Monday, July 24, 2006

The Financial Times is the London Stock Exchange's bitch

Why has the Financial Times become the London Stock Exchange’s bitch? OK, I know the answer already, being that the FT is a British newspaper and all. But still, the LSE has a message to send, and the FT appears happy to be its mouthpiece, and you would think that a serious financial newspaper, even a British one, would be a little more circumspect.

(Ok, ok, stop laughing! I’m serious here! And the Wall Street Journal is NOT a mouthpiece for the New York Stock Exchange! It’s a mouthpiece for the U.S. Chamber of Commerce…)

The LSE is one of the oldest stock exchanges in the world, and one of the most “internationalized” when you look at it as a percentage of the issuers being based outside of the U.K. But over the past decade, the LSE has looked a little frumpy when compared with the NYSE and Nasdaq. It wasn’t nearly as sexy during the high-tech bubble, which was upsetting. But, to add injury to insult, it suffered more from the bust than did New York. When New York sneezes, London positively catches pneumonia.

You can see this in the LSE’s valuation. Given its size, over the past two years it has frequently been valued at half of what the NYSE can command, despite New York’s antiquated technological platform. And the LSE repeatedly has been in the takeover cross-hairs. First Deutsche Börse, then the NYSE started thinking about it, and finally Nasdaq shot its credit rating to hell to keep the NYSE out. Basically, when you purportedly are doing so well and your share price is still so low, there is only one real explanation—everyone thinks they can do a better job running the place than you are.

The Sarbanes-Oxley Act was a propaganda Godsend for the LSE. It didn’t change the substance of how the world’s securities markets compete, but it did offer the LSE the opportunity to sell itself as a low-regulation market without the fallout that usually comes when you admit that you let issuers get away with murder (or worse—stealing all your investment capital). “No Sarbanes-Oxley” has become its motto, as well as the motto of the U.K. Financial Services Authority. (Actually, the FSA’s motto is “Risk Assessment,” which in the Queen’s English means “No Sarbanes-Oxley.”) Your bond markets are completely non-transparent and you require very little disclosure on bond offerings? Well, we don’t want investors to get confused about all that unnecessary information, and, besides, NO SARBANES-OXLEY! You only bring, at most, 12 enforcement cases each year? Well, we try to take a “light touch” and, besides, NO SARBANES-OXLEY!

The LSE and the FSA make a big deal out of how many IPOs are being held in London these days as opposed to New York, and the Financial Times is more than happy to run these stories nearly every day. But I have yet to see anyone report on whether the actual market capitalization of the London Stock Exchange has increased vis-à-vis the New York Stock Exchange or whether the LSE has gained as a proportion of total world market cap. Otherwise, you are just advertising that, when it comes to Chinese state-owned firms with cooked books, and Kremlin-controlled Russian oil companies, London is the place to be!

The FSA’s “light touch” is so light that they have effectively put the foxes in charge of the hen houses. And while issuers definitely may prefer such an approach, it is doubtful that investors do. Capital markets, in the end, aren’t about attracting issuers, but attracting investors. After all, issuers might not like it, but at the end of the day, they will go where the money is.

(And I know about the LSE’s recent “study” saying that the cost of capital in London is lower than in New York. I believe that one about as much as I believe the City of London’s recent study saying that European bond markets don’t need to be transparent to be as efficient as New York’s. In other words, I don’t.)

John Kerry is still an idiot

Al Gore can legitimately claim that "we would not be in this mess" if he had been elected. If Al Gore had become president in 2000, we would still have had a 9-11, but it seems very likely we would not have invaded Iraq. But John Kerry claims that Hezbollah would not be attacking Israel right now if he had been elected, because this Iraq mess is distracting the Bush Administration from the rest of the Middle East.

He seems not to be aware that we invaded Iraq a full year before he ran against Bush in 2004. Though this is strange, because he did vote in favor of the war. So it must be that he thinks, if he were president, we would be out of Iraq by now or the country would be completely pacified. If so, it would be wonderful if he would share this plan with the rest of us.

What exactly could this plan be? Maybe just get all the troops out ASAP--a complete withdrawal, with none of this "getting the job done" stuff. That would get us out of Iraq. And I can see that this show of resolve would completely convince the Iranians that pushing Hezbollah into a proxy war with Israel would be an ineffective way to strengthen their position in the Middle East and distract everyone from their nuclear program. (Though maybe there is some logic to this view. After all, if we withdrew and the Iranians could completely dominate Iraq, and, from there, the entire Persian Gulf, maybe they wouldn't feel the need to tweak the Israelis. John could be right after all!)

Maybe Kerry thinks we would be out of Iraq by now if we would have just "Iraqified" the war. You know, turn it over to the Iraqi military, as soon as they are properly trained--we stand down and they stand up and all? And maybe we could try to negotiate a deal between the Sunnis, Shi'ites and Kurds. Damn, I wish someone would tell the Bush about that idea! I'm sure that one would work!

If you ever find yourself asking how someone as dumb and inarticulate as Bush can lead a country into a war that has not turned out as advertised, can get pretty much everyone in the world upset with us, can sit on a shaky economy, can piss off pretty much everyone in his political base, and can still get himself reelected, just remember--John Kerry.

