Powerful symbols

Where knowledge is limited, and the desire to learn the complex reality doesn’t exist, public opinion can be shaped by whoever generates the most powerful symbols. 
— George Friedman, 
 In this week's Sift:

The Gaza Blockade

When you tell an Israel/Palestine story, it's always hard to figure out where to start. Usually the right (or wrong) starting point can make either side sound like the good guys. In general, each side begins with some outrage committed by the other — as if that event came out of the blue, with no provocation whatsoever.

I think I'll start with the first thing I remember. That's a bias too, but at least it's a different bias than most other writers.

I remember the Six Day War in 1967. I was ten. It was June and even though school was not quite done for the summer, I was home with a cold. So like any budding news junkie, I lay on the couch drinking one Pepsi after another (got to keep your fluids up) and watching the war on TV.

I was a huge Israel fan. We all were in those days. The news media had played up the statistics that made Israel look like the underdog: its population compared to the total population of Egypt, Jordan, and Syria; the size of the Israeli army compared to the armies it faced, and so on. Plus, Jews had been victims of the Nazis and Arabs got their weapons from the Soviets, so Israel was definitely America's team.

In those late-Civil-Rights-era days I was as innocently racist as any other white 10-year-old American boy. So for me the war had a cowboys-and-Indians quality, with Arabs as the uncivilized savages. On TV, the war was just a bunch of arrows on a map. No live cameraphone videos made the destruction real. The casualty totals were just a scoreboard, and our side was putting up a lot of points. I loved it.

I mention this so that you'll know where I'm coming from.  I've lost patience with Israel over the last 43 years, but I don't enjoy bashing them. I'd like to root for them if I could. But I just can't any more.

Gaza and Hamas. Israel came out of the 1967 war with control of Gaza. They gave Sinai back to Egypt in the Camp David Accords of 1979, but Gaza wasn't part of that deal. Israel unilaterally pulled out of Gaza in 2005.

The strange arrangement that passes for local control made Gaza and the West Bank the responsibility (in some nebulous sense) of the Palestinian National Authority, but then the Bush administration pulled one of its typical stunts. It wanted support for its claim that the Iraq War was promoting democracy in the Middle East, so it pressured Palestine's ruling Fatah Party into parliamentary elections it didn't want. The far more radical Hamas unexpectedly won those elections, and then the Bushies changed their tune: They encouraged Fatah to fight

That mini-civil-war resulted in Hamas controlling Gaza, which it made into a base for firing rockets into Israel. Israel struck back just before New Years 2009 by launching the 3-week Gaza War, after which a U.N. report accused both sides of war crimes. Human Rights Watch summed up the response like this:

More than one year after the conflict, neither side has taken adequate measures to investigate serious violations or to punish the perpetrators of war crimes, leaving civilian victims without redress. Israel’s investigations have fallen far short of international standards for investigations, while Hamas has conducted no credible investigations at all.

Blockade. Israel and Egypt have been blockading Gaza by land and sea since Hamas took control in 2007, and sanctions go back even further. Last Monday, Israeli commandos seized seven boats in international waters (and an eighth on Saturday) trying to run that blockade. They encountered resistance on one, and killed nine passengers (including an American who was shot in the back of the head, among other places). Some other passengers and a few Israeli soldiers were injured.

In last week's Short Notes, I called this a “pirate attack” and was taken to task by an Israel supporter in the blog comments. I promised to figure out what I'm talking about before saying anything else.

In the reading I've done since, there seem to be three separate questions about the Israeli raid that could have different answers:

  • Was it legal under international law?
  • Was it moral?
  • Was it good policy for Israel?

I'm going to say “no” on all three. Here's how I analyze it: As my commenter pointed out, the legal question is more complicated than just whether the ship was in international waters. If the blockade itself is legal, then the blockade line can run into international waters if it doesn't go unreasonably far outside the territorial 12-mile limit. This raid happened 40 miles out (some sources say 80), but I'm not too bothered by that: The point of international law here is to prevent mistakes that widen the conflict. The flotilla knew about the blockade and had announced the intention to break it.

