SUNDAY, APRIL 5, 2015 • THE BULLETIN
F3
OMMENTARY
e o L
e as mess
0
et's recap the state of America's commitments in the Mid-
dation for a new U.S.-led order that
dle East. Our military is fight-
ROSS
ing in a tacit alliance with Iranian
DOUTHAT
proxies in Iraq, even as it assists in a campaign against Iranian-backed forces in Yemen. We are formal-
ly committed to regime change in are considered rogues and threats, Syria, but we're intervening against to be restrained and coerced by our the regime's Islamist enemies. Our overwhelming military might. Idestrongest allies, officially, are still ally, over time, our clients become Israel and Saudi Arabia, but we're more prosperous and more dembusy alienating them by pushing for ocratic, the benefits of joining the detente with Iran. And please don't network become obvious, and the mention Libya or al-Qaida — you'll military canopy both expands and confuse everyone even more. becomes less necessary. Is there a method here? A MetterIn an offshore balancing system, nichian master plan discernible only our clients are fewer, and our comto President Barack Obama and his mitments are reduced. Regional advisers'? Not exactly: This admin- powersbear the primary responsiistration has been persistently sur- bility for dealing with crises on the prised by Middle East developments, ground, our military strategy is oriand its self-justifications alternate ented toward policing the sea lanes between the exasperated (why don't and the skies, and direct intervenyou try it if you're so smart?) and tion is contemplated only when the the delusional (as soon as we get the balance of power is dramatically Iran deal, game changer, baby!). upset. But there is a strategic element in Since the Cold War, and especialhow the Obama White House ended ly since 1991, the Pax Americana up here. Haltingly but persistently, idea has predominated in our forthis administration has pursued a eign policy thinking. But in the Midparadigm shift in how the United dle East, there has been no real evoStates relates to the Middle East, a lution toward democracy among our shift from a Pax Americana model network of allies; instead, their pertoward a strategy its supporters call sistent corruption has fed terrorism "offshore balancing." and contributed to al-Qaida's rise. In a Pax Americana system, the Hence the Bush administration's United States enjoys a dominant po- post-9/ll decision to tr y t o s t art sition within a network of allies and afresh, by transforming a rogue clients; actors outside that network state into a regional model, a foun-
THOMAS FRIEDMAN r
ments are truly minimal, but it's
would be less morally compromised very hard for a hegemon to simply than the old. sidle offstage, shedding expectaThat order did not, of course, tions and leaving allies in the lurch. emerge. Instead, it took all the king's And when you're still effectively inhorses and all of David Petraeus' volved everywhere, trying to tip the men just to hold Iraq together; a dif- balance of power this way and that ferentbad actor,Iran, ended up em- with occasional airstrikes, it's easy powered; and the old problem of re- to end up in a contradictory, six-depression led to the Arab Spring and grees-of-enmity scenario, with no the civil wars that followed. clear goal in mind. Sticking to the Pax Americana Second, multipolar environments model after these developments are often more unstable and violent, would have required keeping U.S. period, than unipolar ones. So offtroops in Iraq for decades. It might shoring U.S. power and hoping that have forced us to choose between Iran, Iran's Sunni neighbors and Isbombing Iran and extending a Cold rael will find some kind of balance War-style nuclear umbrella over on their own will probably increase most of the Arab world. And there the riskofarms races,cross-border still would have been no easy an- invasions and full-scale regional swers about how to deal with cor- war. The conflicts we have now are rupt allies or with the zealots who ugly enough, but absent the restraint move in when they fall. still imposed by U.S. military domSo it's understandable that the inance, it's easy to imagine someObama White House has sought a thing worse. different role. Our withdrawal from If we could actually escape Middle Iraq and light-footprint approach to East entanglements entirely, even counterterrorism, our strange dance that "something worse" might be with Bashar Assad, our limited inless costly to the United States than tervention against ISIS — they all trying to sustain the Pax Ameriaim at a more "offshore" approach cana. And if we had a trustworthy to the Middle East's problems. Like- hegemon in the wings to replace us, wise, the long-sought detente with all of this might be moot. Iran, which assumes that once the
Tell me how this ends well t H ONG K O N G -
've been in China for the last week.