Saturday, July 22, 2006

Wilson Sonsini and options backdating scandal

Mukund Mohan caught the news that Bay Area dot.bomb champion law firm Wilson Sonsini Goodrich and Rosati appears to have been intimately involved with nearly half of the companies now twisting in the wind over the stock options backdating scandal. Indeed, Larry Sonsini himself appears to have worked with Brocade Communications ex-CEO Gregory Reyes in setting up the Brocade board mechanisms that allowed him to issue stock options at will. (Normally this would be a job for the board compensation committee, which these days typically has to be made up of only independent board members--but since Brocade's compensation committee met only once every three months, and Brocade was a growing company looking for the best and the brightest, maybe Mr. Sonsini figured it might be best if the CEO could just do this on his own. Executive decisions and all that...)

At any rate, my question is whether the SEC will use it's new post-Sarbanes-Oxley Act powers (specifically the SEC rules made pursuant to Section 307) to look into Wilson Sonsini's activities. But given how easily Vinson & Elkins skated free of its association with all those Enron transactions (you know, the ones involving Star Wars characters and the hiding of billions of dollars of debt?), I'm not holding my breath.

Jihadists split on Islam's true enemy

This is what I'm talking about. The International Herald Tribune today reports that there is a division in the Islamofascist/jihadist camp, over whether to support Hezbollah against Israel. Seems like your average man-in-the-street jihadista thinks anyone who hates Israel that much must be pretty cool. But the more discerning Islamofascist sees the dilemma: Hezbollah is a tool of Iran and Shi'ite to boot. Jews and Christians are bad, but Shi'ites, and Persian Shi'ites in particular, are intolerable. Hezbollah goes up in the polls, and before you know it the Iranians are calling the shots throughout the whole Middle East.

Forget Clausewitz my ass.

Friday, July 21, 2006

Worshipping on the altar of Clausewitz

Speaking of military theory, Robert D. Kaplan, whom, as journalists go, I have a lot of respect for, wrote a Wall Street Journal book review this week on Insurgents, Terrorists, and Militias, by Richard H. Shultz Jr. and Andrea J. Dew. (Good job, Andrea! Whenever I see a PhD student second author to a major article or book, I strongly suspect that they actually wrote it.) I haven't yet had the chance to read Shultz' and Dew's book. But I have some remarks on Kaplan's review.

First, he's right about Hugo Grotius. Modern war is throwing traditional notions of international law out the window. Even Michael Walzer's recent defense of the just war theory clearly leaves something to be desired, as his article vacillates and offers no real solutions to the problems he presents. The problem is not just that the civilian/combatant divide is blurred. This has been the case since the anti-colonial movements and revolutions started following World War II. What is different is that, in this case, the "legitimate" combatants (i.e., those more or less paying attention to the laws of war) are actually in danger of losing, and losing means more than just getting kicked out of some foreign territory.

However, Kaplan is wrong about Clausewitz. I would argue that Old Carl is as relevant as ever. In particular, when considering the current conflicts in the Middle East, it might be valuable to consider:

  1. "War is ... an act of force to compel our enemy to do our will." Sounds like a "well, duh!" moment, except that everyone seems to forget this. It's not about hatred, or honor, or glory or vendetta. Well, sometimes it is, but such fighters tend to get killed. As Michael Corleone said, "Never get angry. It clouds your reason."
  2. "If the enemy is to be coerced you must put him in a situation that is even more unpleasant than the sacrifice you call on him to make."
  3. "To introduce the principle of moderation into the theory of war itself would alway lead to logical absurdity." This flies in the face of just war theories, but it is at the heart of the famed "Powell Doctrine" of the first Gulf War. As Clausewitz notes, "If one side uses force without compunction, undeterred by the bloodshed it involves, while the other side refrains, the first will gain the upper hand. That side will force the other to follow suit; each will drive its opponent towards extremes, and the only limiting factors are the counterpoises inherent in war." In other words, as William Tecumseh Sherman said, "War is hell." There's just no getting around it.
  4. And, of course, "War is merely the continuation of policy by other means." War is politics. "The political object is the goal, war is the means of reaching it..." This means that, despite Sherman's warning, war likely will remain with us.

These modern wars against irregular armed forces do not change these fundamental points, but they do underscore the problem that Clausewitz recognized from the start: Point 3 and Point 4 are in inherent conflict. Moderation in war is a logical absurdity, but politics requires moderation since war is just a means of achieving a political objective. Such means must be moderated to be effective.

What does this mean for Lebanon? Hell if I know. Israel's objectives are clear at this point. They must stop Hezbollah's rocket attacks against Israel, and they must do so with some level of permanence. Iran's objectives are also clear: they want to become the leaders of the Shi'ite world, and become the preeminent regional power. Hezbollah is a tool in that regard. But, unless we assume that Hezbollah is entirely a puppet of Iran, what is their objective? And what will this mean for the Sunni Arab states?

More worshipping on the altar of Giulio Douhet

Reports that the Israelis are finding it surprising that their air campaign is having a hard time against Hezbollah are themselves surprising. Airpower remains a force multiplier, not a force in and of itself.

Thursday, July 20, 2006

Even more on stock options backdating

Ryan argues that the problem isn't stock option backdating, but that the board is controlled by the managers running the company.

