Wednesday, June 23, 2010
Rep. Bill Pascrell, center, and Levant Koc, right, of the Interfaith Dialog Center, with Mehmet Sahin of the Turkish Parliament.
BY HERB JACKSON
The Record
WASHINGTON CORRESPONDENT
Turkic businessmen and community leaders packed a posh Washington hotel to announce their new national group, and invited members of Congress to learn about their growing population and economic power. “I want to see all the Jersey guys,” says Rep. Bill Pascrell Jr., D-Paterson, who is quickly surrounded in the Willard Hotel ballroom. “Are these the guys that own all the restaurants?” Census data show Pascrell’s district is home to the biggest concentration of Turks in New Jersey, and as he works the room, he waves to members of the band he recognizes from events in Passaic County. He also meets Mehmet Sahin, a member of the Turkish Parliament who, among other things, is seeking contacts for an associate who wants to open a hotel in New Jersey. Near the buffet table, Rep. Scott Garrett, R-Wantage, takes a break from his tabbouleh to debate with a Westfield businessman about whether Governor Christie really will cut property taxes. Congressmen wooing new business to their districts or debating local politics is hardly new terrain, and in that sense, the opening gala of the Assembly of Turkic American Federations (A fetullah Gulen Organization)last month is like thousands of other receptions every year in Washington. But the formation of the ATAF, which highlights an Islamic identity that makes some secular Turks uneasy, comes as Turks are playing catch-up in the Washington influence game. They especially want to counter the influence of Armenian-Americans, whose No. 1 issue in Washington for decades has been a United States declaration that the deaths of 1.5 million Armenians in Turkey from 1915 to 1923 were genocide. Turkey denies the charge, and disputes what Rutgers University genocide expert Alex Hinton says is a consensus of historians. When the latest genocide affirmation resolution passed the House Foreign Affairs Committee by a razor-thin 23-22 margin in March, Turkey briefly recalled its ambassador, and congressional opponents warned that full passage in Congress would damage relations with an important ally. Co-sponsors of the measure — including the entire New Jersey delegation except Pascrell — do not share that fear. “It should not injure a relationship built on many other things,” said Sen. Frank Lautenberg, D-N.J., who added that his attendance at the ATAF gala was not a sign he was changing his support for the genocide resolution. Until recently, Turkey argued its case in Washington primarily through influential former members of Congress who registered with the Justice Department as foreign agents of its government. Over the past decade, a few hundred congressional staffers and a handful of members of Congress also took trips funded by Turkish-American groups to Ankara, Istanbul and other cities. Starting in 2007, however, the first of two federal political action committees registered, and the principal leader for one of the PACs also registered as a federal lobbyist in 2008. By contrast, Armenian groups had spent $2.6 million from 1999 through 2007 on lobbying, and made $569,000 in contributions through federal PACs. “We’re historically disorganized,” said Levent Koc, chief executive of the Interfaith Dialog Center founded in Carlstadt and now based in Newark, who invited many of the New Jersey officials to the reception. “We decided to come together for better coordination and communication.” The ATAF is an umbrella for 150 separate local organizations around the country, including Koc’s center, the Turkish Cultural Center in Ridgefield and the Pioneer Academy of Science in Clifton. All are affiliated with Turkish Muslim scholar Fethullah Gulen, Koc said. Gulen, who now lives in Pennsylvania, advocates a conservative brand of Islam that condemns terrorism and advocates more interfaith cooperation and science education. He was acquitted in absentia of what supporters called politically motivated charges in Turkey of advocating an Islamic state. Koc said the new group’s primary goal is to foster better understanding of Turkic people — a term that includes not only those from Turkey but also those from such countries as Azerbaijan, Kazakhstan, Kyrgyzstan, Turkmenistan and Uzbekistan — and cooperation between Muslims and other faiths. It’s not connected to the Turkish government or Turkish politics, he said. But one person attending the reception, South Hackensack chemical importer Tarik Ok, said one reason the ATAF was forming now was, “The government suggested we all go under one roof.” The new group has the leader of a much older group with a similar name uneasy. Gunay Evinch, president of the 30-year-old Assembly of Turkish American Associations, said he has asked the newly formed Assembly of Turkic American Federations to change its name and make its ties to the Gulen movement clear. “I told them it’s unnecessarily confusing, and it would be better to define yourselves as who you are, a sect movement within Islam,” said Evinch, who has already received mail at his Washington headquarters intended for the other group. Evinch said his group and the Turkish Coalition of America, which created a PAC in 2007 and registered to lobby in 2008, have worked hard to increase Turkish influence in Washington by getting American Turks to overcome a reluctance to make campaign contributions. “Turks did not [traditionally] reach into their pockets to give to campaigns, they thought it was corrupt,” he said. “The PAC educated people to understand that in the U.S. you can give to campaigns.” Evinch said a key difference between his ATAA and the new ATAF is that his group advocates only on issues important to Turks and Turkey, including the Armenian resolution and questions surrounding Cyprus. “We don’t advance the cause of Islam or a sect of Islam, and we don’t do interfaith dialogue based on Islam or any religion,” he said. “We also don’t import Turkish politics into our community.” Koc said that while it supports better understanding of Islam, his group is not limited to Muslims. “I cannot say we’re faith-based. Some scholars say this is a religiously motivated social movement. That doesn’t mean we are serving only Muslims or Turks. We serve all,” Koc said. He also disputed any religious motivation in seeking a change in Turkey’s government. “There’s a new generation in Turkey, and it’s more open. People opposed to this change are blaming religious people, but there are change supporters who are left wing and right wing, some of them are old socialists,” Koc said. “When they try to change the status quo, people who want the status quo blame Muslims. I don’t know why.” E-mail: jackson@northjersey.com |
Tag: Economic Crisis
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Do we have to defend the actions of the Committee of Union and Progress?