It's always instructive to see how the world looks from the Middle
Kingdom. Sometimes the best insights come just from readingthe local papers. On March25,The ChinaDa il y published an essay detailing how "Beijing authorities" had "launched inspection tours of kindergartens this week to ensurethat children are not overbur-
dened with schoolwork. Although Chinese, mathematics and English are supposed to be taught to primary school students, it is not uncommon to seepreschool-age children across China being forced to study these subjects." In the same paper, there was also
But in the world as it exists, what
an article about the latest fighting be-
nuclear issue is resolved, Tehran can we have is an administration that gradually join Riyadh, Cairo and Tel wants to believe it's getting us out, Aviv, in a multipolar order. but a region that's inexorably, ineviBut there are two problems. tably pulling us back in. First, offshore balancing offers the — Ross Douthat is a columnist
tween Shiite pro-Iranian and Sunni
most benefits when your entangle-
workingon adocumentary abouthow Yemen was becoming an environ-
for The New York Times.
pro-Saudi factions in Yemen. Clashes there have focused on Yemen's second-largest town, Taiz. Taiz? Wait a minute! I was in Taiz in May 2013 mental disaster. We focused on Taiz
Stop giving a student loan to everyone By Megan McArdle
relief. They should. Happily, we already have a system for dealing with people who are burdened
Bloomberg News
A group ofstudent-loan borrowers has declared
with excess debt: the bankruptcy system. The gov-
that they're not going to repay their student loans, and they are asking the Department of Education
ernment should change the law to make it easier to bankrupt student loans.
because, as a result of Yemen's devastated ecosystems, residents of Taiz get to run their home water faucets for 36
hours every 30 days or so. So there you have it. The news out of China is the crackdown on kinder-
gartens teaching math and English too early, and the news out of Yemen is that Sunni and Shiite factions are
fighting over a town that is already so cracked up the water comes on 36 hours a month, and the rest of the
But at the same time, this case points to the need
time you have to rely on roving water
They are former students— perhaps Ishould say "victims" — of a for-profit college operator that lost eligibility for federal student loans last year and has been purchased by a company that specializes in ... collecting student-loan debts. The students
for better underwriting in student loans. Simply allowing students to borrow large amounts of money and then bankrupt it is a recipe for big government losses. We should allow people to bankrupt student loans, but the corollary to that is that we need to be
trucks. And that was before the latest
claim that before the denouement, the school did
more carefulabout the loans we make.
everything but turn them upside down and shake the loose change out of their pockets. They're now
Right now, the system indiscriminately lends to any marginally well-equipped institution that can daim to be teaching anyone any skill, even if that skill isn't going to increase a student's ability to repay his loan. It's no wonder that institutions are
tially came to their people and said, "My people, we're going to take away your freedom, but we're going to give y ou the best education, in~ ctu r e and export-led growth policies money can buy. And eventually you'll build a big middle class and win your free-
to cancel their debt.
deeply in debt, with degrees that don't seem to be
worth much. Andthat's those who graduated; those who didn't are in worse shape. So they want the Department of Education to forgive their loans and
setting up lots of useless programs to collect those
+RANKI I
allowthemto getbackon their feet. I feel theirpain acutely. Years ago, Ipaid a five-fig-
tuition checks; the real wonder is that there aren't
fighting. Again, the comparison with Asia is instructive. After World II, Asia was ruled by many autocrats who essen-
dom." Over that same period, Arab autocrats came to their people and
ure sum in today's dollars for technical training to a
more stories like these. So yes,we need to off er debtors like these some
for-profit school, financed not by student loans but by my dayjob as a secretary and my creditcard.
