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November 12, 2009

William D. Cohan’s  House of Cards chronicles the demise of Bear Stearns. Its first half describes  events in the final weeks before its take-over by JPMorgan Chase for less than the value of Bear’s head office building across the street of JPMorgan’s; in that part, nobody, incl. Bernanke, Paulson, Geithner & Dimon, comes out looking professional. The second half describes the goings on in the two hedge funds that brought it down. A big headline this week screamed “EX-BEAR STEARNS MANAGERS NOT GUILTY” after a jury in a New York District Court, following a month-long trial & less than a day’s deliberations, acquitted the hedge funds’ two managers of charges of conspiracy, securities fraud & wire fraud. Going by Cohan’s book, this was a miscarriage of justice, with either the prosecution having done an abominable bad job, or the jury having smoked something else than tobacco or been bought. Judge for yourself from three relevant paragraphs in the book : 

    - “on May 30, Cioffi (the senior ot the two managers) told an investor that he had convinced other investors who had put in June redemption requests “of note (other than about $5 million) to pull their redemptions”, but quite the opposite was true” (page 342 of the 2009 Doubleday edition);

    - “Even though between March 1 and May 3, thirteen investors, including two of the largest investors and Cioffi himself, had requested redemptions, Tannin (Cioffi’s No.2 & the other accused) told a repo lender ‘the fund anticipated no large redemptions’.” (Page 340); and

    - “He (i.e. Cioffi) told the Bank of America on June 7 the fund was up ‘approximately 1.7 percent in May’ and the next day Barclays the fund was up ‘2.7%’ ... (while) The fund was actually down 38 percent in May.” (Page 346) 

The recent shooting at Fort Hood was significant for many reasons. Among those seldom mentioned are the following. What are the chances of those Muslims becoming part of North American society who declare themselves, as did the shooter, “Muslim first and American (or Canadian for that matter) second.”? (this has already shown up in Canada in attempts for Muslims to have the ‘right’ to have sharia-, rather than Canadian-, law, apply to them &, more recently, in several “honour killings”). The fact that the gunman was a practicing Muslim will complicate life for every Muslim in the US armed forces & feed a paranoia in some quarters in the US vis is vis anything connected to Islam. And, given that the authorities apparently had been aware of potential problems with the shooter, one must wonder how much value the US is really getting for the US$50BN the 16 federal agencies involved in security & intelligence work are currently spending. 

One of you drew my attention to an item in the London Times last July. While it may, or may not, be an ’urban myth’, I have long since learnt that reality is often stranger than fiction. And at worst it is both good for a chuckle & at best a tribute to human ingenuity & evidence that’s it not the meek but the bold ‘who shall inherit the earth’. Under the heading “A well-planned retirement” the Times last July told the story of a parking lot outside the Bristol Zoo where for 25 years a pleasant attendant relieved car owners of £1 & coach chauffeurs of £5 for the privilege of parking there. When, one day, he failed to show up, the Zoo phoned the City Council to send a replacement only to be told the parking lot was its responsibility & to find its own replacement. To make a long story short, it turned out that pleasant attendant had been an enterprising fellow who had adopted the parking lot & had cleared an estimated quarter of a millions dollars a year for 25 years. Hard to believe, but, as noted above, ... truth can be stranger than fiction. 

I have again bunched a lot of interesting stuff as a sort-off appendix, this time on the evolving Israeli-Palestinian situation, at the end since, while it was time sensitive & too good to throw away, would have eaten up most of my five pages & might be useful to read separately in a reverse sequential order (i.e. the most recent first - please remember that my comments were also written in reverse order). 


