May 15, 2010

Arab Israeli Peace: One Last Chance?

If the Arab Jewish conflict in all its phases is to be looked upon as a continuum then its duration is getting very close to becoming the longest war in History. It could eclipse the Hundred Year Wars between the British and France which lasted from 1337 to 1453. Jews had started immigrating to Palestine under the Ottoman Empire rule late in the 19th century but the Zionist movement picked up support as a result of the Balfour Declaration of 1917.

The UN plan of 1947 recommended partition; under the infamous UNSCR 181; but on the day that the British mandate ended May 14, 1948 Israel was declared as an independent state. The Arab league declared war against the new state of Israel but its forces were defeated which resulted in having the Israeli forces in control of most of mandated Palestine and forced the Arab states to sign an Armistice agreement which still represents the internationally recognized borders of Israel. The tentative peace that followed lasted less than seven years. Israel joined the British and the French in their Suez Canal War by attacking and capturing the Sinai and the Gaza strip in October of 1956.

An uneasy peace lasted this time 11 years. On June 5, 1967 the Israeli Air Force launched a preemptive attack on Egypt followed by one on Iraq, Jordan and Syria. When the six day war ended Israel had added to the Sinai, and Gaza, the West Bank and the Golan. This was followed by the 1973 war which started with promise for the Egyptian and Syrian forces but ended up in a cease fire.

Egypt managed to get the Sinai back as a result of the Camp David Accords signed in 1979 which were followed by a Jordanian peace agreement in 1994. Meanwhile Israel attacked Lebanon in 1982 in an effort to force the PLO forces that had been thrown out of Jordan. The PLO withdrew to Tunis and Lebanon signed a ceasefire agreement with Israel in 1983.

In spite of all the misery inflicted by all of these wars there was a genuine chance for peace. Besides Camp David of 1979 the Oslo Accords were signed in 1993 followed by the already mentioned Jordanian peace treaty of 1994 NS OSLO II in 1995. Unfortunately most the promise faded when Israel, in 2003, retook some Palestinian land in contravention of Oslo II. This has been followed by Israeli withdrawal from Gaza, the Lebanon war of 2006 in addition to the Gaza war of 2008.

So what has been achieved in almost a century of conflict besides the constant change of positions? The Israelis start in accepting a partition that is rejected by the Arabs and we move to the point when the Arabs accepted a two state solution which has not been accepted by the Israelis. The situation looks as hopeless as ever, if not even more so. But is it?

I saw today the rough outline of a suggestion by Zbigniew Brzezinski, the National Security advisor for Jimmy Carter, that is simple straight forward and I believe vey promising if the political courage is found to adopt it: President Obama must declare in a press conference that the US will spare no effort to forge an agreement along the following four points

(1) Declare that the right of return for the Palestinians will not apply to the pre 1967 Israel

(2) West Jerusalem will become the capital of Israel and East Jerusalem is to become the capital of Palestine.

(3) The 1967 borders with very minor modifications are to become the internationally recognized borders. Any agreed upon modifications will be based on a one to one ratio.

(4) The new Palestinian state will be demilitarized with NATO forces on the border.

The only question that is worthwhile speculating upon: If President Obama is to make such a commitment then would the rejectionists have any rational excuse to turn such an opportunity for peace down? What do you think?

May 07, 2010

Would the "Greek Tragedy" Go Global?

“Those who cannot learn from history are doomed to repeat it” This George Santayana saying is as true as it ever was. How else to explain the current international financial debacle de jour? It is rather disturbing that after all the handwringing about the worst financial crisis that the world has encountered in over seventy years and after so many have questioned whether capitalism as a system can survive that we keep on repeating the same mistakes over and over again. Karl Marx’s’ popular quip about how “History repeats itself first as tragedy then as farce” also seems to be tailor made for these rough economic times had the farcical not been so tragic.

Almost everyone who follows the news knows by now that the 2007-2008 economic meltdown, whose cost was estimated to be around $30 trillion, began in the United States before it spread all over the world. There is also a consensus that irresponsible behavior by financial institutions, their regulators as well as individual actors have contributed to the strength and depth of what could have been a second Great Depression. Greed was the most common word that has been used to describe what led to the economic crisis. Greed of institutions for larger and larger profits, greed by managers for bigger bonuses and the greed by individuals to live beyond their means. The financial wizardry of the new “rocket scientists” on Wall Street made all of this possible and then some. They developed new fancy instruments out of common mortgages and then did the same thing for bank loans. Loans and or mortgages were bundled and sliced then diced into so many tranches and sold separately with different levels of risk to anxious buyers all over the world. No one could have enough; neither the originators of these synthetic derivatives nor the buyers. It looked that the “masters of the universe” have created the magic formula that will transform subprime mortgages into AAA securities.

But in order to securitize mortgages and satisfy the insatiable demand for these securities more homes had to be sold and more potential buyers found. As the number of eligible buyers dwindled, as it must, the standards were loosened until there were no standards at all. Home owners bought homes they cannot afford and as prices of real estate went up many home owners decided to participate in the melee by using their homes as ATM machines. The charade went on until the market started to run dry of buyers and home prices cracked. As the prices fell millions of these subprime loan holders defaulted since they can not meet the monthly obligations neither could they sell. Many of those that took out second and third mortgages also found their holdings under water also. What started as a problem in one sector spread like wild fire all throughout the financial system since all players were interdependent and equally greedy to “dance while the music was playing.”

The crisis of two years ago made it apparent that both individuals and institutions had to deleverage their balance sheets which many have done. Regulators are still struggling with a solution to the “Too Big To Fail” but are making some progress in that regard. Unfortunately the lessons of the misbehavior , excessive risk and too much leverage were applied only selectively.

It turns out that the greed of governments was the most serious flaw in this system of international finance. Governments found a way to appease their populations through deficit finance. They offered benefits that they cannot afford and undertook expenditures on projects that are neither viable nor feasible. Actually these governments have mishandled so much of the borrowings that they had to find ways to keep the level of indebtedness off the books. Elected officials in many countries acted as if they have found the secret for wealth creation. Borrow the country into prosperity. For a while the scheme worked, just like subprime and the housing bubble did. But at some point the truth about the ability to repay the billions borrowed and squandered becomes known and the whole cycle of financial collapse gets started again.

That is what is becoming known as the Greek Tragedy or the Olympian Tsunami. Would the Greek Tragedy be confined to Greek soil? Don’t bet on it . The Greek Tragedy is about to become a contagion and there is no reason for it not to go global. After all we were not smart enough to have learned from our recent historical debacles and so we are doomed to repeat them.