US

By Tony Tassell, the FT’s financial news editor

It seems the Obama charisma is waning with even his most ardent supporters. One of the more unlikely chapters of the presidential campaign was the rise of the Obama girl.

Amid the wave of hype and hope that drove the Illinois senator to the White House, a risqué video appeared on YouTube fearing a shapely but previously obscure model called Amber Lee Ettinger lip-synching a song called “I’ve got a crush on Obama”, declaring her love for watching the man on C-Span.

James Mackintosh

So, from the dream team that brought Barclays through the financial crisis without a bail-out (as John Varley and Bob Diamond might like to be described), come proposals to buy an American retail bank.

Three reasons why Barclays, one of Britain’s biggest banks, should not be trusted with such a deal:

1. Barclays wanted to be Royal Bank of Scotland. It tried to buy ABN Amro, and was only stopped by a combination of RBS’s willingness to pay even more than the insane sum (€64bn) Barclays offered and a campaign by Atticus Capital, the New York hedge fund, to make it see sense. Had Barclays succeeded, it would be Varley, not Sir Fred Goodwin, who was having his windows broken.

2. Barclays almost became a combination of Lloyds TSB and Bank of America. If it hadn’t been for Alistair Darling and the FSA, Barclays would have bought Lehman Brothers the weekend before it went bankrupt, in a sweetheart deal brokered by Hank Paulson, then Treasury secretary, and Tim Geithner, then head of the New York Fed and now Treasury secretary. Had Barclays succeeded, Varley would be joining Eric Daniels of Lloyds (now Lloyds Banking Group, following its disastrous HBOS takeover and state bail-out) and Ken Lewis (ex) of BoA (the not-so-proud owner of Merrill Lynch) in the competition for the title of worst takeover deal ever. [EDIT: Note that a large chunk of the most toxic assets would have been left for Wall Street to pick up; bad assets embedded in the balance sheet would still have been terrible news for Barclays, but perhaps - perhaps - it could still have avoided falling under state control.]

3. Barclays is already too big to fail. Allowing it to grow bigger simply exposes the British taxpayer to further contingent risk, which quite clearly Britain is not capable of taking on.

In addition, the dismal history of British banks in the US gives good reason for caution: most famously HSBC, but RBS of course had big operations there and NatWest Bancorp was never successful.

Rather than letting Barclays buy more, it should – as with other big banks – be forced to shrink, ideally by making it pay its true cost of capital, which would render many operations of all the banks unprofitable.

James Mackintosh

Ahmad Chalabi has written an op-ed in the WSJ calling on the US to stop meddling in Iraqi elections and leave the country to set up an alliance with Iran, Syria and Turkey.

We are proposing the creation of a regional alliance among Iraq, Turkey, Syria and Iran to bring together our geographic, economic, water and oil resources into a coherent framework. Our region has been plagued by secret wars, ethnic conflict and acts of terror sponsored by these states against each other during the past half century. It is time to put this behind us.

This alliance would be of benefit to the entire Middle East and a strong bastion against Islamic extremism. Such a treaty would also address the failure of the Arab security structure that has required the U.S. to deploy massive force to protect states in the region.

Quite apart from the fact that the US would go ape at the idea of Iraq joining sides with Iran and Syria, its two biggest regional enemies, the idea that such a move would be a strong bastion against Islamic extremism makes no sense. Iran is a semi-democratic (at least until recently) theocracy, Syria is staunchly secular, Turkey is constitutionally secular but run by a party with Islamic roots, and Iraq is still to decide, with the prime minister trying to hide his religious party behind secular rhetoric.

The only argument could be that such an alliance would fortify that part of the region against Sunni extremism: Shia Iran and the current Shia leadership in Iraq are natural enemies of al-Qaeda (although claims abound that Iran has quietly built some links). Chalabi, of course, is a Shia. Shia Islamism – or at least Shia-funded – is solidly entrenched in Gaza and southern Lebanon, much to the concern of the US. On top of that, it would encourage Sunni Arab states to band together in self-defence, led by Saudi Arabia. Hardly the way to encourage Middle East security.

But whatever the arguments, how can Chalabi be taken seriously? He is wanted in Jordan for bank fraud, and provided much of the now-discredited information that formed the “intelligence” basis for the claim that Saddam had weapons of mass destruction. True, he has been in and out of government in Iraq, in spite of falling out with the US over unsubstantiated claims that he leaked intelligence information to Iran. But his “de-Ba’athification” efforts are now worsening the religious divide within Iraq: he should be ignored. We can only hope Iraqi voters see through him.