Well, of course it is a problem is that the board is controlled by the CEO. Still, the particular problem here isn't that the board is handing the CEO a lot of money, but that they are telling the shareholders that they aren't doing this--and that what they are really doing is offering the CEO an incentive to improve the company's performance.

Interestingly, the backdating problem is claimed to have diminished with passage of the Sarbanes-Oxley Act. (Despite this, the charges the Justice Department and the Securities and Exchange Commission brought against Brocade Communications today involved activity that stretched up until 2004, two years after passage of Sarbanes-Oxley.) SOX requires that stock option issuances be reported within 2 days, rather than the month that was required before. It's much easier to fudge the date of an options issuance when you've got a month to report it, than when you've got 2 days. It's also much easier to notice that options always get issued right before good news is reported if the window is only 2 days wide. (There is also a tax treatment issue involved here that also kinda put the kibosh on backdating, but when a certain economist friend of mine explained it to me, what I heard was "blah blah blah backdating blah blah blah treatment blah blah.")

Also, post-SOX listing standards for the New York Stock Exchange, NASDAQ and other U.S. exchanges now require board compensation committees (the committees on the board of directors charged with setting managerial compensation) to be made up entirely of independent directors. It's probably a little too early to tell if this will have any effect on executive compensation. One argument is that this is all driven by a Lake Woebegon Effect, where every CEO is above average (and demands to be compensated accordingly), and every compensation committee believes it must pay above-average compensation to attract above-average leadership. On the other hand, it's not just a bunch of socialist hippies who are complaining about executive compensation these days. It's also pesky "activist shareholders"--you know, those annoying people ("locusts", as the Germans call them) who actually own the company and show an interest in how their money is being used. They seem to think they would be happier if executive compensation were somehow linked to executive performance.

Blind Man, Juggling Fried Chicken, Fatally Shoots Wife

I can only dream of someday being able to write this kind of headline on my own. From the New York Lawyer. (You need a subscription to access the article, but the headline basically says it all.)

Stock options backdating continued

The SEC held a press conference today, with the FBI and Justice Dept., announcing that they are going after Brocade CEO Greg Reyes over stock option backdating. SEC Commissioner Roel Campos had hinted earlier in the week that this was coming down, but the press conference was kept tight enough that the early news didn't discuss it.

Robert Reich and backdating stock options

I almost never agree with former Labor Secretary and regular National Public Radio columnist Robert Reich on anything. He's a lawyer who pretends to be an economist. I don't pretend to be an economist. I don't even pretend to be a lawyer. But in this case, he's taking on a corporate shill who pretends to be a libertarian--namely, Securities and Exchange Commissioner Paul S. Atkins. (From my previous post on the Competitive Enterprise Institute, you know how that just sticks in my craw.)

The issue is one of those things that sounds intensely boring, unless you are involved and understand that it means lots and lots of free money, in which case it sounds intensely interesting. Basically, it goes like this. A stock option is a right to buy from someone (usually the company) a certain number of the company's shares at a certain price, at some determined or undetermined future date. In the 1990s, stock options were hailed as a way to solve the problem first widely recognized in 1932 by Adolf Berle and Gardiner Means that the modern corporation had become characterized by a separation of ownership and control--in other words, the people who ran the company and made its business decisions were not the people who owned the company (i.e., the company's shareholders). In most small companies--and, indeed, in many larger companies in much of the world today--the people who own the company also run it, and so there is no conflict between their goals. But where ownership and management are separated, conflicting goals can arise. Both groups want to get rich, but since managers are managing "Other People's Money" (the title of not just a 1991 Danny Devito movie, but also the title of a 1914 book by Louis Brandeis when he was just a famous law professor and not a famous Supreme Court Justice), the managers are in a position to get rich at the expense of the shareholders.

Stock options were supposed to solve this problem by aligning the interests of management and shareholders. Basically, the company's board of directors issues a set of options at a price at or slightly higher than the current market price of the company's securities. If the company prospers, the company's share price will increase and the executive will be able to exercise those option rights at issuance price (say $100 per share), turn around and sell them on the market at today's trading price (say $120 per share), and pocket the difference.

There are lots of real-life problems that have cropped up about stock options, most of which I won't go into here. However, one issue that has recently come to light is that some companies issued stock options at below-market rates (an option to buy stock at $80 per share when those shares are currently trading at $100 per share), but then "backdating" them so that it seems like the options were issued a month ago when the shares actually were trading at $80 per share.

In addition, these options were issued right before good news about the company was released to the public. And such options were almost never issued right before bad news went out. In other words, companies appeared to give their executives stock options at exercise prices "at the money" (at market prices) or even "out of the money" (above market prices). But in reality it was predictable with almost absolute certainty that the price of the company's stock would jump very shortly. For practical purposes, these stock options were "in the money" (below market prices) from the get-go. Granting "in the money" options is the equivalent of just giving money to option-holders. But lying about when the options were granted--or issuing them right before the company issues material information to the public--means the company is lying to its shareholders about how much the company is paying its executives. (When the options are exercised, the company has to go out and buy those shares on the market for $100 per share, and sell them to the executive for only $80 per share. That $20 difference is shareholder money.)

