This week saw a fresh bout of sharpened attacks on the present political setup in Thailand. Ex Prime Minister Thaksin’s supporters donned their bright red and organised the boycott of a ASEAN summit, after which tanks and armoured vehicles pursued them on the streets of Bangkok, finally leading to yet another arrest warrant for Thaksin and his followers.

The country is a monarchy under the benign kingship of Bhumibol Adulyadej Rama IX ever since he ascended the throne in 1946. Although King Bhumibol is a constitutional monarch, he has made several decisive interventions in Thai politics when there was bloodshed or when Thailand was in turmoil. He was credited with facilitating Thailand’s transition to democracy in the 1990s; although in earlier periods of his reign he supported some military regimes, and more recently, the Council for Democratic Reform. He is reported to be one of the richest monarchs in the world, with a personal net worth of $35 billion. The king is revered as a semi-divine figure by the Thais. Although the King is held in great respect by many Thais, he is also protected by l'se majesté laws which allow critics to be jailed for 3 to 15 years. It is almost mandatory to place the King's photographs at practically every conceivable public place. Many of these bigger than life size portraits adorn highways, matching the trend with Tollywood Heroes in South India, though the one's of the Thai king are much more regal and permanent. It is almost the law to worship the King and the Royal family, and any protest is taken as an attack on the king and the entire Thai nation.

Thailand has a vibrant history, with close ties with India. The ruling Chakri dynasty came to power in 1782, has strong Hindu traditions, and has ruled the country with an almost iron hand. Thailand has had a fragmented democracy for more than 60 years, but this has been marked and marred by army men capturing power, coups, overthrows, with the throne getting away with most of its will and desire. The present trend of clamour for real democracy began with the Asian financial crisis of 1999, when it was felt that a more modern polity was needed to leapfrog the economy and the country out of the morass it was sinking into.

The present wave of unrest had its beginning with the elections of 2001, won convincingly by Thaksin Shinawatra of the new Thai Love Thai party. Allegations of vote-buying forced partial re-run of poll. Thaksin formed a coalition government. Months later a plane Thaksin was due to board exploded, fortunately Thaksin was unharmed. In 2005 Thaksin begun a second term as PM after his party won the elections by a landslide. In 2006 a snap election, was called by the PM amid mass rallies against him. These were subsequently annulled, leaving a political vacuum. The PM took a seven-week break from politics. Later the same year Military leaders stage a bloodless coup while Prime Minister Thaksin was at the UN General Assembly. Retired General Surayud Chulanont was appointed as interim prime minister. Policeman-turned-tycoon Thaksin Shinawatra transformed Thai politics but was ousted in a military coup In 2007 Thaksin's Thai Rak Thai party was banned.

Voters in a referendum approved a new, military-drafted constitution. General elections were held marking the first major step towards a return to civilian rule. The People Power Party (PPP), seen as the reincarnation of Thaksin’s Thai Rak Thai (Thais Love Thais) party, won the most votes but was denied power. However there was no respite for Thaksin. A corruption trial of his wife Pojaman Shinawatra began two weeks after her return from exile. 2008 February marked a tentative return to civilian rule. Samak Sundaravej was sworn in as prime minister.

Ousted premier Thaksin Shinawatra unexpectedly returned from exile. In 2008 July a corruption trial of Thaksin begun. Thaksin’s wife was found guilty of fraud and sentenced to three years in jail. She was granted bail pending an appeal. In 2008 August Thaksin flee to Britain with his family after failing to appear in court to face corruption charges. In 2008 September State of emergency was declared in Bangkok after clashes between pro- and anti-government demonstrators. The clashes followed a week of mass protests calling for the resignation of Prime Minister Samak Sundaravej, and the occupation by protesters of Bangkok’s main government complex. Prime Minister Samak Sundaravej was dismissed by Constitutional Court for violating a conflict of interest law by hosting two television cooking shows while in office.

