing; extremism is its worst enemy. Al Ahram provides a translation of President Morsi’s recent decrees here:
“We have decided the following:
Article I
Reopen the investigations and prosecutions in the cases of the murder, the attempted murder and the wounding of protesters as well as the crimes of terror committed against the revolutionaries by anyone who held a political or executive position under the former regime, according to the Law of the Protection of the Revolution and other laws.
Article II:
Previous constitutional declarations, laws, and decrees made by the president since he took office on 30 June 2012, until the constitution is approved and a new People’s Assembly [lower house of parliament] is elected, are final and binding and cannot be appealed by any way or to any entity. Nor shall they be suspended or canceled and all lawsuits related to them and brought before any judicial body against these decisions are annulled.
Article III:
The prosecutor-general is to be appointed from among the members of the judiciary by the President of the Republic for a period of four years commencing from the date of office and is subject to the general conditions of being appointed as a judge and should not be under the age of 40. This provision applies to the one currently holding the position with immediate effect.
Article IV:
The text of the article on the formation of the Constituent Assembly in the 30 March 2011 Constitutional Declaration that reads, “it shall prepare a draft of a new constitution in a period of six months from the date it was formed” is to be amended to “it shall prepare the draft of a new constitution for the country no later than eight months from the date of its formation.”
Article V:
No judicial body can dissolve the Shura Council [upper house of parliament] or the Constituent Assembly.
Article VI:
The President may take the necessary actions and measures to protect the country and the goals of the revolution.
Article VII:
This Constitutional Declaration is valid from the date of its publication in the official gazette.” (Emphasis supplied)
The paragraphs in bold and italics are the ones that are really worrying and angering so many in Egypt. They are also the ones that have sparked violence on the streets of Cairo and in many other places in Egypt. They have spurred a call for the impeachment of the President. They have instigated a strike by the judges in the country that will further paralyze a legal system that has been in various forms of paralysis for decades. That strike is also due to the firing of the chief prosecutor, who was apparently replaced by a judge with Muslim Brotherhood sympathies.
The Egyptian stock market tumbled yesterday and had to be shut down. It had a relatively feeble increase today. The cold winds seem to be keeping investors away. The sense of risk is still there. If more negative events take place, the market could fall again.
Demonstrations and counter demonstrations are being called. There will likely be more violence, more worry and anxiety amongst Egyptians and more hardening of opinions across the ever-widening political divide in this great country gone astray.
The fact that top judges have said they are planning to meet with President Morsi is a hopeful sign. Of course, after all the hard feelings, I am not sure what could come from that. The journalists union may call a strike; there were fist fights and loud yelling matches in the journalists’ union building yesterday. The organization that represents a lot of the fellahin or peasant farmers in Egypt stated its anger at Morsi’s decrees by saying the servitude of the peasants was over. The younger people are still fired up. The ULTRAs, the soccer fans for Ahly, Zamalek and others who were a major part of the disturbances and demonstrations since the early days of the revolution are also out in the streets again and looking for a fight.
The Muslim Brotherhood has called for a pro-Morsi demonstration. The anti-Morsi groups have called for other demonstrations. The offices of the Muslim Brotherhood have been attacked in many areas, including in Damanhour in Behaira Province, where one really would not expect such violence. A 15-year-old boy died in that attack.
Those thinking about investing in Egypt will likely shy away even more. Tourism will be shattered if this does not settle down soon. The winter season is the most important for tourism in Egypt. The IMF loan and some of the foreign aid packages for Egypt could also be in jeopardy. Capital flight is likely to increase. Unemployment and inflation are likely to get worse. The sense of hope in the county will likely be worsened. This is most important for the youth in the country. They have mostly very hard, impoverished and frustrating lives. They are also the demographic that could drive the country into another revolution for the poor, the unemployed and the hungry.
A cold wind indeed has come to Egypt.
One can hope that the cold winds will subside and warm a bit before the politics of Egypt freezes over into immovable camps. One can hope that there will be true dialogue and a moving forward for the country in many ways.
The revolution was the greatest event to take place in a very long time for most Egyptians. Many died and even more were injured. A post-revolution Egypt needs to be for all Egyptians, as many in the opposition have stated.
