Quentin Peel had a slightly bizarre column in the FT yesterday, bemoaning the Europeans’ paltry response to Obama’s request for more boots on the ground in Afghanistan. As he notes, European governments are “terrified of offending hostile public opinion that cannot understand – and has never understood – why their soldiers are dying in such a distant land”. He continues [emphasis added],

Part of the problem is that the Nato allies went into the war in 2003 without a common strategy, or a common narrative. Countries such as Germany and the Netherlands persuaded their parliaments that the job was about peace-keeping, not fighting Taliban insurgents. Germany and France also sent special forces to join the US in Operation Enduring Freedom – fighting the Taliban and hunting for al-Qaeda – but they kept it secret.

The British, Dutch and Danes are now much more open that it is a real war, and that Nato’s survival is on the line. Others, including the Germans, are not. There is a logical reason.

“The more the Europeans build it up as make-or-break for Nato, or suggest ‘our security is on the line’, the more they set themselves up for failure,” says a European diplomat. “By keeping it low key, they keep an exit strategy.”

The danger for Nato is two-fold. Without greater European commitment, the war will be “Americanised”, and risk becoming yet more unpopular in Europe. As for the alliance, it is becoming a “coalition of the willing” by default. The fundamental assumption of Nato solidarity is called into question. That is more dangerous than losing the war.

Um – what? How on earth can losing the war be less dangerous than erosion of Nato solidarity, given that Nato doesn’t seem to be able to find anywhere else in the world, besides Afghanistan, where it clearly still has a role?

If policymakers in Nato member states are really going to set out a compelling narrative about why we’re at war in Afghanistan, then surely that narrative needs to rest on what Nato’s trying to achieve in Afghanistan.  “Safeguarding Nato coherence” does not seem a very satisfactory answer to that question.

Via flickr user woo-war

The story of Ian Tomlinson’s death following an assault by a police officer during the G20 riots continues to develop: last night Channel 4 News found new footage providing additional context to the assault, while the Independent Police Complaints Commission announced that it will undertake the investigation into Tomlinson’s death itself – rather than (as initially planned) outsourcing it to the City of London Police, who were involved in policing protests on the day.  Now, attention is focusing on the prospect of a criminal prosection.  As former deputy assistant police commissioner Brian Paddick put it yesterday,

If it is held that there is a link between the violence he [the officer] was inflicting and the heart attack [suffered by Tomlinson], that then is an assault, resulting in death, albeit unintended. If a court held it is an assault, it is an unlawful action resulting in manslaughter.

But in focusing on whether the officer who beat Tomlinson and shoved him to the ground will be prosecuted, we risk losing sight of a bigger point – that this was far from an isolated incident.

To see why, read the following disturbing account of how the police cleared the “climate camp” on Bishopsgate that took place later that day.  The account was written by a friend and colleague, Chris Abbott – the deputy director of the Oxford Research Group, and (ironically, in view of what happened) a leading expert on conflict resolution - in an email sent to me and others, and reproduced with his permission.

I went down to the climate camp after work on Wednesday as I had heard that it was completely peaceful and I wanted to see what it was like. Unfortunately, I got trapped there when the police first charged and then penned everyone in early in the evening and none of us could get out (this was about 7.00-7.30pm). Footage of this is now on YouTube. During this first, entirely unprovoked, attack I lost my girlfriend in the crowd – but I later found out she was punched by a policeman while trying to stop another girl being trampled on after being knocked to the floor.

Once that had calmed down, my girlfriend and I found each other and were sat with others in front of the line of riot police on the south side of Bishopsgate. It was completely peaceful once again and we were even joking and talking with the police. We were there for a couple of hours when they suddenly charged again without any warning (this was about 9.30-10.00pm). We were still sat down and offered no resistance at all. My girlfriend was pressure pointed on the neck (extremely painful), dragged backwards off me and had both her wrists bent behind her back by two policemen who threatened to break them. They dragged her outside the police cordon and then said “what should we do with her now?” before the other said “let’s throw her back in”, which they did – head first, with her hands behind her back. She landed on the floor and has now got severe bruising on her legs (which we have photos of) and very painful wrists (which we actually thought might be broken).

At the same time, I was punched full in the face by one of the policemen. I was on the floor and absolutely no threat, but he still punched me. I was pulled up and shoved towards the crowd as a group of policemen descended on me, several of them smashing me in the head repeatedly with the sides of their shields. The whole time I had my hands in the air and did not fight back at all, but that didn’t stop them. Luckily someone saw what was happening and managed to pull me free from the group of policemen just before they completely surrounded me and cut me off from everyone else. It frightens me to think what they might have done had I not been pulled free. My nose and the side of my head are still very painful, but I was lucky given the damage that they could have caused from hitting me in the head.

