Fannie Freddie and the Chinese: The IOU Laws

Wrote this around 2008 to explain the financial crisis and the implications for US China relations.
Hope you see some relevance to current chaos, or at the very least understand the cynical humor.

Fannie Freddie and the Chinese: The IOU Laws
Hu’s your daddy now
or is it Yu is the Patsy

Those statements are going to make sense once you read this email. This is an attempt to explain what happening in world of high finance and world politics right now. This is Long, and you are ADD jump to the end and read the Law and the consequences.

There has been a lot of brouhaha on the Freddie and Fannie and their preferred shares.

As usual thats smoke and mirrors.
The bigger problem are Mortgage Backed Securities (MBS) issued by Fannie and Freddie and the Chinese who own a large chunk of them

For the uninitiated:
Somebody got a loan for a house. They promised to pay that back and make monthly interest payments well.The bank took that IOU note (and a lot of others) and sold it to Freddie and Fannie. Fannie and Freddie in turn collected all those IOU’s and bundled them into a Big Ole IOU. Then gave it a fancy name called Mortgage Backed Security (MBS) and that Big Ole IOU was now an Asset. If one wants to know more about MBS, and Ubernerd called Tanta has written more than you ever want to know at a place called Calculated Risk. For our purposes all you need to know is that MBS is name for big IOU which is made up of little IOU’s

See, now when I was growing up, an Asset was something you could wrap your hands around.  Or you get someone else to wrap their hands around it. First a story
Right out of school, I started working in a audit firm as an articled clerk. It was a job a that paid a very much less than indentured servant (125 Rs, USD 12 per month !) and tasks not much better. One of the first on site audits I did was for Mercantile Investments, who financed cars on Hire Purchase. This type of business is called, Leasing these days; same stuff different name. So as I am checking receipts/invoices and I come across this whole pile that just says Payment to xxx. And its a lot of money (remember I was getting only 125 Rs) 3,000 Rs each month. This definitely warranted an investigation, so I asked Philip who headed the audit and was never around what I should do. Phillip (Babapulles) say “Send the guy a post card (this was before cellphone days) and ask him what it is all about”. Couple of days later, the receptionist tells me some one has come over to answer the audit questions. Now I had heard of the de Goon family of Sri Lanka but had never met one. The gentleman seated at the reception didnt need an introduction. This was an honest to God, de Goon. I didnt need no introduction to recognize a member of the de Goon family. The instinct self preservation kicked in, I apologetically said all I needed to verify if Company had actually paid de Goon. See, I had the best interests of Mr. de Goon in mind. End of conversation. Note to self: No more postcards to Mr Gune de Goon in Goontown. (Gune means good in Sinhalese).

So you ask what the hell has my job got to do with MBS and Fannie and Freddie. Please bear with me: there was a moral to that story. Continue reading Fannie Freddie and the Chinese: The IOU Laws

Review: Soldier Sahibs

This was written way back in 2002 for the Pakistani newsmagazine Herald (which just closed down unfortunately). Lets see how it holds up.