The Muslim Brotherhood should be listening and listening hard to what is going on. Winning a hair-thin election is not a mandate. There are many people in Egypt — all over Egypt — who do not like and do not trust the Muslim Brotherhood. Their time in power could be very short if they do not respond to the calls for equity, inclusiveness and great open-mindedness. Many also see the Morshid, the spiritual leader of the Muslim Brotherhood, Mohammed Badei, as the man behind many of the decisions made by President Morsi. This is proving to be very dangerous for the stability of Egypt.
Egypt is a complex country facing a very challenging future. If it cannot move towards democracy and prosperity in a more stable and efficient way, great trouble lies ahead. The cold winds of November 2012 could be warm in comparison to what’s waiting.
Sawt means voice and vote in Arabic. If positions in Egypt harden and more and more people are left behind or shoved aside, the voices of even the so-far-silent could get much louder.
- Paul Sullivan is an internationally recognized expert on security issues including energy security, water security and food security in the Middle East and North Africa. He is an economist by training and a multidisciplinary public intellectual by choice. He is an Adjunct Professor of Security Studies at Georgetown University.
]]>The world economy would bear substantial costs if the United States took steps to significantly escalate the conflict with Iran over its controversial nuclear programme, according to the findings of a Federation of American Scientists’ (FAS) special report released here Friday.
Based on consulations with a group of nine bipartisan [...]]]>
The world economy would bear substantial costs if the United States took steps to significantly escalate the conflict with Iran over its controversial nuclear programme, according to the findings of a Federation of American Scientists’ (FAS) special report released here Friday.
Based on consulations with a group of nine bipartisan economic and national security experts, the findings showed the effects of U.S. escalatory action against Iran could range from 64 billion to 1.7 trillion dollars in losses for the world economy over the initial three-month term.
The least likely scenario of de-escalation, which would require U.S. unilateral steps showing it was willing to make concessions to resolve the standoff, would result in an estimated global economic benefit of 60 billion dollars.
“The study’s findings suggest that there are potential costs to any number of U.S.-led actions and, in general, the more severe the action, the greater the possible costs,” Mark Jansson, FAS’s special projects director, told IPS.
“That being said, even among experts, there is tremendous uncertainty about what might happen at the higher end of the escalation ladder,” added Jansson, the second author of the report after Charles P. Blair, an FAS senior fellow on state and non-state threats.
The six plausible scenarios of U.S.-led actions against Iran included isolation and a Gulf blockade, which would include U.S. moves to “curtail any exports of refined oil products, natural gas, energy equipment and services”, the banning of the Iranian energy sector worldwide (incurring an estimated global economic cost of 325 billion dollars), and a comprehensive bombing campaign that would also target Iran’s ability to retaliate (incurring an estimated global economic cost of 1.082 trillion dollars).
The report is explicit in not endorsing any particular policy recommendation, although others are not so reticent.
United Against a Nuclear Iran (UANI) and the neoconservative Foundation for Defense of Democracies (FDD) are leading hardline Washington-based advocacy groups arguing for sweeping economic measures against Iran.
“The White House must build on this momentum, intensifying economic warfare in an effort to shake the Islamic Republic to its core,” wrote FDD executive director Mark Dubowitz in June.
Paul Sullivan, an economics professor specialising in Middle East security at Georgetown University, told IPS that, “The fact that the hardest core of the neoconservative ‘strategists’ have not thought through the costs of escalating conflict with Iran is proof of their group intellectual inadequacy.
“The main effects to the U.S. if there is escalation is through the price of oil and increased military and other national security costs,” said Sullivan, who evaluated the scenarios as an expert but could not comment on the specific figures due to Chatham House Rules.
“If there is an attack on Iran, with the expected counterattacks the price of oil could quite easily go to 250 dollars or higher. This could push the U.S. right back into a recession,” he said.
As tensions rise over the decades-long dispute over Iran’s controversial nuclear programme, analysts are increasingly examining a range of costs associated with escalating the so-far cold conflict between the U.S. and Iran.
The Iran Project Report released in September showed that the cost of Iranian retaliation would be “felt over the longer term” by the U.S. and could result in a regional war.
“In addition to the financial costs of conducting military attacks against Iran, which would be significant…there would likely be near-term costs associated with Iranian retaliation, through both direct and surrogate asymmetrical attacks,” according to the report, which was endorsed by a long list of high-level, bipartisan national security advisers.
The Iran Project report’s findings support the notion that greater escalatory action will result in greater costs – shown in financial terms by the FAS findings: “A dynamic of escalation, action, and counteraction could produce serious unintended consequences that would significantly increase all of these costs and lead, potentially, to all-out regional war,” notes the report.