Immediately after it happened we saw that the girl we had been sat next to had also been injured and was going into shock. We tried to get her medical attention, but none of us were offered any assistance at all by the police.

Once we had calmed down and made sure everyone was alright, we went to the other end of the camp to try and get out because my girlfriend needed to get home and take medication that she requires. We spoke to a police medic to explain the situation, detailing the medication and why it was needed, but were told that they were under specific orders not to let anyone out even for medication. We continued to try and get the medic’s attention to explain the urgency of the situation, but he ignored us. By now things were getting very tense between the police and the crowd and my girlfriend got very panicky, falling to the ground. Only at this point did the police finally let us through the line to seek medical attention (this was about 11.30pm).

(more…)

Nassim Nicholas Taleb has a comment piece in today’s FT outlining 10 principles that might bring ‘economic life closer to our biological environment: smaller companies, richer ecology, no leverage. A world in which entrepreneurs, not bankers, take the risks and companies are born and die every day without making the news.’

1. What is fragile should break early while it is still small. Nothing should ever become too big to fail. Evolution in economic life helps those with the maximum amount of hidden risks – and hence the most fragile – become the biggest.

2. No socialisation of losses and privatisation of gains. Whatever may need to be bailed out should be nationalised; whatever does not need a bail-out should be free, small and risk-bearing. We have managed to combine the worst of capitalism and socialism. In France in the 1980s, the socialists took over the banks. In the US in the 2000s, the banks took over the government. This is surreal.

3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus. The economics establishment (universities, regulators, central bankers, government officials, various organisations staffed with economists) lost its legitimacy with the failure of the system. It is irresponsible and foolish to put our trust in the ability of such experts to get us out of this mess. Instead, find the smart people whose hands are clean.

4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks. Odds are he would cut every corner on safety to show “profits” while claiming to be “conservative”. Bonuses do not accommodate the hidden risks of blow-ups. It is the asymmetry of the bonus system that got us here. No incentives without disincentives: capitalism is about rewards and punishments, not just rewards.

5. Counter-balance complexity with simplicity. Complexity from globalisation and highly networked economic life needs to be countered by simplicity in financial products. The complex economy is already a form of leverage: the leverage of efficiency. Such systems survive thanks to slack and redundancy; adding debt produces wild and dangerous gyrations and leaves no room for error. Capitalism cannot avoid fads and bubbles: equity bubbles (as in 2000) have proved to be mild; debt bubbles are vicious.

6. Do not give children sticks of dynamite, even if they come with a warning . Complex derivatives need to be banned because nobody understands them and few are rational enough to know it. Citizens must be protected from themselves, from bankers selling them “hedging” products, and from gullible regulators who listen to economic theorists.

7. Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”. Cascading rumours are a product of complex systems. Governments cannot stop the rumours. Simply, we need to be in a position to shrug off rumours, be robust in the face of them.

8. Do not give an addict more drugs if he has withdrawal pains. Using leverage to cure the problems of too much leverage is not homeopathy, it is denial. The debt crisis is not a temporary problem, it is a structural one. We need rehab.

9. Citizens should not depend on financial assets or fallible “expert” advice for their retirement. Economic life should be definancialised. We should learn not to use markets as storehouses of value: they do not harbour the certainties that normal citizens require. Citizens should experience anxiety about their own businesses (which they control), not their investments (which they do not control).

10. Make an omelette with the broken eggs. Finally, this crisis cannot be fixed with makeshift repairs, no more than a boat with a rotten hull can be fixed with ad-hoc patches. We need to rebuild the hull with new (stronger) materials; we will have to remake the system before it does so itself. Let us move voluntarily into Capitalism 2.0 by helping what needs to be broken break on its own, converting debt into equity, marginalising the economics and business school establishments, shutting down the “Nobel” in economics, banning leveraged buyouts, putting bankers where they belong, clawing back the bonuses of those who got us here, and teaching people to navigate a world with fewer certainties.

While we in the UK genuflect before the shrine of reality TV and its patron saint, St Jade of Essex, in Russia, minister of interior and KGB tough-guy Rashid Nurgaliyev has proposed making Dom 2, the long-running Russian version of Big Brother, an enemy of the state.

Dom 2 has been running, continually, since 2004, with some housemates remaining un-evicted in the house ever since then, like rotting food at the bottom of a Chinese all-you-can-eat buffet. It is the longest-running reality show in the world.

But now the KGB wants to get tough, saying it is corrupting the nation’s youth and rendering them into passive zombies (which I would have thought the KGB approved of, but what do I know).

Nurgaliyev snarled:

“The first option is that, as what we see in the Dom-2 show is a criminal offence, the program must be taken off air. The second option is that the company is fined for broadcasting illegal material; the sum of these fines would be so significant that several of them would be enough to bring the company to the brink of bankruptcy. The third option is that we refer the matter to psychiatrists.”

