Thomas Friedman: A Theory of Everything

(image: Thomas Fuchs for NY Times)

From Cairo to London to Athens to Tel Aviv to Barcelona the bottle burns and gets over. Is there a common denominator to explain all that's happening everywhere? Tom Friedman is trying an answer in today's NY Times: a theory of everything, as he names it (and humbly he then adds a nuance, not quite a theory, rather sort of). You could guess: for Tom Friedman the answer is globalization (and I'm wondering whether Mr. Friedman invented the globalization, or rather the globalization was invented for Mr. Friedman).

Globalization acts both ways (says Tom Friedman, and he is damned right): it's hugely difficult today to keep your status, due to global competition; on the other hand the anger of frustrated people gets global.

Acting both ways: globalization makes easier for employers to replace local labor with foreign skilled workers, and any president or prime minister realizes that his task is no more to give things away to his people (as it used to be in the glorious times before the new millennium): now it's to take things away.

Acting both ways: some Israeli protesters carried a sign, Walk Like an Egyptian!

You can read the article of Tom Friedman at:

http://www.nytimes.com/2011/08/14/opinion/sunday/Friedman-a-theory-of-everyting-sort-of.html?nl=todaysheadlines&emc=tha212

(Zoon Politikon)

Thomas Friedman: The Clash of Generations

When the cold war ended, we thought we were going to have a clash of civilizations. It turns out we’re having a clash of generations. The baby boomers (my generation) will be remembered most for the incredible bounty and freedom it received from its parents and the incredible debt burden and constraints it left on its kids. Now the hole is too deep and the baby boomer politicians in the age of Twitter may not be up to addressing problems this big: for them no crisis is too serious to set aside political ambition and ideology. Meanwhile China has been buying Spanish, Portuguese and Greek bonds to help stabilize these Chinese export markets. And what happens next will follow the Golden Rule: he who has the gold sets the rules.

Tom Friedman in NY Times:

http://www.nytimes.com/2011/07/17/opinion/sunday/17friedman.html?nl=todaysheadlines&emc=tha212

(Zoon Politikon)

Tom Friedman: Serious in Singapore

Singapore probably has the freest market in the world; it doesn’t believe in import tariffs, minimum wages or unemployment insurance. But it believes regulators need to make sure markets work properly — because they can’t on their own — and it subsidizes homeownership and education to give everyone a foundation to become self-reliant. The two isms that perhaps best describe Singapore’s approach are: pragmatism — an emphasis on what works in practice rather than abstract theory; and eclecticism — a willingness to adapt to the local context best practices from around the world. Singapore has a multiethnic population — Chinese, Indian and Malay — with a big working class. It has no natural resources and even has to import sand for building. But today its per capita income is just below U.S. levels, built with high-end manufacturing, services and exports. The country’s economy grew last year at 14.7 percent, led by biomedical exports. Tom Friedman has this op-ed in today's NY Times:

http://www.nytimes.com/2011/01/30/opinion/30friedman.html?nl=todaysheadlines&emc=tha212

(Zoon Politikon)

Midterm Elections: The Results

(image from CNN)

Dems keep the Senate, GOP takes the House. For Timothy Egan this means that Obama saved the Capitalism and lost the Midterms (read in NY Times: http://opinionator.blogs.nytimes.com/2010/11/02/how-obama-saved-capitalism-and-lost-the-midterms/?src=un&feedurl=http%3A%2F%2Fjson8.nytimes.com%2Fpages%2Fopinion%2Findex.jsonp). For Evan Bayh the explanation is that Dems over-interpreted their mandate from 2006 and 2008: they focused on health care rather than on job creation during a severe recession (read in NY Times: http://www.nytimes.com/2010/11/03/opinion/03bayh.html?nl=&emc=a212). It's the economy, stupid, as the old saying goes.

(image from CNN)

A friend of mine asked me on skype yesterday: will it be better or worse? Maybe the answer can be found in another op-ed from NY Times (http://www.nytimes.com/2010/11/03/opinion/03friedman.html?nl=&emc=a212): says Tom Friedman, what if — for all the hype about China, India and Globalization — they’re actually underhyped? What if these sleeping giants are just finishing a 20-year process of getting the basic technological and educational infrastructure in place to become innovation hubs and that we haven’t seen anything yet?