relief. But we also need to stop making loans for programs that have poor graduation records, high
That's how I discovered what too many students
default rates and little evidence of economic ben-
have learned since then: My impressive-sounding certification (CNE, for tech types who want to People get taken by scams every day, often with cringe in sympathy) was basically worthless with- thehelpofgovernment money. Should FannieMae out work experience. Happily, I lucked into a job forgive the mortgages of people if the buyer mis-
efit to degree holders. I'm not just talking about
Asian autocrats tended to be modernizers, like Singapore's Lee Kuan
for-profit colleges here, but also about the wide ar-
Yew, who died last month at 91 — and
rayofprograms ataccreditedfour-yearschoolsthat allow students to amass substantial debt without that was mostly secretarial, with a bit of network represented the condition of the house? Should the givingthem anything of value in return. The easiest admin thrown in, and that gave me just enough Small Business Administration forgive the debt of way to do this is to stop making the loans directly, experience to get a full-time job in tech consulting some guywho pledged hishousetoback ano-hope then invite private companies back into the stu-
you see the results today: Singapor-
when that company went out of business. But most
franchise operation'? For that matter, what about
dent-loan market — and force them to eat some of people who go to abig, public party school and ma- the losses. Let them do the job the government has
of my dassmates were not so lucky. They basically paid a lot of money, much of it borrowed, for a cre- jor in sports marketing or tourism? The taxpayer failedto de Assess which schools and programs dential they never used. It was a terrible scam, and
cannot bemade responsiblefor every unwise de-
actually add economic value, and refuse to fund the
it has permanently tainted my view of for-profit ed- cision every individual makes, even if the govern- ones that don't. ucation services. But I still have to ask: Should the ment finances it. That's not to say these students shouldn't get governmentreally havemade uswhole'?
— Megan McArdleis a columnist for Bloomberg.
said, "My people, we're going to take away yourfreedom and give you the Arab-Israel conflict."
eans waiting in line for 10 hours to
pay last respects to a man who vaulted them from nothing into the global middle class. Arab autocrats tended to be predators who used the conflict
with Israel as a shiny object to distract their people from their own misgovernance. The result: Libya, Yemen, Syria and Iraq are now human-development disaster areas.
Some sawthiscoming. In 2002, a group of Arab social scientists produced the U.N.'s Arab Human De-
Money managers can't resist herd instinct By JustIn Fox
a few fretful pages on the "ascent
Bloomberg News
of the asset management sector" in
It was once widely believed that the 2014 annual report of the Bank the rise of professional investors for International Settlements, the inwould make financial markets less ternational club for central bankers. prone to manias, panics and crashes.
And in March, the Financial Stabil-
Lately, the opposite belief has begun ity Board, the international club for to take hold. the people at central banks who care Take it f ro m t h e I n ternational about financial regulation, and the Monetary Fund's Bradley Jones: International Organization of Secu"Itshould perhaps serve as a shot rities Commissions together issued across the bow that the rise of the in- a set of proposed "Methodologies for stitutional investment management Identifying Non-Bank Non-Insurer industry — populated with what are Global Systemically Important Fipresumably the most sophisticated,
nancial Institutions." The main p roblem with
temically important" — regulatorit continued to inform financial reg- speak for too big to fail — seems pretulation, monetary policy and other ty silly, given that, as the FSB/IOSCO pursuits up to the financial crisis of report acknowledges, "asset manag2008. ers tend to have small balance sheets to lose adherents in academia, but
and the forced liquidation of their
autocrat was also a modernizer), that
own assets would not generally cre-
paper, there's a growing body of theory and evidence that the incentives faced by professional money managers push them to run with the
ate market disruptions." There was a
awakening fizzled out. I read President Abdel Fattah el-Sissi of Egypt dedaring that "the challenges facing our national Arab security are grave, and we have succeeded in diagnosing the reasons behind it."