Great idea. Throw the producers into the madhouse, along with the executives behind Big Brother, Strictly Come Dancing, Im A Celebrity, Wife-Swap, The Bachelor, Survivor, Temptation Island, and of course Paris Hilton’s British Best Friend.

And then film them.

You could call it  ’I'm A Reality TV Executive, Get Me Out Of Here’.

President Obama’s grand tour of Europe may rank as one of the most remarkable diplomatic forays since Nixon’s trip to China, but David Sanger of the New York Times points out the visit’s limits:

So, 77 days into his presidency, is there an emerging Obama Grand Strategy?

Not yet — but some outlines are emerging that may hint of what lies ahead.

From the Thames to the Bosporus, and at several landmarks in between, Mr. Obama spoke softly without even hinting that he might ever reach for the big stick. Barely mentioning his predecessor, he emphasized one of their main differences: that the United States planned not only to give greater authority to international institutions that George Bush often shunned, but also to embrace the creation of some new ones. Not surprisingly, these were the applause lines of his journey across the continent.

But with the notable exception of his approach to nuclear disarmament and countering proliferation — where radical shifts appear to be under way — what Mr. Obama described in public veered more toward a restoration of the old order than a vast strategic realignment. “There will be a moment for that,” one of Mr. Obama’s senior advisers said in London, Mr. Obama’s first stop. “This trip was more about reattaching all the cars on the train, and convincing them other leaders that we’re no longer headed for derailment.”

In other words, Europe may be swooning for Mr Obama, and Mr Obama seems to quite like Europe, but don’t assume he’s going to concentrate on the Old West from here on.

In the Moldovan capital, Chisinau protesters have stormed the parliament and the presidential palace denouncing Sunday’s Communist election victory and claiming the elections were fraudulent. Over on EUobserver, Nicu Popescu is blogging what has become known as the “Twitter Revolution”.

Text messaging played a key role in Ukraine’s Orange Revolution, but in Moldova they have gone one step further and are using Twitter to organise the days’ events. As this blogpost explains,  the most popular discussions on Twitter in the last 48 hours have been posts marked with thetag “#pman“, which is short for “Piata Marii Adunari Nationale”, the main square in Chisinau, where the protesters began their marches.

The L’Aquilan earthquake is a huge tragedy and it looks like the death toll may rise further as the emergency services continue their search among the rubble. Already the blame game has started – a normal reaction to disasters like this. According to newspaper reports an Italian scientist, Giampaolo Giuliani, predicted the earthquake but was reported to the police for scaremongering.

Mr Giuliani told locals to evacuate their houses and posted a video on YouTube in which he said a build-up of radon gas around the seismically active area suggested a major earthquake was imminent. Several tremors had been felt in the medieval city of L’Aquila, around 60 miles east of Rome, from mid-January onwards, and vans with loudspeakers had driven around the city spreading the warning. But instead of heeding Mr Giuliani’s warnings, the local authorities reported him to police for “spreading alarm” and he was told to remove his findings from the internet.

It sounds worse but we should be careful not to read too much into the following snippet. Context is crucial here.

The local authorities are already facing serious questions over why they gagged Mr Guiliani rather than taking his findings seriously.  Italy’s Civil Protection agency held a meeting of the Major Risks Committee, grouping scientists charged with assessing such risks, in L’Aquila on March 31 to reassure the townspeople.

The civil protection agency argue that the tremors felt by the population from January onwards were part of a typical sequence which is normal in a seismic area like the one around L’Aquila.  So while it may not have been possible to predict the earthquake it should have been normal for organisations and communities in the area to prepare for its eventuality given Italy’s history and vulnerability to tragic earthquakes:

Italy is notorious among scientists not only as one of the most seismically active regions of Europe, but as a place with extremely complex geology that makes its earthquakes hard to understand. The peninsula sits at the foot of the Eurasian tectonic plate, at the point at which the African plate is pushing up against it, and such boundary zones generally have a high risk of earthquakes and volcanic eruptions. The situation in Italy, however, is further complicated because the peninsula is also being stretched in an east-west direction. This has left it riddled with faults, particularly along the north-south spine of the Apennine mountains, which were raised up by this seismic activity. John McCloskey, professor of Geophysics at the University of Ulster, said that Italy has “extremely complicated geology”, in which “the entire country is criss-crossed by lots of faults”.

Just adding to my post below, there’s an excellent interview by Bill Moyers at PBS with William Black, an American academic expert in fraud, and one of the people who helped clean up the savings and loans mess in 1991.

Black points out that the FBI warned of an ‘epidemic of mortgage fraud’ as early as 2004, though the FBI didn’t do much about it, because 500 of its financial investigators had been re-tasked to the war on terrorism.

