A Latin American Perspective on the Drug Wars

‘The deepening of the debate concerning the policies on drug consumption must be grounded on a rigorous evaluation of the impact of the diverse alternatives to the prohibitionist strategy that are being tested in different countries, focusing on the reduction of individual and social harm.’

The Latin American Commission on Drugs and Democracy is an initiative born of former presidents Fernando Henrique Cardoso, from Brazil, César Gaviria, from Colombia and Ernesto Zedillo, from Mexico, to respond to concerns related to the problems of drug consumption and traffic in Latin America from a Latin American perspective. The seventeen member group composed exclusively of Latin Americans from across the political spectrum was established last April and charged with assessing the American-led war on drugs. While the United States largely funds the war, the body count and the reprecussions are largely a Latin American ones. In 2008, drug-related violence claimed over 5,000 lives, a 50% increase over 2007. In Colombia, the dismantling of the FARC has not led to any abatement of drug shipments. Simply put, new cartels arise to take the place of those dismantled. Prohibition, eradication and interdiction have not worked. It is time that the United States assume a greater responsibility by tackling demand.

Yesterday the Commission released its report reaching the conclusion that so many other studies have reached in the past, the US drug war effort in the region is an abject failure. The US insists on treating the drug trade as a supply problem, when it is clearly also a demand problem. Absent US demand, the drug trade whittles away. Moreover, the US treats its domestic drug problem as a criminal one instead of approaching it as a health problem.

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The Swedish Banking Crisis

In the early 1990s, Sweden faced a banking crisis not unlike the one we currently face. Their problem as ours was a deflationary asset spiral in the real estate sector that then left banks holding assets on the balance sheet that were over-inflated in value.  Sweden, however, did not bail out its financial institutions by having the government take over toxic assets which equaled some 12% of Swedish GDP. The Sverige Riksbank, the country's central bank, extracted significant concessions from bank shareholders before writing rescue cheques. Banks were required to write down losses and issue warrants to the government. That strategy turned the government into an owner. When distressed assets were sold, the profits flowed to the Swedish treasury, and the government was able to recoup more money later by selling its shares in the companies as well.

The other aspect of the Swedish banking rescue was its decisiveness to "clean out" the system. The crisis had lingered for two years when Swedish government acted. The conservative government led Prime Minister Carl Bildt announced that the Swedish state would guarantee all bank deposits and creditors of the country's 114 banks. Sweden then formed a new agency to supervise institutions that needed recapitalization, and another state agency, Securum, that acted as a clearinghouse to sell off the assets, mainly real estate, that the banks held as collateral. In effect, the Swedish state took all the toxic assets and then managed them or sold them with the aim of getting a positive return or at the very least minimizing the loss.

Sweden instructed the bank sector to write down their losses swiftly and promptly before coming to the state for recapitalization. While this wiped out the shareholders, it provided for a fresh start. By the end of the crisis, the Swedish government had nationalized a vast portion of the Swedish banking sector. As markets stabilized, the Swedish state then reaped the rewards by taking the banks public again. The Swedish government remains a stakeholder in only one bank, Nordea, with a 20% stake.

Here are a few articles looking at the Swedish Banking Crisis and how Swedish policy makers tackled the problem. One key difference between the situation today is that the Swedish crisis was just a Swedish crisis (although there was a smaller concurrent banking crisis in both Norway and Finland), not a global crisis. And no doubt, the sum of our rescue will be a far larger amount but the Swedish banking rescue amounted to a sum equal 4% of Swedish GDP.

The Swedish Banking Crisis -- A Model for Future Response?
From Credit Write Downs.

Step by step the Swedish economy became increasingly vulnerable to shocks. During 1990 matters came to a head. Competitiveness had been eroded by the relatively high inflation in the late 1980s, resulting in an overvalued currency. This caused exports to weaken and meant that the fixed exchange rate policy began to be questioned, leading to periods with relatively high nominal interest rates. Moreover, the tax system was reformed in order to reduce its harmful economic effects but this also contributed to higher post-tax interest rates. Asset prices began to fall and economic activity turned downwards. Between the summers of 1990 and 1993 GDP dropped by a total of 6 per cent. Aggregate unemployment shot up from 3 to 12 per cent of the labour force and the public sector deficit worsened to as much as 12 per cent of GDP. A tidal wave of bankruptcies was a heavy blow to the banking sector, which in this period had to make provisions for loan losses totaling the equivalent of 12 per cent of annual GDP.

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William Greider on the Democratic Party's Inherent Contradiction

William Greider has covered politics from the nation's capital for The Washington Post and for Rolling Stone Magazine for 30 years. He has also worked as a correspondent for PBS' Frontline.  He currently writes for The Nation, the oldest political journal in the country. Mr. Greider's most recent book, Come Home America, examines the implications of the country's predicament. In this segment, he talks about the Democrats role in deregulating the financial markets and their current dilemma between representing their Wall Street funders and their working class constituency. Is the Democratic party at the crossroads? Is Mr. Greider correct that the Democratic Party faces "a moment of reckoning"? Can it reconcile its working class roots with its ties to the nation's economic elite? Are these forces not contradictory and might not they tear the party apart or lead it to irrelevancy? Can the Democrats represent the interests of the working class or are they just paying lip service to New Deal ideology as they buy time to save the system that works for Wall Street but not Main Street? Can both interests be served?

