4
Apr

Ending bank bailouts and capital requirement regulations

Written on April 4, 2013 by Ángeles Figueroa-Alcorta in News

By Diego Sánchez de la Cruz, IE Master in International Relations Alumnus

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New research by the Institute of Economic Affairs has shown that capital regulations are much less necessary than what we may think. Economists Forrest Capie and Geoffrey Wood have analyzed British banking in the 19th century, and they have concluded that lack of capital requirements did not translate into chaos or anarchy. Rather, financial firms adjusted their capital ratios according to to the degree of risk that they were undertaking.

In fact, this study shows that capital provisions during these years were much more robust than those mandated under today’s Basel agreements. Prudent management used to be the norm, mainly because the “too big to fail” doctrine was not popular among governments or central banks.

Nowadays, we find the opposite scenario. Public authorities are now willing to bail out financial institutions that are deemed systemic, and such implicit guarantee gives banks a significant incentive to push their risks to the limit. What is the impact of this morally hazardous consensus? A study published by the IMF recently estimated that the value of this “subsidy” is equivalent to $83 billion dollars per year. Such figure means that large U.S. institutions would barely make any profits without this special privilege.

How can this be possible, you may ask yourself? Well, the larger banks grow, the more likely they will be considered “too big to fail”. Hence, banks can borrow at lower rates and thus engage in risky behavior that would otherwise be off the table.

Read more…

3
Apr

I heard Pyongyang make a real offer — but the Obama White House didn’t even listen.

By Joel Wit

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Given the torrent of threats and insults hurtling out of Pyongyang these days, North Korea’s announcement Tuesday that it intends to restart facilities at its Yongbyon nuclear installation should come as no surprise. One of those facilities, a plutonium production reactor partially disabled under an agreement with the George W. Bush administration, should eventually be able to produce at least eight more nuclear weapons, adding significantly to Pyongyang’s existing small inventory. What will come as a surprise is that, until recently, the North had been willing to agree to steps that could have prevented that outcome but was ignored by the United States and South Korea.

The facility in question has a long history. One of the first U.S. spy satellite pictures taken in the early 1960s was of the Yongbyon nuclear facility, where the Soviet Union had supplied the North with a small nuclear research reactor. By the early 1980s, spy satellites showed the construction of a larger 5 megawatt electric (MWe) experimental reactor, a significant development since it would allow the North to produce plutonium for nuclear weapons. The reactor started operating in 1985 but was shut down in 1994 by an agreement between the United States and North Korea before any plutonium could be produced. Once that agreement collapsed eight years later, Pyongyang picked up where it left off, restarted the reactor, and produced plutonium that was probably used in the North’s nuclear tests.

The 5 MWe reactor was shut down once again by a U.S.-North Korea agreement in 2007, this time under the Bush administration. As a first step toward permanent disablement, Pyongyang invited international journalists and diplomats to witness the spectacular demolition of the reactor’s cooling tower, needed to carry waste heat into the atmosphere. Fuel rods for the reactor, others that might have been retooled for its use, and still others that had already been irradiated were stored and periodically inspected by the International Atomic Energy Agency (IAEA). After Pyongyang’s 2009 long-range missile test, Barack Obama’s administration secured new sanctions against North Korea through the UN, prompting the furious North Koreans to stop the inspections and produce additional plutonium. The reactor itself, however, remained dormant and thousands of fuel rods also remained unused. Read more…

Joel Wit is a visiting scholar at the U.S.-Korea Institute at Johns Hopkins University’s School of Advanced International Studies and founder of its North Korea website, 38 North.

As published in www.foreignpolicy.com on April 2, 2013.

2
Apr

Beyond the Post-Cold War World

Written on April 2, 2013 by Ángeles Figueroa-Alcorta in News

By George Friedman

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An era ended when the Soviet Union collapsed on Dec. 31, 1991. The confrontation between the United States and the Soviet Union defined the Cold War period. The collapse of Europe framed that confrontation. After World War II, the Soviet and American armies occupied Europe. Both towered over the remnants of Europe’s forces. The collapse of the European imperial system, the emergence of new states and a struggle between the Soviets and Americans for domination and influence also defined the confrontation. There were, of course, many other aspects and phases of the confrontation, but in the end, the Cold War was a struggle built on Europe’s decline.

Many shifts in the international system accompanied the end of the Cold War. In fact, 1991 was an extraordinary and defining year. The Japanese economic miracle ended. China after Tiananmen Square inherited Japan’s place as a rapidly growing, export-based economy, one defined by the continued pre-eminence of the Chinese Communist Party. The Maastricht Treaty was formulated, creating the structure of the subsequent European Union. A vast coalition dominated by the United States reversed the Iraqi invasion of Kuwait.

