The American media knows where to find its friends

Barbara Walters, the grande dame of American television news, was forced to apologise on Tuesday night after it emerged that she had tried to use her influence to further the career of a former leading aide of Syrian President Bashar al-Assad.

Emails seen by London's The Daily Telegraph show that Walters tried to help Sheherazad Jaafari, the daughter of Syria's UN ambassador, secure a place at an Ivy League university and an internship with Piers Morgan's CNN programme.

When confronted with the emails, which were obtained by a Syrian opposition group, the 82-year-old ABC broadcaster admitted a conflict of interest and expressed "regret" for her actions.

Miss Jaafari, 22, who in some reports has been dubbed "Serious Kim Kardashian", was a close adviser to Mr Assad and was at his side as Syrian troops dramatically stepped up their campaign of killing and repression.

She would speak to the president several times a day, sometimes calling him "the Dude" in her adopted American accent, and was sometimes the only official in the room when he did interviews with Western journalists.

Miss Jaafari, whose father Bashar Jaafari has known Walters for around seven years, began dealing with the broadcaster late last year as ABC News lobbied for an interview with Mr Assad.

Walters's interview in December - the first with an American television network - made headlines around the world as Mr Assad denied he was responsible for the crackdown which had already resulted in thousands of deaths across Syria. The emails show that after the interview Miss Jaafari and Ms Walters stayed in close contact.

Miss Jaafari did not ultimately get the internship nor the university place.

Miss Jaafari was part of a young circle of aides who advised Mr Assad to speak to the Western media as evidence of atrocities mounted. When he agreed to the interview with Walters in December, Miss Jaafari wrote a list of talking points advising that the "American psyche can be easily manipulated" if he were to make a limited expression of regret.

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Iceland

For a while, the country had the Midas touch. During 2003-07 the Icelandic stock market grew ninefold, while real estate prices tripled. But the newfound riches proved fool’s gold. The three largest banks, whose assets at their peak were nearly 10 times the national GDP, collapsed in the fall of 2008. The Icelandic currency, the krona, lost more than half its value against the euro and became all but worthless outside the country. Employers shed jobs and inflation reached 20 percent. The stock market took an 85 percent dive. And Icelanders were now on the hook for an estimated $85 billion to $100 billion in bank losses, or roughly $300,000 for every man, woman and child. And you thought we had it bad.

Yet here it is, 2012, and Iceland appears to have recovered from this debacle rather nicely – and without a bailout from the IMF. Put simply, the government allowed major banks to fail and told foreign creditors to bite the bullet. It dismantled the failed banks, paid off creditors from the proceeds of asset sales, and tightened bank capitalization requirements. The country still faces major problems. Household and business debt remains high. And some Icelanders are migrating to Norway and elsewhere in search of a job. Yet on balance, the country is far better off than could have been predicted three years ago.

Here’s how the Washington Post’s Brady Dennis this January described the scene in the principal city of Reykjavik:

On the snowy streets of this capital city, the economic panic of 2008 has mostly faded. The trendy cafes along Laugavegur brim with customers. Restaurant menus feature $40 grilled minke whale and $60 racks of lamb, and hardly a table goes empty. Boozy youths line up to pack nightclubs that thump all night. It’s even okay now to joke about the crash, or kreppa, as it’s known: “We may not have cash, but we have ash!” reads one T-shirt with a picture of the Eyjafjallajokull volcano that erupted in 2010.

“Three years later,” the author writes, “the unemployment rate has fallen. Tourism has increased. The economy is growing. The government successfully raised money from investors in the summer for the first time since its crisis.”

In many ways, Iceland is an easy country to like. The 40,000-square-mile North Atlantic republic, located just south of the Arctic Circle some 500 miles from its nearest European neighbor Scotland, is a hybrid of Old Norse and modern culture. Average life expectancy at birth is now 81. Median income (2011) is around $38,000. The nonprofit watchdog group Transparency International continues to rate Iceland as one of the least corrupt countries in the world, even after the banking collapse. The country has spectacular natural scenery, including more than 100 volcanoes. One of its filmmakers, Baltasar Kormakur, directed a hit Hollywood movie this winter, “Contraband,” starring Mark Wahlberg; Kormakur, in fact, had starred in the 2008 film on which it was based, “Reykjavik-Rotterdam,” directed by another Icelander, Oskar Jonasson. And, of course, there is the instantly recognizable female singer-songwriter, Bjork, whose mix of folk-rock, post-punk and electronica has won tens of millions of fans the world over.