Commissioner Atkins, in a recent speech at the International Corporate Governance Network 11th Annual Conference, offers up an innovative justification for this practice:

In the best exercise of their business judgment, directors might very well conclude that options should be granted in advance of good news. What better way to maximize the value that the option recipient attaches to the option? Conversely, a board would avoid granting options right before bad news hits since recipients are likely to place a lower value on such options. A board that times its options grants wisely can achieve the same result that it would by granting more options at a time when the stock price is likely to stagnate or drop. A board that makes a consistent practice of timing options grants before the stock price rises should be able to pay lower cash salaries than a board that makes options grants without taking into consideration likely prospective changes in the stock price, precisely because there is a greater chance of the options being worth something and achieving their intended objective.

So, basically, if a company's board knows good news is about to be released, it might decide to issue the stock options first, because then it won't have to give the executive in question quite so many. When you think about it, it's a shame these boards tried to keep this practice secret from their shareholders. After all, I'm sure shareholders would be proud of their boards for their foresight and economy.

But that's not what's really going on, is it? And, in this regard, Robert Reich's recent NPR column gets it right. In particular:

...Atkins' logic is it completely ignores the purpose of executive stock options in the first place. They're supposed better align executive incentives with the interests of investors, inducing executives to work harder to raise share prices. Yet stock options have this effect only if executives don't know what their option will be worth in the future. If they can go back in time and pick a date when the share price was specially low relative to what it is now or will surely be when a positive quarterly earnings report is issued, the incentive disappears because the future is no longer the future. It's the past. If the incentive that's supposed to be in a stock option disappears, shareholders are worse off. More stock has been issued, which dilutes the value of their own shares. And they get nothing in return. Anyone who believes companies will reduce executive compensation by the inflated value of a stock option has not been paying much attention to what's happened to executive compensation in recent years.

Wednesday, July 19, 2006

Dispassionate analysis

Ok, I'm not from the Middle East (you might not have been able to tell). I do have some friends and colleagues from the region, but they tend to fall into both sides of the current unpleasantness (in my job, I've worked closely with Israelis on some matters, and Muslims of various nationalities on others). I have my irrational prejudices, but they generally involve disliking Europeans rather than Arabs or Israelis. (Though I do like European wine and cheese. And beer. And those really fast trains--they're pretty cool. And spikey-haired German girls in military fatigues. Like those, too. And French girls. Is it a national requirement that they all wear scarves or something? Not that I'm complaining... And Spanish ham! Un-frickin'-believable ham! And those little Portuguese egg tarts! Europeans have nice coffee, too. Goes without saying, I suppose...)

But I digress.

Today's complaint is about the lack of dispassionate analysis regarding political events in the Middle East. I know everybody there has been screwed over in one way or another, and it's all unfair. Fine. Whatever. Understanding motivation is wonderful, but the problem is we have motivation coming out of our ears. The real questions are who are the actors and the "deciders" (to use W's phrase), and what are their capabilities. What do they intend to do and what do they hope to accomplish by doing so? At this point, I'm really not interested in listening to who is right and who is wrong, or how I would feel if someone did X to my family, etc. It's not useful to talk about who is violating what international convention. Unless, of course, it helps predict what comes next.

So, at least from my perspective, the interesting questions are:

1) What does Hezbollah hope to accomplish by attacking Israel right now--short, medium and long-term?

2) What are Israel's options, given it's military superiority but manpower constraints?

3) What can Syria gain or lose from these events?

4) What does Iran believe it can gain from Hezbollah's actions, and what are Israel's options? What are the United States' options?

5) What does Hamas hope to gain from these events, and what does it stand to lose?

6) Are the objectives of Hezbollah and Hamas in sync or at cross-purposes?

7) How will the resulting end situation effect the United States in Iraq?

8) If the resulting end situation strengthens Iran's position in the region, how will the Saudis, Jordanians and other predominantly Sunni states respond?

There are some other interesting questions out there, but right now who is right and who is wrong are not among them.

Monday, July 17, 2006

Mazower on how Europe can tell Israel that punishing civilians backfires

Today's Financial Times has an opinion piece by Columbia historian Mark Mazower titled, "Europe can tell Israel how punishing civilians backfires." (It's subscribers-only, but a synopsis is still available to non-subscribers.) At any rate, the FT caption for its paper edition says, "The 1949 Geneva prohibition on collective punishment in wartime reflected a sense that it was both morally unpalatable and militarily ineffective."

This article is a prime example of the muddled thinking that academics are now pouring out over the latest Arab-Israeli conflagration. But it is also an example of how the mistaken ideals that evolved out of the immediate aftermath of World War II still plague us today. They sound nice, and you can see how they came about, but their unintended consequences are more pain, death and destruction for the weakest in the world.

But first things first: World War II was a nasty affair, and everyone was determined to not let it happen again. The victors created institutions, mechanisms, laws, and a number of other things to try to rectify the problems that they believed led to the recent unpleasantness (a term I believe an English lady once used to refer to World War I). WWII, of course, was not the first such nasty affair, nor was it the first to spark a concerted effort to understand the causes of the war and supply a remedy to prevent it from recurring. World War I resulted in the same thing, and, in particular, the League of Nations and the first attempt to "outlaw war" -- which we all know was a resounding success. But WWI was not the first, either. The Napoleonic Wars led to the Concert of Europe -- which actually did keep the peace, more or less, for a hundred years (the Crimean War doesn't really count, does it? I mean, sucker-punching the Tsar over some Orthodox monks in Bethleham not treating their Catholic buddies properly?) Before that, you had the Peace of Westphalia, which established concepts of national sovereignty in order to try to end the post-Reformation religious wars in Europe.