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Kadima's Phyrric Victory

As the last votes are being tabulated, Israeli politicians are scrambling to build a governing coalition after Israel's election proved inconclusive. Results show a deeply divided electorate. With 99% of the vote counted, the centrist Kadima party lead by Foreign Minister Tzipi Livni won 28 of the Knesset's 120 seats, with former Prime Minister Benjamin Netanyahu's right-wing Likud following closely behind with 27 seats. Kadima eked out a victory by winning a significant portion of the Israeli left which in previous elections voted for Labour or for Meretz. Ehud Barak's Labour party finished a distant fourth with just 13 seats. Third place went to the far-right ultra-nationalist Yisrael Beiteinu party led by Avigdor Lieberman with 15 seats. Via Haaretz:

By law, the president must consult with all the parties as to who they prefer as prime minister, and whoever is recommended by more Knesset members is given the nod. Hence if the religious and rightist parties all recommend Netanyahu, he would get first crack at forming a government.

In terms of blocs, all three TV exit polls predicted a rightist bloc of 63 or 64 seats out in the 120-strong Knesset, compared to 57 or 56 for the leftist bloc. And of the leftist bloc, 9 or 10 seats belong to the Arab parties - some of which have already announced that they do not intend to recommend either Netanyahu or Livni for prime minister.

While Livni is calling on Netanyahu to form a grand coalition under her leadership, Netanyahu seems ready to ignore the center and tact to the right by forming a narrow majority government with Yisrael Beiteinu and the other small religious parties. However, Livni isn't throwing in the towel. According to Haaretz, she intends to aggressively court Avigdor Lieberman. That's likely to send shudders down the Israeli left's collective spine but without Lieberman, Livni hopes are probably non-existent. At any rate, Israeli President Peres's discussions with Knesset factions could take about a week and coalition talks could drag on for more than a month.

But if, as most analysts now expect, a Netanyahu-led government comes to fruition, it seems likely that the prospects for a comprehensive peace during an Obama first term fade. These results sadly represent a missed opportunity.

More from the New York Times.

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Obama and the Augean Stables

It is regrettable that back in the Fall during the heat of the Presidential campaign, no one but no one paid much attention to Joe Biden because of the four main contenders running for national office, he was, by far, the most candid. Sometimes that got him in trouble leading to accusations of having "rhetorical flourishes" but honesty in politics is something we should all appreciate especially when it is done with style, wit and intelligence. So it was back on October 20th at a Seattle fundraiser that ol' smokin' Joe told it as it truly is:

"Gird your loins. We're gonna win with your help, God willing, we're gonna win, but this is not gonna be an easy ride. This president, the next president, is gonna be left with the most significant task. It's like cleaning the Augean stables, man. This is more than just, this is more than - think about it, literally, think about it - this is more than just a capital crisis, this is more than just markets. This is a systemic problem we have with this economy."

Cleaning the Augean stables, the fifth of Hercules' labours. The Obama Administration tonight stands on the precipice of completing one of its Herculean tasks, passing the American Recovery and Reinvestment Act and we can debate whether it is sufficient from here to eternity but the truth is that we have a "systemic" crisis that requires our full attention.

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The President on the Role of Government

Those expecting the President to be another FDR that mandated a broad expansion of the role of government in American life are likely to be disappointed or relieved depending on their ideological view point. Though it is perhaps not fair to even make the comparison for the economic catastrophe that FDR confronted 76 years ago was deeper, wider, more insidious and ominous than the troubles we face today. When FDR did finally opt for a strong dose of Keynesian measures in the early 1940s, he did so with gusto. By 1942, total government spending as a share of the economy rose to 52%, and peaking at nearly 70% in 1944.

This $838 billion fiscal stimulus will likely set a post World War II record but it will still be far short of the levels witnessed during FDR's third term. The spending seems likely to push the federal share of the nation's $14.4 trillion economy to somewhere just north of 25% -- past the post-World War II record of 23.5% set in 1983 under Ronald Reagan. Federal spending as a share of the economy has hovered at about a fifth of the US economic output for most of the post War period so this temporary increase is about a 25% increase. Those accusing the President of being the "wealth-redistributor-in-chief" or the harbinger of big government are simply off the mark and grandstanding.

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Governor Sanford's 'Savior-Based Economy'

"We're moving precipitously close to what I would call a savior-based economy. A savior-based economy sort of is definitional of what you see in Russia or Venezuela or Zimbabwe or places like that where it matters not how good your product is to the consumer but what your political connection is to those in power.

