Sunday, August 13, 2017

Unilateral Action in a Multi-Polar World

Right before our eyes, the world has lost its goddamned mind. America's agencies are reducing resources to counter cyberattacks, which is problematic for our allies because we created the systems they're using, along with the backdoors and security deficiencies. To make matters worse, America is dissuading anyone flying on certain Middle Eastern airlines from bringing laptops, which basically shuts down all business class travel--the most profitable seats--on those airlines unilaterally deemed unsafe. Journalists everywhere discuss America's reduced role in the world, and all seems lost for non-isolationists.

Except it's all a brilliant ploy--if Machiavelli is your role model. Without "free" government cybersecurity help, foreign governments have to pay American security companies more money to help them, increasing American economic strength. Those airlines that aren't up to "code"? Well, they'll just have to hire American defense contractors to help them--for a major fee and multi-year servicing contract, of course. Oh, and if certain Middle Eastern countries don't want to play ball in the foreign policy department, we'll demand our more compliant allies bar their airplanes from flying the friendly skies, and just for good measure, institute an economic blockade (here's looking at you, Qatar). 

America is going to rule the world again while shifting costs to our allies. Take that, China. (Don't worry, Mexico, we haven't forgotten about the wall we want you to pay for.) 

Except it's all a terrible idea. At a time when we desperately need more, not less global cooperation, America has chosen to increase hostility. Does anyone know the rules of engagement for cyber warfare? One expert writes that as long as the costs of cyber warfare, including from North Korea and China, don't exceed 2% of GDP, America will not escalate to the physical realm. I imagine the day will come when a politician moves the bar to 3% because we can't predict the outcome if we actually act on our threat to directly attack countries that violate the stated threshold. What's the point of NATO and all the long-term defense contracts being bought if no one can figure out how to create a basic framework for cyberdefense with every ally and customer on the same page? 

What happened to the idea that corporations can think short-term because of rapidly changing competitive issues, but governments exist to act as a counterbalance, to impose order and institutional long-term knowledge? Without being able to formulate the "rules of the game," even in areas that are dead center in the American government's bailiwick, what is the use of government anyway? 

Also, does anyone in the current administration realize unilateral action no longer works in a multi-polar world? America's current Middle Eastern ploy is to encourage China to buy American LNG rather than Qatari LNG by making China's status quo contingent on interfering with a Saudi-led economic blockade against Qatar. (Say that five times fast.) 

If America and its allies try to isolate Qatar, NK, and Iran in 2017, they can still go to Russia or even Turkey, and that's where global politics becomes really interesting. Once major countries get involved in other major countries' political maneuvers in unexpected ways, there's no set playbook. China has wisely decided to use economic statecraft rather than military force to increase its influence, and it appears America will try to make China's economic alliances more complex. What's the endgame here? 

I don't know if any major country has good answers to the current chaotic situation, but chaos, even at a slow burn, should not be the status quo. Perhaps less assurances of stability will spur other countries to beef up their own cybersecurity and military prowess or to pay American corporations more money to do it for them. Maybe it will reduce the need for America's involvement as the world's police patrol, though with most commercial goods still needing transport across various oceans, I doubt the U.S. Navy will be less necessary. 

The problem with chaos as politics is one never knows the end result with any reasonable certainty. Greater disorder may act as a virus compelling white blood cells to multiply--resulting in better protection against the same or similar issues--or it may overwhelm the entire system, creating more and more splinters (Syria, anyone?). It seems current American officials are betting chaos will promote independently prophylactic behavior, or at least an admission that following America's military--and paying for the privilege--is better than going at it alone. Let's hope they are smarter than we are.

Bonus: from Kamrava's Qatar: Small State, Big Politics (2013). 

Thursday, August 10, 2017

All of Elizabeth Warren's Questions, Summarized

Elizabeth Warren thinks she's taking on big banks but has chosen to focus on non-core issues--employment incentives and surface conflicts of interest--rather than systemic issues like shadow banking and derivatives. Part of this phenomenon is because shadow banking is difficult to understand from a regulatory standpoint, but also because her political donors, including unions, own stock in Wells Fargo and other publicly-traded banks. (Government pension plans assuming 7% interest rates need Wall Street more than they'd like to admit.) 

Without further ado, below is a summary of Elizabeth Warren's questions from all of her finance-related hearings and cross-examinations: 

1. "Why haven't you read everything on this issue?" 

2. "Why aren't you taking positions on third party reports you haven't read?" 

3. "Why aren't you making generalizations about complex issues?" 

4. "Why aren't you making generalizations about proposed rules that aren't yet public?" 

5. "Why aren't you making general statements about all banks and instead taking a more measured case-by-case approach?"

You're welcome. 

Bonus: Here's what I would have asked Mr. Randal Quarles: 


Mr. Quarles, you have vast experience in the financial industry. As we both know, derivatives and shadow banking continue to be serious problems. I've noticed legislators do not focus on these two issues and instead choose to raise relevant but non-systemic risks. Please tell us what you believe are the top two systemic risks in the U.S. financial system today, and what can we do to minimize those risks. If shadow banking and derivatives are not part of your top two systemic risks, please address those risks as well. 


I've wondered why so many legislators do not focus on systemic risks. Part of it must be that such risks involve trillions of dollars and are so large--one might say, "too big to fail"--regulation is difficult. If true, such reasoning would seem to mandate greater focus on systemic risks, not less. Also, is regulation difficult because so many of these risky transactions take place abroad and require multi-party legislation? For example, if LIBOR and reinsurance are involved, wouldn't some cooperation be required between D.C., the U.K., and the EU to accomplish any effective regulation? If so, should legislators work more closely with international counterparts directly rather than rely on international bodies such as the Basel Committee and the IMF? 


Guess Who?

I ran across this page in a poetry book recently. You probably won't guess who it is, unless you're very familiar with his or her work.