Friday, May 30, 2008

Pat Buchanan Says...

Yeah, I'm Quoting
a Loose Cannon
with Approval!

On McClellan's sucker punch:
The synchronized savagery of the attacks on McClellan as turncoat suggests he drew blood. For what he has done is offer confirmation to the president's war critics, from within the White House inner circle, that Bush's motive in going to war was not a clear and present danger of attack by Iraq with weapons of mass destruction, but to advance a Bush crusade to impose democracy on the Middle East.

Neoconservative ideology, not U.S. national interests, McClellan is saying, motivated Bush to launch one of the longest and most divisive wars in U.S. history.

When loyalists defect and seek to profit from that defection, it is usually a sign of a failing presidency. And, indeed, events suggest that history is passing Bush by.
America has relinquished world leadership:
Despite the administration's designation of Hamas and Hezbollah as terrorist organizations, and of Syria and Iran as state sponsors of terror with whom we do not negotiate, America's clients are ignoring America.

Israel has ignored Bush's demand that it stop building and expanding settlements on a West Bank that is to be the heartland of a Palestinian state. Prime Minister Ehud Olmert has been secretly negotiating with Syria for the return of the Golan Heights in exchange for peace.

When America refused to play honest broker between Jerusalem and Damascus, Turkey, at Israel's request, stepped into the role.

The pro-American Lebanese government of Prime Minister Siniora has negotiated a truce and power-sharing arrangement with Hezbollah, giving that militant Shiite movement and party veto power in the Beirut government. Egypt is negotiating with Hamas for a truce in the Israeli-Gaza war and to effect the exchange of a captured Israeli solider held by Hamas for Hamas fighters held in Israel.

The Iranian Revolutionary Guard, designated a terrorist organization by the Senate, helped to arrange the ceasefire between government forces and the Mahdi Army in Basra and Sadr City. While the United States has used the roughest of language to denounce Mahmoud Ahmadinejad, the Iranian president has been received as an honored guest by the Iraqi government we support and by the Ayatollah Sistani, who has yet to meet a high-ranking American.

When Bush went to the Middle East to celebrate the 60th anniversary of Israel as the Zionist he has become, he was criticized by a Palestinian leader who survives on U.S. aid. When he went to Riyadh to plead for an increase in the flow of oil, he got a token concession from the king.

In Pakistan, the new government has been negotiating a truce with the radicalized frontier provinces, which would leave the Taliban with a privileged sanctuary from which to prepare their annual offensives to overthrow the government in Kabul and expel the Americans, as their fathers expelled the Russians.

As Russia and China move closer together to oppose U.S. missile defenses and the U.S. presence, military and economic, in the Caucasus and Central Asia, Latin America seems to be going its own leftward way. The halcyon days of the Alliance for Progress are long gone.
The World is watching and waiting upon new American leadership:
The world seems to be waiting for Bush to depart and for the next American president. For the foreign policy differences between John McCain and Barack Obama are as real and stark as they have been since the Reagan-Carter election of 1980, or the Nixon-McGovern election of 1972.

Looking back on the years since 9-11, it is hard to give the Bush foreign policy passing grades. We pushed NATO eastward and alienated Russia. We have 140,000 Army and Marine Corps troops tied down in Iraq in a war now in its sixth year, from which our NATO allies have all extricated themselves. We have another war going in Afghanistan, where the situation is as grave as it has been since we went in.

The Bush democracy crusade was put on the shelf after producing election triumphs for Hamas, Hezbollah and the Muslim Brotherhood in Egypt. And the Bush Doctrine of preventive war, after Iraq, appears to be headed there, as well.
Under Bush, America went for broke:
America remains the first economic and military power on earth. But after seven years of Bush, we no longer inspire the awe or hopes we once did. We are no longer the world hegemonic power of the neocons' depiction. And the reason is that Bush embraced their utopian ideology of democratic empire and listened to their siren's call to be the Churchill of his age.