In other words, here's a possible answer for my friend on skype: as the World goes so should America.


(Zoon Politikon)

It's Morning in India

Tom Friedman has an excellent op-ed in today's NY Times. Next week, President Obama will come to India in a long visit. It is time for reflection, about the future of Europe (see the student manifestations in France against economic realities), of China, of India, of America. About the choice to make, about the strategy to follow. About the future of the whole world, which is becoming, as Tom Friedman keeps on teaching us, increasingly flat: what happens in America (or in France) has effects all over the world, as it is intertwined with what happens in China, in Brazil, in India, in Malaysia. Fighting on the streets to keep the 35 hours week is suicidal, because in India the business is built on 35 hours per day. Gaining the votes in America by fighting stem cell research is suicidal, because China has made the genetic industry a strategic priority.

Here is the op-ed of Tom Friedman:

http://www.nytimes.com/2010/10/31/opinion/31friedman.html?nl=&emc=a212

(Zoon Politikon)

The Russian Spy Ring: a Good News / Bad News Story

For Tom Friedman the Russian spy ring story is a good news / bad news one (NY Times). The good news is that another country still believes it's worth spying on America. After all that blah-blah with Post-American era and stuff, this is really refreshing. The bad news is that the country that still believes it is Russia. Neither Finland to spy on the American school system, nor Hong Kong to steal American secrets on regulating financial markets.

Why were Russians interested in spying American secrets? For Tom Friedman the answer could be found in that taste for old-boys games. Building such a sophisticated spy ring in DC and NY gives you the illusion that you still are in the epoch of two super-powers, one on the Potomac and the other on Volga. It's the nostalgia for those times when the KGB agent was meeting sometimes the CIA agent. on the stairs in front of Lincoln Memorial, both of them slightly blasé, both of them slightly tired, both of them aware that the fate of the world was lying on their shoulders, sometimes friends, most of the time enemies, players in the great comedy of history.

Actually you don't need spies to get the American secrets. All you need is a tourist guide to DC. It costs less than $10 (and I can give anyone such a guide for free). The American secret is to be found in the great hall of the Archives, on Constitution Avenue: it's the Bill of Rights; which means, as Tom Friedman puts it, a commitment to individual freedom, free markets, rule of law, great research universities and a culture that celebrates immigrants and innovators.

-----------------------

Well, Mr. Friedman has a great sense of humor. Is he also right? Up to a certain point, I think. Russia still matters and it's not only vodka, balalaika and Kalashnikov. And American-Russian relations are still very relevant. I'd like to invite you to read also an op-ed of David Ignatius, from Washington Post: In From the Cold? U.S. - Russian Relations.

(Zoon Politikon)

The Pool is Flat

The Ultimate Bastion Against Global Warming
- from Media Bistro -

It is common knowledge that a mustache pays well. The pool needs a trampoline, though.

illustration by David Rees

(Zoon Politikon)

Tom Friedman: Green Shoots in Palestine

Tom Friedman in today's NY Times:

In 2002, the U.N. Development Program released its first ever Arab Human Development Report, which bluntly detailed the deficits of freedom, women’s empowerment and knowledge-creation holding back the Arab world. It was buttressed with sobering statistics: Greece alone translated five times more books every year from English to Greek than the entire Arab world translated from English to Arabic; the G.D.P. of Spain was greater than that of all 22 Arab states combined; 65 million Arab adults were illiterate. It was a disturbing picture, bravely produced by Arab academics.

Coming out so soon after 9/11, the report felt like a diagnosis of all the misgovernance bedeviling the Arab world, creating the pools of angry, unemployed youth, who become easy prey for extremists. Well, the good news is that the U.N. Development Program and a new group of Arab scholars last week came out with a new Arab Human Development report. The bad news: Things have gotten worse — and many Arab governments don’t want to hear about it.

This new report was triggered by a desire to find out why the obstacles to human development in the Arab world have proved so stubborn. What the roughly 100 Arab authors of the 2009 study concluded was that too many Arab citizens today lack human security — the kind of material and moral foundation that secures lives, livelihoods and an acceptable quality of life for the majority. A sense of personal security — economic, political and social — is a prerequisite for human development, and its widespread absence in Arab countries has held back their progress.