AN ARTICLE LOVED BY ARMENIANS —
for Original comments from Armenians see
ordudan kovulan bu yazar hakkindabasinda cikanlar :
Ümit Kardaş*
In January 1913, the Committee of Union and Progress overthrew the government and started to implement a policy to homogenize the population through a planned ethnic cleansing and destruction and forced relocation. The term “genocide,” defined as the “crime of crimes” in the International Criminal Court’s (ICC) Rwanda decision, was first coined by Raphael Lemkin, a Jewish lawyer from Poland.
He was particularly known for his efforts to draft the United Nations Convention on the Prevention and Punishment of the Crime of Genocide, which cast genocide as an international crime in 1948.Dealing with the case of Talat Paşa being murdered by an Armenian youth in Berlin in 1921, Lemkin started to compile a file about what happened in the Ottoman Empire in connection with the case. As he discussed the case with his professor, he learned that there was no international law provision that would entail the prosecution of Talat Paşa for his actions, and he was profoundly shocked when his professor likened the case of Talat Paşa to a farmer who would not be held responsible for killing the chickens in his poultry house. In 1933, Lemkin used the term “crime against international law” as a precursor of the concept of genocide during the League of Nations conference on international criminal law in Madrid. After Nazi-led German forces devastated Europe and invaded Poland in 1939, Lemkin was enlisted in the army, but upon the defeat of Polish forces, he fled to the US, leaving his parents behind. Later, while working as an adviser during the Nuremberg trials, he would learn that his parents had died in the Nazi concentration camps.
In his book “Axis Rule in Occupied Europe,” published in 1944, he defined genocide as atrocities and massacre intended to destroy a nation or an ethnic group. Coining the term from the Greek genos, meaning race or ancestry, and the Latin cide, meaning killing, Lemkin argued that genocide does not have to mean direct destruction of a nation. In 1946, the UN General Assembly issued a declaration on genocide and unanimously accepted that genocide is a crime under international law, noting that it eliminates the right of existence of a specific group and shocks the collective conscience of humanity. However, Lemkin wished that in addition, a convention should be drafted on preventing and punishing the crime of genocide. This wish was fulfilled with the signature of the UN Convention on the Prevention and Punishment of the Crime of Genocide in 1948. Lemkin died in a hotel room in New York in a state of poverty at the age of 59 in 1959. Although they left this idealist defender of humanity alone, people were gentle enough to write, “The Father of the Genocide Convention,” as an epitaph on his grave.
1843-1908 period
In 1843, Bedirhan Bey, who commanded the Kurds who were assigned with the duty of massacring the people of Aşita (Hoşud), connected to the sanjak of Hakkari, where the population was predominantly Armenian and Nestorian, persuaded the Armenians and Nestorians who had fled to the mountains to return and hand in their weapons, and then, the people who were massacred were largely thrown in the Zap River. The majority of their women and children were sold as slaves. It is reported that at least 10,000 Armenians and Nestorians were killed in this massacre. In 1877, the Ottoman Army and the Russian Army started to fight again, and availing of this opportunity, Armenia once again became a battlefield, and the soldiers shouted, “Kill the disbelievers.” Circassians and Kurds slaughtered 165 Christian families, including women and children, in Beyazıt. In 1892, Sultan Abdülhamit II summoned the Kurdish tribal chiefs to İstanbul and gave them military uniforms and weapons, thereby establishing the Hamidiye cavalry regiment with some 22,500 members. In this way, Abdülhamit II played with the foreign policy equilibrium between the UK and Russia and organized a specific ethnic/religious group against another ethnic/religious group based on a Muslim vs. non-Muslim dichotomy. The Ottoman administration appointed the worst enemies of Armenians as their watchdogs, thereby creating a force that could crush them even in peacetime. The persecution of Armenians peaked in the Sason massacre in September 1894. Abdülhamit II declared resisting Armenians rebels and ordered that they should be eradicated.
1908-1914 period
Europe and America extensively supported the Young Turks, who were seeking legitimacy. When the Movement Army threatened to launch a campaign against İstanbul, Abdülhamit II declared a constitutional monarchy on July 24, 1908. Without using any discretion, ordinary people were both amazed and pleased. Moved by slogans calling for equality, freedom and brotherhood, Armenians, too, welcomed with joy the government backed and controlled by the Committee of Union and Progress (CUP).