To me the key issue is the legality of the blockade itself. As in all these terrorism-related conflicts, international law is a little out of date. You run into questions that don't make much sense, like whether Gaza is a country and whether Israel is at war with that country. Leave that stuff aside; Israel is right that you can't apply the legalisms too literally until the law gets modernized. 

The truly relevant questions are: Is Israel defending itself from a legitimate military threat? (I think they are. The Hamas rockets may not threaten the survival of Israel as a country, but we wouldn't put up with rockets from Vancouver hitting Seattle.) And is the blockade an appropriate response to that threat? In other words, is the civilian suffering caused by the blockade simply collateral damage from an operation with a clear military purpose?

And here the Israeli case doesn't hold up. I think a blockade that purely intercepted Hamas-bound weapons would be legal. A blockade of dual-use materials would be debatable, depending on the balance between military benefit and civilian suffering. (The current blockade keeps out cement needed to rebuild homes Israel destroyed in the Gaza War, on the grounds that the cement could also be used to build defensive positions like bunkers and barricades.) 

But the Israeli blockade goes way beyond that, keeping out anything Gazans might use to rebuild their economy or make life enjoyable. The Israeli human rights organization Gisha compiled a list of permitted and prohibited materials. (It's not official — I don't think there is an official list — but has been compiled from the import requests that have been granted and refused.) Prohibited imports include most spices, newspapers, fruits, seeds and nuts, and a lot of other things with no apparent military value. Basic foodstuffs like rice are allowed.

It seems clear to me that the purpose of the blockade is to punish the civilian population of Gaza for its support of Hamas. As Dov Weissglass, an advisor to the Sharon and Olmert administrations, put it in 2006: “The idea is to put the Palestinians on a diet, but not to make them die of hunger.” In other words, the Israelis know how bad it would look to have Gazans dying in the streets, but they want to keep them as miserable as possible.

A blockade targeted at civilians is as illegal as any other act of war targeted at civilians. (The UN Human Rights Commissioner agrees.) So the blockade and the raid enforcing it are illegal.

Second question: Is it moral? Obviously not, for the same reasons. If Israel were just doing what was necessary to stop Hamas attacks, I'd empathize. (“If only that were true,” muses Peter Beinart.) But they're not. They're intentionally punishing the civilian population.

Finally, is it good policy? The George Friedman article I quoted up top is spot on here. A lot of Israel apologists have talked about how the flotilla was looking for trouble. Well, duh. That's the whole point of asymmetric warfare in its full spectrum from Gandhi-style non-violence all the way to armed insurgency: You provoke your more powerful opponent into doing brutal things that radicalize its opponents, alienate its allies, and demoralize its supporters. 

Mission accomplished. Israel had designed its illegal blockade to be just humane enough to fly under the radar of world opinion. (I, for one, was paying no attention. What Gaza blockade?) Now we have to look at it. That's what the activists on the flotilla hoped to accomplish, and with Israel's help they succeeded.

Cenk Uygur makes a good point about the 1-minute video that shows Israeli commandos under attack as they rappel down onto the ship: Israel should release all the video they have of the raid, not just the minute they want us to see.

I'm amazed at how seldom the media mentions the fact that Turkey — the source of the seized flotilla — is a NATO ally of the United States. Instead, Liz Cheney referred to “the Turkish-Syrian-Iranian axis“.

More flotillas are planned, including one by an organization of German Jews.

A public conversation is starting that would have been unthinkable not too long ago: Is Israel a strategic liability?

Interesting case made by Peter Beinart in the NY Review of Books: Older Jews retain a strong liberal Zionist tradition, but among younger Jews liberalism and Zionism are splitting. 

Young Israeli Jews and young American Orthodox Jews, Beinart claims, are increasingly radical Zionists with little interest in Palestinian human rights. (A majority of Israeli high school students would ban Arabs from the Knesset.) Conversely, young American non-Orthodox Jews are mostly liberals who identify less and less with Israel. (In focus groups, young American Jews often refer to Israel as they rather than us.)

A 39-year-old liberal Zionist himself, Beinart deplores both sides of this trend, and closes with a call for 

an uncomfortable Zionism, a Zionism angry at what Israel risks becoming, and in love with what it still could be. 