Soldier Sahibs is an old-fashioned and unapologetically imperialist book. And writer Charles Allen makes sure you know what you are getting into by giving it the flagrantly politically incorrect subtitle: The Daring Adventurers Who Tamed India’s Northwest Frontier. But imperialist does not necessarily mean inaccurate and Allen has taken a good deal of trouble to get his facts right. The book claims to tell “The astonishing story of a brotherhood of young men who together laid claim to the most notorious frontier in the world, India’s North-West Frontier,
which today forms the volatile boundary between Pakistan and Afghanistan.”
The men in question include John Nicholson, Harry Lumsden (founder of the Guides), Herbert Edwardes, William Hodson, James Abbot and Neville Chamberlain. Protégés of Sir Henry Lawrence, these men were responsible for laying the foundations of British rule in the Punjab and the Northwest Frontier. The author’s intent is to tell the story of these young men and through their adventures, give the reader an idea of how the British conquered – or, as he would prefer, “pacified” – the ‘wild’ Northwest Frontier of India.
But while Soldier Sahibs gives a very readable account of the adventures of these (surprisingly) young men, it is not possible to piece together the broader history of those times from his book. Why the British were here in the first place and what were the factors that made a small island in Europe more powerful than any kingdom in India do not form any part of Allen’s concerns. Nor does he waste much time explaining the situation in the Punjab or of the East India Company at that time. In fact, the author does not even provide a map of the vast area over which his protagonists established their rule. If you are totally at sea about those times, then you may have to read a few other books to fully appreciate the goings-on in this one. But if you are one of those enthusiasts who cannot get enough of the Raj, the mutiny and all that jazz, then you will definitely enjoy this book. Its written in authentic ‘Flashman’ style, with wit and verve and loads of ‘local color’.
The English heroes may appear larger than life but by all accounts some of them indeed were larger than life. And being Englishmen, they left us a veritable storehouse of laconic and understated wisecracks. These include Nicholson walking into the mess to tell his fellow officers: “I am sorry gentlemen, to have kept you waiting for your dinner, but I have been hanging your cooks.” (The cooks had apparently poisoned the food but were detected and hanged, and dinner was served half an hour late).
Though Nicholson gets the most lines in the book, the stories of Edwardes of Peshawar and Bannu and Abbot of Abbotabad are also told in some detail. William Hodson, the villain who executed Bahadur Shah Zafar’s sons, also gets a sympathetic hearing. We are told surprisingly little about Sir Henry Lawrence, who is supposedly the godfather of this fraternity. And it is not always clear why certain officer’s lives are described in detail and others get only cursory mention. Lack or availability of sources may be the explanation for that .
In these times, it is impossible to read such a book and not look for parallels with the current efforts at “pacifying” Afghanistan. But these British adventurers and their peculiar code of life are poles apart from the westerners who are now coming to bring us into the civilised world. Occasionally, Madison Avenue will try to create a suitable heroic image for some American colonel or diplomat but the substance of this new empire is very different from the last one and so are its agents.
Nicholson and company may have been bigoted, male chauvinist psychopaths, yet they also had undoubted personal courage and their own peculiar brand of love of justice. In the Pakhtuns and the Punjabis, they found not just enemies, but also friends and fellow adventurers. It is fashionable these days to describe their local supporters as ‘traitors’ who took the side of a ‘foreign power’. But to the Sikhs, Punjabi Muslims and Pakhtuns who fought under Nicholson to reconquer Delhi, the capital was also a foreign power and one they did not remember fondly. And these British officers had always respected their honour and treated them fairly. They provided an administration that was in many ways a big improvement over the ‘locals’ they had replaced. In fact, it would not be remiss to say that the Punjabis and Pakhtuns who fought for the British may have been men of higher character and personal courage than most of their current detractors. Many things have improved since Nicholson rode across the plains of the Punjab blowing mutineers from canons but it is hard to avoid the suspicion that some things have also deteriorated.

ABCD Politics, Episode 2: Why I Am A Conservative

A new episode of ABCD Politics is out. For those of you who can, can you please subscribe on Apple Podcasts or Google Podcasts. And give us a rating too! Surya has submitted to Stitcher and Spotify, so it will be on those platforms soon too (my experience is that Stitcher approves fast, while Spotify approves slow).

The topic of the second podcast was nominally our own political evolution. It turned out to be mostly about me, and my own “conservatism.” Though Surya has followed my work, after a fashion, for 15 years, my politics are somewhat cryptic to him, so it was a useful exercise in exposition. Surya is a center-Left Democrat and ran as one in 2010. Myself, my own views are a bit more heterodox and difficult to pin down.

A simple way one can summarize my evolution is that I have gone from being a moderate libertarian in the early 2000s to more of a populist conservative in 2020, albeit of a moderate and cosmopolitan personal bent.

But when someone on Twitter asked to summarize my politics recently in five words or less, I said “family first family last.” What did I mean by this?

The issue came up on the podcast because I expressed by “pro-nuclear family” stance as one reason I aligned with the Right and was skeptical of BLM. One of Surya’s correspondents asserted that I didn’t characterize BLM correctly. As it happens, BLM has an “official” website. It has a section on the nuclear family, which I read a while back:

We disrupt the Western-prescribed nuclear family structure requirement by supporting each other as extended families and “villages” that collectively care for one another, especially our children, to the degree that mothers, parents, and children are comfortable.

In early September the evolutionary anthropologist Joe Henrich will come out with a book, The WEIRDest People in the World: How the West Became Psychologically Peculiar and Particularly Prosperous. I obtained a review copy, so I will probably post my thoughts closer to the publication date. But, the book outlines a simple and widely discussed thesis: that unique aspects of Western Europe’s kinship and family structure that dates to the period after the fall of the Roman Empire were amenable to the emergence of economically dynamic liberal democratic societies.