No. 337 - November 12th, 2009 

UP AGAINST A WALL OF DEBT (NW, Robert J. Samuelson) 

    ∙ An IMF report, “The State of Public Finances Cross-Country Monitor : November 2009" concludes that many wealthy countries will soon be in worse shape than major developing countries, due to both increased (stimulus) spending & devastated tax revenues (which will linger for a long time). It expects total government debt (incl. local as well as central government debt)-to-GDP ratios by 2014 to decline for Brazil & India (from 67% to 59% & 81% to 79% respectively), remain the same for China, at 20%, rise a bit for Canada (64% to 69%), Mexico (38% to 44%) & South Korea (30% to 35%) & rocket skyward for France (64% to 96%), Germany (63% to 89%), Italy (104% to 129%), Japan (188% to 246%), the UK (44% to 98%) & the US (62% to 108%). It believes that these countries now have major ‘structural deficits’ (i.e. those that will persist even after their economies recover), ranging from 3.7% for the US to 7.8% for the UK and that these will subsequently be driven still higher by their aging populations. So in its view spending cuts, tax increases & cutbacks in benefits are inevitable since the governments won’t be able to inflate their way out from under this debt because much of it is short-term & must be rolled over frequently. 

The IMF scenario would spell bad news for the US dollar, accelerate the US’ decline as a super power & increase the risk of serious social unrest in the US. And in an interview with Reuters, David Riley, Fitch’s Co-Head of Global Ratings said Britain is most at risk to lose its triple-A rating, that Fitch will review Japan’s AA- rating if its debt issuance rises materially above this year’s US$490BN & that in France “There is some pressure starting to build.” 


    ∙ The ECB & Bank of England on November 6th joined the Fed & the central banks of Canada & Japan in leaving interest rates at their historic lows. But ECB President Jean-Claude Trichet warned reporters the Eurozone countries face “stronger-than-anticipated risks though confidence may improve” & said the one-year loans made to commercial banks as emergency relief will be withdrawn from the market, possibly as early as next month, since “not all our liquidity measures will be needed to the same extent as in the past.”  

Trichet’s message is not what the G-20 Summit in Scotland sought to convey. But the ECB has inherited, & perpetuates with a vengeance, two Bundesbank traditions : a near-total disregard of what politicians may, or may not, think desirable, & a near-paranoid fear of inflation.



    ∙ The IEA sees demand “soaring” 40% by 2030 (to 112MM bbld), mostly in the developing world, & predicts long-term growth in Canada’s oilsands since they “represent one of the few growth areas outside OPEC”. But emissions must be cut to protect the environment & enhance energy security (which will have many countries, incl. the US & China, looking for more of the oil sands output to reduce their dependence on Persian Gulf oil). So it proposes a carbon levy of US$50/tonne that would add US$5 to the cost of a barrel of oilsands oil.  

Headline writers often don’t capture the essence of an article. In this case, the article says nothing about oilsands oil remaining “dirty”; to the contrary it suggests an incentive to make it cleaner. 


    ∙ Arizona, Florida, Illinois, Michigan, Nevada, New Jersey, Oregon, Rhode Island & Wisconsin are experiencing lower tax revenues and higher deficits, unemployment & home foreclosures, and in all but Illinois, New Jersey & Wisconsin a two-thirds legislative vote for tax increases. In California, which accounts for 13% of US GDP, spending has been slashed by 30+% by cutting funding for universities, schools & welfare programs, and taxes have been raised by US$12.5BN to enable Governor Schwartzenegger to sign a US$85BN budget (that is still expected to generate a US$14BN deficit over the next 19 months). 

With California these nine states account for one-third of the 50 states’ total population. 


    ∙ So far the two have needed capital injections of US$112BN since the government took them over in September 2008. And they would have needed more but for their collecting on claims from mortgage insurance companies whose ability to meet their liabilities are becoming increasingly suspect (last month S&P downgraded Mortgage Guaranty Insurance Corp., the largest insurer for both Fannie & Freddy, and put seven others on credit watch).  

Since then Fannie announced it had lost US$19BN in the Third Quarter (vs. US$29.4BN in the year-earlier period) & had asked the Treasury for another US$15BN capital injection (bringing the total to US$60BN). Freddie lost only US$6.3BN & said that it doesn’t need a capital injection right now but intimated it will need one later, over & above the US$51BN it has already received. The  the OMB recently warned they may need US$100BN more next year, the Wall Street Journal predicted that this “dynamic duo” will continue to “roll snake eyes for tax payers for years to come” & the government-owned FHA (Federal Housing Administration), that provides mortgage insurance to private sector mortgage lenders, whose credit exposure has grown by 40% to US$5.3TR in the past three years, recently announced its financial cash cushion has dipped to the point where it too soon will need a bailout (it has reserves of US$3.6BN vs. US$685BN in guarantees outstanding, i.e. a ratio of 0.53%, whereas Congress in 1990 mandated it to maintain it at a minimum 2.00%). 