Britain and France made loans available to the new regime and sent consultants for the treasury and the navy in support. To alleviate the consequences of the massacres of 1895 and 1896, European countries increased their humanitarian assistance. Orphaned children of Christian families were placed in care centers, and schools were opened in eastern Anatolia. The introduction of the second constitutional monarchy was seen as an assurance of the creation of equality among all races and religions. However, on April 14, 1909, a new wave of slaughter started against Christians in Adana. The CUP’s close alliance with the Armenian Dashnak Party was a major reason for the rekindling of these massacres. For the first time, these attacks did not discriminate between Armenians and eastern Christians. Thus, Orthodox Syriacs, Catholic Syriacs and Chaldeans were also killed. Apparently, Armenians had stood apart with their penchant for trade, banking, brokerage as well as for pharmacy, medicine and consulting and other professions; they constituted a wealthy portion of the population. As a result, this and their identity as non-Muslims made Armenians a clear target. As a commercial and agricultural factor, Armenians also served as an obstacle to the Germanification of Anatolia.
After the Adana massacre of 1909, there was a period of good faith that lasted until 1913. Meanwhile, the CUP improved its ties with the militant Dashnak Party. After transforming into a democratic party, this party was represented with three deputies in the Assembly of Deputies (Meclis-i Mebusan) that was renewed in 1912. This assembly also had six independent Armenians members. In 1876, the Assembly of Deputies had 67 Muslim and 48 non-Muslim deputies. However, in January 1913, following the defeat in the first Balkan War, the CUP overthrew the government (known as the Raid of Bab-ı Ali) and started to implement a policy to homogenize the population through a planned ethnic cleansing and destruction and forced relocation.
Talat Paşa prepared plans for homogenizing the population by relocating ethnic groups to places other than their homeland. According to the plan, Kurds, Armenians and Arabs would be forced to migrate from their homeland, and Bosnians, Circassians and other Muslim immigrants would be settled in their places. The displaced ethnic groups would not be allowed to comprise more than 10 percent of the population in their destinations. Moreover, these groups would be quickly assimilated. The Greeks had already been relocated from the western coasts of the country in 1914.
In addition to the regular army, Enver Paşa believed that there must be special forces that would conduct undercover operations. Thus, he transformed the Special Organization (Teşkilat-ı Mahsusa), which he had established as a secret organization before the Balkan War, into an official organization. This organization had intelligence officers, spies, saboteurs and contract killers among its members. It also had a militia comprised of Kurdish tribes. Former criminals worked as volunteers for this organization. Talat Paşa created the main body of the Teşkilat-ı Mahsusa from gangs of former criminals whom he arranged to be released from prisons. In Anatolia, the Teşkilat-ı Mahsusa worked at the disposal of the 3rd Army.
Forced relocations of 1915-1916
The German-backed pan-Islamist policy implied a fatal solution for non-Muslims living within the borders of the empire. The conditions for the forced relocation campaign launched in 1915 were different from previous ones. The two-month campaign covered not only Armenians but also all Christians in eastern Anatolia. These relocations could not be considered a resettlement because the specified destinations were not inhabitable and only very few could make it there. Many people were immediately killed either inside or outside the settlements where they were born or living, and others were murdered on the roads on which they were forced to walk on foot.
Most of those who were immediately killed were men. Women and children formed the largest portion of the groups banished toward the southern deserts. There were continual attacks on these processions, accompanied by rapes of women and kidnappings of children. Provincial officials did not take any measures to provide the convoys with food, water and shelter. Rather, high-level officials and local politicians mobilized death squads against them. These squads would confiscate the goods of the relocated people, sending some of them to the Interior Ministry and embezzling the rest.
Eventually, the forced relocation campaign turned into a series of atrocities which even bothered the Germans. The ongoing campaign was never a population exchange. As noted by British social historian David Gaunt, the purpose of these forced relocation campaigns was to remove a specific population from a specific location. Because it was intended to be performed quickly, this added to the intimidation, violence and cruelty involved. As resettlement was not intended, neither the administration nor the army cared about where the deported population was going or whether they would survive physically. The high degree of the culture and civilization exhibited by Armenians made the atrocities against them all the worse in the eyes of the world. Talat Paşa mistakenly made his last conclusion: “There is no longer an Armenian problem.”
Conclusion and suggestions
The foregoing account cannot duly express what really happened in its scope, dimension and weight. These atrocities and massacres were not only regularly reported on in European and US newspapers, but were also evidenced in the official documents of Britain and the US and even Germany and Austria, which were allies of the Ottoman Empire, and in the minutes of the Ottoman Court Martial (Divan-ı Harbi), the descriptions of diplomats and missionaries, in commission reports and in the memoirs of those who survived them.
No justification, even the fact that some Armenian groups revolted with certain claims and collaborated with foreign countries, can be offered for this human tragedy. It is misleading to discuss what happened with reference to genocide, which is merely a legal and technical term. No technical term is vast enough to contain these incidents, which are therefore indescribable. Atrocities and massacres are incompatible with human values. It is more degrading to be regarded as a criminal in the collective conscience of humanity than to be tried on charges of genocide.
A regime that hinges upon concealing and denying the truth will make the state and the society sick and decadent. The politicians, academics, journalists, historians and clerical officials in Turkey should try to ensure that the society can face the truth. To face the truth is to become free. We can derive no honor or dignity from defending our ancestors who were responsible for these tragedies. It is not a humane or ethical stance to support and defend the actions of Abdülhamit II and senior CUP members and their affiliated groups, gangs and marauders. Turkey should declare to the world that it accepts said atrocities and massacres and that in connection with this, it advocates the highest human values of truth, justice and humanism while condemning the mentality and actions of those who committed them in the past.
