Two Derivatives

One - Derivatives
In 1990 only about ten per cent of transactions were derivatives. The other ninety per cent were genuine commercial transactions, people and companies buying and selling things to each other. By 2007 this ratio had been reversed – ninety per cent of all financial transactions were in derivatives and only ten percent commercial transactions.

What are derivatives?

They are bets, no different from making a bet which team is going to win a match.

People with a great deal of money may invest it, in commodities, real estate, shares in companies, anything. But they will worry a bit that they may have made a decision that will lose them money rather than make them more money, and so they “hedge” their bets, or rather “hedge funds” do it for them, and charge huge amounts of money for doing it, which is why a few months ago managers of “hedge funds” could easily be making many billion dollars in profits and bonuses.

What do you own if you have invested in a “hedge fund?” Nothing, really. Not a single barrel of oil, not a pound of iron ore, not a square foot of land, nor a single brick of a house, not a share of stock. You have already bought oil, and iron ore, land and houses, common stock, but you lie awake at nights worrying that you may have made some bad decisions, or that some nefarious operator will feloniously make your oil, iron ore, land, houses, and stocks go down rather than up in value, (and if you have several billions invested and it may not even be your own money you may have good reason to worry – you don’t want to be bussing tables at MacDonald’s, do you?) and so you decide to hedge against failure by betting against yourself, so that if your oil, iron, land, houses, and stocks go down, you can collect on your bet, a larger sum than the value of your losses. The hedge fund operator sets the terms, of course. “Radix malorum est cupiditas – the greed for money is the root of evils.”

Note: The professional Wall Street reaction is an interesting one demonstrated in the old Stock Exchange story of the can of beans that sold for higher and higher prices until some fool, - the current owner – opened the can and found the beans had gone rotten: “You idiot! Those beans were for buying and selling, not eating!” That is precisely the formula recommended for the multi billion dollar hedge funds of Bear Stearns, which turn out on examination to be worthless, packets of CDOs (Collateralized Debt Obligations) on the mortgages of people who certainly can’t pay, and never could. The best thing I’ve heard the Wall Street pros come up with so far is the same ruse, let the banks trade in their CDO obligations to each other, to be held in reserves, with a bright label on it that says “Don’t argue and DON’T OPEN PACKET. Pay up and shut up.” That has some inevitable effect on what they call “quality of reserves,” or if your reserves are largely composed of junk that no one will buy, perhaps you’re bankrupt. But at least it’s an idea. It’s how the US government, after all, keeps quiet the actual size of M3, - US dollars held outside the USA – by making it an official secret. (Any one found secretly counting piles of dollars in foreign countries will suffer the full extremity of the law, and in addition will be severely beaten about the head and shoulders.)

Two - Different derivatives

“…In reaction to Britain's Knighting of Salman Rushdie, author of the book “Satanic Verses” and subject of an Iranian fatwa for blasphemy, the Pakistani Ulema Council responded by granting the title of Saif'Ullah (Sword of Allah) to Usama bin Laden. This should not be viewed as a perfunctory title which carries no more significance than the ceremonial Knighting of “Sir” Salman Rushdie. It is a significant and rare title granted few within Islam.

There really is no Western equivalent to this. Christians formerly used the phrase "Defender of the Faith." But by the time of Henry VIII, if not before, it was of less significance. Even at its prime, as an honorific, it lacked the historical connotations that being Saif'ullah has to many Muslims - including those who are not jihadiyun. Muhammad called a select few warriors 'Saif'ullah.' And in the years that passed afterwards it was used even less often by his followers in large part because the companions that it had been used to refer to were so significant and considered pious and rightly guided…”

Public Enemy #1, Saif’Ullah and bar.

When I arrived on the shores of America, in 1994, I couldn’t have told you who he was. I’d never heard of him. Everything I now know about the gentleman has been gained by, with, and through the excellent access to media available here in the United States of America.

Michael Riviero, of http://www.whatreallyhappened.com/ insists that the gentleman died of kidney failure some years ago, that his death certificate was signed and the proper funeral rites were held and reported to the world press. Is he right? How do you expect me to know?

In the event that Mr. Riviero is correct, and the Americans have known all along he was dead, but kept him as a useful bogeyman to terrify everybody with, that solves nothing, I’m afraid. No one said that the sword of God (the literal translation of the title Saif’Ullah) had to be a visible one. Ask Bear Stearns. Several billion of the world’s finest hedge fund securities – here, try a nibble, they’re delicious – POUF! A pile of dust and a forlorn moth fluttering out. Like Byron’s “Destruction of Sennacherib”:

“The Assyrian came down like a wolf on the fold
And his cohorts were gleaming in purple and gold
And the sheen of their spears was like lights on the sea
When the stars shine down nightly on deep Galilee.”