I think a comparision between the Concert of Europe and the League of Nations is instructive for the world we find ourselves in today. One worked, and one obviously didn't. Why did the Concert work? For one thing, it correctly recognized the problem that led to Napoleon--a really big, really powerful land power in Western Europe. And it proposed a solution: a balance of power arrangement that would keep a single continental European country from collecting too much power that it could impose its will on everyone else. And it had a tool to make the solution work--namely, Great Britain, who was powerful enough to counter any potential hegemon without actually threatening to be such a hegemon itself.

Right off the bat, the League of Nations got it wrong. The problem was not "war." The problem was a hegemonic continental European power. The solution wasn't to "outlaw" war, or even to create a talk-shop so that the world's countries could sit down together and discuss their disagreements in a theraputic setting. (Although one could see how they might draw that conclusion in 1919--the balance of power system had failed and the interlocking system of alliances and predetermined strategic plans seem to make war inevitable once a certain event occurred. If only there was a place to take a step back, take a breath, talk things out, not necessarily launch an invasion of France at the first sign that Russia has mobilized...) The solution, of course, was to keep one single power from dominating continental Europe, or the world. And at that, the League of Nations and its ideals really sucked.

The mechanisms established following WWII were equally flawed, but, because the Cold War quickly put an end to them for all practical purposes, we haven't really noticed how flawed they are until the bipolar international environment collapsed. Rather than looking at how countries really act and designing mechanisms around those factors in order to forestall war, the post-WWII mechanisms followed the pattern of those following WWI--that is, the formal mechanisms were designed around how a handful of visionary leaders wished countries would act. Those lasted until Korea, of course, after which the West installed a second set of mechanisms based around collective security and the Marshall Plan that really did work. But, with a few exceptions (U.S. v. Nicaragua at the International Court of Justice being one--it says we need to give you 6 months notice to withdraw from the treaty? Where? You mean here, where I wiped my butt?), everybody paid lip service to the formal mechanisms, even while they were almost universally ignored.

But somehow (and, of course, I'm not the first to point this out) the fiction nonetheless became viewed as reality in Europe. Think about it: who today talks about "international law" and actually means it? It's not just the U.S. who seems to look at such notions as faintly silly. How frequently do the Japanese bring it up? Or the Russians, Chinese or Indians, unless they have agendas so transparent that they've molded them into automotive windshields for the limos their diplomats are driven around in?

Which brings me back to Professor Mazower. As he writes, "One reason for the virtual unanimity behind the 1949 Geneva prohibition was the sense that it was both morally unpalatable and militarily ineffective." The sentence is absurd hyperbole: I have a hard time believing that Stalin, in particular, was morally troubled by the concept of collective punishment, or that he felt it was militarily ineffective since he himself used it to great effect in so much of the Soviet Union. But while I will grant that collectively punishing an entire people for the aggression of their leaders or a sub-group is morally repugnant, to say it is militarily ineffective is to ignore history. Even recent history is chock full of examples of this type of activity proving highly effective, with Saddam's Iraq being just the first that comes to mind. (Others include Franco's Spain, Hungary, Czechoslovakia, Turkey, the British suppression of the Malay uprising, the U.S. suppression of the Philippines, etc. etc. etc.)

But this trend that "I think it should be true, therefore it must be true," isn't limited to Mazower or even Stephen Colbert. It seems endemic in the European Union, in particular. It crops up in all sorts of places. For example, land mines are not just inhumane, but are militarily ineffective, though they seem to be rather effective in Iraq. Likewise, torture is inhumane and ineffective. Though if it is completely ineffective, it seems odd that, despite several thousand years of history, we are only now figuring this out. And not polluting is actually more efficient and more profitable than externalizing your pollution and making others pay for it; though only people working for non-profits (or sucking up to non-profits) seem to understand how this is possible.

A little honesty would be nice. Some things you shouldn't do because they are wrong, not because the are ineffective or inefficient. And some things will be done no matter what, and wishing otherwise won't make it so.

And Ezekiel 25:17 Does Not Say That!

This is just wrong.

Plus, everyone knows that God sounds like James Earl Jones.

Saturday, July 15, 2006

Hezbollah attack on Israeli missile boat

Latest news is that it was a Chinese-designed Iranian missile that Hezbollah launched against an Israeli Saar V missile boat, rather than a drone. Hezbollah had been experimenting with the use of drones in the past, which probably accounts for the initial confusion.

The implications of this is that the Iranians are not just providing Hezbollah with support and weapons, but rather advanced weapons at that--among the most advanced they have. Large anti-ship missiles have tended to be limited to state actors. What we are seeing now is the emergence of non-state actors in the international system similar to what existed before the 19th Century, when the British Navy and European land powers put an end to the mercenaries, privateers and pirates that traditionally had a role in European politics.

Thursday, July 13, 2006

Israel will invade Lebanon

I give it a 70 percent chance that Israel will launch a full-scale invasion of Lebanon within the next 48 hours, going all the way to the Bekaa Valley and to the outskirts of Beirut.