After this is done, it should invite all Armenians living in the diaspora to become citizens of the Turkish Republic. As the Armenians of the diaspora return to the geography where their ancestors lived for thousands of years before being forced to abandon it, leaving behind their property, memories and past, this may serve to abate their sorrow, which has now translated into anger. The common border with Armenia should be opened without putting forward any condition. This is what conscience, humanity and reason direct us to do. Turkey will become free by getting rid of its fears, complexes and worries by soothing the sorrows of Armenians.
*Dr. Ümit Kardaş is a retired military judge.
02 May 2010, Sunday -
What Does Greece Mean to You? – John Mauldin’s Weekly E-Letter
From: John Mauldin [wave@frontlinethoughts.com]Thoughts from the Frontline Weekly NewsletterWhat Does Greece Mean to You?
by John Mauldin
March 26, 2010
“To trace something unknown back to something known is alleviating, soothing, gratifying and gives moreover a feeling of power. Danger, disquiet, anxiety attend the unknown – the first instinct is to eliminate these distressing states. First principle: any explanation is better than none… The cause-creating drive is thus conditioned and excited by the feeling of fear…” Friedrich Nietzsche“Any explanation is better than none.” And the simpler, it seems in the investment game, the better. “The markets went up because oil went down,” we are told, except when it went up there was another reason for the movement of the markets. We all intuitively know that things are far more complicated than that. But as Nietzsche noted, dealing with the unknown can be disturbing, so we look for the simple explanation.“Ah,” we tell ourselves, “I know why that happened.” With an explanation firmly in hand, we now feel we know something. And the behavioral psychologists note that this state actually releases chemicals in our brains that make us feel good. We become literally addicted to the simple explanation. The fact that what we “know” (the explanation for the unknowable) is irrelevant or even wrong is not important to the chemical release. And thus we look for reasons.How does an event like a problem in Greece (or elsewhere) affect you, gentle reader? And I mean, affect you down where the rubber hits your road. Not some formula or theory about the velocity of money or the effect of taxes on GDP. That is the question I was posed this week. “I want to understand why you think this is so important,” said a friend of Tiffani. So that is what I will attempt to answer in this week’s missive, as I write a letter to my kids trying to explain the nearly inexplicable.But first, let me note to Conversations subscribers that we have posted a Conversation I recently did with Professors Ken Rogoff and Carmen Reinhart, authors of This Time It’s Different, which has my vote for most important book of the last few years.Last week we also posted a Conversation with two noted hedge-fund managers, Kyle Bass of Hayman Advisors (and his staff) here in Dallas and Hugh Hendry of the Eclectica Fund in London. Our discussion centered on what we all think has the potential to be the next Greece, but on a far more serious level.That got a lot of positive response. Herb wrote, “Wow. What a great discussion. What smart guests, how little BS. Congratulations. It’s the best of your Conversations that I’ve listened to.”And ACK wrote: “Wow!! Just the most important discussion I have been treated to as an investor and fund manager this year or last. Your product is dreadfully underpriced, as it delivers more value and education than almost any other subscription that I have… Thanks so much… This particular conversation was just mind-blowing!”Actually, we get that last comment almost every issue, as we somehow seem to connect the dots for different listeners. When we started, I promised to do 6-8 a year, and we have already posted 5 timely Conversations in the first 3 months of this year, including my special Biotech Series as well as the Geopolitical Series with George Friedman.For new readers, Conversations with John Mauldin is my one subscription service. While this letter will always be free, we have created a way for you to “listen in” on my conversations (or read the transcripts) with some of my friends, many of whom you will recognize and some whom you will want to know after you hear our conversations. Basically, I call one or two friends each month and, just as we do at dinner or at meetings, we talk about the issues of the day, back and forth, with give and take and friendly debate. I think you will find it enlightening and thought-provoking and a real contribution to your education as an investor.And as you can see, I can get some rather interesting people to come to the table. Current subscribers can renew for a deeply discounted $129, and we will extend that price to new subscribers as well. To learn more, go to . Click on the Subscribe button, and join me and my friends for some very interesting Conversations. (I know the price says $199 on the site, but for now you will only be charged for $129 – I promise.)And we are starting a renewal cycle with the subscriptions and have found a small bug in the software we purchased to handle them. Renewals are therefore not instantaneous. It may take a day, and for that we apologize. We are fixing it.Oh, and by the way, since the Conversation on Japan was so well-received, the next one will be on China. Two brilliant managers (maybe three) with VERY divergent views. I may just toss in a few grenade-type questions and stand back and watch the show. And now on to this week’s letter.What Does Greece Mean to Me, Dad?