The nuclear family is key to that argument. Obviously people can be happy in joint-families, clan compounds, or as part of dense tribal networks. But the nuclear family has some social and cultural consequences which I strongly favor. In the American context, the nuclear family is associated with positive outcomes for children, and a level of material and emotional well-being that many of us aspire to.

This does not mean that those who are not in nuclear families should be ostracized or thought of as second-class citizens. Rather, the idea is that society and politics should have the dominant family structure, the nuclear family, at the heart of its understanding, and that that should shape policy (e.g., tax-credits for having children). My impression and understanding are that the modern Left does not believe this privileging should occur (explicit in the platforms of groups like BLM above). Therefore, I am against the modern Left.

The Landmark Chola Invasion of Srivijaya

I found this video on the Chola invasion of Srivijaya and it is so well made and informative, about this little known but nevertheless a major event on Indian and SE Asian history, that i couldn’t help posting it here.

It is a shame that this video does not have more views.

The Chola invasion of Srivijaya dispels a major myth about Indian history that is bandied about often which is that India or Indians never invaded another nation.

The timing of this major world event is also quite interesting. It came about in the early part of the 11th century CE when the Greater India region stretched from Afghanistan and Balkh in the Northwest to the Phillipine Islands in the southeast and had been so for more than a millenium already. Indian religion and ideas also held great sway over the countries of China, Japan & Korea.

This was the phase of the greatest afflorescence of Indian civilization. Yet by the turn of the 2nd millenium, this civilization which the Arabs referred to as Al-Hind was already well past its high point. The kingdoms of the Tarim Basin such as Khotan, Kucha, Shanshan etc were already lost as were the Central Asian kingdoms of Balkh and Sughd (Sogdia).

Yet, most poignantly, in the very timeframe that the Cholas invaded Srivijaya in the southeast, the Turco-Afghan Mahmud Ghazni invaded from the Northwest and devastated North India.

What a turning point in Indian history were these initial years in the new millenium of the Christian era !

 

What Changes Needed for the US

Start with a quote from Matt Stoller (2011)
Change needs to happen—and it will happen, either through good leadership or through collapse.

The US has choices, most other countries dont.

With all the chaos and rioting there are no specific goals to make the US equitable, specially for the lower rungs of society.  My thoughts of specific goals.

What should be done immediately

a) Give aid to direct individuals
This includes free testing and health care

b) Debt Jubilee, i.e. forgiveness of debt.
Rent, Mortgage forgiveness based on income/job.
NOT a deferral with a huge amount coming due in the future

Electoral Process

The President, Congress and Senators need to be more answerable to the public.  The way the current system works, public votes and President, Congress and elected officials do the bidding of their paymasters, the big money  Multinationals and Military Industrialist.  This change is imperative for a proper functioning democracy.

So

a) No lobbyists, period.  Caught lobbying or accepting lobby, at least a few years in Jail.
Lobbying is legalized bribery and corruption.

b) Campaign Finance: I would prefer only a govt funding, equal to all contestants.
Or only donations by individuals with cap on amount.

c) Two term limit for Senators

Finance Specific*

a) Let Too Big to Fail companies/banks go bust if they are not profitable ,
instead of propping them up with more and more trillion dollar handouts.

b) Stop derivatives being used for speculation/betting.
Can be used as hedge against asset on the books.
If the asset is sold, the derivative needs to be unwound.

c) Share buybacks be made illegal.

I dont think USD 6 Trillion injection into financial markets will solve the Covid19 pandemic or the chaos in the US.

To put the 6 Trillion into perspective.  US GDP is USD 19 Trillion.  Public debt is  USD 18 trillion Interest public debt USD 479 billion/0.5 Trillion (10% of Budget)

*Some suggestions by VijayVan

Manufacturing

Its not about cutting costs per se. Think the Henry Ford saying, workers should be able to buy what is produced. For that the US must first throw out Free Trade and embrace protectionist. Start Manufacturing and give Price protection to what is manufactured.   Same for Oil, the US is self sufficient.

But all of this means ditching the Petro dollar, and the global monetary power that comes with it.  So very unlikely those changes will be by choice.