The authors cite a variety of factors undermining human security in the Arab region today — beginning with environmental degradation — the toxic combination of rising desertification, water shortages and population explosion. In 1980, the Arab region had 150 million people. In 2007, it was home to 317 million people, and by 2015 its population is projected to be 395 million. Some 60 percent of this population is under the age of 25, and they will need 51 million new jobs by 2020.

Another persistent source of Arab human insecurity is high unemployment. For nearly two and half decades after 1980, the region witnessed hardly any economic growth,” the report found. Despite the presence of oil money (or maybe because of it), there is a distinct lack of investment in scientific research, development, knowledge industries and innovation. Instead, government jobs and contracts dominate. Average unemployment in the Arab region in 2005 was 14.4 percent, compared with 6.3 percent for the rest of the world. A lot of this is because of a third source of human insecurity: autocratic and unrepresentative Arab governments, whose weaknesses “often combine to turn the state into a threat to human security, instead of its chief support.

The whole report would have left me feeling hopeless had I not come to Ramallah, the seat of Palestinian government in the West Bank, to find some good cheer. I’m serious.

The Israeli-Palestinian conflict is to the wider Middle East what off-Broadway is to Broadway. It is where all good and bad ideas get tested out first. Well, the Palestinian prime minister, Salam Fayyad, a former I.M.F. economist, is testing out the most exciting new idea in Arab governance ever. I call it Fayyadism.

Fayyadism is based on the simple but all-too-rare notion that an Arab leader’s legitimacy should be based not on slogans or rejectionism or personality cults or security services, but on delivering transparent, accountable administration and services.

Fayyad, a former finance minister who became prime minister after Hamas seized power in Gaza in June 2007, is unlike any Arab leader today. He is an ardent Palestinian nationalist, but his whole strategy is to say: the more we build our state with quality institutions — finance, police, social services — the sooner we will secure our right to independence. I see this as a challenge to Arafatism, which focused on Palestinian rights first, state institutions later, if ever, and produced neither.

Things are truly getting better in the West Bank, thanks to a combination of Fayyadism, improved Palestinian security and a lifting of checkpoints by Israel. In all of 2008, about 1,200 new companies registered for licenses here. In the first six months of this year, almost 900 have registered. According to the I.M.F., the West Bank economy should grow by 7 percent this year.

Fayyad, famous here for his incorruptibility, says his approach is to tell people who you are, what you are about and what you intend to do and then actually do it. At a time when all the big ideologies have failed to deliver for Arabs, Fayyad says he wants a government based on legitimacy by achievement.

Something quite new is happening here. And given the centrality of the Palestinian cause in Arab eyes, if Fayyadism works, maybe it could start a trend in this part of the world — one that would do the most to improve Arab human security — good, accountable government.

(Zoon Politikon)

U.S. and China: Two Countries, One System

China has a big-state-owned banking sector, next to a private one, and America now has a big state-owned banking sector next to a private one. China has big state-owned industries, alongside private ones, and once Washington bails out Detroit, America will have a big state-owned industry next to private ones. And while the two countries are looking more alike, they appear to be on very different historical trajectories: China goes toward capitalism.

Tom Friedman in today's NY Times:

The stranger, a Western businessman, slipped into the chair next to me at an Asia Society lunch here in Hong Kong and asked me a question that I can honestly say I’ve never been asked before: So, just how corrupt is America?

His question was occasioned by the arrest of the Wall Street money manager Bernard Madoff on charges of running a Ponzi scheme that bilked investors out of billions of dollars, but it wasn’t only that. It’s the whole bloody mess coming out of Wall Street — the financial center that Hong Kong moneymen had always looked up to. How could it be, they wonder, that such brand names as Bear Stearns, Lehman Brothers and A.I.G. could turn out to have such feet of clay? Where, they wonder, was our Securities and Exchange Commission and the high standards that we had preached to them all these years?

One of Hong Kong’s most-respected bankers, who asked not to be identified, told me that the U.S.-owned investment company where he works made a mint in the last decade cleaning up sick Asian banks. They did so by importing the best U.S. practices, particularly the principles of know thy customers and strict risk controls. But now, he asked, who is there to look to for exemplary leadership?