Tiffani had been talking with her friends. A lot of them read this letter, and they were asking, “Ok, I get that Greece is a problem. But what does that mean for me here?”The same day, a friend told me about a conversation she had with her 17-year-old Cal Tech daughter and her daughter’s boyfriend, who is also headed to Cal Tech. These are really smart kids, and they were asking her about some of my recent letters. “We understand what’s he saying, but we just don’t see what it means.” (For what it’s worth, the boyfriend wants to grow up to be Mohammed El-Erian of PIMCO. Go figure; I just wanted to be Mickey Mantle.)Twice in one day is a sign, I am sure, so I will try and see if I can explain. And since all my kids must be wondering the same thing, this is kind of letter from Dad to see if I can help them understand why things are not going as well as they would like.(A little background. I have seven kids, five of whom are adopted. A fairly colorful family, so to speak. Pictures at the end of the letter. Ages almost 16 through 33. Daughter Tiffani runs my business and, except for the youngest boy, they are all out on their own. Four are married or attached. It is not easy to watch them struggle to make ends meet, but Dad is proud. But listening to their stories, and the stories of their friends, help keep me in the real world.)Dear Kids,
I know what a struggle it has been for most of you, and now three of you have a kid of your own. Expensive little hobbies, aren’t they? I know that you read my letter (well, except for Trey) and wonder what it means to you trying to pay your bills. Let me see if I can make a connection from the world of economics to the world of paying your bills. Sadly, what I am going to say is not going to make you feel any better, but reality is what it is. We’ll get through it together.While life looks pretty good for Dad now, when I graduated from seminary in December of 1974 unemployment was at 8%, on its way to 9% a few months later. We lived in a small mobile home, which seemed wonderful at the time. I was proud of it. We scrimped and got by. My first job was a dead end, so I left after a few months. I guess I was lucky that no one would hire me, because I had to figure out how to make it on my own. All I really knew was the printing business I had grown up in, so I started brokering printing. Pretty soon I was doing just direct mail, and then designing direct mail. But there was never enough money. We were still in that mobile home six years later.And prices were going up like crazy. We had inflation. I remember going to a bank in the late ’70s and borrowing money for my business at 18%, so I could buy paper for a job I had sold. Forget about borrowing for a new home or car. All I knew was that I was struggling to make ends meet (with a new kid!). There were a lot of nights where I would wake up at two in the morning with panic attacks about whether I could make payroll or pay bills until someone paid me. I didn’t understand that what the Fed and the government were doing was causing high inflation and unemployment.I had a bank line I used to buy paper with. One day the bank abruptly cancelled that line and demanded their money, which I didn’t have – all I had was a warehouse full of paper and a contract that said I had a year to pay for it. The bank didn’t care. I told them they would just have to wait. I swear, they actually called my mother and told her they would ruin me if she didn’t pay that $10,000 line. She was scared for me (after all, you had to be able to trust your banker) and paid it without asking me. Turned out the bank finally went bankrupt later in the year. They were just desperate and trying anything they could do to get money, so they wouldn’t lose everything. They did anyway.In short, times were not all that good, but we got through it. And now, 35 years later, it seems like déjà vu all over again. Every time we talk it seems like someone we know has lost a job.And so how do the problems in a small country like Greece make a difference to you? There is a connection, but it’s different than the old “hip bone is connected to the thigh bone to the knee bone” thing. It is a lot more complicated. Let’s go back to a letter I wrote four years ago, talking about fingers of instability. One of the best analogies your Dad has ever written, according to many of his 1 million friends. So read with me a few pages, and then we’ll get back to Greece.Ubiquity, Complexity Theory, and Sandpiles
We are going to start our explorations with excerpts from a very important book by Mark Buchanan called Ubiquity, Why Catastrophes Happen. I HIGHLY recommend it to those of you who, like me, are trying to understand the complexity of the markets. Not directly about investing, although he touches on it, it is about chaos theory, complexity theory, and critical states. It is written in a manner any layman can understand. There are no equations, just easy-to-grasp, well-written stories and analogies. www.Amazon.comWe all had the fun as kids of going to the beach and playing in the sand. Remember taking your plastic buckets and making sandpiles? Slowly pouring the sand into ever-bigger piles, until one side of the pile started an avalanche?Imagine, Buchanan says, dropping just one grain of sand after another onto a table. A pile soon develops. Eventually, just one grain starts an avalanche. Most of the time it is a small one, but sometimes it gains momentum and it seems like one whole side of the pile slides down to the bottom.Well, in 1987 three physicists, named Per Bak, Chao Tang, and Kurt Weisenfeld, began to play the sandpile game in their lab at Brookhaven National Laboratory in New York. Now, actually piling up one grain of sand at a time is a slow process, so they wrote a computer program to do it. Not as much fun, but a whole lot faster. Not that they really cared about sandpiles. They were more interested in what are called nonequilibrium systems.They learned some interesting things. What is the typical size of an avalanche? After a huge number of tests with millions of grains of sand, they found out that there is no typical number. “Some involved a single grain; others, ten, a hundred or a thousand. Still others were pile-wide cataclysms involving millions that brought nearly the whole mountain down. At any time, literally anything, it seemed, might be just about to occur.”It was indeed completely chaotic in its unpredictability. Now, let’s read these next paragraphs slowly. They are important, as they create a mental image that helps me understand the organization of the financial markets and the world economy.“To find out why [such unpredictability] should show up in their sandpile game, Bak and colleagues next played a trick with their computer. Imagine peering down on the pile from above, and coloring it in according to its steepness. Where it is relatively flat and stable, color it green; where steep and, in avalanche terms, ‘ready to go,’ color it red.