Hezbollah used to be reined in by the Syrians. Now with Syria gone from Lebanon, Hezbollah is an Iranian show, and the Iranians don't want them to cool off, since tweaking the Israelis improves their prestige in the Shi'ite Arab world. However, if the Israelis really crush Hezbollah, it could look bad for the Iranians, since they would have hung their guys out to dry. Consequently, the Iranians may have over-calculated here, or just given Hezbollah too much rope, or figured that if Hezbollah got out of hand, the Syrians would get involved in a fight with the Israelis and then you have a big Arab-Israeli war that would help them.

At this point, though, the Israelis really don't have a reason not to invade. The nasty thing about terrorism is that it doesn't fit within the normal Westphalian sovereignty paragdigm. You have political violence being committed, but no internationally-recognized actor on whom to pin the blame. But this is no longer the case in Gaza or Lebanon. In Gaza, Hamas is the government. If a foreign government kidnaps one of your soldiers and launches attacks into your country, it is an act of war. If actors within your country launch attacks against your neighbor and you are unwilling or unable to put a stop to it and hold them responsible, customary international law lets the victim use force in your country as if the attacks were authorized by you.

Of course, customary international law is not much admired these days. But it's not like the Israelis really care what the Russians or French think.

The Israelis are going to go all the way to the Bekaa Valley, and cause as much damage as they can, and then withdraw. The goal will be to kill as many Hezbollah as possible, destroy weapons, and drive them out of Lebanon and into Syria. This will leave the Israelis' right flank exposed to the Syrians and the question is whether the Syrians can convince the Israelis they won't take advantage of it.

I don't think the Syrians will, because the last five times they tried they've gotten shellacked. But the Israelis might be nervous enough to take out Syrian air bases and missile launchers, and if they do that, there is no way the Syrians won't try to retaliate. A war with Israel is not in Syria's best interests and they know it; it will decimate their military, and they are currently surrounded by hostile forces on three sides (Israel, Turkey and Iraq). Like Iraq under Saddam, Syria is ruled by an ethnic minority, so the main concern is maintaining domestic power, and a decimated army won't help that. However, if they are attacked, the Syrian people will not tolerate the Asad regime doing nothing. My guess is that the Syrians are working with the Egyptians and Jordanians at this moment to figure out a way to keep Israel out of Lebanon (and, failing that, convincing Israel that they will not interfere). The problem is that the only way Syria might really convince Israel that they won't interfere is to stop Hezbollah itself, and Syria doesn't have the will or means to really do that.

So I'm saying 48 hours. How that plays out in Iraq is anyone's guess.

Tuesday, July 11, 2006

Competitive Enterprise Institute

Today's fatwa goes out against the Competitive Enterprise Institute. This isn't your typical liberal rant about how the CEI is being paid by large corporations to put out pre-determined research, policy studies, etc. etc. This rant is about how lame they are at doing it. And how lame corporate public affairs executives are for hiring such a lame-ass operation. The problem, as I see it, stems precisely from these public affairs executives. (No, not from the companies themselves, or their evil capitalist overlords, getting paid billions off the sweat of sweatshop workers.) Evil capitalists overlords don't get to be evil capitalist overlords by being stupid. Well, not all of them, anyway.

However, they are overworked and they tend to delegate. (Delegating is one of those leadership skills they teach you in business school.) When a public relations problem comes along, they tend to delegate finding a solution. They don't do this, of course, if they've been burned on this before or if the public relations problem has become central to their very existence--which is why you see tobacco companies led by lawyers. But the truth for most companies is that most public relations problems are nuisances. Major companies make billions of dollars each year, managing thousands or tens of thousands of workers, and coordinating with hundreds of suppliers and major customers. They have regulators from dozens of countries to deal with. And they have shareholders. You don't keep your shareholders happy, you don't keep your job.

So, you delegate the job to one of your less-senior vice presidents. (The more senior guys—like the guys in charge of finance or operations—wouldn’t touch this job with a 10-foot pole and a full biohazard suit). And this vice president has no idea how to deal with a bunch of hippies complaining about your environmental policies, or a bunch of airhead celebrities upset about the Vietnamese 8-year olds assembling your products. So this vice president hires a public relations or government affairs “expert.”

Who are these folks? They tend to be people with experience in lobbying or running public relations campaigns. They got this experience set by working as Congressional staffers, and from there they may have gone on to a PR firm (which is not to be confused with an advertising firm), or maybe they became writers for specialty news magazines with rather circumscribed circulations. In short, your executive has gone out and hired someone with absolutely no understanding of what your company does, or, really, any real-world experience at all. (Having worked in Washington, I can attest that DC experience, while often fun and interesting, has very little connection to anything anyone else in the rest of the country does or has an interest in.) For an example, check out these bios: here, here, and here. Would it hurt to hire a real scientist, economist or a lawyer who has actually practiced at some time in his or her life?

What’s worse, these "experts" report to someone who doesn’t really have the ear of the company’s senior management. The result is a near-Soviet style of organization. The top wants the problem to go away and gives a general order, but doesn’t have the time to really understand the issue. The middle isn’t in a position to question what those orders mean or whether there is any flexibility on the goals. (Also, the middle guy gets in real trouble if he doesn’t produce results). And the PR guy brought in has no understanding of what the company does or any experience in how large organizations operate.