Previously, there was America, he said. American investors were supposed to know better, and now America itself is in trouble. Whom do they sell their banks to? It is hard for America to take its own medicine that it prescribed successfully for others. There is no doctor anymore. The doctor himself is sick.

I have no sympathy for Madoff. But the fact is, his alleged Ponzi scheme was only slightly more outrageous than the legal scheme that Wall Street was running, fueled by cheap credit, low standards and high greed. What do you call giving a worker who makes only $14,000 a year a nothing-down and nothing-to-pay-for-two-years mortgage to buy a $750,000 home, and then bundling that mortgage with 100 others into bonds — which Moody’s or Standard & Poors rate AAA — and then selling them to banks and pension funds the world over? That is what our financial industry was doing. If that isn’t a pyramid scheme, what is?

Far from being built on best practices, this legal Ponzi scheme was built on the mortgage brokers, bond bundlers, rating agencies, bond sellers and homeowners all working on the I.B.G. principle: I’ll be gone when the payments come due or the mortgage has to be renegotiated.

It is both eye-opening and depressing to look at our banking crisis from China. It is eye-opening because it is hard to avoid the conclusion that the U.S. and China are becoming two countries, one system.

How so? Easy, in the wake of our massive bank bailout, one can now look at China and America and say: Well, China has a big-state-owned banking sector, next to a private one, and America now has a big state-owned banking sector next to a private one. China has big state-owned industries, alongside private ones, and once Washington bails out Detroit, America will have a big state-owned industry next to private ones.

Yes, an exaggeration to be sure, but the truth is the differences are starting to blur. For two decades, a parade of U.S. officials came to China and lectured Beijing on the necessity of privatizing its banks, said Qu Hongbin, the chief economist for China at HSBC. So, slowly we did that, and now, all of a sudden, we see everybody else nationalizing their banks.

It’s depressing because China in many ways feels more stable than America today, with a clearer strategy for working through this crisis. And while the two countries are looking more alike, they appear to be on very different historical trajectories. China went crazy in the 1970s, with its Cultural Revolution, and only after the death of Mao and the rise of Deng Xiaoping has it managed to right itself, gradually moving to a market economy.

But while capitalism has saved China, the end of communism seems to have slightly unhinged America. We lost our two biggest ideological competitors — Beijing and Moscow. Everyone needs a competitor. It keeps you disciplined. But once American capitalism no longer had to worry about communism, it seems to have gone crazy. Investment banks and hedge funds were leveraging themselves at crazy levels, paying themselves crazy salaries and, most of all, inventing financial instruments that completely disconnected the ultimate lenders from the original borrowers, and left no one accountable. The collapse of communism pushed China to the center and [America] to the extreme, said Ben Simpfendorfer, chief China economist at Royal Bank of Scotland.

The Madoff affair is the cherry on top of a national breakdown in financial propriety, regulations and common sense. Which is why we don’t just need a financial bailout; we need an ethical bailout. We need to re-establish the core balance between our markets, ethics and regulations. I don’t want to kill the animal spirits that necessarily drive capitalism — but I don’t want to be eaten by them either.

(Zoon Politikon)

The Better President According To Friedman

Michael Mandelbaum: we have witnessed these years perhaps the greatest wealth transfer since the Bolshevik Revolution in Russia in 1917; it is not a wealth transfer from rich to poor; it is a wealth transfer from the future to the present.

Tom Friedman in today's NY Times: We wasted a huge amount of time pretending that we could punish Wall Street without punishing Main Street — when, in fact, they are intricately intertwined. Here is the whole article:

Here’s what strikes me this election eve: I can’t remember a presidential campaign that was so disconnected from the actual challenges of governing that will confront the winner the morning after. When this election campaign began two years ago, the big issue was how and for how long do we continue nation-building in Iraq. As the campaign comes to a close, the big issue is how and at what sacrifice do we do nation-building in America.

Unfortunately, you’d barely know that from the presidential debates. Watching them in the context of the meltdown of the financial system was like watching a game show where the two contestants were kept off-stage in a soundproof booth and brought out to address the audience without knowing the context.