“What do you see? They found that at the outset the pile looked mostly green, but that, as the pile grew, the green became infiltrated with ever more red. With more grains, the scattering of red danger spots grew until a dense skeleton of instability ran through the pile. Here then was a clue to its peculiar behavior: a grain falling on a red spot can, by domino-like action, cause sliding at other nearby red spots. If the red network was sparse, and all trouble spots were well isolated one from the other, then a single grain could have only limited repercussions.“But when the red spots come to riddle the pile, the consequences of the next grain become fiendishly unpredictable. It might trigger only a few tumblings, or it might instead set off a cataclysmic chain reaction involving millions. The sandpile seemed to have configured itself into a hypersensitive and peculiarly unstable condition in which the next falling grain could trigger a response of any size whatsoever.”Something only a math nerd could love? Scientists refer to this as a critical state. The term critical state can mean the point at which water would go to ice or steam, or the moment that critical mass induces a nuclear reaction, etc. It is the point at which something triggers a change in the basic nature or character of the object or group. Thus, (and very casually for all you physicists) we refer to something being in a critical state (or use the term critical mass) when there is the opportunity for significant change.“But to physicists, [the critical state] has always been seen as a kind of theoretical freak and sideshow, a devilishly unstable and unusual condition that arises only under the most exceptional circumstances [in highly controlled experiments]… In the sandpile game, however, a critical state seemed to arise naturally through the mindless sprinkling of grains.”Then they asked themselves, could this phenomenon show up elsewhere? In the earth’s crust, triggering earthquakes; in wholesale changes in an ecosystem or a stock market crash? “Could the special organization of the critical state explain why the world at large seems so susceptible to unpredictable upheavals?” Could it help us understand not just earthquakes, but why cartoons in a third-rate paper in Denmark could cause worldwide riots?Buchanan concludes in his opening chapter, “There are many subtleties and twists in the story … but the basic message, roughly speaking, is simple: The peculiar and exceptionally unstable organization of the critical state does indeed seem to be ubiquitous in our world. Researchers in the past few years have found its mathematical fingerprints in the workings of all the upheavals I’ve mentioned so far [earthquakes, eco-disasters, market crashes], as well as in the spreading of epidemics, the flaring of traffic jams, the patterns by which instructions trickle down from managers to workers in the office, and in many other things.“At the heart of our story, then, lies the discovery that networks of things of all kinds – atoms, molecules, species, people, and even ideas – have a marked tendency to organize themselves along similar lines. On the basis of this insight, scientists are finally beginning to fathom what lies behind tumultuous events of all sorts, and to see patterns at work where they have never seen them before.”Now, let’s think about this for a moment. Going back to the sandpile game, you find that as you double the number of grains of sand involved in an avalanche, the likelihood of an avalanche is 2.14 times as unlikely. We find something similar in earthquakes. In terms of energy, the data indicate that earthquakes simply become four times less likely each time you double the energy they release. Mathematicians refer to this as a “power law,” or a special mathematical pattern that stands out in contrast to the overall complexity of the earthquake process.Fingers of Instability
So what happens in our game? “… after the pile evolves into a critical state, many grains rest just on the verge of tumbling, and these grains link up into ‘fingers of instability’ of all possible lengths. While many are short, others slice through the pile from one end to the other. So the chain reaction triggered by a single grain might lead to an avalanche of any size whatsoever, depending on whether that grain fell on a short, intermediate or long finger of instability.”Now, we come to a critical point in our discussion of the critical state. Again, read this with the markets in mind:“In this simplified setting of the sandpile, the power law also points to something else: the surprising conclusion that even the greatest of events have no special or exceptional causes. After all, every avalanche large or small starts out the same way, when a single grain falls and makes the pile just slightly too steep at one point. What makes one avalanche much larger than another has nothing to do with its original cause, and nothing to do with some special situation in the pile just before it starts. Rather, it has to do with the perpetually unstable organization of the critical state, which makes it always possible for the next grain to trigger an avalanche of any size.”Now let’s couple this idea with a few other concepts. First, one of the world’s greatest economists (who sadly was never honored with a Nobel), Hyman Minsky, points out that stability leads to instability. The longer a given condition or trend persists (and the more comfortable we get with it), the more dramatic the correction will be when the trend fails. The problem with long-term macroeconomic stability is that it tends to produce highly unstable financial arrangements. If we believe that tomorrow and next year will be the same as last week and last year, we are more willing to add debt or postpone savings for current consumption. Thus, says Minsky, the longer the period of stability, the higher the potential risk for even greater instability when market participants must change their behavior.Relating this to our sandpile, the longer that a critical state builds up in an economy or, in other words, the more fingers of instability that are allowed to develop connections to other fingers of instability, the greater the potential for a serious “avalanche.”And that’s exactly what happened in the recent credit crisis. Consumers all through the world’s largest economies borrowed money for all sorts of things, because times were good. Home prices would always go up and the stock market was back to its old trick of making 15% a year. And borrowing money was relatively cheap. You could get 2% short-term loans on homes, which seemingly rose in value 15% a year, so why not buy now and sell a few years down the road?Greed took over. Those risky loans were sold to investors by the tens and hundreds of billions all over the world. And as with all debt sandpiles, the fault lines started to show up. Maybe it was that one loan in Las Vegas that was the critical piece of sand; we