US UNEMPLOYMENT HITS 10.2% (CNNMoney, Chris Isodore) 

    ∙ In October it jumped far more than expected, from 9.8% in September, as employers continued trimming jobs despite GDP having grown in the Third Quarter for the first time in 18 months. 7.3MM jobs have been lost since January 1st, 2008, almost 12x the 640,000 jobs the Obama Administration claims have been created or saved. Millions of people now have been unemployed for over six months & many of them for over two years

Many of the jobs created are lower-paying than those lost. And with households now having 3x the debt & < half the savings than in 1982, those who lose their jobs today are more vulnerable than they would have been then, even though unemployment benefits are now much better. 


    ∙ First-time claims for unemployment benefits fell from 514,000 to 502,000, the lowest level since January 3rd. But 4.1+MM unemployed Americans have exhausted the 26 weeks of benefits the states pay & get the ‘extended benefits’ for up to 73 weeks paid by Washington. 

The minimum level compatible with employment growth is 400,000.. 


(NYT, David Leonhardt) 

    ∙ The Labor Department’s broadest measure of unemployment & underemployment now stands at 17.5%, an all-time record One striking aspect of this recession is how it has affected only a small group of workers. For unemployment has soared in part because there is no hiring, making finding a new job impossible. And contrary to past recessions wages for those who still have jobs have continued to rise (by 1½% to 2½% in the past year).  

The economists prattling about the recession being over presumably are in the latter group.


MCDONALD’S SALES DIP IN U.S. (EJ, Business Browser) 

    ∙ In October, at outlets open at least 13 months, sales were up 3.3% worldwide but down  0.1% in the US as even newly introduced menu items couldn’t induce cash-strapped diners to spend more. While this was the first time in 18 months that same-store sales fell in its home market, the company claimed ‘we are doing better than the rest of the industry’. 

The weak dollar helps its bottom line. So next year it plans to add 1,000 outlets, most of them in Australia, China, France, Germany & Russia, to the 32,000 it currently operates in 100 countries. 


    ∙ Following mutterings by AIG’s CEO Robert Benmosche, since rescinded, that he might quit  because he didn’t like his ‘pay oversight’, Ken Feinberg said he was “very concerned” about scaring away top talent at the seven firms that took down most of the bailout money, since that increased the risk tax payers won’t get their money back. 

He forgot that no one is truly indispensable & Benmosche that AIG is 85% taxpayer-owned. Such ‘top talent’, like professional athletes, has limited options. If they quit, dozens of others are waiting in the wings, willing, & likely capable, to do the job as well, if not better, for less money. And even if their talents were really ‘unique’ & they went elsewhere, that might actually be beneficial to the system. 


    ∙ In six Canadian provinces areas with unemployment rates well below the provincial averages have gotten most of the stimulus money, one (PEI) is too small for comparisons, and in Manitoba, Newfoundland & Ontario, while the winning regions have higher-than-average unemployment, they didn’t always have the highest in those provinces. Using a weighted point system the Toronto economic region scored highest; this makes sense given the size of its population & its 9.5% unemployment rate (vs. 6.9% a year ago) that was  well above  the provincial & national averages of 8.9% & 8.1% respectively. But the runner-up, Ottawa, makes less sense; for its 5.7% unemployment rate is the lowest in Ontario. 

In all fairness, in some high unemployment regions it is largely structural, rather than recession-driven. The focus on the big cities was to be expected; for in the last election Prime Minister Harper’s Conservative Party was shut out in the centre city ridings of Canada’s biggest cities (Toronto, Montreal & Vancouver). And Ottawa’s high ranking is just traditional ‘featherbedding’.  