Since the last debate, John McCain and Barack Obama have unveiled broad ideas about how to restore the nation’s financial health. But they continue to suggest that this will be largely pain-free. McCain says giving everyone a tax cut will save the day; Obama tells us only the rich will have to pay to help us out of this hole. Neither is true.

We are all going to have to pay, because this meltdown comes in the context of what has been perhaps the greatest wealth transfer since the Bolshevik Revolution in Russia in 1917, says Michael Mandelbaum, author of Democracy’s Good Name. It is not a wealth transfer from rich to poor that the Bush administration will be remembered for. It is a wealth transfer from the future to the present.

Never has one generation spent so much of its children’s wealth in such a short period of time with so little to show for it as in the Bush years. Under George W. Bush, America has foisted onto future generations a huge financial burden to finance our current tax cuts, wars and now bailouts. Just paying off those debts will require significant sacrifices. But when you add the destruction of wealth that has taken place in the last two months in the markets, and the need for more bailouts, you understand why this is not going to be a painless recovery.

The Bush team leaves us with another debt — one to Mother Nature. We have added tons more CO2 into the atmosphere these last eight years, without any mitigation effort. As a result, slowing down climate change in the next eight years is going to require even bigger changes and investments in how we use energy.

Given that Times columnists are not allowed to formally endorse candidates and given that the context of this election has changed so much from the policy positions the candidates started with, all I can suggest is that you vote for the candidate with these character traits:

First, we need a president who can speak English and deconstruct and navigate complex issues so Americans can make informed choices. We have paid an enormous price for having a president who could not explain and reassure us during this financial meltdown. We wasted a huge amount of time pretending that we could punish Wall Street without punishing Main Street — when, in fact, they are intricately intertwined.

A major money market fund — Reserve Primary — failed in September because the extra interest it offered customers derived, in part, from the $785 million in high-yielding Lehman Brothers commercial paper and notes it was holding. Depositors who told their congressmen to just let that greedy Lehman Brothers fail were shocked to discover this meant that their own money market would be frozen. No, we don’t need a president defending greed on Wall Street, but we do need one who can explain that we are all in the same boat, that a leak at one end can sink everyone and that while we must regulate, we don’t want to kill risk-taking and the rewards that go with that — which are essential to growing our economy.

Second, we need a president who can energize, inspire and hold the country together during what will be a very stressful recovery. We have to climb out of this financial crisis at a time when the baby boomers are about to retire and going to need their Social Security and eventually Medicare. We are all going to be paying the government more and getting less until we grow out of this hole.

Third, we need a president who can rally the world to our side. We cannot get out of this crisis unless China starts consuming more and unless Europe keeps lowering interest rates. Everyone is interconnected, and everyone is still looking to America to lead.

So, bottom line: Please do not vote for the candidate you most want to have a beer with (unless it’s to get stone cold drunk so you don’t have to think about this mess we’re in). Vote for the person you’d most like at your side when you ask your bank manager for an extension on your mortgage.

Vote for the candidate you think has the smarts, temperament and inspirational capacity to unify the country and steer our ship through what could be the rockiest shoals our generation has ever known. Your kids will thank you.

(Zoon Politikon)

Tom Friedman: Some things are true even if George Bush believes them

What would have happened if Larry and Sergey needed today a loan for a new product named just like that: Google?

Tom Friedman in today's NY Times:

The hardest thing about analyzing the Bush administration is this: Some things are true even if George Bush believes them.

Therefore, sifting through all his steps and missteps, at home and abroad, and trying to sort out what is crazy and what might actually be true — even though George Bush believes it — presents an enormous challenge, particularly amid this economic crisis.

I felt that very strongly when listening to President Bush and Treasury Secretary Hank Paulson announce that the government was going to become a significant shareholder in the country’s major banks. Both Bush and Paulson were visibly reluctant to be taking this step. It would be easy to scoff at them and say: What do you expect from a couple of capitalists who hate any kind of government intervention in the market?

But we should reflect on their reluctance. There may be an important message in their grimaces. The government had to step in and shore up the balance sheets of our major banks. But the question I am asking myself, and I think Paulson and Bush were asking themselves, is this: What will this government intervention do to the risk-taking that is at the heart of capitalism?