The FBI were aware that many banks were fraudulently increasing the size of their mortgage portfolios. These fraudulent ‘liar’s loans’ were then parcelled up by investment bankers, who never checked what they were selling, and given AAA ratings by rating agencies who also never saw the loan files on the mortgages that were securitised and then sold on to unfortunate investors.

When the rating agency Fitch finally looked at some of these files in 2007, it found ‘widespread fraud’, but by then it had already given many bonds a clean bill of health.

Black is refreshingly indignant at the free ride the banks are getting - he points out that UBS received $5bn in US tax-payers’ money, at the same time as it was being indicted for avoiding hundreds of millions in tax.

He suggests that the government is obliged to put insolvent banks into receivership under the Prompt Corrective Action law, which he helped to introduce in 1991.

The law was designed to make it mandatory to step in and put banks into receivership if they are insolvent, so as not to keep bailing them out while needlessly wasting tax-payers’ money.

As he puts it, by continually supporting insolvent banks, Paulson and Geithner aren’t (or weren’t) just being foolish – they’re actually breaking the law.

Schroders’  head of ABS, Chris Ames, thinks the Public-Private Investment Programme (PPIP) set up by US Treasury secretary Tim Geithner is in danger of being another big rip off of tax-payers:

We constantly hear that banks can’t get toxic assets off their books because there are no buyers. This is not true. The US secondary market is open – there is a price at which buyers will buy virtually any bond. So the problem isn’t primarily liquidity, the problem is primarily price. This seems to be the big elephant in the room that policymakers don’t want to talk about, but it’s quite obviously the case.

If banks genuinely need to get these assets off their books in order to begin properly functioning again, then if market prices were close to the banks’ holding values for those assets, they’d happily sell.

Many of the asset-backed bonds that the banks own, which were formerly rated AAA but now rated much lower, are sellable, in Ames’ estimate, at around 30 cents on the dollar.

But if banks valued them at their real price, they would be forced to make such cripplingly big write-downs, they would be declared insolvent. So at the moment, they are sitting on these bonds, too afraid to admit how little they are now worth.

The PPIP envisages banks selling off their toxic assets to authorised money managers, using some equity from the money managers, and a lot of leverage provided by the Federal Reserve and the US Treasury under the TALF scheme. It’s a hybrid, market-friendly scheme.

But Ames says no money-manager will buy the banks’ toxic assets at the valuation banks need to charge to avoid insolvency. They’d pay fair value for the assets – around 30 cents on the dollar. And the banks can’t afford to sell at that price, while staying in existence.

However, Ames has spotted a loophole in the programme – it says that ‘any private investor’ can also bid for assets in the programme. So the banks could buy the assets from themselves, via an off-balance-sheet vehicle or a friendly hedge fund. All they would need is a small amount of equity from themselves, and a lot of cheap leverage from the Federal Reserve and the US Treasury.

They can then write-off those assets at the new price which they sold them at, even though they set the new price fictitiously high. And if the price then plummets, well, that’s the Fed’s problem, they bank-rolled the acquisition.

So there we have it. The program isn’t likely to get many assets sold by banks to the money-manager partners at appropriate prices. And if the loophole allowing private investors direct access to TALF funds isn’t closed, banks will be able to shift large amounts of their risk directly onto the taxpayer. Instead of punishing management and shareholders for poor investment decisions, it has the scope to give them a free pass.

Cute story from the Obama visit: a few Foreign Office staffers picked up that Obama and Brown were going to do their joint press conference on Wednesday in the FCO’s (vast) Locarno Room rather than the smaller room usually used for press conferences at Number 10.  So, obviously, they decide to loiter around the grand staircase to catch a glimpse of the great man as he passes.

Well, the security staff soon cotton on to their little game and usher them away.  A game of cat and mouse proceeds for a few minutes until, in an example of the kind of lateral thinking one looks for from a 21st century ministry of foreign affairs, they hit on the idea of “having a meeting” in a room that just happens to be strategically placed on the way to the Locarno suite.

A long while later, David Miliband passes with Hillary Clinton, who gives them a nice smile and a friendly wave, and this is thought to be pretty cool. 

A further wait ensues. 

Then, at last, Gordon and Barack stride past.

Squeals of delight are stifled. 

And then Obama glances back… catches sight of them… pauses… breaks stride… turns around… and comes in to say hello, while Gordon chuckles indulgently in the corridor. 

Bastards.  Bastards!

(I, on the other hand, spent 15 minutes amidst the crowd of tourists loitering outside the gates to Downing Street later that day, hoping in equal measure to (a) see the Motorcade sweep in, and (b) avoid being caught behaving in this embarrassingly starstruck way by anyone I know. First the motorcade drops the President off in Horseguards Parade, on the other side of the block. And then, two minutes later, a Downing Street foreign policy adviser I know walks past… catches sight of me… pauses… breaks stride… turns around… and asks solicitously: “are you protesting?” Bastard. Bastard!)