But the main reason to like Iceland may be its reluctance, at least when it counted, to transfer part of its sovereignty to the European Union. Iceland, despite its short-sighted bank deregulation of a decade ago, had a 7 percent unemployment rate in 2011, to be sure, way above the 1 percent preceding the collapse and yet slightly lower than the average of the immediate post-crash years – no mean feat. Annual GDP has been growing at 3 to 4 percent since 2009. “For a country whose entire financial system collapsed, Iceland is doing remarkably well,” admits Julie Kozack, IMF mission chief for Iceland.

This raises the question: Why? How could a nation witness the evaporation of its financial assets and yet stabilize the situation within a relatively short time, while much of the rest of Europe approaches the abyss? Certainly, Iceland is in far better shape without international aid than is subsidized Greece. So given all that it did wrong, Iceland must have done a few things right since.

Without discounting the importance of cultural explanations, arguably the main reason for Iceland’s resurgence is related to the economics concept of moral hazard. In essence, moral hazard refers to the additional risks that a particular party – be it a person, a corporation or a nation – takes on when it does not have to bear the costs of its mistakes. People by nature are less cautious when they know in advance that an outside party will cover them. As a corollary, the outside party, typically armed with better information about motive and action, is more likely than otherwise the case to behave irresponsibly, believing he won’t get caught or otherwise bear the cost. Think of Michael Douglas’ character, Gordon Gekko, in the two “Wall Street” movies.

The flip side of moral hazard is aversion to it. That is, in assessing a possible transaction or long-term agreement, a principal party may decide that the risk of an agent mishandling his money isn’t worth the gain in expertise. Equally to the point, he may sense that taking responsibility for the consequences of his own mistakes will reduce the likelihood of making them in the first place.

Iceland is an example of the second scenario. Its government during those dark months of late 2008 and early 2009 wisely eschewed a “too big to fail” policy in dealing with the nation’s financial institutions, recognizing, if out of necessity, that it can’t compensate reckless banking decisions. “No responsible government takes risks with the future of its people, even when the banking system itself is at stake,” said then-Prime Minister Geir Haarde in an emergency address to the nation in October 2008. He would resign on February 1, 2009. Johanna Sigurdardottir, a Social Democrat, would take over.

But why did the recklessness occur in the first place? It happened in large measure because country’s bankers thought Iceland was ready for the big time. The global economy, especially the demand for homeownership, was expanding. The bankers believed they could grow rich by radically ramping up mortgage lending and then packaging the loans as marketable securities to investors on Wall Street and elsewhere – sound familiar? Escalation in house prices presumably could cover any shortfalls, and the Icelandic government or the IMF could rescue them if prices didn’t keep rising. Who wanted to be a fisherman when the world was your oyster anyway?

“You had to be crazy not to want to become a banker,” says University of Iceland student Heimir Hannesson, looking back at those years. “You went to college, studied business. You became a millionaire overnight. That was the dream. And for a few years, it was the reality.”

Unfortunately, the reality of Geir Haarde, who served as prime minister for less than three years, is that he’s out of a job and likely headed for prison. The Sigurdardottir administration is bent on meting out justice to those whom it sees as responsible for the financial collapse. Her predecessor makes for a good trophy. This March, former Prime Minister Haarde, facing four separate criminal negligence charges, took the witness stand in his defense, arguing that no government could have prevented Iceland’s crash since nobody outside the banks was aware of how much debt they were carrying. He would be found guilty anyway in April on one of the charges.

Under its new leadership, Iceland may go the way of European integration. Finance Minister Oddny Hardardottir affirmed her commitment to adoption of the euro. The country applied for membership in the European Union in July 2009 and opened talks in 2010, despite widespread domestic opposition. Hardardottir believes that using the euro isn’t in conflict with becoming more solvent, and that the euro is a superior alternative to the highly fluctuating krona. “I’m not concerned about the future of the euro,” she remarked early this year. “The demand is that countries become more disciplined in their economic management. That’s something that we should also take to heart, although we’ve shown great effort and performance in that regard following the economic collapse.”

One only can hope. But in the meantime there are a couple reasons why Americans should pay close attention to the situation in Iceland.

First, like it or not, from the beginning of the EU, we have been committed to its solvency via the International Monetary Fund. And lately we’ve become more committed than ever. This spring, IMF officials cobbled together an additional $430 billion in pledges on top of the $380 billion in existing IMF lending capacity and the aforementioned 750 billion euro (US$950 billion) EU-IMF crisis package. Our total IMF liability now stands at $172 billion, second only to the $186 billion of Japan. (It could have been higher, actually, had the Obama administration pushed Congress on the issue.) The U.S. helped pay for the Irish and Portuguese bailouts this way. Now we’re covering the Greeks.