The “coalitions” that inevitably follow are even worse. (See, for example, the now-defunct Global Climate Coalition, the also-defunct Tobacco Institute, or the not-yet-defunct Chlorine Chemistry Council.) Corporate budgets for most PR problems are meager, and the risk of “free-riding” by smaller companies facing the same problem is always real. Consequently, the larger corporations with a PR issue have an incentive to form a lobbying or public relations coalition with other companies to pool resources and messages, and try to forestall any free-riding. The problem, however, is that the functionaries of these coalitions are now even further removed from the actual realities of how these companies operate. The message is created by flacks reporting to committees, and the message is inflexible. Responsibility for the message is diffuse—a particular member of the coalition might think the direction being taken by the coalition is stupid, counter-productive and embarrassing, but what to do? They are not the experts. If they were, they wouldn’t have hired these jokers to begin with, right? (When they do figure out what jokers these guys are, the coalitions tend to evaporate, as did the Global Climate Coalition).

The resulting messages can, indeed, be embarrassing: like the message that tobacco smoke isn’t linked to cancer, pushed by the Tobacco Institute long after its individual members recognized that this was an absurd claim likely to get them in even more trouble. Or the message that global climate change isn’t happening, now being pushed by CEI, even after though most oil companies have already figured out that this tack just isn't going to play.

Now, theoretically, if you are a corporation, you might want someone out there saying the types of things you are just too embarrassed to say yourself. And CEI is just this kind of ready-to-order think-tank. But it is so completely transparent about this that I find it insulting that any company would waste its shareholders' money on them! At least McKinsey & Co. has some bright MBAs to peddle their snake-oil.

While CEI proclaims itself pro-market and pro-liberty, unlike other think tanks, such as Cato, these are not libertarian true believers. Unlike the American Enterprise Institute, CEI is not populated by functional experts (even if of only one ideological stripe). It is not even in the camp of the Heritage Foundation, which basically floats policies and “market-tests” ideological justifications for Republican policies. Rather, these are hacks. CEI is not pro-market, it is pro-company. And, in particular, pro- those companies and (more commonly, coalitions) that happen to be paying them. If you are one of these industry coalitions, you can’t turn to Cato, AEI or even Heritage for help. The first is too unpredictable because of their ideological consistency; they might say something nasty about something you actually like, such as corporate subsidies. The second is too cerebral and also too ideologically pure. They will say something you don't understand, and, even if you did, you might not want to hear it. And Heritage is about helping Republicans, not helping corporations—and those two goals don’t always overlap.

So you turn to CEI.

What bothers me isn’t the mercenary aspects of CEI. Hell, I like mercenaries. It’s the incompetence that gets me. It’s the complete lack of real expertise of its experts. And the lack of understanding of the "markets" they claim to like so much. The results are absurd positions, such as opposing Hank Paulson as Treasury Secretary because he likes to give money to the Nature Conservancy, or running an ad saying, "Carbon dioxide. They call it pollution. We call it life."

CEI gives a bad name to those of us who actually are pro-market.

Sunday, July 09, 2006

A fatwa on soccer

(Oh, congrats to Italy, by the way. And thank you. The French are insufferable enough as it is.)

I, like most Americans, don't give a rat's ass about soccer. You heard me! Soccer, not "football." Though I will admit that it makes much more sense to call soccer "football" than it does to call real football "football." We have to thank one of those Ivy League schools for that. Can't really remember the story, but it has to do with one university trying to piss off another during the game's infancy by making it a passing game, yada yada yada.

At any rate, soccer is an inherently un-American game and the real wonder of it all is that we do as well as we do (making it to the playoffs, or whatever they are called) given that we have such little interest in it. Soccer is un-American for several reasons:

  1. Ties are permitted. Americans realize that there are only two kinds of people in this world: winners and losers. Ties are a hippie-Euro concept.
  2. Soccer actually encourages malingering. You see these players get mildly grazed in a play and suddenly they are on the ground holding their legs as if some IRA enforcer knee-capped them with a .22. It's endemic! (Check out this video, which, while purportedly making fun of the Italians, could pretty much be true of any team.) If you were playing American football, you could have your tibia sticking out of your thigh, and the coach would just tell you to "walk it off."
  3. Finally, as Stephen Colbert has said, soccer is the metric system of sports, and we don't need it.

So, next time a soccer fan asks you if you saw the World Cup, say, "Soccer? Isn't that that girls' game where they take off their shirts when they win?"

Friday, July 07, 2006

Words to live by

"It's not important how many people I've killed. What's important is how I get along with the people who are still alive."

Bruce Willis' character, Jimmy "The Tulip" Tudesky in The Whole Nine Yards

Memorable words, if not a memorable movie. And, really, when you think about it, they would make a very good foreign policy.

Thursday, July 06, 2006

Joe Biden should stay out of Dunkin Donuts

When conservative politicians say racist things, it's deplorable and ugly. But when liberal politicians say racist things, it can be funny. Archie Bunker funny. Funny in the way that only someone who thinks he or she is better and smarter than everyone else -- but in reality is a lot stupider -- can be.

As a society, we've done a pretty good job of pushing down the more Neanderthalish forms of racism among our leaders, even if it is still a running undercurrent with some people and some politicians. (And not that I've got anything against Neanderthals. Some of my best friends have prominent brow ridges.) It's underground, so you have to read between the lines (though not very much, perhaps) to go after Trent Lott. But to see real, condescending, "progressive" racism -- well, for that, you have to go to Joe Biden!