Somchai Wongsawat chosen by parliament as new prime minister, but the street protests against the government continued In 2008 October sixteen were killed and hundreds injured in Thailand’s worst anti-government protests in 16 years. Thai Supreme Court gave fugitive former PM Thaksin a two-year jail sentence after finding him guilty of corruption over a land deal. In 2008 November an opposition grouping called the People’s Alliance for Democracy rallied tens of thousands for protest around parliament building in what it called a “final battle” to topple the current government. Flights from Thailand’s main airports were suspended after anti-government protesters blockade terminal buildings. Thousands of foreign visitors are left stranded. In 2008 December Prime Minister Somchai Wongsawat was forced to quit from office by a Constitutional Court ruling that disbanded the governing People Power Party for electoral fraud and barred its leaders from politics for five years. Opposition leader Abhisit Vejjajiva secured a coalition within parliament to become Thailand’s new prime minister, the third new leader in three months.

It is just 7 Days when Obama takes over as the President of the USA. With his black Kenyan father and white American mother, his upbringing in Honolulu and Jakarta, and his Ivy League education, Obama dustbins issues of race as non issues, echoing the inaugural address of John Kennedy, “I wouldn’t be here if, time and again, the torch had not been passed to a new generation" Obama has been praised as a master of oratory on par with other renowned speakers in the past such as Dr. Martin Luther King, Jr. His “Yes We Can” speech, which artists independently set to music in a popular video produced by Will.i.am, was viewed by 10 million people on Youtube in the first month, and received an Emmy Award. Many commentators mentioned Obama’s international appeal as a defining factor for his public image. Obama established close relationships with prominent foreign politicians and elected officials even before his presidential candidacy, notably with then current British Prime Minister Tony Blair, whom he met in London in 2005, with Italy’s Democratic Party leader Walter Veltroni, who visited Obama’s Senate office in 2005, and with French President Nicolas Sarkozy, who also visited him in Washington in 2006. Obama won Best Spoken Word Album Grammy Awards for abridged audiobook versions of both of his books; for Dreams from My Father in February 2006 and for The Audacity of Hope in February 2008. In December 2008, Time magazine named Barack Obama as its Person of the Year for his historic candidacy and election, which it referred to as “the steady march of seemingly impossible accomplishments.”

Barack Obama was born on Honolulu in 1961. His mother was of English and Irish descent. Obama’s father was from Kenya. His parents met in 1960 while attending the University of Hawaii, where his father was a foreign student. They married in 1961; separated when Obama was two years old and divorced in 1964. Obama’s father returned to Kenya and saw his son only once more before dying in an automobile accident in 1982. After her divorce, his mother married Indonesian student Lolo Soetoro who was attending college in Hawaii. When Soeharto came to power in 1967, all students studying abroad were recalled and the Obama family moved to Indonesia. There Obama attended local schools, such as Besaki Public School until he was ten years old. He then returned to Honolulu to live with his maternal grandparents until his graduation from high school in 1979. Obama’s mother returned to Hawaii in 1972 for five years, and then in 1977 went back to Indonesia, where she worked as an anthropological field worker. She stayed there most of the rest of her life, returning to Hawaii in 1994. She died of ovarian cancer in 1995. Of his early childhood, Obama has recalled, “That my father looked nothing like the people around me ? that he was black as pitch, my mother white as milk ? barely registered in my mind.” In his 1995 memoir, he described his struggles as a young adult to reconcile social perceptions of his multiracial heritage. He wrote that he used alcohol, marijuana, and cocaine during his teenage years to “push questions of who I was out of my mind”. At the 2008 Civil Forum on the Presidency, Obama identified his high-school drug use as his “greatest moral failure.”

The attack on public places in Mumbai are a grim reminder to the world that 9/11 is not embedded in a distant pass, but is a part of a scenario of continuum that can be replicated anytime, anywhere. What is most disturbing is the apparent exuberance and motivation of the fedayeen that perpetuated the crime. The young breed of the fedayeen, coupled with their energy, innovation and education spells doom and disaster. This is a part of their extreme loss of faith in humanity and showcases the complete stranglehold of the maulvies on an impressionable youth. This is Al Qaeda all the way, and this time with greater aggression and motivation. If Taliban factories out there are churning such a breed, then one can safely say that the world is just coming to grips with a new brand of ferocious terrorism. Mumbai may just have been its nascent laboratory; one has to look for its international ramifications and unite to nip this new alignment in the bud itself. Let our blinkered politicians not see in this an occasion to collect brownie points, but see the greater malaise and unite to fight the force of destruction. The Taj and Oberoi are today seen as our underbellies through which the enemy could launch a frontal attack on our values. It will be a pity if their reconstruction gets quagmire in endless surveys, studies and clearances. Their coming back will be the slap the fedayeen deserves, a taut time frame, with liberal finances should establish the rehabilitation in a maximum time of, say, 3 months. This is one war we cannot be seen as loosing, so the faster it is restored greater will be the impacts of national resurgence and character. But if we try to turn the attacks to a smartness and place a new bigger structure where the heritage site was; that will not be a surprise, but as a triumph of vulgar profiteerism in the face of loss of real value.