    ∙ Steven Harper left on November 12th for the weekend summit of Pacific Rim leaders in Singapore, followed by three days in India that Canadian officials hope will lead to a “brand new  era of partnership” with the world’s largest democracy. Apart from the usual tourist-type activities, incl. a visit to the Golden Temple in Amritsar (to appease Canada’s large, politically active Sikh minority?), he will meet with Prime Minister Manmohan Singh & Sonia Gandhi.Trade between Canada & India, whose economy is rapidly expanding, is a minute  $2BN/year but officials in both countries believe the time is ripe to increase that. 

Apart from the Harper government appearing to be ‘persona non grata’ in Beijing, there may be more potential in India for Canada (& many other countries) than in China.



    ∙ President Obama doesn’t needs or want another foreign policy challenge. But that is what he’ll get when he visits Japan this week. For Prime Minister Yukio Hatoyama wants to take a more assertive global role & to recalibrate its military alliance with the US (that Washington  has taken for granted for 54 years). This threatens the presence of the nearly 50,000 US troops stationed in Okinawa that has long been key to the US strategy for the region. 

Hatoyama is said to be targeting a relationship in which Japan would be less ‘subservient’. The US presence on Okinawa has long been a thorn in the Japanese side (which has not been helped by the occasional rape of a local woman by members of the US military). And with China’s star  rising fast, commercially & militarily, Hatoyama knows which side Japan’s bread is buttered on.



    ∙ For decades America’s China  policies have run the gamut from Nixon’s “tacit allies” against the Soviet Union to George Bush’s “strategic competitors”. Earlier, after weeks of haggling, White House & Chinese officials agreed on defining the two countries’ relationship  as “positive, cooperative & comprehensive”, avoiding the term “candid” which Beijing dislikes since it implies that each side could criticize the other (wordcraft has been critical in Chinese diplomacy since Confucius, 2,500 years ago - are you listening, Prime Minister Harper?) While Senator Obama declared that “They’re neither an enemy, nor a friend. They’re competitors”, his Deputy Secretary of State James B. Steinberg in September trotted out a new concept, that of a “tacit bargain”, whereby Washington wouldn’t criticize China’s growing power while Beijing would ease Washington’s concerns about its global intentions. 

Some argue the US & Chinese economies have become two sides of the same coin, with one consuming & borrowing and the other producing & lending; if so, as the former, the US holds the weaker hand. Beijing may be displeased with travel arrangements that have it being the third stop on the President’s tour & with him not only having the usual meetings with officials & doing the usual touristy things (like visiting the Great Wall), but also having a townhall-like meeting in Shanghai. 


    ∙ Factory output rose for the fourth month in a row, fueled by the consumer & intermediate sectors. The Markit/CDAF final manufacturing purchasing managers’ index rose to 55.6, its highest level in almost three years, up from 53.0 in September, and its output component to 60.0, its highest level since September 2000.  

‘Green shoots’ everywhere, but the US? A sign of ‘uncoupling’? 


    ∙ The Irish government, its majority in Parliament weakened by resignations & by-election losses, is nevertheless trying to ram through a bill to take US$81BN of ‘toxic assets’ off the banks’ books & transfer them to a ‘bad bank’ to be known as NAMA (National Asset Management Agency). This may create a ‘Winter of Discontent’ as public sector workers are threatening to go on strike, and the IMF is calling  for its GDP this year to shrink by 7½%, the world’s worst but for Iceland  (& Zimbabwe?)  

Opponents have a rallying cry of astounding simplicity, namely ‘would you & your family not rather have that US$18,000 each, rather than having it handed to the banks’ (which conveniently ignores that in due course some money at least is likely to be recovered from selling these assets). 


    ∙ Until recently the EU, in pushing for international emission control targets, spoke with one voice on its expectations for Copenhagen. But while Britain keeps pushing to keep expectations high, Norway’s chief negotiator said on October 30th “I don’t believe we will get a full, ratifiable, legally binding agreement in Copenhagen”, due to a lack of clear targets from China & the US Senate’s failure to approve emissions targets for the US. 

When the captain of the Titanic & its band deemed they had no option but go down with the ship, in that case there were at least life boats for some of their shipmates.. 


