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Pandora’s Box
January 18, 2007 (Serhan Cevik - Morgan Stanley)
The future of Iraq will likely shape the Middle East’s political and economic prospects. The war in Iraq – bringing the country to the verge of a full-scale civil conflict – has opened a Pandora’s Box in the Middle East. After decades of devastating dictatorship that left Iraq without a tradition of power-sharing and trust between sectarian groups, it is not surprising to see ‘pent-up’ rage and attempts to redistribute power. This is how politically impoverished people all around the world have historically reacted to the end of repression. However, the sectarian and ethnic nature of Iraq’s conflict has escalated the cycle of violence beyond comprehension, killing about 3,000 civilians every month and radicalizing even more people every day. The transition from autocracy to democracy may be destabilizing in the beginning, but Iraq’s deepening fragmentation along sectarian and ethnic lines looks more like a chaotic descent towards disintegration, in our view – not the emergence of a participatory political regime. With such a pattern of vengeance weakening the prospect for political compromise, Iraq is facing the risk of disintegration, which could spiral into sectarian conflicts throughout the Middle East.
AntiSpin: Not the political reticence you'd expect from the world's largest hedge fund.
When you think of Wall Street, you think of Morgan Stanley, and when you think of Washington, you think of Wall Street. Take, for example, the recent rotation of former S.E.C. Chairman Richard Breeden into the role of head of Breeden Partners, a Greenwich, Conn. based hedge fund, and of ex-Chairman and Chief Executive Officer of The Goldman Sachs Group, Inc. into the role of Treasury Secretary, succeeding John Snow. In breaking silence and criticizing wars intended to defend the interests of both Washington and Wall Street, MS hints not only at the potential for a Vietnam-esque loss but of something more dire. Like the Soviet suppression of a revolt in Hungary in 1956 and the British led Suez Crisis in the same year, did the US invasion of Iraq and Afghanistan leave a high water mark of the latest imperial era? Our sources tell us that the wars have become enemy #1 both on Capital Hill and on the Street, posing a level of threat to the fortunes of both on a scale not faced by a group of politicians and their financiers since the aristocracy of Western Europe confronted democracy, and ethnic and religious pluralism at the turn of the last century.
Cevik of MS says,"the risk is not just to the future of Iraq, but also to the greater Middle East." Naill Ferguson makes a similar point at the conclusion of his article "The War to Start all Wars" (registration required) in the month's Atlantic: "The really sobering lesson of the twentieth century is that some civil wars can grow into more than regional wars. If the stakes are high enough, they have the potential to become world wars."
Meanwhile, David Leonhardt estimates in the New York Times that $1.2 trillion is the total cost of the war in Iraq, not the $400 billion estimated by the government. The somnambulant scientific intelligentsia stirred to move the hands of the doomsday clock another two minutes forward in response to a sudden awakening to the perils of 27,000 nuclear weapons, 2000 of them ready to launch within minutes, and the destruction of human habitats from climate change. China not so secretly tested a new space war weapon, breaking a 15 year old unspoken rule against such weapons development. Also on the weapons systems innovation front, a proof-of-concept, economical rail gun that delivers the punch of a missile at bullet prices was demonstrated. Given weapons development since the last world war, another one really is unthinkable.
The best deterrent to a larger Middle East conflict is a strong US economy and compelling moral leadership. With the latter squandered, the former is all that remains. Alas, that too is showing signs of stress as the Recession of 2007 continues to develop. Friends in the VC community who come out of the semiconductor industry noted last summer the decline in semiconductor stocks, as reliable an indicator of declining future demand for chips and, later, the finished goods they go into, as any. Yet even as Motorola cut thousands of jobs, the Fed worried about inflation. The prediction by Europe's LEAP/2020 team for rate hikes earlier this year followed by a series of cuts later as the Fed changes course looks as credible as any today.
January 18, 2007 (Serhan Cevik - Morgan Stanley)
The future of Iraq will likely shape the Middle East’s political and economic prospects. The war in Iraq – bringing the country to the verge of a full-scale civil conflict – has opened a Pandora’s Box in the Middle East. After decades of devastating dictatorship that left Iraq without a tradition of power-sharing and trust between sectarian groups, it is not surprising to see ‘pent-up’ rage and attempts to redistribute power. This is how politically impoverished people all around the world have historically reacted to the end of repression. However, the sectarian and ethnic nature of Iraq’s conflict has escalated the cycle of violence beyond comprehension, killing about 3,000 civilians every month and radicalizing even more people every day. The transition from autocracy to democracy may be destabilizing in the beginning, but Iraq’s deepening fragmentation along sectarian and ethnic lines looks more like a chaotic descent towards disintegration, in our view – not the emergence of a participatory political regime. With such a pattern of vengeance weakening the prospect for political compromise, Iraq is facing the risk of disintegration, which could spiral into sectarian conflicts throughout the Middle East.
AntiSpin: Not the political reticence you'd expect from the world's largest hedge fund.
When you think of Wall Street, you think of Morgan Stanley, and when you think of Washington, you think of Wall Street. Take, for example, the recent rotation of former S.E.C. Chairman Richard Breeden into the role of head of Breeden Partners, a Greenwich, Conn. based hedge fund, and of ex-Chairman and Chief Executive Officer of The Goldman Sachs Group, Inc. into the role of Treasury Secretary, succeeding John Snow. In breaking silence and criticizing wars intended to defend the interests of both Washington and Wall Street, MS hints not only at the potential for a Vietnam-esque loss but of something more dire. Like the Soviet suppression of a revolt in Hungary in 1956 and the British led Suez Crisis in the same year, did the US invasion of Iraq and Afghanistan leave a high water mark of the latest imperial era? Our sources tell us that the wars have become enemy #1 both on Capital Hill and on the Street, posing a level of threat to the fortunes of both on a scale not faced by a group of politicians and their financiers since the aristocracy of Western Europe confronted democracy, and ethnic and religious pluralism at the turn of the last century.
Cevik of MS says,"the risk is not just to the future of Iraq, but also to the greater Middle East." Naill Ferguson makes a similar point at the conclusion of his article "The War to Start all Wars" (registration required) in the month's Atlantic: "The really sobering lesson of the twentieth century is that some civil wars can grow into more than regional wars. If the stakes are high enough, they have the potential to become world wars."
Meanwhile, David Leonhardt estimates in the New York Times that $1.2 trillion is the total cost of the war in Iraq, not the $400 billion estimated by the government. The somnambulant scientific intelligentsia stirred to move the hands of the doomsday clock another two minutes forward in response to a sudden awakening to the perils of 27,000 nuclear weapons, 2000 of them ready to launch within minutes, and the destruction of human habitats from climate change. China not so secretly tested a new space war weapon, breaking a 15 year old unspoken rule against such weapons development. Also on the weapons systems innovation front, a proof-of-concept, economical rail gun that delivers the punch of a missile at bullet prices was demonstrated. Given weapons development since the last world war, another one really is unthinkable.
The best deterrent to a larger Middle East conflict is a strong US economy and compelling moral leadership. With the latter squandered, the former is all that remains. Alas, that too is showing signs of stress as the Recession of 2007 continues to develop. Friends in the VC community who come out of the semiconductor industry noted last summer the decline in semiconductor stocks, as reliable an indicator of declining future demand for chips and, later, the finished goods they go into, as any. Yet even as Motorola cut thousands of jobs, the Fed worried about inflation. The prediction by Europe's LEAP/2020 team for rate hikes earlier this year followed by a series of cuts later as the Fed changes course looks as credible as any today.
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