Three things defined the post-Cold War world. The first was U.S. power. The second was the rise of China as the center of global industrial growth based on low wages. The third was the re-emergence of Europe as a massive, integrated economic power. Meanwhile, Russia, the main remnant of the Soviet Union, reeled while Japan shifted to a dramatically different economic mode.

The post-Cold War world had two phases. The first lasted from Dec. 31, 1991, until Sept. 11, 2001. The second lasted from 9/11 until now.

The initial phase of the post-Cold War world was built on two assumptions. The first assumption was that the United States was the dominant political and military power but that such power was less significant than before, since economics was the new focus. The second phase still revolved around the three Great Powers — the United States, China and Europe — but involved a major shift in the worldview of the United States, which then assumed that pre-eminence included the power to reshape the Islamic world through military action while China and Europe single-mindedly focused on economic matters. Read more…

George Friedman is the Chairman of Stratfor, a company he founded in 1996 that is now a leader in the field of global intelligence.

As published in www.stratfor.com on April 2, 2013. Beyond the Post-Cold War World is republished with permission of Stratfor.

29
Mar

By Scott A. Snyder

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North Korea, under its untested young leader Kim Jong Un, has ratcheted up the threats toward South Korea and the United States to unprecedented levels and with greater intensity than ever before.

A torrent of threats has flowed from North Korean spokesmen, including a promise of preemptive nuclear strikes on the United States and calls to “break the waists of the crazy enemies, totally cut their windpipes and thus clearly show them what a real war is like.”

North Korean brinkmanship, bluff, and bluster are stock elements in its diplomatic toolkit, but why have the threats become so outsized, and how worried should we be? Is North Korea playing the same game it has always played, or does the now-nuclear playbook of a rash young leader represent a new threat the we cannot afford to ignore?

In some respects, we have seen this movie before. North Korea has long used its bluff and bluster as a form of self-defense to keep potential enemies off guard, to strengthen internal political control, magnify external threats to promote national unity, and to symbolically express dissatisfaction when international trends are not going its way.

This year, converging factors are squeezing North Korea, creating a stronger-than-usual response in the face of seemingly greater international pressure.

The U.N. Security Council resolution passing financial sanctions on North Korea following its satellite and nuclear tests were tougher than expected, and coincide with U.S.-South Korea military exercises organized to show political resolve to deter North Korean aggression. The establishment of a U.N. Commission of Inquiry into North Korea’s human rights situation tarnishes the standing of the new leadership. North Korea’s over-the-top responses belie a sense of vulnerability. Read more…

Scott A. Snyder is senior fellow for Korea studies and director of the program on U.S.-Korea policy at the Council on Foreign Relations.

As published in www.cnn.com on March 29, 2013.

22
Mar

Obama said all the right things in Jerusalem. Now what?

By Daniel Levy

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Something odd happened during Wednesday’s press conference between Barack Obama and Benjamin Netanyahu. When asked to address the Palestinian issue, the U.S. president on three occasions said that he would have more to say when he spoke directly to the Israeli people. The apparent takeaway is that for Obama, spending (wasting?) too much time trying to make progress with the Israeli prime minister on the Palestinian question is an exercise in futility — a recognition that the politics would have to change first and that the Israeli public would be key to any political shift.

When Obama finally did get around to addressing that Israeli public in Thursday’s speech in Jerusalem, the president made the point unequivocally: “Political leaders will not take risks if the people do not demand that they do. You must create the change that you want to see.” Some might say Obama was following his own domestic playbook, as he has on issues from taxes to budget cuts to gun control. It’s as if he sees Bibi as an obstacle to change on par with the House Republicans or the Tea Party.

Obama made his appeal to the Israeli public in an interesting way. He hit all the buttons in endorsing Israel’s own narrative — as one would expect from a visit that has resembled a schmooze-a-thon — but he added a surprising twist. Obama essentially offered Israelis a blank check while attaching a health warning: “Use with Caution.”

If misused, like a kid inheriting a fortune, such blank checks can have devastating self-destructive consequences. Obama’s basic message — Israel has America’s unconditional support in perpetuity — could be interpreted as having told Israelis that even as you abandon recognizable democracy in favour of apartheid, the United States will still have your back. “Israel is the most powerful country in this region. Israel has the unshakeable support of the most powerful country in the world,” he noted.

Having handed over the blank check, he added the advisory note to user: If used badly, all that support would still not be enough to save Israel from the inevitable fallout from its current path.

First, over time you will have less security, as the other side is catching up technologically. Read more…

Daniel Levy is director of the Middle East and North Africa program at the European Council on Foreign Relations, based in London. He is also senior research fellow at the New America Foundation and a board member of the New Israel Fund.

As published in www.foreignpolicy.com on March 21, 2013.

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