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A Willful Ignorance

Mr. Bush's ignorance may reflect his lack of curiosity: "The best way to get the news," he says, "is from objective sources. And the most objective sources I have are people on my staff." Two words: emperor, clothes.

Originally published in The New York Times, 10.28.03

According to The New York Times, President Bush was genuinely surprised to learn from moderate Islamic leaders that they had become deeply distrustful of American intentions. The report on the "perception gap" suggests that the leader of the war on terror has no idea how badly that war--which must, ultimately, be a war for hearts and minds--is going.

But there's something broader going on: a sort of willful ignorance, supposedly driven by moral concerns but actually reflecting domestic politics. Surely it's important to understand how others see us, but a new, post 9/11 version of political correctness has made it difficult even to discuss their points of view. Any American who tries to go beyond "America good, terrorists evil," who tries to understand ó not condone ó the growing world backlash against the United States, faces furious attacks delivered in a tone of high moral indignation. The attackers claim to be standing up for moral clarity, and some of them may even believe it. But they are really being used in a domestic political struggle.

Last week I found myself caught up in that struggle. I wrote about why Mahathir Mohamad, Malaysia's prime minister ó a clever if loathsome man who adjusts the volume of his anti-Semitism depending on circumstances ó chose to include an anti-Jewish diatribe in his speech to an Islamic conference. Sure enough, I was accused in various places not just of "tolerance for anti-Semitism" (yes, I'm Jewish) but of being in Mr. Mahathir's pay. Smear tactics aside, the thrust of the attacks was that because anti-Semitism is evil, anyone who tries to understand why politicians foment anti-Semitism ó and looks for ways other than military force to combat the disease ó is an apologist for anti-Semitism and is complicit in evil.

Yet that moral punctiliousness is curiously selective. Last year the Bush administration, in return for a military base in Uzbekistan, gave $500 million to a government that, according to the State Department, uses torture "as a routine investigation technique," and whose president has killed opponents with boiling water. The moral clarity police were notably quiet.

Why is aiding a brutal dictator O.K., while trying to understand why others don't trust us ó and doing something to create that trust ó isn't? Why won't the administration mollify Muslims by firing Lt. Gen. William Boykin, whose anti-Islamic remarks have created vast ill will, from his counterterrorism position? Why won't it give moderate Muslims a better argument against the radicals by opposing Ariel Sharon's settlement policy, when a majority of Israelis think that some settlements should be abandoned, and even Israeli military officers have become bitterly critical of Mr. Sharon?

The answer is that in these cases politics takes priority over the war on terror. Moderate Muslims would have more faith in America's good intentions if there were at least the appearance of a distinction between the U.S. and the Sharon government ó but the administration seeks votes from those who think that supporting Israel means supporting whatever Mr. Sharon does. It's sheer folly to keep General Boykin in his present position, but as Howard Fineman writes in a Newsweek Web-exclusive column, the administration doesn't want "to make a martyr of a man who depicts himself as a Christian Soldier, marching off to war."

Muslims are completely wrong to think that the U.S. is engaged in a war against Islam. But that misperception flourishes in part because the domestic political strategy of the Bush administration ó no longer able to claim the Iraq war was a triumph, and with little but red ink to show for its economic plans ó looks more and more like a crusade. "Election Boils Down to a Culture War" was the title of Mr. Fineman's column. But the analysis was all about abortion and euthanasia, and now we hear that opposition to gay marriage will be a major campaign theme. This isn't a culture war ó it's a religious war.

Which brings me back to my starting point: we'll lose the fight against terror if we don't make an effort to understand how others think. Yet because of a domestic political struggle that seems ever more centered on religion, such attempts at understanding are shouted down.

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Listening to Mahathir

Originally published in The New York Times, 10.21.03

"The Europeans killed 6 million Jews out of 12 million. But today the Jews rule this world by proxy. They get others to fight and die for them." So said Mahathir Mohamad, the prime minister of Malaysia, at an Islamic summit meeting last week. The White House promptly denounced his "hate-filled remarks."

Indeed, those remarks were inexcusable. But they were also calculated ó for Mr. Mahathir is a cagey politician, who is neither ignorant nor foolish. And to understand why he made those remarks is to realize how badly things are going for U.S. foreign policy.

The fact is that Mr. Mahathir, though guilty of serious abuses of power, is in many ways about as forward-looking a Muslim leader as we're likely to find. And Malaysia is the kind of success story we wish we saw more of: an impressive record of economic growth, rising education levels and general modernization in a nation with a Muslim majority.

It's worth reading the rest of last week's speech, beyond the offensive 28 words. Most of it is criticism directed at other Muslims, clerics in particular. Mr. Mahathir castigates "interpreters of Islam who taught that acquisition of knowledge by Muslims meant only the study of Islamic theology." Thanks to these interpreters, "the study of science, medicine, etc. was discouraged. Intellectually the Muslims began to regress." A lot of the speech sounds as if it had been written by Bernard Lewis, author of "What Went Wrong," the best-selling book about the Islamic decline.

So what's with the anti-Semitism? Almost surely it's part of Mr. Mahathir's domestic balancing act, something I learned about the last time he talked like this, during the Asian financial crisis of 1997-98.

At that time, rather than accept the austerity programs recommended by the U.S. government and the I.M.F., he loudly blamed machinations by Western speculators, and imposed temporary controls on the outflow of capital ó a step denounced by all but a handful of Western economists. As it turned out, his economic strategy was right: Malaysia suffered a shallower slump and achieved a quicker recovery than its neighbors.

