http://www.truthout.org/111508A
Sarkosy Backs Russian Calls For Pan-European Security Pact
by: Ian Traynor and Luke Harding,
The Guardian UK: Saturday 15 November 2008
President Nicolas Sarkozy of France joined Russia in condemning the
Pentagon's plans to install missile defence bases in central Europe
yesterday and backed President Dmitri Medvedev's previously ignored calls
for a new pan-European security pact.
Both presidents concluded a Russia-EU summit, in Nice in the south of
France, with an agreement to convene a major international conference next
summer at which the Americans, Russians and the 27 countries of the EU
should come up with a blueprint for new post-cold war "security
architecture" in Europe.
The call for such a pact has been Medvedev's central foreign policy
message since he succeeded Vladimir Putin as president earlier this year.
Medvedev has called for the new deal in several keynote speeches but has
been snubbed by western leaders until Sarkozy delivered a characteristic
surprise yesterday, appearing to hijack the subject.
Sarkozy said: "We could meet in mid-2009 to lay the foundations of what
could possibly be a future pan-European security system."
The Russians see such a deal as a way of halting Nato enlargement and
stopping the controversial US missile defence projects in Poland and the
Czech Republic. While western European leaders are lukewarm about the
Pentagon project and president-elect Barack Obama has yet to reveal his
policies, Sarkozy went further yesterday, branding the project a setback for
European security.
"Deployment of a missile defence system would bring nothing to security
in Europe. It would complicate things," said the French leader, who
currently chairs the EU. As he attacked the plan, Czech and Polish ministers
met in Prague to affirm their support for the installations and send a
signal to the Obama administration, pleading for it to go ahead.
"I'm 100 per cent sure that Obama won't kill missile defence," Alexandr
Vondra, the Czech deputy prime minister, told the Guardian. "The European
pillar of missile defence is in the interests of everyone who wants to keep
Nato strong."
The French alignment with Russian aims will upset pro-US leaders in
western and eastern Europe, but will enjoy support in Germany and Italy,
which are eager to draw Russia in as a partner despite the recent invasion
of Georgia.
Yesterday's summit ordered the resumptions of negotiations on a new
strategic pact governing relations between Russia and Europe - talks that
the EU called off in protest at Russia's invasion of Georgia in August.
In September the Europeans set Moscow an ultimatum for re-opening the
talks, demanding that Russian troop positions and numbers be returned to the
pre-conflict levels. Russia has ignored the European terms. But yesterday's
summit glossed over that.
"It's as if the military intervention in Georgia never happened. The EU
is sending a dangerous signal of weakness," said David Clark, chair of the
Russia Foundation, who was an adviser to the former British foreign
secretary Robin Cook.
Ian Traynor in Brussels and Luke Harding in Moscow.
***
From: "Bill Totten" <[EMAIL PROTECTED]>
Sent: Saturday, November 15, 2008 7:12 AM
http://www.newyorker.com/talk/comment/2008/02/04/080204taco_talk_cassidy
The Minsky Moment
"There are basically five stages in Minsky's model of the credit cycle:
displacement, boom, euphoria, profit taking, and panic." (read, below)
by John Cassidy
The New Yorker (February 04 2008)
Twenty-five years ago, when most economists were extolling the virtues
of financial deregulation and innovation, a maverick named Hyman P
Minsky maintained a more negative view of Wall Street; in fact, he noted
that bankers, traders, and other financiers periodically played the role
of arsonists, setting the entire economy ablaze. Wall Street encouraged
businesses and individuals to take on too much risk, he believed,
generating ruinous boom-and-bust cycles. The only way to break this
pattern was for the government to step in and regulate the moneymen.
Many of Minsky's colleagues regarded his "financial-instability
hypothesis", which he first developed in the nineteen-sixties, as
radical, if not crackpot. Today, with the subprime crisis seemingly on
the verge of metamorphosing into a recession, references to it have
become commonplace on financial Web sites and in the reports of Wall
Street analysts. Minsky's hypothesis is well worth revisiting. In trying
to revive the economy, President Bush and the House have already agreed
on the outlines of a "stimulus package", but the first stage in curing
any malady is making a correct diagnosis.