Of Bush, it may be said he was a far better politician and candidate than his father, but as a statesman and world leader, he could not carry the old man's loafers.
And Broke R US

Tuesday, May 20, 2008

A successful prophet of the markets

By John Authers
Published: May 19 2008 03:00 | Last updated: May 19 2008 03:00

This was a book that George Soros badly wanted to write. It is probably not what many of its readers expect to read. But it shows that in his deeper thinking about the way markets operate, Soros was several decades ahead of his time.

The New Paradigm for Financial Markets includes Soros' verdict on the credit crisis. He thinks, as has been widely reported, that it is the most severe since the 1930s, and that it marks the end of a 25-year "era of credit expansion based on the dollar as the international reserve currency".

He also offers some solutions, which centre on new regulation for markets, and how to avoid forced sales for US homeowners. A highly entertaining diary recounts his investment moves in the first three months of this year, culminating with the confusion surrounding the fire sale of Bear Stearns.

His insights are clear and concisely expressed. They are worth reading for anyone interested in the topic. But what is most interesting, and obviously engages Soros at an emotional level, is the idiosyncratic philosophy he has developed to explain the metaphysics of how markets work. Even before the emergence of the efficient markets hypothesis, which has dominated academic thinking on markets for at least three decades, Soros had devised his own theory to prove markets were not efficient. He acted on this philosophy as an investor with spectacularly successful results.

That philosophy derived from his undergraduate studies at the London School of Economics under Karl Popper. The "relationship between thinking and reality", Soros calls "reflexivity." It fills the book's centre in chapters which he admits many will find "heavy going". In markets, Soros says, participants' thinking plays a dual function: they try to understand the situation (the "cognitive function"), and to change it (the "manipulative function"). The two functions can interfere with each other; when they doso the market displays "reflexivity".

So an investor's misperception of reality can help to change that reality, begetting further misperceptions. When market actors' decisions affect outcomes, patterns emerge. If a lot of people are bullish about internet stockstheir price goes up. Soros used the theory to predict, and profit from, a series of "initially self-reinforcing but eventually self-defeating boom-bust processes, or bubbles". Each bubble "consists of a trend and a misconception that interact in a reflexive manner".

A key implication of this is that markets do not tend towards "equilibrium", as predicted by modern portfolio theory. And they will not move in the "random walk" promulgated by efficient markets theory, which holds that prices always incorporate all known information and so move randomly in response to new information.

This is important, as the architecture of modern capital markets depends on these theories.And it begins to look as though the credit crisis was the tipping point at which academics and practitioners decided a new paradigm was needed to replace the efficient markets hypothesis. Alternative theories borrow from experimental psychology, advanced mathematics and evolutionary biology and have been built in response to experience in the markets.

The theory of "adaptive markets" - that markets follow trends until they become overblown and then start building up other trends - seems to be gaining ground as an alternative paradigm. Soros' title is a bid for his own theory of reflexivity to become the new paradigm. What is fascinating is how much modern thinking is in line with the theory he developed decades ago.

How does it help explain the credit crisis? Soros believes that a "super bubble" has been formed as the result of a "long-term reflexive process" over the last 25 years. Its hallmarks include credit expansion (boosted by the belief that inflation has been vanquished), and a prevailing misconception, which Soros unsurprisingly blames on Ronald Reagan and Margaret Thatcher, that markets should be given free rein.

There have been numerous financial crises in this period. According to Soros, these "served as successful tests which reinforced the prevailing trend and the prevailing misconception". Thus the current crisis grows in severity because it marks "the turning point when both the trend and the misconception have become unsustainable".

Many will dislike Soros' politics. Others will find the book self-indulgent. He calls himself a "failed philosopher" and badly wants his theory to reach a broader public. It is hard to imagine it would have been published were he not so famous and successful. But his restless intellectual curiosity commands respect. So does his ability to foresee the debate in theoretical finance. He may have been a failed philosopher, but he was a successful prophet.

The writer is the FT's investment editor