Society:

A push for polices that re vitalize small towns with self reliant economies.   Not just a suburban enclave dependent on commuters working in a nearby big city.  Coupled with small or medium manufacturing.  i.e. Supply chain is mainly within the US.

Maybe even a partial break up of Big Ag and land distribution (100 acres or so) specifically for Agriculture.  I think subsidies for small scale farmers is fine.  Much better that trillion dollar bail outs for Big Ags.

Wars

The US will have to make some serious decisions about being the global policeman, and conducting wars. (I doubt will happen without change in Campaign Finance/Electoral Process).  The US Might has turned to “might happen”. Trillions on war, has not made the US safe.  Never ending Wars and nary a benefit except debt and death.
This does not mean disbanding the military.  Any country needs to defend itself against invasions.  The choice is wars of aggression in distant lands or developing the economy.

US Spending on wars Iraq War: +1 Trillion Afghan War: 1 Trillion  Military: 500 billion/year

India before the binary

How Britain’s colonial past can be traced through to the transphobic feminism of today:

The British Age of Enlightenment prized itself on scientific rationality, including with it strict taxonomies of racial and sex categorisation – i.e. your biology meant you were strictly male or female, and there was a rigid hierarchy of race superiority (with whites at the top). And so, Britain’s cannibalisation of the rest of the globe simultaneously erased rich non-Western trans histories.

Take, for instance, the transgender Hijra people of India, who, prior to British imperial rule, were exalted in their communities, tasked with important legal duties like collecting taxes and duties; in 1864, Britain imported its 1533 Buggery Act, which directly criminalised Hijra people and reduced them to second-class citizens. It was only in 2019 that this colonial law was rescinded. This obliteration of well-established transgender communities was replicated across the Global North; European colonists, when invading the Americas, pointed to the transgender Two-Spirit traditions of its indigenous people as proof of their primitivism.

It seems clear that the British introduced a rationalization. But this strikes me like saying the “British invented caste.”

This isn’t about Indians at all. Indians are seen as instruments in culture-wars.

Book Review: Flashman and the Cobra

Flashman and the Cobra (Adventures of Thomas Flashman Book 2) by [Robert Brightwell]

I am a fan of the original Flashman books by George Macdonald Fraser and just happened to see that a new author is writing a series about Harry Flashman’s uncle Thomas Flashman, so I picked one up to check it out. The conceit is the same in this case: that these are the memoirs of a rogue who happens to have been around in the Napoleonic era. This allows George Brightwell (who is writing this series, the late George Macdonald Fraser having passed away) to write entertaining little books about various campaigns from that era. This particular book starts with Thomas Flashman getting caught in up in a sexual escapade in Napoleonic Paris (complete with a dinner with the first consul himself) that leads him to take up a secret mission to India, where the Wellesley brothers are getting ready for war with the Marathas (the second anglo-Maratha war).

The book is great fun to read and readers will get a flavor of the life and times and a detailed description of 2 major battles (Assaye and Argaon) and one siege (the siege of Gawilgarh). I certainly understand the battles and the siege better than I ever did before, but unfortunately Mr Brightwell is no George Macdonald Fraser, so the book tells us little about the overall war (why it was being fought, what else was going on; for example, Lord Lake was taking Delhi at the same time as these events, but you would not know it from this book). In the case of the Flashman books, you could pretty much get the story of an entire campaign (eg the Indian mutiny is covered really well in “Flashman and the Great Game”), at least from the British point of view. This is not the case with this book. Readers will learn relatively little about the overall picture here (unless they have read other books about the topic). Still, the book taught me more about the battles he does happen to get caught up in than any summary history is likely to teach.  I see that there are a couple of “Sharpe’s” books about the same war (Sharpe’s triumph and Sharpe’s fortress) and they likely cover the same battles in even greater detail, but I have not read them yet. If, like me, you have not read about these battles in any detail, then this is a good book to start. The book also introduced me to the begum of Samru, one of those extraordinary characters that inhabit India between the decline of the Mughals and the stabilization of British rule. Other notable characters who make an appearance in the book include James Skinner (the anglo-Indian adventurer who raised “Skinner’s horse”), but unfortunately none of the other Indian characters of the age get much coverage (or sympathy).