time (1998) when a hedge fund could pile on enough debt that its failure endangered the global financial system, but that doesn't seem to be the case
incentives aren't new. "Worldly wisa sset dom teaches that it is better for rep-
thatregulators are concerned about
-
ment, and, if it did not turn around, it
would get where it was going. It was ignored by the Arab League. In 2011, the educated Arab masses rose up to force a turnaround before they got where they were going. Except for Tunisia (the only Arab country whose
Now, as the IMF's Davis explains in his entertaining and informative
herd and inflate bubbles rather than making their own decisions and bet-
well resourced and rational speculators in the world — has coincided managers, one learns from reading with three of history's largest bub- these papers and reports, is that they bles in the last twenty five years: the behave too much like other asset Japanese Heisei bubble of the late managers. That is, they "herd" 1980s, the global equity bubble of the buying into particular securities or late 1990s, and the structured credit asset classes mainly because lots of bubble of the mid 2000s." other asset managers are doing it. In That's from a working paper, titled the process, they make market highs "Asset Bubbles: Re-thinking Policy go higher and market lows go lower. for the Age of Asset Management," This acknowledgment that profesthat's been making the rounds sional investors don't automatically during the past few weeks. It's part drive prices toward something close of a burgeoning new official litera- to their correct levels is a welcome ture on the problems with asset man- shift in economic consensus. In the agers.There's "Asset Management 1960s and 1970s, empirical evidence and Financial Stability," published that financial market prices moved in 2013 by the U.S. Treasury Depart- very quickly to reflect new informent's Office of Financial Research. mation led most people in academic There's a 2014 speech — "The Age of finance and many in economics to Asset Management'?" — by the Bank conclude that the prices were thus of England's great thought-provok- in some fundamental way right. By er, Andy Haldane. There were also the 1980s, this view was beginning
velopment Report. It said the Arab world suff ered deficits of freedom, knowledge and women's empower-
now, and the giant asset managers ting that bubbles will deflate. These such as BlackRock and Vanguard aren't really leveraged at all. A more promising approach might to succeed unconventionally," wrote be to look at the ways in which regJohn Maynard Keynes in 1936, as- ulatorshave been pressuring asset sessing the state of professional in- managers to behave conventionally, vesting at the time. What's different and maybe dial some of them back is that professional money managers a bit. In his speech, the Bank of Ennow control a much bigger share of gland's Haldane mentions risk-based the world's financial assets than they capital rules and mark-to-market acdid in the 1930s, and that the pres- counting as forces that have driven sure they face to behave convention- pension funds and insurance compaally (that is, buy the same things ev- nies to buy and sell assets in a procyerybody else is buying) is so explicit. clical, boom-and-bust way. The performanceofactivem anagers Still, I'm having trouble imagining is now measured against the bench- how we could get to a world where marks of conventionality known as asset managers felt encouraged to market indexes, while index funds follow the path less traveled. Better and mostexchange-traded funds are to acknowledge that there will ineviconventional by design. tably be asset bubbles and busts, and What, if anything, should regu- figure out how to keep them from dolators do about this? The notion that ingtoomuch damage. some asset managers are so big that — Justin Foxis a columnist they should be designated as "sysfor Bloomberg. utation to fail conventionally than
And that was? Too little Arab cooper-
ation against Persians and Islamists. Really? Some 25 percent of Egyptians are illiterate today after $50 billion in
U.S. aid since 1979. (In China, illiteracy is 5 percent; in Iran, 15 percent.) My heart goes out to all the people in this region. But when your leaders waste 70 years, the hole is really deep. In fairness, el-Sissi is trying to dig Egypt out. Nevertheless, Egypt may send troops to defeat the rebels in Ye-
men. If so, it wouldbethe first case of a countrywhere 25percentofthepopulation can't read sending troops to res-
cue a country where the water comes through the tap 36 hours a month to quell a war where the main issue is the
seventh-century struggle over who is the rightful heir to the Prophet Muhammad — Shiites or Sunnis.
Any Chinese preschooler can tell you: That's not an equation for success. — Thomas Friedman is a columnist for The New York Times.