An Oct. 19 event on the economic and military considerations of war with Iran at the Center for the National Interest (CNI) offered similar assessments.
“You could lose eight million barrels a day of production, and it would not come back quickly,” said J. Robinson West, who has also held senior positions in the White House, the Energy Department, and the Pentagon under various Republican administrations. “We believe the price of oil will go above 200 dollars a barrel.”
On Oct. 20, the New York Times reported that the U.S. and Iran had “agreed in principle for the first time” to direct negotiations.
But Tehran and Washington did have “limited bilateral talks” in 2009 “when the Iranian leadership saw a potential in the newly elected Obama administration to address some of Iran’s bottom lines regarding the country’s right to enrichment,” Farideh Farhi, an independent scholar and affiliate graduate faculty at the University of Hawai’i, told IPS.
On Wednesday, President Obama denied the Times report but did not dismiss the notion of one-on-one talks. In fact, he strongly suggested that the U.S. would seriously engage if the Iranians proved their sincerity.
“If Iran is serious about wanting to resolve this, they’ll be in a position to resolve it,” he said during his first press conference following his successful presidential re-election campaign.
“The situation is different now insofar as the Iranian leadership is much more sceptical of Obama’s words regarding his desire to resolve the nuclear issue instead of going for the Islamic regime’s jugular after a show of desire for talks,” said Farhi.
“To be sure, there will always be hardline naysayers in Tehran no matter what. A similar situation exists in the U.S.. But if the past is any guide, Tehran will come around and abandon its current resistance to bilateral talks if it sees a potential for breakthrough,” she said.
]]>About 32 percent of all stock trades in the US stock markets are being done “off market” in “dark pools” and other confidential “trading platforms”. Trading on well-known markets such as the New York Stock Exchange and NASDAQ has been dropping precipitously.
The “dark pools” have taken over some increasing [...]]]>
About 32 percent of all stock trades in the US stock markets are being done “off market” in “dark pools” and other confidential “trading platforms”. Trading on well-known markets such as the New York Stock Exchange and NASDAQ has been dropping precipitously.
The “dark pools” have taken over some increasing chunks of the market shares that used to go to these and other major exchanges. Also, as the article from Business Week points out, massive amounts of money have fled the normal stock and other equity markets due to a lack of confidence and trust in those markets.
This video from the Wall Street Jounal explains what “dark pools” are. Most people are likely very much in the dark about them.
To put it simply, “dark pools” are pools of liquidity and financial capital that are flowing from one trader to another. One customer of a broker might need to move a large amount of a certain security, stock, derivative, bond or bill without it being noticed on the public markets. ”Dark pools” are confidential, secret and certainly not registered with the SEC or on any public notice boards of the trades.
If the large trade were to flow into the data banks of the algorithms of the high frequency traders — who really run the market to a very big extent — then the price of the security the trader wants to move can drop rather quickly. So, it is thought by these surreptitious security traders that one can retain more value by keeping the trades secret. “Dark pools” have been developing in China, the EU, and even in places like Indonesia, the Philippines, and all across the world.
Increasing development of the dozens of confidential platforms is in part a response to the development of high speed trading. High speed trading has a huge influence on the stock markets in the US and in many other countries. As the risks to trading have increased with the faster diffusion into the marketplace of high speed trading, so too have the “dark pools” and other surreptitious trading platforms developed.
There have been many instances of obvious mispricing of securities by some of these black box algorithms, such as sending the price of many well capitalized companies heading towards penny stocks in the matter of seconds during “flash crashes”, as happened in May 2010. One of the biggest energy companies in the world, Exelon, was deemed almost worthless on the markets for a moment. Proctor and Gamble became a penny stock.
One of the main reasons behind this flash crash was the high frequency trading companies’ algorithms (hyper complex mathematical stock and derivative trading models) kicking in to react to an order to sell 75,000 E-Mini Standard & Poor’s 500 futures contracts. If this seems somewhat to very obscure to you do not get worried that you are out of the loop on what is really going on in the stock, futures and derivatives markets. My guess is 99 percent of the people in the US, if not the world, are pretty much clueless about what is happening and who is doing what.