And I bet he thinks he has a black friend named Alan, too.

Sideshow Bob Haircuts

A fatwa against peace activists with Sideshow Bob haircuts. That goes for American Idol contestants, too.

Wednesday, July 05, 2006

The Country Formerly Known As A Mess

Today's fatwa goes out to the U.S. State Department, for hiring the Artist Formerly Known As Prince and putting him in charge of naming countries. Montenegro, if you haven't heard, has just become the 192nd nation to join the U.N. Whoo, hoo! Well, they think it's a big deal, at least.

I have a soft spot for Montenegro. Not only is one of my favorite fictional detectives from Montenegro (Nero Wolfe, whom I try to emulate in eating habits, since I can't in intellect). But also my first landlord was from Montenegro. He was a Montenegran Muslim (and therefore technically not supposed to drink alchohol), but that didn't stop him from bringing back some of the nastiest Albanian brandy from his visits to the Old Country! Hmmm, good times! Good blind-drunk times!

I’ve never visited Montenegro, though I have been to Serbia. Thankfully, I understand Montenegro is actually quite pretty. Serbia (or at least Belgrade)…how to put this delicately...isn’t.

But this isn’t about Montenegro. This is about its former fellow Yugoslav republic, Macedonia. Or, as Assistant Secretary of State
calls it, the Former Yugoslav Republic of Macedonia. OK, I know, it’s not

’s fault. The whole world calls it that as part of the deal on international recognition. If they got to call themselves “Macedonia,” the Greeks would have a hissy-fit. Because, you know, if there is a "Republic of Macedonia" and a Greek province of Macedonia, people might get confused. They might start thinking Alexander the Great was from some former Yugoslav republic, and not from Ireland or wherever. It's much the same as how Americans get upset with Mexico for having a "Baja" California, and Mexicans get upset with the United States for having a "New" Mexico, and both the British and the Colombians hate Canada over Vancouver.

Macedonia, of course, isn't the only country which has a fake name applied over its real name so as to not offend somebody else. Taiwan officially calls itself the "Republic of China," but in the few international organizations Taiwan belongs to (the U.N. not being one of these), the country has to go by a silly moniker such as "Chinese Taipei." Thankfully, the U.S. State Department hasn't gone so far as to call Taiwan "The Island Formerly Known as Formosia" (though this might be a good idea, since it would probably offend everybody). However, official State Department memos to all U.S. government agencies state that the proper terms are "the people of Taiwan" (rather than the Taiwanese or Taiwanese people), "the authorities on Taiwan" (rather than the Taiwanese government), etc. etc.

Granted, the whole Taiwan thing is complicated by the fact that it is China who is getting pissed off, and China is (1) a country big enough to cause you problems if you live in the neighborhood, (2) a country that you hope to sell a lot of stuff to, or (3) a country willing to sell you a lot of military-type stuff so as to piss off the Americans. But Greece?? Why are we afraid to piss off the Greeks? What are they going to do, like us even less? And why are even the other Europeans afraid to piss off the Greeks? The only thing I can think of there is guilt. They have a crappy opinion of the Greeks, and they are worried that if they don't go along with them on this one, the Greeks might figure out that the rest of the EU looks at them the way the rest of the United States looks at West Virginia.

Well, sorry to break it to you, but they've already figured it out.

So, a fatwa on country name euphemisms. If they want to call themselves Macedonia, call them Macedonia. If they want to call themselves the Republic of China, call them the Republic of China (though you might want to add an "on Taiwan" or "slash Taiwan" or your mail might get lost).

But I draw the line at Burma. "Myanmar" is just stupid.

(By the way, I'm sure the symbol "
" is trademarked, but I call this one on a fair use exception. This blog is both educational and a parody, and I will put a fatwa on anyone who says otherwise.)

Tuesday, July 04, 2006

Fatwa 1

A fatwa traditionally is a legal opinion or decree handed down by a Muslim legal scholar. I'm not a Muslim legal scholar, or at all knowledgable about Shariah. But, then, neither are a lot of people who issue fatwas these days. Since issuing fatwas is now open to pretty much any Tom, Dick and now-deceased uneducated Jordanian street-thug, why shouldn't I get in on the gig?

My Daily Fatwa is just the place. It's where I tell you what sucks and why. Also, you can debate other things that suck, and I can issue a fatwa determining whether, in fact, it does suck. Much of this will be random, like my mind. Which brings me to the my very first Daily Fatwa:

Consistency. I declare a fatwa against consistency, at least as it comes to this blog. Hallmark of a small mind, as far as I'm concerned. In particular, this means that, while it's called "My Daily Fatwa," it may not always be daily. And it may be more than daily, since I might like to store up. First, I've got things to do. I may not get around to a fatwa. Second, lots of things piss me off on a given day, so I may issue multiple fatwas. Third, what pisses me off today may not piss me off tomorrow, if I change my mind or somebody pays me off. So I might rescind a fatwa at any given time. Though I doubt it. I tend to stay pissed.

I may also issue redundant fatwas. Hey, sometimes I forget. Or sometimes you may just need reminding. Or, most likely, what pissed me off before probably will piss me off again, in which case I will issue a double fatwa on the responsible party's behind.