    ∙ On November 8th at the two-day Forum on China-Africa Cooperation Summit in Sharm el-Sheik, Egypt, China Premier Wen Jiabao promised US$10BN in concessional loans to African nations over the next three years (vs. US$5BN at the last summit in 2006 in Beijing), to cancel the debt of some of the poorest among them & to eliminate tariffs on 95% of the products African nations export to China (at a rapidly increasing rate). Its critics called this an attempt to deflect criticism that its past investments were driven by greed, & with justification complain that in its quest for resources it is ignoring the human rights record of many African regimes (incl. those of Sudan’s Omar el-Bashir & Zimbabwe’ s Robert Mugabe, both of whom were in attendance). 

China is broadening & deepening its presence in Africa, funding it from its surfeit of US dollars, while the West sits on its hands, despite the promises made at the 2005 Gleneagles G-8 Summit. 


    ∙ Vegas strip revenue YTD is down 12%, vs. the 11% record drop for all of 2008. 

But movie houses are doing well as people spend their recreational dollars closer to home. 

    ∙ The Globe & Mail reports that the Montreal Exchange futures suggest the market expects the price of gold one year hence to be US$1,104.40 vs. US$1,095.40 today, oil US$82.74 vs US$77,43 today & three months’ interest rates 1.78% vs. 0.445% today.  

 It would not be surprising if it were to be underestimating all three.  



    ∙ Senior Hamas officials indicated on November 11th that their movement will soon sign a reconciliation agreement with Mahmoud Abbas’ ruling Fatah party, paving the way for full  elections in both the West Bank & Gaza, and for a Hamas-, or Hamas-Fatah coalition-, government. This was confirmed in an interview published that same day in the London-based al-Quds al-Arabi newspaper with Aziz Dwaik, the Hamas Speaker of the Palestinian Legislative Council (see below under “Missed Chances”) in which he said in part that “The Hamas government will sign the reconciliation agreement at the end of November.”

    ∙ But, while this clears the way for elections,  Ahmed Yousef, Hamas’ Deputy Foreign Minister & a senior adviser to Hamas’ Prime Minister, Ismail Hanya, said they “will be postponed  to what we have agreed to in the reconciliation document ... June, not January.” Further that Hamas’ partaking in a government of national unity will depend on the “Quartet’s” stand on its three pre-conditions for dealing with Hamas, renouncing violence, recognizing Israel’s right to exist & accepting all previous agreements entered into by the PLO & the PA (which Hamas so far has refused to formally accede to).

    ∙ And he said a lot more. One, following the June election, “we would like the world community to engage with the [new] government, whether Hamas is in it or not ... because we are representing, if not the majority of the Palestinian people, then half the population, and there’s not going to be a peaceful settlement if you’re going to ignore Hamas.” Two, that “We in Hamas have said we will accept a Palestinian state within the 1967 borders (implying that it would accept the existence of a Jewish state?) and, as an extra bonus ...a truce for 20 years ... (and) if you don’t have bloodshed for 20 years ... people will find the magic solution for their suffering. Maybe they come up after these 20 years, with a one-state solution, a bi-national state.” And Three, when asked how he would convey this approach to leaders such as Canada’s Prime Minister Harper,  “We’re going to tell him it’s time to be fair ... in any conflict, if you take sides and do not have an even-handed policy, that means you will be considered part of the conflict ... We know of Canada as taking part in the blue helmets and as part of the United Nations and helping to solve the problems...  Now we are seeing Canada giving Israel all kinds of support and keeping blaming Hamas and the Palestinians. This is unfair and it doesn’t help Canadian interests.” And Four that “the Muslim community all over the world is very attached to the al-Aqsa mosque and so on, and I don’t think that Canada would like to been seen by the Muslims all over the world as being part of the aggressor.” 

Meanwhile, the (West Bank Fatah) Palestinian election officials, blaming Hamas, are drum beating that the January 24th elections should be postponed (to enable Abbas to stay ‘in power’ ignoring that, even if he did, he will be a lame duck like none before). Paraphrasing a term made famous in The Godfather One, Hamas may have made “an offer the world cannot refuse”, thereby making Netanyahu’s worst dreams come true, the more so given Yousef’s reference to an eventual  one-state/binational state solution (the writer is currently in Gaza, i.e. inside the Hamas ‘tent’).  