There is a fine line between risk-taking and recklessness. Risk-taking drives innovation; recklessness drives over a cliff. In recent years, we had way too much of the latter. We are paying a huge price for that, and we need a correction. But how do we do that without becoming so risk-averse that start-ups and emerging economies can’t get capital because banks with the government as a shareholder become exceedingly cautious.

Let’s imagine this scene: You are the president of one of these banks in which the government has taken a position. One day two young Stanford grads walk in your door. One is named Larry, and the other is named Sergey. They each are wearing jeans and a T-shirt. They tell you that they have this thing called a search engine, and they are naming it — get this — Google. They tell you to type in any word in this box on a computer screen and — get this — hit a button labeled I’m Feeling Lucky. Up comes a bunch of Web sites related to that word. Their start-up, which they are operating out of their dorm room, has exhausted its venture capital. They need a loan.

What are you going to say to Larry and Sergey as the president of the bank? Boys, this is very interesting. But I have the U.S. Treasury as my biggest shareholder today, and if you think I’m going to put money into something called ‘Google,’ with a key called ‘I’m Feeling Lucky,’ you’re fresh outta luck. Can you imagine me explaining that to a Congressional committee if you guys go bust?

And then what happens if the next day the congressman from Palo Alto, who happens to be on the House banking committee, calls you, the bank president, and says: I understand you turned down my boys, Larry and Sergey. Maybe you haven’t been told, but I am one of your shareholders — and right now, I’m not feeling very lucky. You get my drift?

Maybe nothing like this will ever happen. Maybe it’s just my imagination. But maybe not ...

Government bailouts and guarantees, while at times needed, always come with unintended consequences, notes the financial strategist David Smick. The winners: the strong, the big, the established, the domestic and the safe — the folks who, relatively speaking, don’t need the money. The losers: the new, the small, the foreign and the risky — emerging markets, entrepreneurs and small businesses not politically connected. After all, what banker in a Capitol Hill hearing now would want to defend a loan to an emerging market? Yet emerging economies are the big markets for American exports.

Don’t get me wrong. I am not criticizing the decision to shore up the banks. And we must prevent a repeat of the reckless bundling and securitizing of mortgages, and excessive leveraging, that started this mess. We need better regulation. But most of all, we need better management.

The banks that are surviving the best today, the ones that are buying others and not being bought — like JPMorgan Chase or Banco Santander, based in Spain — are not surviving because they were better regulated than the banks across the street but because they were better run. Their leaders were more vigilant about their risk exposure than any regulator required them to be.

Bottom line: We must not overshoot in regulating the markets just because they overshot in their risk-taking. That’s what markets do. We need to fix capitalism, not install socialism. Because, ultimately, we can’t bail our way out of this crisis. We can only grow our way out — with more innovation and entrepreneurship, which create new businesses and better jobs.

So let’s keep our eyes on the prize. Save the system, install smart regulations and get the government out of the banking business as soon as possible so that the surviving banks can freely and unabashedly get back into their business: risk-taking without recklessness.


(Zoon Politikon)

We’re All Connected and Nobody's In Charge

Globalization giveth and taketh. Tom Friedman thinks the outcome for this financial crisis will be globalization on steroids.
Here's his op-ed in NY Times:

Who knew? Who knew that Iceland was just a hedge fund with glaciers? Who knew?

If you’re looking for a single example of how the globalization of finance helped get us into this mess and how it will help get us out, you need look no further than British newspapers last week and their front-page articles about the number of British citizens, municipalities and universities — including Cambridge — that are in a tizzy today because they had savings parked in Icelandic banks, through online banking services like Icesave.co.uk.

As Dave Barry would say, I’m not makin’ this up.

When I went to the Icesave Web site to see what it was all about, the headline read: Simple, transparent and consistently high-rate online savings accounts from Icesave. But then, underneath in blue letters, I found the following note appended: We are not currently processing any deposits or any withdrawal requests through our Icesave Internet accounts. We apologize for any inconvenience this may cause our customers.

Any inconvenience? When you can’t withdraw savings from an online bank in Iceland, that is more than an inconvenience! That’s a reason for total panic.

