Your editor spent much of Tuesday trying to work out whether the Osama Bin Laden chase had been justified by his killing. And we came up empty. Here is what we wrote at the time:
‘We want to know whether finding Osama Bin Laden was a profitable endeavour. And before you start running around in circles, bouncing off walls and screaming “I knew those Daily Reckoners were heartless slobs who cared for nothing but profit,” consider that we use nothing but the government’s own metrics. We use their valuation of a human life: “The Environmental Protection Agency set the value of a life at $9.1 million last year.” (NY Times)
‘Just to push the point that Government policy defeats itself at its own game, here is our latest tallying of the figures:’
We then proceeded to work on all sorts of cost-benefit analyses, profit calculations and the like. And none of them made any sense.
How can the loss from 11 September 2001, including the government-generated dollar value for the loss of life, be justified by more cost and more killing in the hunt for Osama Bin Laden? How do you do a cost-benefit analysis with no dollar benefits? Put differently, how do you value Bin Laden’s death?
The last time we mentioned this sort of government-generated morbid accounting, the Daily Reckoning inbox overflowed with feedback. So we’ve decided to outsource the problem of calculating whether the endeavour of killing Bin Laden was a profitable one or not (to you). Here are some figures to help:
‘The Environmental Protection Agency set the value of a life at $9.1 million last year.’ (NY Times)
Lives lost on 11 September 2001: 2819 ($25.65 billion)
This website details some of the other costs of 11 September, although it seems to confuse millions and billions.
Lives lost in the war on terror: 2,340 coalition deaths in Afghanistan ($21.3 billion)
Anyway, let us know at firstname.lastname@example.org how you go tallying it all up. Most likely, you’ll find the hunt for Osama was a losing escapade that should have been abandoned long ago.
Maybe that’s the point though. Revenge might feel good, but moving on is usually more constructive. Traders use stop losses to define the point where they should take their losses and move on. We don’t get the impression the Pentagon has an understanding of the concept.
If you do manage to come up with some sort of cost-benefit analysis for the War on Terror (might that name be a paradox?) and by your calculation it was a success, the Americans still won’t be able to outperform the investor of the century.
Agora publication The 5 Minute Forecast calls it the ‘Most Successful Speculation Ever’. ‘Al-Qaida pulled off the Sept. 11 attacks for somewhere in the vicinity of $500,000, according to the final report of the 9/11 Commission.’
Plug that into the figures above and you get one hell of a return on investment for the Jihad hedge fund! But surely success shouldn’t be measured in such ways?
‘”We, alongside the mujahedeen,” Osama bin Laden was reported to have said in a speech delivered a few days before the 2004 presidential election, “bled Russia for 10 years until it went bankrupt and was forced to withdraw [from Afghanistan] in defeat…
‘”So we are continuing this policy in bleeding America to the point of bankruptcy.”‘
Check the news and you can’t help thinking that Osama may have lost the battle, but continues to win the war. He might even get his 10-year timeframe right!
Instead of being a success, the whole ‘we got him’ parade is turning very embarrassing for the politicians. While former Pakistani President Musharraf claimed the US violated Pakistani sovereignty with the attack, Western media reported Pakistani and US forces worked together at the site of the killing. Wikileaks files claim Pakistani security forces previously protected Bin Laden and supposedly his hideout was a town populated by high ranked retired Pakistani military personnel.
Other bungles so far include releasing the photo evidence of Osama’s death, but then not doing it, stating the kill team was made up of Navy Seals, but then denying it, Kevin Rudd almost giving the game away, etc.
Worst of all, the news of Bin Laden’s death interrupted Donald Trump’s TV show. Conspiracy!
Things are back to normal outside the War on Terror. European nations agreeing to bailouts, governments handing out money to parents for putting up with their own children and growing opposition to the latest tax to pop out of a Labor leader’s imagination.
What’s left to report on?
The whispers of a European sovereign default are becoming louder. Of course they will call it something else when it happens. Two contributors at The Guardian reckon that ‘repudiation’ will be the buzz word. Simply declare some of the debts to be invalid on legal technicalities. It’s what Ecuador did in 2007.