    ∙ While Netanyahu’s November 9th after-hours White House visit was widely portrayed as having been ‘frosty’, & in the Israeli media as a ‘snub’ & a sign of strained relations, Israeli officials spun it as “actually an icebreaker”, saying that during their 60 minute one-on-one the two men “established a real rapport”, & rationalized the visit’s low-key nature as intended not to upset the Palestinians or undermine Mahmoud Abbas. And, sure enough, Obama’s Chief of Staff, Rahm Emanuel, told US Jewish leaders the next day the Israeli-Palestinian peace talks, suspended for nearly a year, should get underway “without preconditions”. But the day after that Abbas reiterated in a speech that settlement construction must come to a complete stop, on the very same day that Netanyahu’s National Security Adviser attributed the change in Washington’s tone to the fact that the US is a “pragmatic nation” that understands & respects Israel’s ‘red lines’ on the issue.

    ∙ Much depends on Abbas’ plans. While he has said he would rather not run in the January 24th election (this is not what he said : he was quite specific that he wouldn’t run). But many believe he is bluffing; for he has threatened quitting before. 

Since this despatch came for Reuters’ Paris office, the positive spin put on the Obama-Netanyahu confab may well be a bit of Israeli misinformation. Be that as it may, it seems strange that much is made of  the Palestinian insistence on a pre-condition for the peace talks to start up again, while little or none is made of Netanyahu’s insistence that East Jerusalem is now part of Israel & his repeating, in a speech while in Washington, that any Palestinian state cannot have an army.  


    ∙ On November 5th Mahmoud Abbas (aka Abu Mazen) announced that, frustrated by White House policy shifts on Israeli settlement construction, he wouldn’t stand for re-election in the January 24th election. The loss of one of the Palestinians’ most conciliatory voices leaves Obama’s Middle East peace efforts in a shambles. And it raises questions about Obama’s handling of the situation; for his critics contend he fatally undermined Abbas by conceding political ground to Israel & pressuring him into making unpopular decisions (most recently by withdrawing his initial endorsement of the Goldstone Report, only to have to reverse that reversal after an enormous backlash among Palestinians & Arabs generally). For while he & the Arab world had been encouraged by Obama’s initial call for a total freeze on all Jewish settlement construction in the West Bank (& by his apparent reaching out to the Muslim world in his Cairo speech), they were disheartened by his subsequent softening of that language to merely asking for ‘restraint in its settlement construction’. While the US would like to see Prime Minister Salam Fayyad to seek the Presidency, it is more likely that someone less in tune with (or subservient to) US desires will succeed Abbas.   

It is actually quite surprising that Abbas didn’t throw in the towel long ago. For pushing him around & undermining his domestic position often almost seemed like a national pastime in the Bush White House, picked up pace when Netanyahu became Israel’s Prime Minister & now may have infected the Obama White House. But, as Henry Kissinger pointed out years ago on CNN’s Larry King Live, in negotiations  lasting solutions are more likely when there are ‘hard cases’ on both sides than when there is a hard case on one side & a patsy on the other. And as far as recognizing, & negotiating with, Hamas is concerned, it wouldn’t be the first instance in the post WW II period of yesterday’s reviled terrorist becoming tomorrow’s internationally acceptable statesman. 


    ∙ Abbas staked his career on the two-state solution. In the late 50's he co-founded Fatah. In 1974 he sought out the Israeli left as a partner in peace. In the early 90's he helped bring about the Oslo peace accord. And he & Israeli cabinet minister Yossi Beilin formulated the Beilin-Abu Mazen plan, the template for many subsequent peace proposals.

    ∙ But since taking over the PA in 2004, he has been a disappointment. He promised to create Palestinian institutions & end corruption but did neither. In 2005, after Israel vacated Gaza, when the world was ready to help its people, he didn’t grasp the opportunity & instead  escalated tensions with Hamas. He let the people of Gaza down again when he stayed mute when Israel attacked them & when he had his security forces break up protest demonstrations in the West Bank. Overall, he seemed to care less about what his own people than what Israel & the US thought of him. So most Palestinians react to his name with a shrug & the only ones to bemoan his planned departure are those who owe their positions to him. While he set a date for the election, it isn’ clear there will be one. For the Palestinian Election Committee says it should include Gaza & East Jerusalem, and Hamas so far has ruled out participating & Israel is unlikely to let Jerusalem Palestinians participate.