How AIG’s Collapse Began a Global Run on the Banks

One of the better summary of the Sub Prime Crisis and its impact on the economics of today has been presented by Porter Stansberry

His Essay is reproduced below in full, with no modification or splicing.

Something very strange is happening in the financial markets. And I can show you what it is and what it means…

If September didn’t give you enough to worry about, consider what will happen to real estate prices as unemployment grows steadily over the next several months. As bad as things are now, they’ll get much worse.

They’ll get worse for the obvious reason: because more people will default on their mortgages. But they’ll also remain depressed for far longer than anyone expects, for a reason most people will never understand.

What follows is one of the real secrets to September’s stock market collapse. Once you understand what really happened last month, the events to come will be much clearer to you…

Every great bull market has similar characteristics. The speculation must ' at the beginning ' start with a reasonably good idea. Using long-term mortgages to pay for homes is a good idea, with a few important caveats.

Some of these limitations are obvious to any intelligent observer… like the need for a substantial down payment, the verification of income, an independent appraisal, etc. But human nature dictates that, given enough time and the right incentives, any endeavor will be corrupted. This is one of the two critical elements of a bubble. What was once a good idea becomes a farce. You already know all the stories of how this happened in the housing market, where loans were eventually given without fixed rates, without income verification, without down payments, and without legitimate appraisals.

As bad as these practices were, they would not have created a global financial panic without the second, more critical element. For things to get really out of control, the farce must evolve further… into fraud.

And this is where AIG comes into the story.

Around the world, banks must comply with what are known as Basel II regulations. These regulations determine how much capital a bank must maintain in reserve. The rules are based on the quality of the bank’s loan book. The riskier the loans a bank owns, the more capital it must keep in reserve. Bank managers naturally seek to employ as much leverage as they can, especially when interest rates are low, to maximize profits. AIG appeared to offer banks a way to get around the Basel rules, via unregulated insurance contracts, known as credit default swaps.

Here’s how it worked: Say you’re a major European bank… You have a surplus of deposits, because in Europe people actually still bother to save money. You’re looking for something to maximize the spread between what you must pay for deposits and what you’re able to earn lending. You want it to be safe and reliable, but also pay the highest possible annual interest. You know you could buy a portfolio of high-yielding subprime mortgages. But doing so will limit the amount of leverage you can employ, which will limit returns.

So rather than rule out having any high-yielding securities in your portfolio, you simply call up the friendly AIG broker you met at a conference in London last year.

“What would it cost me to insure this subprime security?” you inquire. The broker, who is selling a five-year policy (but who will be paid a bonus annually), says, “Not too much.” After all, the historical loss rates on American mortgages is close to zilch.

Using incredibly sophisticated computer models, he agrees to guarantee the subprime security you’re buying against default for five years for say, 2% of face value.

Although AIG’s credit default swaps were really insurance contracts, they weren’t regulated. That meant AIG didn’t have to put up any capital as collateral on its swaps, as long as it maintained a triple-A credit rating. There was no real capital cost to selling these swaps; there was no limit. And thanks to what’s called “mark-to-market” accounting, AIG could book the profit from a five-year credit default swap as soon as the contract was sold, based on the expected default rate.

Whatever the computer said AIG was likely to make on the deal, the accountants would write down as actual profit. The broker who sold the swap would be paid a bonus at the end of the first year ' long before the actual profit on the contract was made.