James Mackintosh

My first thought on hearing that Jerry Brown was likely to be the only Democratic candidate for the California governorship was to start humming California Uber Alles, the inspired Dead Kennedys punk anthem attacking him during his last stint as governor, in the late 1970s.

Anyway, turns out I wasn’t the only one. A Daily Beast reporter called up Jello Biafra, the Dead Kennedys lead singer, and found that he is rather less critical of Brown – a hardened liberal – than he used to be. He also neatly summed up what the song was supposed to be explaining:

The song and its variations were never as much about Brown or any individual politician as they were about liberal apathy, Biafra said. He traced the inspiration for the lyrics to his arrival in San Francisco in the 1970s, where he found that once-idealistic baby boomers had retreated into self-indulgence.

“I found myself surrounded by all these people who were activist rabble rousers in the Vietnam War era and now were stumbling around in the dark looking for some guru to tell them what to do,” he said. “I thought this kind of mellow-drone, hanging-plant cop-out approach was a one-way ticket to fascism—if people sleep too long, look what happens to them! The only politician with any power who had tapped into any of this or seemed to recognize it at the time was Jerry Brown.”

But who would want California’s problems? The state is the Greece of the US, with out-of-control spending, unemployment of 12.4 per cent and a form of direct democracy which makes it all but impossible to raise the new taxes it needs. Unless Brown can explain to voters that to get public services they have to pay taxes, he’ll face the same crisis as Arnold Schwarzenegger.

As an aside, some of the song’s lines could be adapted for today.
* “Your kids will meditate in school” – Recent tests suggest meditation could be a good idea for students
* “Zen fascists will control you” – Yoga sessions and chanting are now common at many of the biggest financial institutions and hedge funds which have at least as much power as many governments
* “You will jog for the master race” – Michelle Obama, no less, has launched a campaign against childhood obesity
* “Knock-knock at your front door / It’s the suede/denim secret police” – well, slightly forced but the secret police in the form of the CIA are doing rather a lot of spying, even if they aren’t looking for your “uncool niece”

James Mackintosh

Like many other native English-speakers, I was brought up on the stories of heroic undercover operations behind enemy lines in Nazi-occupied Europe – inevitably with the help of resourceful French partisans. It is tempting to apply the same terms to other guerrilla groups resisting occupation, even when their cases – such as Palestine – are quite different.

But rather than get into the rights and wrongs of armed resistance, I’ve been thinking about the practical alternative: peaceful protest. A large grouping of Palestinians and supporters issued a call for “BDS” – boycott, divestment, sanctions – five years ago, as part of an effort to move from suicide bombings and missiles to create a civil resistance movement. They have not ended the cycle of attack and counter-attack, and Israel attributes the lower level of suicide attacks and missiles to its wall, or “security fence”, and to the invasion of Gaza.

What is interesting, though, is what the peaceful protest is supposed to achieve. Here’s what Mustafa Barghouthi, a Palestinian MP and supporter of the movement, told me on Monday:

People need a positive message to support. We don’t just need sympathy from the world – we need to give the world something to support.

He argues that peaceful resistance can attract international support and so pressure Israel; he would prefer the US simply to dictate to Israel a settlement, but has given up hope that Barack Obama will do so. There is, after all, already the beginnings of US pressure with the formation of J-Street, a moderate Jewish lobby in Washington, while several foreign companies and even some governments (such as Norway, via a pension fund) divested in the wake of the Gaza invasion.

Barghouthi also thinks peaceful protest can win support within Israel, as moderates are likely to be attracted by the movement – even if some in the settler lobby would prefer to see Palestinians ejected from the West Bank altogether (Prime Minister Benjamin Netanyahu’s Likud wants them have limited self-rule, but no sovereignty).

There are three potential negative scenarios which would render peaceful protest pointless:

1. Israel has little to lose from peaceful protest. According to Barghouthi, exports from Israel to the Palestinian territories, excluding East Jerusalem, total $2.6bn. Out of its $57bn or so of exports in 2008, that matters – but not enough. Israel has rebuilt its economy since the Intifada so it no longer relies on Palestinian workers, so it could just shrug and ignore peaceful protestors.

Barghouthi accepts part of this point, but says the economic lever he wants to push is not just the domestic one, but also international: hence the call for a boycott. Furthermore, he points out, Israelis are not devoid of morals, so it is worth making efforts to win their sympathy – which won’t be done through violence.

2. The international media lose interest as soon as there are no deaths; this is compounded by well-funded pro-Israeli propaganda groups, particularly in the US and UK. If there is no coverage of the terrible conditions under which Palestinians are living, everyone will just be relieved that there are no deaths and ignore them.