    ∙ His leaving may do more good than harm. For his successor starts with a clean slate &  can  put off talks until Hamas is on board, something that Abbas couldn’t because of his visceral hatred for them. But it is likely to strengthen Hamas’ hand among Palestinian voters.

    ∙ The popular choice to succeed him would be Marwan Barghouti but he is in an Israeli jail. Another possibility is the 57 year-old Prime Minister; as a technocrat and a former IMF & World Bank official he has support in both Washington & Jerusalem and he may benefit from having successfully promoted order & economic development in the West Bank; but is not a member of Fatah. A third is the 48 year-old Mohammed Dahlan, Fatah’s former security chief; he has a strong institutional support base & some support in Washington & Jerusalem because he reined in the second intifada; but he hails from Gaza & may not draw enough support in the more vote-rich West Bank. A fourth is Marwan Barghouti’s cousin, the 57 year-old Dr. Mustafa Barghouti, who, with 19% voter support, was second to Abbas in the 2005 election; his main strength is that he runs a network of medical relief committees that provide a modicum of healthcare for the Palestinians & he is known to favour non-violent resistance. Finally, there is the 59 year-old Aziz Dwaik, a former geography professor & Hamas’ political leader in the West Bank, who, according to the Palestinian Constitution should have become Acting President last January when Abbas’ term ran out; his popularity in Islamic circles was demonstrated by the huge rallies occasioned by his release from jail last June & his public support for the idea of living in peace alongside Israel could win him votes in the secular community.  

Abbas knows he wouldn’t be re-elected. Of the four above, Dwaik may have the least “baggage” (incl. a US/Israeli endorsement) & the most voter support (especially since polls have consistently shown Fatah trailing Hamas).  Be that as it may, whoever succeeds Abbas will need to leave less of an impression of being a US/Israeli toady (which, in a perverse way, may actually benefit the peace process by waking up Netanyahu et. al. to the reality that the Chinese water torture process isn’t working & Obama to the unpleasant reality that, if he really wants peace in the region, he’d better start playing hardball with the Israelis). For Israel, with the concurrence of first the Bush White House, & more recently seemingly with that of Obama, has been ‘pitching above its form’; for when push comes to shove, it is losing ‘the battle of the cradle’ & is in the same unenvious position that the US is vis a vis China : in Sen. Hilary Clinton’s words ,“you don’t pick a fight with your banker.”  


(NYT, Ethan Bonner) 

    ∙ He has threatened many times before to quit but this time seems to mean it. For as Saeb Erakat, the chief Palestinian peace negotiator puts it, “He is realizing that he came all this way with the peace process in order to create a Palestinian state, but he sees no state coming ... So he doesn’t really think there is a need to be president or to have an Authority. This is not about who is going to replace him. This is about us leaving our posts. You think that anybody will stay after he leaves?”

    ∙ Many of those who owe their position to him fear his departure & are urging him to stay. But four top officials in separate interviews made the same point : he feels there is an impass in the negotiations because Prime Minister Netanyahu won’t commit to a Palestinian state based on the 1967 borders, incl. East Jerusalem. And he was disillusioned when Obama backpedalled on his demand for a freeze on settlement construction in the West Bank.

    ∙ According to Martin Indyk of the Brookings Institution, & an adviser to George Mitchell, Obama’s Special Envoy for the Middle East, ‘More than likely, we are entering a new era.” 

A new era alright. Abbas’ leaving will mean less a collapse of the PA than its possible seizure by those less amenable to Israeli stonewalling & American arm-twisting. Small wonder Prime Minister Netanyahu snuck into the White House to see President Obama during the evening of November 9th for a visit in which Mr. Abbas’ threat to leave office was said to be ‘a part of their talks’ (while in reality it couldn’t help but be the main topic of conversation). Netanyahu seems intent on continuing to ignore the reality that the pendulum is swinging in the Palestinians’ favour & somehow has gotten Obama to buy into his erroneous vision, at least to some degree. 

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