Second, having instituted our own bailouts over the last four years, we should be experts by now on the risks of growing an economy based on moral hazard. The Bush and Obama administrations, each aided by Congress, have created large-scale emergency conduits to support the automobile and financial services industries. In the short term, we mitigated a highly painful collapse. But in the long term, we are laying the groundwork for a potentially far deeper and intractable collapse. By signaling to “too big to fail” enterprises that they need not fear going extinct, we are enabling them to make bad decisions at taxpayers’ expense. The ever-expanding federal deficit is in some measure a consequence of this. Take heart, at least, that we’re not the lead player in some North American Union; one only can imagine the ultimate cost of bailing out Mexico.

One wishes Iceland well in its ongoing recovery. It may have only roughly one-hundredth of our land area and one-thousandth of our population, but its aversion to joining the EU during the Haarde years likely has benefited other nations, ours included. “I don’t want the euro, hell no,” remarked a female food truck operator in Reykjavik several months ago. “The countries that have the euro, it’s going pretty badly.” Iceland may well get the euro anyway. If that happens, it’s conceivable the U.S., if indirectly, will be responsible for some of its bills.

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ELSEWHERE

WI: Walker survives recall vote: "Gov. Scott Walker, whose decision to cut collective bargaining rights for most public workers set off a firestorm in a state usually known for its political civility, held on to his job on Tuesday, becoming the first governor in the country to survive a recall election and dealing a painful blow to Democrats and labor unions."

CA: Appeals court won’t touch pro-family ruling, SCOTUS likely next: "An escalating showdown over gay rights in America appears to be heading inevitably to the US Supreme Court. Two major appeals court cases dealing with same-sex marriage are poised for possible review at the nation’s highest court -- perhaps with decisions as early as next year. A federal appeals court in San Francisco announced on Tuesday that it would not examine a February decision striking down as unconstitutional California’s Proposition 8 ballot initiative, which effectively banned same-sex marriages in the state."

A liberal war on women: "The Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), a law passed by a liberal Congress in 2009 and signed by President Obama, 'keeps many homemakers from qualifying for credit cards,' notes the world’s oldest law blog, Overlawyered."

The Bernanke bust: "To Austrians, all economic 'booms' founded on monetary largesse always end in economic busts, roughly equal in size and intensity to the preceding booms. By distorting interest-rate and price signals and, as a consequence, creating malinvestments that must eventually be liquidated, monetary booms necessitate economic busts. This is true regardless of whatever short-term benefits the economy or financial markets appear to enjoy from this largesse.

Lese majesty: "A farmer decides, in the wake of the Mad Cow outbreak to conduct tests above and beyond those required by the government in order to advertise that his beef is safer than the national standard. The USDA doesn’t allow him to do so, he cannot conduct his own tests with his own money."

Universal health care does not mean government health care: "Maybe social means are inadequate; or maybe there is some reason, which has yet to be mentioned, why governmental control is preferable, as a means for getting it, to voluntary associations for mutual aid. But whether the position is right or wrong, it’s certainly not one that can be answered simply by defining it out of existence, as you do when you pretend that the only alternatives available are (1) corporate coverage of only those who can afford it; or else (2) universal coverage by means of government mandates; as if there were no (3) universal coverage by non-governmental means."

The power of market-driven diversity: "The story of Chicago-based Supreme Life Insurance Company of America, one of the most venerable black-owned businesses in American history, challenges the prevailing fiction that minority customers need the government to guarantee services for them and is a dynamic reminder of the power of markets as a basis for economic freedom."

Wealth creation is not the enemy: "President Obama accuses Mitt Romney of putting profits above people by striving to create wealth rather than jobs during his 15 years at Bain Capital. This critique of Romney's work at the private equity firm, which Obama says will be central to his re-election campaign, betrays a fundamental misunderstanding of capitalism"

The case for single-issue activism: "The only period, as I see it, when the supporters of freedom have made really sizeable inroads against the state was in the early nineteenth century where single-issue campaigns against the Corn Laws, slavery, emancipation of Catholics and so on brought substantive achievements. Many of those involved were, as Lord Acton observed, not true supporters of freedom. Similarly, amongst Thatcherism’s greatest achievements must surely be the great utility privatisations or curbing of excessive union powers even though many Thatcherites were hardly typical supporters of Liberal freedoms. It is this limited, achievable and comprehensible type of reform we first need to find and then unite behind."

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The Big Lie of the late 20th century was that Nazism was Rightist. It was in fact typical of the Leftism of its day. It was only to the Right of Stalin's Communism. The very word "Nazi" is a German abbreviation for "National Socialist" (Nationalsozialist) and the full name of Hitler's political party (translated) was "The National Socialist German Workers' Party" (In German: Nationalsozialistische Deutsche Arbeiterpartei)

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