Minsky, who died in 1996, at the age of seventy-seven, earned a PhD from
Harvard and taught at Brown, Berkeley, and Washington University. He
didn't have anything against financial institutions - for many years, he
served as a director of the Mark Twain Bank, in St Louis - but he knew
more about how they worked than most deskbound economists. There are
basically five stages in Minsky's model of the credit cycle:
displacement, boom, euphoria, profit taking, and panic. A displacement
occurs when investors get excited about something - an invention, such
as the Internet, or a war, or an abrupt change of economic policy. The
current cycle began in 2003, with the Fed chief Alan Greenspan's
decision to reduce short-term interest rates to one per cent, and an
unexpected influx of foreign money, particularly Chinese money, into US
Treasury bonds. With the cost of borrowing - mortgage rates, in
particular - at historic lows, a speculative real-estate boom quickly
developed that was much bigger, in terms of over-all valuation, than the
previous bubble in technology stocks.
As a boom leads to euphoria, Minsky said, banks and other commercial
lenders extend credit to ever more dubious borrowers, often creating new
financial instruments to do the job. During the nineteen-eighties, junk
bonds played that role. More recently, it was the securitization of
mortgages, which enabled banks to provide home loans without worrying if
they would ever be repaid. (Investors who bought the newfangled
securities would be left to deal with any defaults.) Then, at the top of
the market (in this case, mid-2006), some smart traders start to cash in
their profits.
The onset of panic is usually heralded by a dramatic effect: in July,
two Bear Stearns hedge funds that had invested heavily in mortgage
securities collapsed. Six months and four interest-rate cuts later, Ben
Bernanke and his colleagues at the Fed are struggling to contain the
bust. Despite last week's rebound, the outlook remains grim. According
to Dean Baker, the co-director of the Center for Economic and Policy
Research, average house prices are falling nationwide at an annual rate
of more than ten per cent, something not seen since before the Second
World War. This means that American households are getting poorer at a
rate of more than two trillion dollars a year.
It's hard to say exactly how falling house prices will affect the
economy, but recent computer simulations carried out by Frederic
Mishkin, a governor at the Fed, suggest that, for every dollar the
typical American family's housing wealth drops in a year, that family
may cut its spending by up to seven cents. Nationwide, that adds up to
roughly a hundred and fifty-five billion dollars, which is bigger than
President Bush's stimulus package. And it doesn't take into account
plunging stock prices, collapsing confidence, and the belated imposition
of tighter lending practices-all of which will further restrict economic
activity.
In an election year, politicians can't be expected to acknowledge their
powerlessness. Nonetheless, it was disheartening to see the Republicans
exploiting the current crisis to try to make the President's tax cuts
permanent, and the Democrats attempting to pin the economic downturn on
the White House. For once, Bush is not to blame. His tax cuts were
irresponsible and callously regressive, but they didn't play a
significant role in the housing bubble.
If anybody is at fault it is Greenspan, who kept interest rates too low
for too long and ignored warnings, some from his own colleagues, about
what was happening in the mortgage market. But he wasn't the only one.
Between 2003 and 2007, most Americans didn't want to hear about the
downside of funds that invest in mortgage-backed securities, or of
mortgages that allow lenders to make monthly payments so low that their
loan balances sometimes increase. They were busy wondering how much
their neighbors had made selling their apartment, scouting real-estate
Web sites and going to open houses, and calling up Washington Mutual or
Countrywide to see if they could get another home-equity loan. That's
the nature of speculative manias: eventually, they draw in almost all of us.
You might think that the best solution is to prevent manias from
developing at all, but that requires vigilance. Since the
nineteen-eighties, Congress and the executive branch have been
conspiring to weaken federal supervision of Wall Street. Perhaps the
most fateful step came when, during the Clinton Administration,
Greenspan and Robert Rubin, then the Treasury Secretary, championed the
abolition of the Glass-Steagall Act of 1933, which was meant to prevent
a recurrence of the rampant speculation that preceded the Depression.
The greatest need is for intellectual reappraisal, and a good place to
begin is with a statement from a paper co-authored by Minsky that "apt
intervention and institutional structures are necessary for market
economies to be successful". Rather than waging old debates about tax
cuts versus spending increases, policymakers ought to be discussing how
to reform the financial system so that it serves the rest of the
economy, instead of feeding off it and destabilizing it. Among the
problems at hand: how to restructure Wall Street remuneration packages
that encourage excessive risk-taking; restrict irresponsible lending
without shutting out creditworthy borrowers; help victims of predatory
practices without bailing out irresponsible lenders; and hold ratings
agencies accountable for their assessments. These are complex issues,
with few easy solutions, but that's what makes them interesting. As
Minsky believed, "Economies evolve, and so, too, must economic policy".
TO POST A COMMENT, OR TO READ COMMENTS POSTED BY OTHERS, please click
on the word "comment" highlighted at the end of the version of this
essay posted at http://billtotten.blogspot.com/
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