The process goes like this. You have a ‘debt audit’, where you work out what debt is a little on the shady side. Then you declare parts of that debt to be illegal based on issues that come up during your investigations. It’s actually quite similar to what US homeowners are doing when the bank stuffs up their paperwork. They simply stop paying their mortgage and challenge the bank to prove they own the debt, which it often can’t. The big difference is that with the PIIGS the borrower writes the laws that determine what is a valid debt. So if the PIIGS tell their creditors ‘sue me’, that’s going to be hard to do.
The Greeks are well into the process and fruits so far have been a TV documentary and analysis of Goldman Sachs’ rather dodgy dealings in Greek debt. The Irish are close behind.
The notable point in all this is that nobody seems to keep track of these things in the first place. As the authors of the Guardian article point out, ‘Public debt seems to operate like a mask behind which lies a shadowy world of creditors to whose upkeep entire economies are mortgaged.’
You’d think this sort of information should be kept as transparent as possible.
Here in Victoria, some serious budget fudging, as the sport is known, has now been exposed, leaving unexpected shortfalls. The federal government is little different. You have to worry that European debts may end up being exposed in the same way – much worse than first thought.
When the repudiations begin, who will be the emperor with no clothes? Who will be the one without a seat when the music stops? It will be banks holding PIIGS debt, most likely. To a great extent, that’s German banks. So the Germans should think carefully about the bailout terms. You don’t want the bonds you own to be the ones repudiated.
Once again, it all becomes a political game, not an economic one. And that is the sentence that sums up much of our malaise.
How do markets regulate themselves? They allow success and failure. Profit and loss. If you take those away by having GSEs, deposit insurance, too big to fail, bailouts, taxes and the like, why is it a surprise that the free market does a poor job of regulating itself? You have stopped it from doing so.
But when Australia’s bursting housing bubble hits the media, don’t expect government policy to take the blame. No, the evil banks will, just like in the UK and US. You have to admit though, their PR teams aren’t doing too well even before the bubble bursting gets truly underway. At the mention of billions of dollars of bank profit, Aussies shake their head in disgust. Never mind that after adjusting for size, the profit is far less dramatic.
So why have the figures been so glowing lately? Falling bad debts apparently. Or perhaps it’s just a computer glitch, which are all too frequent at Australian banks these days. The air conditioning drops out at Westpac and about a quarter of the Aussie economy stands still. Sound like a good basis for a cashless society?
Here’s what has us confused on the matter. NAB may have had less bad debts this time around, but The Australian is reporting on how ‘it’s now clear that a rise in distressed home and consumer loans will be one of the main themes in the major banks’ profit reporting season.’
ANZ: ‘Across the Australian mortgage portfolio, we are now at the highest levels of arrears experienced before, during or after the financial crisis.’
Westpac: ‘Overall health of the mortgage book was “exceptional”…’
Surely you can’t have it both ways and every other way? The ANZ CEO seems to think so. According to him, a fall in house prices is ‘not a bad thing’.
Tell that to people where your editor went to school. ‘Analysts estimate Noosa’s property values have fallen by 40 per cent since the peak of the market.’ If it can happen there, it can happen anywhere.
There is of course one bank that should take much of the blame for the housing bubble and its demise. The Central Bank.
‘Housing is the primary mechanism of monetary policy,’ is what you’re taught at school. If the economy is overheating, the RBA puts up interest rates and suddenly we can afford less and people are less likely to build houses.
What a coincidence that housing is where the bubbles formed all across the world!
The latest way central bankers have decided to delude themselves into denial is quite amusing. If inflation is running too high, compromising your reputation as an all-knowing economic genius, just reframe the question: ‘should the target be higher’ is the correct one. The Economist hosted the debate on the matter.
If economists can’t even agree on the optimal level of inflation, how on Earth can you believe they know how to control it? They can’t even measure it in the first place anyway.
But that doesn’t stop the results of their escapades being evident. Apart from blowing bubbles, ‘… the Fed seems very clearly to have achieved more in the Arab world in six months than the Pentagon achieved in decades’ says Andrew Lilico at The Telegraph. How? By pushing up food prices, which are of course outside their preferred measure of inflation.
So there you have it. Even revolutions don’t wake up central bankers.
Daily Reckoning Australia