The Sift Bookshelf: The Big Short by Michael Lewis
I've been struggling for a year and a half to understand and explain the financial collapse of 2008. The Big Short is the most useful book I've found so far. Michael Lewis has taken the arcane details of credit default swaps (CDSs) and collateralized debt obligations (CDOs), put them together with stories of real Wall Street investors, and woven the whole thing around one of the standard action-movie plots to make a very readable book.

Here's the plot as you've seen it in a hundred movies: Life is perking along normally, but a Really Bad Thing is about to happen. A volcano is about to blow, aliens are about to invade, a bio-engineered disease is about to get loose — it doesn't matter what it is, the plot is the same. Anyway, a handful of people realize what is going on, they try to tell everyone else, and everybody just thinks they're insane until all Hell really does break loose.

OK, now imagine that the Really Bad Thing is that some large chunk of American mortgages are about to go into default, and make the whole financial system insolvent. The Big Short tells the story of how a few Wall Street outsiders figured it out and what they tried to do about it.

The characters are quirky and Lewis makes those quirks seem charming. Michael Burry, for example, never knew he suffered from Asberger's until his son was diagnosed with it. Obsessively reading stock market research in a room by himself just seemed like a good work ethic.

The hard thing to understand about the housing bubble and the financial collapse that followed is how so many people went crazy at the same time. Well, now I get it: There was originally only one crazy thing, it created a hole in the system, and all the other crazy things were just people trying to re-route the money flow to take advantage of the hole in the system.

Let me make an analogy: Suppose I invented a machine to turn rat droppings into gold. It would flip the whole economy upside down. Suddenly rat droppings are valuable. People leave their otherwise productive jobs to start collecting rat droppings. Other people start raising rats to get the droppings. After it turned out that my machine didn't really work, it would look like everyone was crazy. But there is just one insane idea, and everything else proceeds rationally from there.

That's what happened.

The original hole in the system was at the bond-rating agencies — Moody's, S&P, and Fitch. The investors of the world trust those agencies to evaluate whether the corporations who raise money by selling bonds are going to be able to pay that money back when the bonds come due. It doesn't matter whether an investor has heard of XYZ Corp. or examined its financials — if Moody's rates its bonds AAA, then they're good as gold. Every AAA bond, no matter who is backing it, is as good as every other AAA bond. At least that's what investors believe.

Now you need to understand something about the financial community: The people who finish at the top of their class get jobs with the big investment banks like Goldman Sachs. The people who finish at the bottom go to the rating agencies like Moody's.

OK, now the CDOs (i.e. derivatives) come into the picture. They're complicated investments that look like bonds but are based on huge pools of home mortgages. You don't need to understand them. What you need to understand is this: While there originally was some legitimate purpose to creating CDOs, at some point the smart kids at the big investment banks realized that the dumb kids at Moody's weren't very good at rating them. Moody's wasn't drilling down to look at the soundness of the mortgages the derivatives were based on, it was rating the derivatives by applying simple models that had been valid in the past. If you were really smart, you could create a fantastically complicated CDO that would fool those models. You could take a bunch of mortgages that should never have been made and turn them into a AAA-rated bond.

Rat droppings into gold.

Once the droppings-to-gold machine exists, the whole financial system starts to re-arrange itself to take advantage. Ordinarily, it makes no sense to loan money to people who can't pay it back. That loan is a rat dropping. But suppose I can charge a fee for making the loan and then sell the loan to somebody else who can sell it to somebody else who can sell it to somebody who can turn a bunch of these things into a AAA bond? And what if mutual funds and pension funds and insurance companies are as happy to buy those AAA bonds as if they had been issued by the U.S. Treasury?

Then it's logical to make as many of those loans as you possibly can. You can get rich by loaning money to people who can't pay it back.

That's what happened.

Now look at the secondary effects: Even as house prices go higher and higher, more people can afford to buy them, because the mortgage companies don't care whether they can make the payments. People start buying houses they have no intention of living in, because they can buy them completely on credit and probably sell them at a profit in a few months. And then people start building houses and condo complexes in places where no one wants to live, because they can sell them to people who have no intention of living there.

It's crazy, but it all makes sense given that somebody can turn bad loans into AAA bonds.