It is not just the existence of “dark pools” or of high speed trading that lends to huge potential volatility — even worse is the combination of the two. There is an increasing opacity to securities markets while at the same time an increasing dominance of very complex, black box mathematical algorithms that trade at velocities that are beyond the comprehension of just about everyone, including some of the people who are at the top of these trading companies.
One of my biggest concerns about high frequency trading is that the models, the algorithms used for trades, may not be built to handle major commodity price shocks, such as what may occur with an invasion of Iran and the response and counter-response that may happen after that.
One only has to consider the 1998 collapse of Long Term Capital Management (LTCM) that was sparked by the combination of the East Asian Financial Crises in 1997-1998, the default of Russia and the collapse of the ruble, as well as other complex factors, to see how this may happen again.
Please note LTCM was established by a bunch of Nobel Laureates and had some of the best and brightest “rocket scientists” of algorithm development on their staff. This article from CATO also discusses the government sponsored and constructed bailout of LTCM. Sound familiar? This was in 1998.
I find the potential robustness of these models in times of even moderate stress to be suspect.
We can now add in the problems that could result from the “dark pools” to the “high frequency trading” to those of the shadow banks that I mentioned in a previous article.
Indeed, the risks to the toppling of asset values and economies via oil and other commodity shocks are looming if there are any serious military shocks, most particularly if significant oil facilities such as Ab Qaiq are seriously damaged in the medium to long runs.
It is not just an attack of Iran that would shock the markets, but what follows after that. Iran is unlikely to back down and cower. It will counter attack. The Iranians have stated this quite clearly.
The effects of these shocks could also be magnified due to the fragility of the global economy. That volatility can be further magnified by the fall of the assets that back the shadow banking systems of securities and derivatives. This could be made even worse via high frequency trading and the increasing opacity of markets via “dark pools”.
One might expect large investors to initially flock to the “dark pools” to dump their securities. This may be kept quiet for a short while. However, sooner rather than later, the expected huge movements of assets that will be attempted to be dumped to preserve value will be noticed and talked about. Then the high frequency trades kick in full force. Add to this the fall in assets backing up the hundreds of trillions of dollars in derivatives and you have quite a problem.
Can you imagine the “flash crash” developing into a “smash crash” from a spreading conflict in the Gulf?
I really wonder how those black box computer programs would respond when the price of oil goes beyond the outer boundaries of their assumptions – and stays there.
Many markets have become too fast, too incomprehensible, and too opaque for the average investor and even for most governments. Some of these markets may be heading toward a dangerous tipping point on some issues not far in the future anyway.
A war in an area with 70 percent of all known commercially available conventional oil reserves and all of the excess oil capacity in the world may help that tipping point to arrive faster and in a more furious way.
Very few know what is really happening in the “dark pools”. Very few know what is really happening inside those black box algorithms of the high frequency traders. Shadow banking remains in the shadows.
Policy recommendation: governments and others need to look more into these dark regions to fully analyze certain strategic economic, political and other decisions. The world economy has changed vastly even in the last few years with massive liquidity traps and small reactions to monetary and fiscal policy than in the past and the existence of many great unknowns that contain massive amounts of assets within them. These policy responses need to be global as well as national given the massive international flows of money each day, often in the trillions of dollars if one also adds in foreign exchange transactions.
This odd amalgam of the old and new financial systems may be resilient to normal shocks and small shocks, but big shocks could make things rather bad indeed.
Governments and others need to understand and navigate in the dark corners of finance — and there are many of them — in order to understand what might happen next.
]]>Last Sunday former President Bill Clinton asked the CEO of Walmart if he would open a store in Libya.
Surely Libya needs more jobs and needs to get its economy going, but I am not sure how a Walmart would do that. A large proportion of the goods that [...]]]>
Last Sunday former President Bill Clinton asked the CEO of Walmart if he would open a store in Libya.
Surely Libya needs more jobs and needs to get its economy going, but I am not sure how a Walmart would do that. A large proportion of the goods that Walmart sells in the United States are imported into the United States, not made there. Seventy-five percent of the foodstuffs in Libya are imported from elsewhere. Libya has no real manufacturing base. Libya’s supply chains are hardly up to the task for feeding into a group of Walmarts. Most of the managers and even greeters may have to be foreigners initially. The people setting up the supply chains would also likely be non-Libyans given the complexity of what needs to be done and the lack of applicable training for most Libyans.