With this structure in place, the European bank was able to assure its regulators it was holding only triple-A credits, instead of a bunch of subprime “toxic waste.” The bank could leverage itself to the full extent allowable under Basel II. AIG could book hundreds of millions in “profit” each year, without having to pony up billions in collateral.

It was a fraud. AIG never any capital to back up the insurance it sold. And the profits it booked never materialized. The default rate on mortgage securities underwritten in 2005, 2006, and 2007 turned out to be multiples higher than expected. And they continue to increase. In some cases, the securities the banks claimed were triple A have ended up being worth less than $0.15 on the dollar.

Even so, it all worked for years. Banks leveraged deposits to the hilt. Wall Street packaged and sold dumb mortgages as securities. And AIG sold credit default swaps without bothering to collateralize the risk. An enormous amount of capital was created out of thin air and tossed into global real estate markets.

On September 15, all of the major credit-rating agencies downgraded AIG ' the world’s largest insurance company. At issue were the soaring losses in its credit default swaps. The first big writeoff came in the fourth quarter of 2007, when AIG reported an $11 billion charge. It was able to raise capital once, to repair the damage. But the losses kept growing. The moment the downgrade came, AIG was forced to come up with tens of billions of additional collateral, immediately. This was on top of the billions it owed to its trading partners. It didn’t have the money. The world’s largest insurance company was bankrupt.

The dominoes fell over immediately. Lehman Brothers failed on the same day. Merrill was sold to Bank of America. The Fed stepped in and agreed to lend AIG $85 billion to facilitate an orderly sell off of its assets in exchange for essentially all the company’s equity.

Most people never understood how AIG was the linchpin to the entire system. And there’s one more secret yet to come out…

AIG’s largest trading partner wasn’t a nameless European bank. It was Goldman Sachs.

I’d wondered for years how Goldman avoided the kind of huge mortgage-related writedowns that plagued all the other investment banks. And now we know: Goldman hedged its exposure via credit default swaps with AIG. Sources inside Goldman say the company’s exposure to AIG exceeded $20 billion, meaning the moment AIG was downgraded, Goldman had to begin marking down the value of its assets. And the moment AIG went bankrupt, Goldman lost $20 billion. Goldman immediately sought out Warren Buffett to raise $5 billion of additional capital, which also helped it raise another $5 billion via a public offering.

The collapse of the credit default swap market also meant the investment banks ' all of them ' had no way to borrow money, because no one would insure their obligations.

To fund their daily operations, they’ve become totally reliant on the Federal Reserve, which has allowed them to formally become commercial banks. To date, banks, insurance firms, and investment banks have borrowed $348 billion from the Federal Reserve ' nearly all of this lending took place following AIG’s failure. Things are so bad at the investment banks, the Fed had to change the rules to allow Merrill, Morgan Stanley, and Goldman the ability to use equities as collateral for these loans, an unprecedented step.

The mainstream press hasn’t reported this either: A provision in the $700 billion bailout bill permits the Fed to pay interest on the collateral it’s holding, which is simply a way to funnel taxpayer dollars directly into the investment banks.

Why do you need to know all of these details? First, you must understand that without the government’s actions, the collapse of AIG could have caused every major bank in the world to fail.

Second, without the credit default swap market, there’s no way banks can report the true state of their assets ' they’d all be in default of Basel II. That’s why the government will push through a measure that requires the suspension of mark-to-market accounting. Essentially, banks will be allowed to pretend they have far higher-quality loans than they actually do. AIG can’t cover for them anymore.

And third, and most importantly, without the huge fraud perpetrated by AIG, the mortgage bubble could have never grown as large as it did. Yes, other factors contributed, like the role of Fannie and Freddie in particular. But the key to enabling the huge global growth in credit during the last decade can be tied directly to AIG’s sale of credit default swaps without collateral. That was the barn door. And it was left open for nearly a decade.

There’s no way to replace this massive credit-building machine, which makes me very skeptical of the government’s bailout plan. Quite simply, we can’t replace the credit that existed in the world before September 15 because it didn’t deserve to be there in the first place. While the government can, and certainly will, paper over the gaping holes left by this enormous credit collapse, it can’t actually replace the trust and credit that existed… because it was a fraud.