And if you think about the power that's been granted to the Fed of the Treasury, it has savior-like qualities. Everybody knows that we're in an economic slowdown. But the consideration now is, if I can just get my word, if I can be the plaintiff to the right person in Washington D.C., I can get these things fixed.

That is quite different than a market-based economy where some rise and some fall but there's a consequence to making a stupid decision."

I suppose that I am relived to learn that the Governor of the Palmetto state isn't talking about some impending rapture which was my initial thought when I saw the headline on CNN heralding the arrival of some 'saviour-based economy'. No, instead, Governor Mark Sanford is talking about good old fashioned class rape. Imagine my relief. The Governor's thinking is classic mid to late 19th Century laissez-faire and it is little more than class war rhetoric disguised as public policy. It is as if the Panic of 1857, the Panic of 1873, the Panic of 1893, the Panic of 1907, the Great Depression of 1929 never happened. Mr. Sanford certainly has not learned any of the lessons of these.  

We don't live on farms anymore. I can't grow my own food nor make my own clothes. I don't have a horse and buggy to get around in. But that's the world that is required to survive the onslaught of a systemic crash. Avoiding a systemic crash is the purpose of government intervention in the economy.

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"What's the Endgame?"

In public, the President was nothing but a hawk, after all there was an image to uphold and a Cold War to wage. But in the Spring of 1964, LBJ had serious doubts over American involvement in Vietnam. President Johnson would tell his NSA McGeorge Bundy on May 27, 1964 that Vietnam was "the biggest damn mess I ever saw" and would lament "I don't think it's worth fighting for, and I don't think we can get out." A few days later he would confide to his close friend Senator Richard Russell of Georgia, the Chairman of the Armed Services Committee, "the more that I stayed awake last night thinking of this . . . it just worries the hell out of me," adding that "it's damned easy to get in war. But it's going to be awfully hard to ever extricate yourself if you do get in." At the time, the American commitment to Saigon was limited to few thousand US military advisers to help train the South Vietnamese to fight the North in addition to a small amount of equipment.

By August of that year, however, the die was cast and Johnson would prove his dictum correct. The country plunged easily into a war that would see over half a million US military personnel serve, 58,000 of them never to come home. In toto, there would be 350,000 US casualties plus an estimated 1.5 to 2 million Vietnamese deaths. The war once limited to Vietnam would spill over into Cambodia and Laos with lethal and fateful consequences. In financial terms, the war would cost an approximate $584 billion. It's not clear if President Johnson ever answered his own doubts and that nagging question of what's the endgame.

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A Roadtrip for a Restless Soul

On Friday, Press Secretary Robert Gibbs told press briefing that the President is "a bit of a restless soul.” Well it seems that restless soul is ready to take his message on the road. Via the Christian Science Monitor:

The President will make day trips Monday and Tuesday of next week to conduct town hall meetings selling his economic stimulus program. On Monday, he will travel to Elkhart, Indiana where in the past year the unemployment rate has jumped from 4.7 percent to 15.3 percent, Mr. Gibbs said.

I'll note with satisfaction that in my January 27th post About That Bully Pulpit, I suggested:
Or the President might take the Bully Pulpit to Elkhart-Goshen, Indiana, the area of the country which has recorded the largest jobless rate increase in the country since November 2007 where the jobless rate went up 7.9 percentage points. Elkhart-Goshen, Indiana is in the IN-03 and is represented by GOP Congressman Mark Souder. He might be more attentive if the President were speaking in front of Mr. Souder's constituents.

Additionally on Tuesday, the President will fly to Fort Myers, Florida where the jobless rate has risen from 6 percent a year ago to 10 percent now. Florida's Lee County, home to both Cape Coral and Fort Myers, has the highest foreclosure rate in the Sunshine State and the second highest in the country. This is a smart move.

The President is a powerful public speaker. Indeed that talent helped to carry him to the Democratic nomination and then to the Presidency. He now possesses a formidable asset in the Bully Pulpit. It's about time he used it.

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Biden's Munich Declaration Heralds A New Era of Cooperation

While the attention this past fortnight has been largely focused on domestic issues and in particular on the fiscal stimulus, Vice President Biden outlined US foreign policy goals under an Obama Administration signaling a determination "to set a new tone" noting that Washington intends to "work in a partnership" and "seek ideas and input" from all US allies. Speaking before a number of European leaders including German Chancellor Merkel and French President Sarkozy at 45th annual Munich Conference on Security Policy, the Vice President touched on foreign policy issues ranging from Afghanistan and Pakistan to Russia and Iran as well as emphatically declaring that the US will not torture and will uphold the rights of those brought to justice. And for good measure, Biden repeated the Administration's intention close the detention facility at Guantanamo Bay.

Importantly, the Vice President declared that the United States does not believe, that the Obama administration does not believe, in a clash of civilizations. It is the clearest rejection of neo-conservative Huntingtonesque view of the world yet.

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