The finance for the setting up of the Walmart(s) would have to be via foreign direct investments likely from the United States. Those investments would need some insurance from the Overseas Private Investment Corporation. There would also need to be lots of cooperation and aid from the US government and the Libyan government regarding security for the initial buildings and the entire supply chain within Libya. Maybe the World Bank, the International Finance Corporation and others could be involved in developing the basic infrastructure and connections needed. Effort would also be required for improving the capacity of the Libyan government to handle economic development and the development of businesses.
Physical as well as financial security would be keys to the success of a Walmart in Libya. It would not take much for some trucks or even a store to have problems. Walmart is definitely an American brand and there are lots of Salafis and others who would want to do damage to anything representing an American brand. Consider what happened to the French Carrefour markets in Tunisia during its revolution. Think of what happened to outlets of major American food chains like KFC during the recent riots against that repulsive anti-Islam film. Think of the increasing anti-Americanism amongst some groups in the region and you can see that there could be some physical security issues.
Financial security may require that the payrolls, insurances, cash flows for inventory, maintenance, upkeep and more be kept offshore in part for a while. As the security and banking capacity situations in Libya change this could change. There could also be some significant foreign exchange risk involved, especially if the new Libya becomes more unstable and cannot get its economic act together. However, a good risk management team could hedge this if they knew the country well.
There are also some inherent financial and physical risks by simply being in North Africa and near Egypt and Tunisia, two countries that are still in the midst of trying to find their ways. Their revolutions are likely far from over. There is also a problem with Al Qaeda in the Maghreb and other AQ-like groups floating around the region. The instabilities to the south of Libya are hardly comforting.
Even so, my sense is that President Clinton’s heart was in the right place even if his logic needed a bit more work.
Libya needs foreign investment. There is a lot that American companies can do in Libya.
There are many people in Libya who are pro-American given that we helped their country gain some independence from the wretched regime of Qhaddafi. Many of the expatriate leadership of Libya of the older generations spent some time in the United States. We could gain a lot by helping some of the younger people, appropriately vetted, to get scholarships to visit and study in the United States. Sometimes the best way to make friends and future allies is to give them a good experience in the United States and provide high-quality education and training. There are great opportunities even within the massive and volatile risks of Libya.
That said there are many people in Libya including some militias, extremist groups, pro-Ghaddafi remnants and more who do not like the United States, to put it mildly.
It will be vital to understand the overall environment on the ground of who is who and where they stand before moving forward. It may be a big mistake to write off Libya because of the vicious and evil behavior of a few when the majority of the country could benefit. But we need to be sure.
However, dropping Libya as a place to help may end up delivering it to the extremists and that is a very bad idea.
There is another side to the Walmart story. What about all of the small mom and pop stores, green grocers, kiosks and others in Libya who may be put out of business due to the Walmart. Many of these have been put out of business here. How would Libyans react to being put out of business by a massive American company?
On the other hand, if Walmart and other US companies take the leap into the new North Africa they could help develop countries and their people while at the same time making serious profit. However, the Walmart model may not be the best one to start out with.
Indeed, there are risks. Normally in such situations the only companies that come in are the oil and gas companies or other major energy companies that have vast experience working in conflict and post-conflict zones.
Maybe President Clinton was trying to get a discussion and debate going in US business communities as well as in the government about how the US could help the economies of these hurting countries in a (hopefully) post-conflict environment. This is an important thing to consider even if the situation looks dismal from afar.
Developing the economies of these countries will be far from easy and there are likely to be many bumps along the road – some of them very steep and risky. However, with the right incentives and the right risk management, it may be possible to make a difference and to do well by doing good.
Perhaps there could be some tax breaks and free land to build on in return for training and educating Libyans and increasing the percentage of Libyans working at the Walmart or other such stores. There will need to be some give and take. I know that the tax breaks and free land (for a limited time of perhaps 10 to 20 years and then the lease fees kick in) are contentious. But Libya needs to move forward and get its people — especially its young people — employed. Maybe the United States could improve its reputation in the region by doing just that.
You make more friends by creating jobs than dropping bombs. Developing a better security situation in a region via real strategic thinking can involve a lot more than just the military and the State Department. Sometimes businesses can make a big difference.
However, many businesses need to be sure that they are not going to walk into mine fields before they move forward with serious investments.
There is a certain menace attached to Libya now. Violent extremists created that. Should we give up on the rest of the Libya because of the people who want to destroy it rather than build it up?
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