There are already signs of this. Most of the sypathetic coverage of Palestinians tends to focus on specific acts of oppression against individuals (such as the confiscation of their homes), or cases of obvious abuse by Israeli forces. More general difficulties creating resentment, such as settler-only roads and the wall, get little coverage.

3. Peaceful protest in the past has been brutally suppressed; for every success (Mahatma Gandhi or the US civil rights movement) there is a failure (Burma or the US anti-Vietnam war movement, for example) which leads to (sometimes heroic) suffering for its supporters.

Israel already looks like it is going down the route of brutal suppression. West Bank protesters are regularly harassed, arrested and/or beaten up by Israeli soldiers – just this week the offices of the (peaceful) Stop the Wall campaign were raided. The process appears to be a repeat of tactics of massive over-reaction used for 30 years, according to Neve Gordon.

So what chance is there? Barghouthi remains hopeful. “If we reach a point where the price of sustaining occupation and oppression is so high, then even Netanyahu will change,” he says.

International boycotts have had an effect in the past; South Africa was badly hit under apartheid by consumer-led boycotts. And if a mass peaceful movement could be created – it is unclear so far how much grassroots support there is in the West Bank – it could provide a basis for peaceful parties with a proper political base able to give Israel the negotiating partner it needs to reach any form of peace agreement.

But these are big ifs. Unless Israel is pressured by the governments of the US, on which it relies financially, or Europe, a big enough trade partner to have an effect, it seems to me the most likely outcome is for Israel to carry on with its current approach of settlement expansion and suppression of Palestinians regardless of protests. I just don’t see enough evidence of mainstream outrage in western countries at the plight of the Palestinians for the boycott campaign to really get off the ground.

Barghouthi thinks a peaceful protest movement is the only remaining option:

Is there any other way for us except accepting to be slaves of occupation for the rest of our lives? No.

But he compares the movement to Gandhi and Nelson Mandela; Mandela, it should be remembered, led a bombing campaign against the apartheid South African government because he became convinced that peaceful attempts would fail.

The danger is that protesters follow Mandela and take up arms. Tragically for both sides, that will mean another generation of Palestinians being brought up on Boy’s Own-style stories of futile killing of Israelis – and peace prospects retreating ever further.

James Mackintosh

The start of work on an expensive new headquarters often marks the high tide for a company, from Time Warner and the New York Times through Volkswagen (with its VW Autostadt) and others.

So it is appropriate that it was only in December that the European Central Bank announced plans to press ahead with a new €500m HQ. The headquarters curse has already hit: the break-up of the eurozone headed by the ECB has become the subject of frenetic discussions following the financial crisis in Greece and the spread of worries to Spain and Portugal. The value of the single currency has plunged from an 18-month peak of $1.50, almost exactly on the day of the HQ announcement, to $1.37. Hedge funds have record levels of short positions betting on further declines, as the Greek financial crisis infects Spain and Portugal.

Euro decline

Many outside the single currency region are gloating, highlighting the unsustainable pressures caused by putting countries with such different performances as Greece and Germany under the same monetary regime. They are wrong to do so: the crisis may be bad for the euro but that is bad news for competitors, such as the US and UK, too.

In effect, prices of exports to the eurozone countries have risen about 9% since December. The new weakness of the euro will hinder the growing US export machine, and stamp on the green shoots of manufacturing confidence in Britain. In the race to export themselves back to health, Britain and America just lost their advantage. The only consolation is that the euro is reversing some of its gains, and had been a lot weaker a year ago.

James Mackintosh

How to tell when a state is not yet fully confident in the financial markets: it blames the international media reporting on its financial problems for the financial problems themselves.

Italy has long rated the opinions of the FT’s Lex column as newsworthy items in themselves. And a Portuguese minister went on the record last year to attack a Lex headline, of all things (Pigs in muck, which suggested Spain, Greece, Portugal and Italy risked “turning into bacon”). Now the Spanish are getting worried. Two TV crews camped outside the FT’s London offices this morning in an attempt to intercept Elena Salgado, the economy minister, who was due to meet reporters and editors – which they see as an effort to give the FT a dressing down for being “muy crítico” of Spain (the crews stood outside the front door while the Spanish car arrived at the back, so they had to run to get distance shots).

How is it newsworthy that she’s visiting journalists? Well, the Spanish papers are running it as one of their main stories, on the basis that the FT has raised the possibility of Spain having to leave the eurozone (although today Lex raised the idea that Germany could solve the problems in the single currency region by leaving).