Now suppose you run a small hedge fund (like Steve Eisman or Michael Burry) or you are a couple of young guys (Charlie Ledley and Jamie Mai) who are on a roll and have turned $100,000 of your own money into millions. Suppose you're just stubborn enough to drill down through all the gobblygook and arrive at the fundamental truth: These AAA bonds are based on loans are never going to get paid back.

What do you do? Well, you can try telling people, but nobody is going to believe you. Moody's says these are AAA bonds, and in order to explain why Moody's is wrong you'd have to find somebody intelligent enough to understand your logic and make them sit still and listen to you for about a day. And if you found such people, 9 out of 10 of them would refuse to believe that things had gotten that crazy. “Nah,” they'd say, even after they understood your logic, “that can't be right.”

In stocks, there's a tried-and-true way to tell the market it's wrong: You sell something short. You borrow the stock from somebody, sell it to somebody else, and figure that you'll buy the shares back and return them to their original owner after the price crashes. If enough people sell a stock short, they correct the system: They drive the price down to where it should have been to start with. Along the way they get rich, because they buy the stock back for less than they sold it for.

The market had no mechanism for selling CDOs short. But it did have credit default swaps (CDSs). A CDS isn't a “swap” at all, it's an insurance policy on a bond. If you have bonds that you think might go bad, you can go to a big insurance company AIG, pay them a premium, and if the bonds do go into default it becomes AIG's problem.

That sounds sort of sensible. But then realize that the CDS market is completely unregulated: You can buy a CDS on bonds you don't own, which is sort of like buying fire insurance on somebody else's house just because you know they smoke in bed. And unlike fire insurance, AIG doesn't have to set aside a reserve fund to pay off on houses that burn. (Congress refused to regulate the CDS market.) You're just trusting that AIG can pay, because it also is a AAA-rated company.

Now here's the final piece of the puzzle: Once you do your CDS with AIG, betting that one of the CDOs will default (OMG!), AIG can sell its interest in your policy to someone else. From their point of view, your policy represents a stream of premium payments, and it only requires a pay-off if a AAA-rated bond goes bust. So your policy is now yet another AAA-rated investment that is ultimately backed by bad mortgages.

Get that? Your attempt to correct the mortgage-backed security market ends up creating yet another mortgage-backed security.

This is how the losses on mortgage-backed securities wound up being bigger than the mortgages themselves. When a mortgage went bad, the holder of the mortgage lost money. But so did all the people who owned the wrong side of the CDSs based on that mortgage. It's like a casino takes $1 million of bets on whether or not you will pay off your $100,000 mortgage. When you default, there is $1 million of winnings and $1.1 million of losses.

So in the end, the people who figured out what was going on failed to correct the market, and instead became part of the problem. No one listened to them, but they got rich when everything went bust. Of course, most of the people who were wrong also walked away rich after the bailouts. 

As you can imagine, Lewis' unlikely heroes wind up feeling odd about the whole thing. Michael Burry got out of the hedge fund business and was last seen obsessively trying to learn to play the guitar.

Short Notes

The National Center for Atmospheric Research just released a simulation of where the BP oil spill might go given typical ocean currents. Oil pools up aimlessly until about Day 80 — around mid-July — when it hits the Florida/Cuba gap. Then the currents very quickly pull it up the East Coast to North Carolina before shooting it out into the Atlantic.

More about the BP cover-up of clean-up workers' health problems.

I missed this last week: Susan B. Anthony scholars Ann Gordon and Lynn Sherr did a reality check on the pro-life movement's (and particularly Sarah Palin's) attempt to claim the trail-breaking suffragette as one of their own. 

Harry Reid looked like a dead man walking just a few months ago. Now, as the Nevada Republican primary approaches and voters can see just how wing-nut crazy the alternatives are, Reid has pulled ahead.

You gotta love South Carolina politics. Where else could you refer to native-born American Methodist as a “f***ing raghead” because her parents are Sikh? (Sikhs, BTW, aren't any kind of Muslim, but some do wear turbans.)

How does Arizona get that bad rap about being racist? Maybe like this

President Bush confessed to a war crime, and said he'd “do it again to save lives.” Now if only he could identify any lives that he saved.

Rush Limbaugh believes so strongly in traditional one-man-one-woman marriage that he'll try it for a fourth time.

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