don’t know, but the avalanche was triggered.You probably don’t remember this, but Dad was writing about the problems with subprime debt way back in 2005 and 2006. But as the problem actually emerged, respected people like Ben Bernanke (the chairman of the Fed) said that the problem was not all that big, and that the fallout would be “contained.” (I bet he wishes he could have that statement back!)But it wasn’t contained. It caused banks to realize that what they thought was AAA credit was actually a total loss. And as banks looked at what was on their books, they wondered about their fellow banks. How bad were they? Who knew? Since no one did, they stopped lending to each other. Credit simply froze. They stopped taking each other’s letters of credit, and that hurt world trade. Because banks were losing money, they stopped lending to smaller businesses. Commercial paper dried up. All those “safe” off-balance-sheet funds that banks created were now folding. Everyone sold what they could, not what they wanted to, to cover their debts. It was a true panic. Businesses started laying off people, who in turn stopped spending as much.As you saw from my earlier story about my bank experience, banks may do what unreasonable things when they get into trouble. (Speaking of which, my smallish Texas bank, where I have been for almost 20 years, just cancelled my very modest, unused credit line last month, and told me that letters of credit will not be rewritten without 100% cash against them. Not to worry, Dad is actually in the best shape of his life, business-wise, knock on wood. I hadn’t talked personally to a banker in years. When I asked the young clerk on the phone, “What’s going on?” he said it was just an order from his director. I switched banks last week, as I can smell a bank in trouble. And I again have a credit line – which I hope not to use.)But the fact is, we need banks. They are like the arteries in our bodies; they keep the blood (money) flowing. And when our arteries get hard, we can be in danger of heart attacks. And it’s going to get worse, as banks are going to lose more money on their commercial real estate loans. Commercial real estate is down some 40% around the country.There are a lot of books that try to pinpoint the cause of our current crisis. And some make for fun reading, like a good mystery novel. You can blame it on the Fed or the bankers or hedge funds or the government or ratings agencies or any number of culprits.Let me be a little controversial here. The blame game that is now going on is in many ways way too simplistic. The world system survived all sorts of crises over the recent decades and bounced back. Why is now so different?Because we are coming to the end of a 60-year debt supercycle. We borrowed (and not just in the US) like there was no tomorrow. And because we were so convinced that all this debt was safe, we leveraged up, borrowing at first 3 and then 5 and then 10 and then as much as 30 times the actual money we had. And we convinced the regulators that it was a good thing. The longer things remained stable, the more convinced we became they would remain that way. The following chart shows how our sandpile ended up. It’s not pretty.I know Dad always say it is never “different,” but in a sense this time is really different from all the other crises we have gone through since the Great Depression that your Less-Than-Sainted Granddad used to talk about. What the very important book by professors Reinhart and Rogoff shows is that every debt crisis always ends this way, with the debt having to be paid down or written off or defaulted upon. That part is never different. One way or another, we reduce the debt. And that is a painful process. It means that the economy grows much slower, if at all, during the process.And while the government is trying to make up the difference for consumers who are trying to (or being forced to) reduce their debt, even governments have limits, as the Greeks are finding out.If it were not for the fact that we are coming to the closing innings of the debt supercycle, we would already be in a robust recovery. But we are not. And sadly, we have a long way to go with this deleveraging process. It will take years.You can’t borrow your way out of a debt crisis, whether you are a family or a nation. And as too many families are finding out today, if you lose your job you can lose your home. What were once very creditworthy people are now filing for bankruptcy and walking away from homes, as all those subprime loans going bad put homes back onto the market, which caused prices to fall, which caused an entire home-construction industry to collapse, which hurt all sorts of ancillary businesses, which caused more people to lose their jobs and give up their homes, and on and on.It’s all connected. We built a very unstable sandpile and it came crashing down and now we have to dig out from the problem. And the problem was too much debt. It will take years, as banks write off home loans and commercial real estate and more, and we get down to a more reasonable level of debt as a country and as a world.And here’s where I have to deliver the bad news. It seems we did not learn the lessons of this crisis very well. First, we have not fixed the problems that made the crisis so severe. We have not regulated credit default swaps, for instance. And European banks are still highly leveraged.Why is Greece important? Because so much of their debt is on the books of European banks. Hundreds of billions of dollars worth. And just a few years ago this seemed like a good thing. The rating agencies made Greek debt AAA, and banks could use massive leverage (almost 40 times in some European banks) and buy these bonds and make good money in the process. (Don’t ask Dad why people still trust rating agencies. Some things just can’t be explained.)Except, now that Greek debt is risky. Today, it appears there will be some kind of bailout for Greece. But that is just a band-aid on a very serious wound. The crisis will not go away. It will come back, unless the Greeks willingly go into their own Great Depression by slashing their spending and raising taxes to a level that no one in the US could even contemplate. What is being demanded of them is really bad for them, but they did it to themselves.But those European banks? When that debt goes bad, and it will, they will react to each other just like they did in 2008. Trust will evaporate. Will taxpayers shoulder the burden? Maybe, maybe not. It will be a huge crisis. There are other countries in Europe, like Spain and Portugal, that are almost as bad as Greece. Great Britain is not too far behind.The European economy is as large as that of the US. We feel it when they go into recessions, for many of our largest companies make a lot of money in Europe. A crisis will also make the euro go down, which reduces corporate profits and makes it harder for us to sell our products into Europe, not to mention compete