And where were they come the morning?

“There lies the horse with his nostril all wide
But through it there rolls not the breath of his pride,
And there lies the rider, distorted and pale,
With the dew on his brow and the rust on his mail”

And so on. The sort of stuff the TV stations love to deluge you with, quite unsettling before breakfast. But Zonk! No more Assyrians is the bottom line.

Ceding the Fall of Pakistan By Steve Schippert FrontPageMagazine.com July 5, 2007

The nature of the conflict before us is about to change significantly in both nature and, potentially, scope. The question is not a matter of if, but when. For absent in any analysis of the situation in Pakistan is any discussion whatsoever of how President Pervez Musharraf can or will defeat (or enable the defeat of) al-Qaeda and the Taliban. And Musharraf is the only known trustworthy custodian of Pakistan's nuclear weapons arsenal.

Beyond Musharraf lie only question marks and uncertainties at best, which is a dire Western predicament for a nuclear power cohabitating with popular and powerful al-Qaeda and Taliban movements on its soil. And increasingly, the question regarding Musharraf's rule as the leader of Pakistan is most often discussed in terms of how long he can survive, not whether or not he can retain reliable control of both Pakistan's government and its military.

The Center for Security Policy's Salim Mansur raised the uncomfortable issue of a potential nuclear alliance between Iran and Pakistan. Few in the public governmental forum care to delve into the possible scenario of a fallen Pakistan suddenly a nuclear and military ally of the Islamic Republic of Iran. But such a scenario is very real, and one which few care to delve into for long. It’s not a pleasant exercise.

• Pakistan has nuclear weapons.
• It is also the current home to al-Qaeda and the Taliban, the epicenter of the global jihadiyun movement.
• The Taliban has recently taken to seeking its enemies by reportedly deploying suicide bomber teams to distant shores, including Germany, Canada, the United States and Great Britain.
• Al-Qaeda is considered to have surpassed its pre-9/11 capabilities since migrating to its sanctuaries in Pakistan in 2001-2002.
• The Taliban-al-Qaeda alliance fields an armed fighter force of over 200,000 men on Pakistani soil.
• The alliance has been steadily gaining territory ceded to them by Pervez Musharraf, as he has been incapable of defeating or even stemming the rising tide of Islamists inching ever closer to Islamabad.
• As Mansur states bluntly, Musharraf “has run the country for over seven years and his welcome has run out” among the general population, not just the Taliban-al-Qaeda alliance.
• And, again, Pakistan has nuclear weapons.

The UK’s Guardian newspaper quoted former CIA officer Art Keller, once assigned to Pakistan, who said the Pakistani army, paralyzed in part by internal division, is “huddling in their bases, doing nothing” in or near the territories controlled by the Taliban-al-Qaeda alliance. And fast approaching is the one year anniversary of the Taliban-al-Qaeda alliance's official control of South Waziristan, the first territory handed them by Musharraf in a treaty. Soon after follows the one year anniversary of the same for North Waziristan. Earlier this year, Bajour agency was ceded. And significant swaths of Pakistani territory are de facto if not formally controlled by the same, including the large North West Frontier Province, among others.

Meanwhile, US and NATO forces make occasional strikes on established al-Qaeda training camps and facilities inside Pakistan now fully operational beyond the pre-9/11 capabilities once maintained within Taliban-run Afghanistan. These facilities include entire 'graduating classes' of Taliban terrorists tasked with foreign suicide missions.

The US and NATO makes strikes on al-Qaeda and Taliban terrorists and their facilities that the Pakistani military will not or cannot. These strikes sometimes include civilian victims that the terrorists intentionally embed themselves within to serve as either human shields to prevent strikes or propaganda value afterwards.

In the most recent strike inside Pakistan, ten civilians were killed and US and NATO forces were roundly condemned. Pakistani Foreign Office spokesperson Tasnim Aslam said, somewhat incredulously, that “Any action inside Pakistan’s territory has to be taken by its [Pakistan's] military.” But, clearly, the Pakistani military is not ordered, capable and/or motivated to strike against al-Qaeda and Taliban facilities and terrorists.

Internal politics within Pakistan also offers little cause for confidence. Musharraf's dismissal of Pakistani Supreme Court Chief Justice Iftikhar Muhammad Chaudhry created the perfect political storm. It touched off often violent protests nationwide where the Taliban, other Islamists and arrayed political opponents found common cause in calling for the end of Musharraf's rule as both president and Army Chief of Staff and new elections.