So what’s the story? Around 2002, Iceland began to free its banks from state ownership. According to The Wall Street Journal, the three banks that make up almost the entire banking system in Iceland grew quickly on easy credit and their combined assets rose tenfold in five years. The Icelandic banks, while not invested in U.S. subprime mortgages, had gone on their own borrowing and lending binges, wooing savers from across Europe with 5.45 percent interest savings accounts.

In a flat world, money can easily seek out the highest returns, and when word got around about Iceland, deposits poured in from Britain — some $1.8 billion. Unfortunately, though, when global credit markets closed up, and the krona fell, the Icelandic banks were unable to finance their debts, many of which were denominated in foreign currencies, The Times reported. When depositors rushed to get their money out, the Icelandic banking system had too little reserves to cover withdrawals, so all three banks melted down and were nationalized.

It turns out that more than 120 British municipal governments, as well as universities, hospitals and charities had deposits stranded in blocked Icelandic bank accounts. Cambridge alone had about $20 million, while 15 British police forces — from towns like Kent, Surrey, Sussex and Lancashire — had roughly $170 million frozen in Iceland, The Telegraph reported. Even the bobbies were banking in Iceland!

So think about it: Some mortgage broker in Los Angeles gives subprime liar loans to people who have no credit ratings so they can buy homes in Southern California. Those flimsy mortgages get globalized through the global banking system and, when they go sour, they eventually prompt banks to stop lending, fearful that every other bank’s assets are toxic, too. The credit crunch hits Iceland, which went on its own binge. Meanwhile, the police department of Northumbria, England, had invested some of its extra cash in Iceland, and, now that those accounts are frozen, it may have to reduce street patrols this weekend.

And therein lies the central truth of globalization today: We’re all connected and nobody is in charge.

Globalization giveth — it was this democratization of finance that helped to power the global growth that lifted so many in India, China and Brazil out of poverty in recent decades. Globalization now taketh away — it was this democratization of finance that enabled the U.S. to infect the rest of the world with its toxic mortgages. And now, we have to hope, that globalization will saveth.

The real and sustained bailout from the crisis will happen when the strong companies buy the weak ones — on a global basis. It’s starting. Last week, Credit Suisse declined a Swiss government bailout and instead raised fresh capital from Qatar, the Olayan family of Saudi Arabia and Israel’s Koor Industries. Japan’s Mitsubishi bank bought a stake in Morgan Stanley, possibly rescuing it from bankruptcy and preventing an even steeper decline in the Dow. And Spain’s Banco Santander, which was spared from the worst of this credit crisis by Spain’s conservative banking regulations, is purchasing America’s Sovereign Bankcorp.

I suspect we will soon see the same happening in industry. And, once the smoke clears, I suspect we will find ourselves living in a world of globalization on steroids — a world in which key global economies are more intimately tied together than ever before.

It will be a world in which America will not be able to scratch its ear, let alone roll over in bed, without thinking about the impact on other countries and economies. And it will be a world in which multilateral diplomacy and regulation will no longer be a choice. It will be a reality and a necessity. We are all partners now.

(Zoon Politikon)

The Decalogue according to Friedman

(click here for the Romanian version)

Thomas L. Friedman gives us in his NY Times column a very synthetic set of rules for the Mid-East. I’m trying here to make them even more synthetic. That would be the Decalogue according to Friedman:

1. Don’t take as relevant what a Mid-East person tells you privately. They say publicly what they believe (using their language) and privately what you believe (using your language).

2. If you think the shortest distance between two points is a straight line then Mid-East is not the place for you.

3. If you like to be considered as a serious guy in Mid-East, keep any explanation close to the conspiracy theory.

4. Don’t take a Mid-East concession other than from the originator’s mouth – had Tom Friedman so many dollars as many guys told him that Arafat had recognized Israel, he should be a millionaire.

5. Are you a war correspondent, don’t announce a ceasefire in Mid-East; till it’s published it’s over.

6. Extremists in the Mid-East go all the way, while moderates try to go away.

7. The most used moderate expression all over Mid-East is , if you, stupid Americans, were have done... or weren’t have done ... then we would ...

8. Mid-East civil wars are not matter of ideas, rather of tribes. It’s like the American Civil War would have been South against South.

9. The first West priority is democracy - the first Mid-East priority is justice.

10.Humiliation is the most underestimated sentiment when we consider political reasons of the Mid-East countries.