with European companies for global trade. And that means we all buy less from China, which means they will buy less of our bonds, and on and on go the connections. And it will all make it much harder to start new companies, which are the source of real growth in jobs.And then in January of 2011 we are going to have the largest tax increase in US history. The research shows that tax increases have a negative 3-times effect on GDP, or the growth of the economy. As I will show in a letter in a few weeks, I think it is likely that the level of tax increases, when combined with the increase in state and local taxes (or the reductions in spending), will be enough to throw us back into recession, even without problems coming from Europe. (And no, Melissa, that is not some Republican research conspiracy. The research was done by Christina Romer, who is Obama’s chairperson of the Joint Council of Economic Advisors.)And sadly, that means even higher unemployment. It means sales at the bar where you work, Melissa, will fall farther as more of your friends lose jobs. And commissions at the electronics store where you work, Chad, will be even lower than the miserable level they’re at now. And Henry, it means the hours you work at UPS will be even more difficult to come by. You are smart to be looking for more part-time work. Abbi and Amanda? People may eat out a little less, and your fellow workers will all want more hours. And Trey? Greece has little to do with the fact that you do not do your homework on time.And this next time, we won’t be able to fight the recession with even greater debt and lower interest rates, as we did this last time. Rates are as low as they can go, and this week the bond market is showing that it does not like the massive borrowing the US is engaged in. It is worried about the possibility of “Greece R Us.”Bond markets require confidence above all else. If Greece defaults, then how far away is Spain or Japan? What makes the US so different, if we do not control our debt? As Reinhart and Rogoff show, when confidence goes, the end is very near. And it always comes faster than anyone expects.The good news? We will get through this. We pulled through some rough times as a nation in the ’70s. No one, in 2020, is going to want to go back to the good old days of 2010, as the amazing innovations in medicine and other technologies will have made life so much better. You guys are going to live a very long time (and I hope I get a few extra years to enjoy those grandkids as well!). In 1975 we did not know where the new jobs would come from. It was fairly bleak. But the jobs did come, as they will once again.The even better news? You guys are young, still babies, really. Hell, I didn’t have a good year income-wise until I was in my mid-30s, and that was an accident (I literally won a cellular telephone lottery). And it has not always been smooth since then, as you know. But we get through bad stuff. That is what we do as a family and as the larger family of our nation and world.So, what’s the final message? Do what you are doing. Work hard, save, watch your spending, and think about whether your job is the right one if we have another recession. Pay attention to how profitable the company you work for is, and make yourself their most important worker. And know that things will get better. The 2020s are going to be one very cool time, as we shrug off the ending of the debt supercycle and hit the reset button. And remember, Dad is proud of you and loves you very much.Washington DC, Albuquerque, and Guy Forsythe
It is time to hit the send button. One of the greatest blues acts in the country is in Dallas tonight, and I have good seats waiting for me. If you ever get a chance to hear Guy Forsythe, change your plans and go. He is one of the greatest acts I have ever seen.Sunday, in a last-minute, must-go trip, I leave for Washington, DC for one night, coming back Monday. And as a special bonus, I get to spend time with Neil Howe (The Fourth Turning, etc.) for dinner, after we watch a little DC hockey. Then morning meetings and back on a plane. Wednesday I leave for Albuquerque and some dental work with Dr. Gary Sanchez (more on that next week).And a couple pictures of my kids. The first one is last year, when Tiffani decided to dye her hair and it turned out orange. Maybe that is why my granddaughter Lively is a redhead. (There are three babies-in-waiting in that picture!)And one a few years back of just the kids, when I still had an office in the Ballpark. Melissa is the redhead in this one.Good times. I can feel the band warming up, so I am going to depart. Have a great week.Your trust me, we will get through this analyst,John Mauldin
John@FrontLineThoughts.comCopyright 2010 John Mauldin. All Rights ReservedNote: The generic Accredited Investor E-letters are not an offering for any investment. It represents only the opinions of John Mauldin and Millennium Wave Investments. It is intended solely for accredited investors who have registered with Millennium Wave Investments and Altegris Investments at www.accreditedinvestor.ws or directly related websites and have been so registered for no less than 30 days. The Accredited Investor E-Letter is provided on a confidential basis, and subscribers to the Accredited Investor E-Letter are not to send this letter to anyone other than their professional investment counselors. Investors should discuss any investment with their personal investment counsel. John Mauldin is the President of Millennium Wave Advisors, LLC (MWA), which is an investment advisory firm registered with multiple states. John Mauldin is a registered representative of Millennium Wave Securities, LLC, (MWS), an FINRA registered broker-dealer. MWS is also a Commodity Pool Operator (CPO) and a Commodity Trading Advisor (CTA) registered with the CFTC, as well as an Introducing Broker (IB). Millennium Wave Investments is a dba of MWA LLC and MWS LLC. Millennium Wave Investments cooperates in the consulting on and marketing of private investment offerings with other independent firms such as Altegris Investments; Absolute Return Partners, LLP; Fynn Capital; Nicola Wealth Management; and Plexus Asset Management. Funds recommended by Mauldin may pay a portion of their fees to these independent firms, who will share 1/3 of those fees with MWS and thus with Mauldin. Any views expressed herein are provided for information purposes only and should not be construed in any way as an offer, an endorsement, or inducement to invest with any CTA, fund, or program mentioned here or elsewhere. Before seeking any advisor’s services or making an investment in a fund, investors must read and examine thoroughly the respective disclosure document or offering memorandum. Since these firms and Mauldin receive fees from the funds they recommend/market, they only recommend/market products with which they have been able to negotiate fee arrangements.
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