Contrary to popular perception, al-Qaeda is not necessarily against free elections. That is, if it provides the vehicle to implement their brand of Sharia Law, which would by nature abandon the further usefulness or need for such silly Western incarnations. This can be seen in al-Qaeda leader Ayman al-Zawahiri's message of praise to Hamas after their bloody eviction of Fatah from Gaza. Zawahiri said, "Taking over power is not a goal but a means to implement God's word on earth," and urged them to implement Sharia Law in Gaza now that the obstacle of relatively secular foe Fatah has been forcefully dispensed in short order.

And elections in Pakistan – without Musharraf's interference – may fall more overwhelmingly in favor of radical Islamists than many suspect.

In reaction to Britain's Knighting of Salman Rushdie, author of the book “Satanic Verses” and subject of an Iranian fatwa for blasphemy, the Pakistani Ulema Council responded by granting the title of Saif'Ullah (Sword of Allah) to Usama bin Laden. This should not be viewed as a perfunctory title which carries no more significance than the ceremonial Knighting of “Sir” Salman Rushdie. It is a significant and rare title granted few within Islam.

There really is no Western equivalent to this. Christians formerly used the phrase "Defender of the Faith." But by the time of Henry VIII, if not before, it was of less significance. Even at its prime, as an honorific, it lacked the historical connotations that being Saif'ullah has to many Muslims - including those who are not jihadiyun. Muhammad called a select few warriors 'Saif'ullah.' And in the years that passed afterwards it was used even less often by his followers in large part because the companions that it had been used to refer to were so significant and considered pious and rightly guided. To use it on a terrorist is shameful and Muslims should be outraged at these supposed learned and pious men calling Usama bin Laden Saif'ullah.

Regardless of the events viewed, whether the compounding troubles of Pervez Musharraf, the steadily increasing percentage of Pakistani territory controlled by the Taliban-al-Qaeda alliance or the persistent rise in bin Laden's stature and popularity, the pattern and trend in Pakistan is both clear and persistent. The Taliban-al-Qaeda alliance continues to gain inertia, strength and power while Musharraf grows weaker and more ineffective in confronting and abating the rise of the Islamist terrorist power that will ultimately consume him and, thus, Pakistan and its nuclear arsenal.

This is the steadily deteriorating state of Pakistan. The best-case realistic scenario currently being offered going forward is not one that entails the defeat or even true combat with the Taliban-al-Qaeda alliance creeping ever closer to the levers of Islamabad's power. Instead, 'best-case' is one in which Musharraf no longer controls Pakistan and its nuclear arsenal, but a trustworthy General seizes control of at least the nuclear weapons. This, an uncertain question mark at best, is the good side of the coin, which unfortunately still includes a rising and more powerful al-Qaeda, just one sans nuclear weapons.

And when Pakistan as we know it falls, it will most likely become run by al-Qaeda and/or al-Qaeda aligned Islamists. An Islamist figure such as former ISI (Pakistani military intelligence) Director Hamid Gul can be expected to rise to grasp the official levers of power within Pakistan. A figure such as bin Laden will never publicly hold such official title, as an “al-Qaedastan” would draw too much international ire. But a perceived degree of separation through an aligned Pakistani figure such as Gul would likely provide at least initial survivability.

Hamid Gul and Aslam Beg have openly called for a Pakistani military and nuclear alliance with the Iranian mullah regime. Further, Gul stated openly one month after the 9/11 al-Qaeda attacks that he envisioned “a future [Pakistani] Islamist nuclear power that would form a greater Islamic state with a fundamentalist Saudi Arabia after the monarchy falls." What's more, Gul also seeks to create an alliance of Muslim nations to directly and strategically counter the West's NATO alliance led by an Islamist Pakistan and Iran, sort of a Muslim NATO.

An al-Qaeda-guided if not al-Qaeda-controlled Pakistani nuclear power forming an international Islamist military alliance would significantly alter the scope of the conflict already at hand.

The question remains: How likely is this?

The answer can likely be estimated from what is not discussed as much as what is discussed about the future of Pakistan within analytical circles.

Few if any analyses concern themselves with calculating any likelihood of a Pakistani defeat of the Taliban or al-Qaeda. Likewise, few if any discuss an American-led defeat of the same within Pakistani borders. But each adds its calculus for the life expectancy of the Musharraf regime. There is little alternative but to conclude that we are ceding the collapse of Pakistan and the rise of Islamists aligned with the Taliban-al-Qaeda alliance. The question appears no longer if, but rather when.