And that leads me to believe the coming economic contraction will be longer and deeper than most people understand.

As the world tries to cope with the onslaught of failing economies and bailout packages, all efforts to solve the crisis are veering away from the sublime to the ridiculous. The world over the crisis is being projected as one caused by drying up of liquidity, and so the rescue attempt is based on injecting a lot of good money into the banking systems, and induce banks to restart lending to each other. There is no analysis on the why of the problem, and pumping more and more money looks to be the end all and be all of all ideas. The G- 7 summit, for want of better ideas, also endorsed the fire fighting as the only expedient to solve the problem. And while more and more good money is injected to save bad money and rotten investments, the tumble and melt down continues unabated and markets desperately reach further south, there being nowhere else to go. What are being shattered are not just the dreams of the common man, but also faith, trust and hope in the ability of the powers that be to come out with some innovative mechanism that will swivel us towards a new economic order.

The approach and reaction of the world politicians, economists and statesmen is similar to their attitude towards Global Warming and other real issues that face the world. From population to climate change, from diversion of inputs and land use from food to biofuels, from self sufficiency to chaos, they act in unison and move in the direction that will result in the maximum harm to the world and the people. The Big 7, 8, or 22 etc will meet at some exotic location to formulate ideas and mechanism and provide leadership and direction; but the behavior will be same as that of the participants at any convention or seminar. Lots of travel, top hotels and food, bon homie galore, but no attempt and movement towards achieving anything of purpose. Davos, et al have become annual events to holiday and while away precious resources as the world trembles and eventually crumbles.

There is nothing that has suddenly gone fundamentally wrong with the world economy; all what is wrong is in our leaders and path breakers. They are united in being pitted against us, the common man, and are doing, and will continue to do whatever is good for their narrow selfish objective. We have allowed thoughtless and mindless leaders to ruin us, and unless we unite to throw them all out and give to ourselves quality and an informed leadership, they will continue to work against our interests and needs.

It is a pity that political parties are devised and organised along religious and emotive issues, and there is none that espouses the cause of the aam aadmi though everyone clamours about him. We need a resurgence, a new breed of sensitive ad concerned politicians who work for the country and not for fanning every fire that will endear them to a particular vote bank. This is easier said and done. It needs good people to come into active politics and refrm the system from within. Just beating the brerast about dishonest politicians and public figures will achieve nothing. 

In reality there is not much that is wrong with the World, its systems or its economy. There is just a deliberate skew, and it is the removal of the skew that will restore plenty and happiness. This present crisis will last as long as it is convenient to the power brokers and manipulators. And this will be continue only till such time as money flows into the system. When the system cans suck no more, there will be a sudden dramatic U Turn and all values and indices will move northwards. Tributes will be paid to the foresight of those who made it all possible; maybe a Nobel Prize also to reward those who so efficiently engineered the entire drama J

Before that happens our own Index should slip to anywhere in the range of 8000- 10000. It will be advisable to start reinvesting at every fall below 10000. But this should be entirely from free funds, not from leveraged values or instruments.

What has happened is just a game. Reminds me of Omar Khayyam, who said "Its all a chequer board of night and days, where destiny with man for pleasure plays, hither and thither moves and lays and slays, and one by one back in the closet lays". The dark clouds will soon melt away, but that will only happen when it is convenient to the powers that control the world, and not when it is going to benefit the vox populi.

The global economy is losing more money from the disappearance of forests than through the current banking crisis, A EU-commissioned study puts the annual cost of forest loss at between $2 trillion and $5 trillion. The figure comes from adding the value of the various services that forests perform, such as providing clean water and absorbing carbon dioxide. The cost of natural decline dwarfs losses on the financial markets. So whereas Wall Street by various calculations has to date lost, within the financial sector, $1-$1.5 trillion, the reality is that at today’s rate we are losing natural capital at least between $2-$5 trillion every year. Key to understanding the conclusions is that as forests decline, nature stops providing services which it used to provide essentially for free. So the human economy either has to provide them instead, perhaps through building reservoirs, building facilities to sequester carbon dioxide, or farming foods that were once naturally available. Or we have to do without them; either way, there is a financial cost.