What became clear watching Mr. Mahathir back then was that his strident rhetoric was actually part of a delicate balancing act aimed at domestic politics. Malaysia has a Muslim, ethnically Malay, majority, but its business drive comes mainly from an ethnic Chinese minority. To keep the economy growing, Mr. Mahathir must allow the Chinese minority to prosper, but to ward off ethnic tensions he must throw favors, real and rhetorical, to the Malays.

Part of that balancing act involves reserving good jobs for Malay workers and giving special business opportunities to Malay entrepreneurs. One reason Mr. Mahathir was so adamantly against I.M.F. austerity plans was that he feared that they would disrupt the carefully managed cronyism that holds his system together. When times are tough, Mr. Mahathir also throws the Muslim majority rhetorical red meat.

And that's what he was doing last week. Not long ago Washington was talking about Malaysia as an important partner in the war on terror. Now Mr. Mahathir thinks that to cover his domestic flank, he must insert hateful words into a speech mainly about Muslim reform. That tells you, more accurately than any poll, just how strong the rising tide of anti-Americanism and anti-Semitism among Muslims in Southeast Asia has become. Thanks to its war in Iraq and its unconditional support for Ariel Sharon, Washington has squandered post-9/11 sympathy and brought relations with the Muslim world to a new low.

And bear in mind that Mr. Mahathir's remarks were written before the world learned about the views of Lt. Gen. William "My God Is Bigger Than Yours" Boykin. By making it clear that he sees nothing wrong with giving an important post in the war on terror to someone who believes, and says openly, that Allah is a false idol ó General Boykin denies that's what he meant, but his denial was implausible even by current standards ó Donald Rumsfeld has gone a long way toward confirming the Muslim world's worst fears.

Somewhere in Pakistan Osama bin Laden must be enjoying this. The war on terror didn't have to be perceived as a war on Islam, but we seem to be doing our best to make it look that way.

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     Funds and Games
     By Paul Krugman
     New York Times

Tuesday 18 November 2003

You're selling your house, and your real estate agent claims that he's representing your interests. But he sells the property at less than fair value to a friend, who resells it at a substantial profit, on which the agent receives a kickback. You complain to the county attorney. But he gets big campaign contributions from the agent, so he pays no attention.

That, in essence, is the story of the growing mutual fund scandal. On any given day, the losses to each individual investor were small ó which is why the scandal took so long to become visible. But if you steal a little bit of money every day from 95 million investors, the sums add up. Arthur Levitt, the former Securities and Exchange Commission chairman, calls the mutual fund story "the worst scandal we've seen in 50 years" ó and no, he's not excluding Enron and WorldCom. Meanwhile, federal regulators, having allowed the scandal to fester, are doing their best to let the villains get off lightly.

Unlike the cheating real estate agent, mutual funds can't set prices arbitrarily. Once a day, just after U.S. markets close, they must set the prices of their shares based on the market prices of the stocks they own. But this, it turns out, still leaves plenty of room for cheating.

One method is the illegal practice of late trading: managers let favored clients buy shares after hours. The trick is that on some days, late-breaking news clearly points to higher share prices tomorrow. Someone who is allowed to buy on that news, at prices set earlier in the day, is pretty much assured of a profit. This profit comes at the expense of ordinary investors, who have in effect had part of their assets sold off at bargain prices.

Another practice takes advantage of "stale prices" on foreign stocks. Suppose that a mutual fund owns Japanese stocks. When it values its own shares at 4 p.m., it uses the closing prices from Tokyo, 14 hours earlier. Yet a lot may have happened since then. If the news is favorable for Japanese stocks, a mutual fund that holds a lot of those stocks will be underpriced, offering a quick profit opportunity for someone who buys shares in the fund today and unloads those shares tomorrow. This isn't illegal, but a mutual fund that cared about protecting its investors would have rules against such rapid-fire deals. Indeed, many funds do have such rules ó but they have been enforced only for the little people.

In some cases fund managers traded for their own personal gain. In other cases hedge funds, which represent small numbers of wealthy investors, were allowed to enrich themselves. In return, it seems, they found ways to reward the managers. You make us rich, we'll make you rich, and the middle-class investors who trusted us with their money will never know what happened.

And there's probably more. During last year's corporate scandals, each major company that came under the spotlight turned out to have engaged in some original scams. By analogy, it's a good guess that the mutual fund industry was cheating its clients in other ways that haven't yet come to light. Stay tuned.

Oh, and about that corrupt county attorney: last year it seemed, for a while, that corporate scandals ó and the obvious efforts by the administration and some members of Congress to head off any close scrutiny of executive evildoers ó would become a major political issue. But the threat was deftly parried: a few perp walks created the appearance of reform, a new S.E.C. chairman replaced the lamentable Harvey Pitt, and then we were in effect told to stop worrying about corporate malfeasance and focus on the imminent threat from Saddam's W.M.D.

Now history is repeating itself. The S.E.C. ignored warnings about mutual fund abuses, and had to be forced into action by Eliot Spitzer, the New York attorney general. Having finally brought a fraud suit against Putnam Investments, the S.E.C. was in a position to set a standard for future prosecutions; sure enough, it quickly settled on terms that amount to a gentle slap on the wrist. William Galvin, secretary of the commonwealth of Massachusetts ó who is investigating Putnam, which is based in Boston ó summed it up: "They're not interested in exposing wrongdoing; they're interested in giving comfort to the industry."

I wonder what they'll use to distract us this time?

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Jump to TO Features for Wednesday 19 November 2003

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