The books have the usual imperialist British rogue POV one expects from Flashman books and the author is clearly in awe of Arthur Wellesley (later the Duke of Wellington) and the fighting qualities of the Scottish Highlanders, but in both cases he has good reason to be a fan. The historical details are accurate as far as they go, but unfortunately lack the “big picture” view one gets in George Macdonald Fraser’s books even as he follows Harry Flashman from bedchamber to narrow (and implausible) escapes in various battles. Still, these books are very inexpensive on Kindle and audible.com and this one was certainly a fun read and very informative about the topics he does happen to cover. Worth a quick read.

By the way, the title has almost nothing to do with the book. The cobra shows up once and disappears without much ado.

 

Book Review: The Battle for Pakistan

From our regular contributor, Dr Hamid Hussain.

Book Review – The Battle for Pakistan by Shuja Nawaz

Hamid Hussain

 Shuja Nawaz’s new book The Battle for Pakistan is a timely release of a work that reviews Pakistan’s security challenges and U.S. Pakistan relations. A new unpredictable era of U.S.-Pakistan relations is around the corner in view of recent U.S.-Taliban agreement and uncertain future of Afghanistan.

There are not many analysts and scholars of the region with access to both Pakistani and American sources. Shuja is uniquely equipped for such a project as he has access to Pakistani army high command as well as Pentagon and State Department sources.  Book covers U.S.-Pakistan relations, working of Pakistan army high command and fraught civil-military relations in Pakistan.

 Shuja gives a comprehensive view of expectations and disappointments of Pakistan and United States.  The dilemma of this un-equal and transactional relationship is that each side fail to understand the interests of the other party and ends up blaming its own failures on the duplicity of the other party.  This has been a predicted cycle over the last seventy years.

 Shuja gives insight into power struggle among senior officers of Pakistan army.  The first round was when General Pervez Musharraf was forced to give up his uniform and his confidant and successor General Ashfaq Pervez Kayani worked to bring his own team.  He superseded and removed from important positions officers considered close to Musharraf.  Kayani brought his own team of senior officers and then eased Musharraf’s ouster in 2008 to enjoy two three years tenures as the master game-keeper of the reserve.  

 Several segments of the book deal with civil-military relations. Shuja provides details of many episodes of serious friction.  Army is the dominant force and civil-military relations are seriously imbalanced.  Mutual distrust, antipathy and outright disdain for each other ensures repeated cycles of crisis.  Each side has become expert in self-goal seriously damaging country’s reputation.  Army high command has not been able to work with two major political parties; Pakistan People’s Party (PPP) and Pakistan Muslim League – Nawaz (PML-N).  This forced them to put their chips on the third option. Current Pakistan Tehreek-e-Insaaf (PTI) government headed by Prime Minister Imran Khan is actively supported by army high command.  Army high command and PTI repeatedly claim that they are on the ‘same page’, however, army is taking lead in tackling different problems faced by the country.  Army nominated and supported serving and retired military personnel, bureaucrats and politicians have found place in all corridors of power.  The seeds of distrust are thus sowed, and friction will inevitably increase between army and new political force of PTI. 

 Shuja also provides details about increasing role of Saudi Arabia and United Arab Emirates (UAE) in Pakistan’s internal affairs.  In many cases, United States used Saudi Arabia and UAE to manage delicate domestic political matters of Pakistan. Pakistan is increasingly dependent on Saudi and UAE largesse due to difficult economic state. Crown Prince Muhammad Bin Salman (MBS) has developed close personal relation with President Donald Trump and Washington uses this connection to manage some areas of Pakistan policy.

 Book is a must read for everyone interested in U.S.-Pakistan relations and the region.  In Pakistan, the book launch became unintended casualty of controversy over Chief of Army Staff (COAS) General Qamar Javed Bajwa’s three years extension of service.  Book’s South Asian edition was published in India in August 2019.  When Pakistan enacted trade ban with India, book could not be delivered to Pakistan.  A Pakistani publisher released the book and Shuja travelled to Pakistan for book launch ceremonies in several cities.  Pakistan Supreme Court took the case of extension of COAS shaking the army brass.  They asked Shuja to delay the book launch as it could generate criticism of the army although book presents Pakistan army point of view on various issues. Shuja refused to cancel book launch and army directly pressurized event organizers to cancel the events.  More copies were sold in Pakistan due to silly acts of the brass. 

 Shuja Nawaz.  The Battle for Pakistan: The Bitter US Friendship and a Tough Neighborhood (Karachi: Liberty Publishing), 2020

 Hamid Hussain

May 2020

coeusconsultant@optonline.net

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