What would be newsworthy would be for her to summon Paul Krugman, the New York Times columnist. He identified Spain, rather than Greece, as the eurozone’s weak link last week, prompting Salgado to lash out:

The economy minister denied Spain was a risk to the euro and criticised foreign analysts such as Nobel Prize-winning economist Paul Krugman, who this week said Spain was the euro zone’s “biggest trouble spot”, and foreign media for being too harsh on Spain.

“Maybe there is a lack of comprehension about what the euro means for our economies,” Salgado said on Spanish radio

Ironic that this came shortly after Krugman was being approvingly quoted by José Sócrates, prime minister of Portugal – caught alongside Spain in the unfortunate acronym wars – for saying “deficits saved the world”.

My guess as to why the FT is the target today: the real news is that Salgado is meeting London’s investors in Spain’s sovereign debt in an effort to convince them that the government’s much-criticised plan to cut the budget deficit is enough to avoid a full-blown Greek-style crisis. But the embassy didn’t want to upset these talks by having film crews show her walking into a fund manager such as Pimco, as it would set the discussions off on the wrong note. So instead they leaked the time of her meeting at the FT to give them something to film and talk about.

Luckily for the embassy, the TV crews I chatted with were utterly unaware that they had the wrong target: they thought it was a major event to have a government minister visit a newspaper office, rather than the everyday occurrence it is.

Perhaps there is a real story, though: Salgado cried off at the last minute, sending her officials instead. Spin this in two ways and it is interesting (although note I have no evidence for either – perhaps she’s washing her hair):

1. She’s deliberately snubbing the FT as punishment

2. The crisis is so bad she hasn’t got time to see the FT

So far it is unclear whether the Spanish press has picked one of these stories.

EDIT: Having cried off, she then turned up anyway. Good news for the Spanish economy? Bad news? Or just that it didn’t take as long as she thought to catch up on the market’s negative reaction to the country’s plan to borrow nearly €77bn this year ?

Kiran Stacey

The New York Times has published 18 ways to break up the banks with minimal fuss, and I can’t find a single flaw in their reasoning. My personal favourites are “Have the bank marry Larry King or Elizabeth Taylor” and “Have the bank’s chairman saunter into the living room at 11:02 p.m. and start idly vacuuming”.

James Mackintosh, meanwhile, has pointed out that suggestion number six – “Sprinkle the banks with gaily colored, diversionary “accent pieces” like ottomans and love seats” – was tried by London hedge fund Peloton. And to great success too – the fund broke up following heavy losses in 2008.

(Hat tip to Courtney Weaver for the spot.)

Kiran Stacey

For days, columnists have been positing their own questions for Blair to answer about the invasion of Iraq. Today, for six hours, the five members of the Chilcot Inquiry have been asking the ones Blair actually has to answer.

For the latest events, see our Westminster team’s live blog. On this blog we will be summing up the reaction, which, unsurprisingly, started hitting newspaper websites and other blogs almost as soon as Blair sat down.

Anthony Seldon, Blair’s biographer, set the stage well for today’s drama in this morning’s Times, in which he argued Iraq was “this country’s Watergate”. There has been a tendency for observers to be cynical about Blair’s appearance today, saying that nothing new will be learned. But Seldon makes the valid point that it is an important moment in British political history, if nothing else. “We have never seen a day like this in British history, with a former Prime Minister being publicly questioned about such a contentious policy,” he writes.

But has it turned out to be more than just a symbolically important occasion, and has it told us something new?

James Mackintosh

Barack Obama has decided to side with a state solution, if not yet a well-thought-out one, to preventing bank failures bringing down the world economy. But there is a market alternative: fix the banks so the bondholders keep bank risk-taking under control – and bear the costs if they fail in that task.

This important debate is not being framed as a state vs market discussion, but it should be. Remember state control has a dismal record in general, and in the finance sector in particular. Regulators entirely missed the bubble, missed the banks’ reliance on short-term financing and missed the fact that so much regulatory arbitrage was going on. Don’t expect things to be much different in 20 years if a state solution is accepted.

The problem is the banks (and potentially non-banks) being too big to fail, creating perverse incentives to take risks and leaving the taxpayer paying for mistakes. The state solution accepts banks are too big, but tries to control that through regulations, restrictions on what they can do (no prop trading or hedge funds), and potentially a cap on size.

A working market solution would obviously be better, as it would be pretty much immune to the high likelihood of regulatory capture – but can a market solution be made to work? I think so.

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Politics, economics, high finance and morality – this blog addresses the issues being considered by the FT’s comment team, and their thoughts.

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Christopher Cook is an FT editorial writer. Before joining the FT in 2008 as a Peter Martin Fellow, he worked for three years for the Conservative party.

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