Mumbai Attacks

The attacks on Mumbai create a risk/reward opportunity for international law.

The Risk: The U.S. is emerging from seven years of struggling to form a coherent and pragmatic system for dealing with terrorist attacks. The election of Obama, repudiation of torture ("enhanced interrogation"), Guantanamo, and other policies presented a real chance to create a better rule of law for states to apply in dealing with terrorism.

Just as the U.S. was ready to move forward, one of the world's major powers (nuclear at that), a power who shares a contested border region with another major player in international affairs, is facing the same problem. The risk is that India will make many of the same (mistaken) policy choices as the United States did in facing the challenge of these attacks. This would be a grave set-back for creating a real rule of law for dealing with terrorism.

This path would basically affirm the rule that a state can do whatever it deems necessary to fight terrorism, even by acting outside the law.

The Opportunity: If India is brave enough to respond to tragedy with a cool head, and to insist on a response grounded in law, there is an opportunity to create a sound legal system for dealing with attacks of this nature. All the critiques that people have thrown at the U.S. would be put to the test, and new sate practice would emerge.

Of course, there are already certain legal tools (many listed here), but there has not been an effective development of institutions or a comprehensive legal structure to apply to these situations.

The Upshot: The response to these attacks present an opportunity for the world to create an effective rule of law infrastructure for dealing with terrorism.

Higgins Addresses the General Assembly

Rosalyn Higgins' address to the UN General Assembly.

More on Georgia

From the Russian News and Information Agency....

Abkhazia has announced that it is reinforcing its border with Georgia saying that the current situation resembles the run-up to Georgia's invasion into South Ossetia.

Russia-Georgia

BBC reports that about 10,000 Georgians came to a rally to protest against Pres. Saakashvili. The complaint--he used indiscriminate force when Georgia used military force in South Ossetia prior to Russia's invasion.

OIl Prices

Well,

Oil has dropped significantly at the same time credit has dried up.

It makes me wonder if speculation did drive the price of oil up to record levels. The inference being that oil was high when futures trading was high. Credit has dried up which makes it harder to engage in massively leveraged futures deals. Oil prices drop.

Entirely circumstantial, and does not look at other variables, but it makes you wonder...

Is there any other option?

Lot's of the "debate" around the bill amounts to House members saying "it's not perfect, but we have to do something."

Of course the "something" is authorizing the Treasury to use federal funds to buy up billions of dollars of assets for which there is no known value and no market.

The goal, as I see it, is to clean up the balance sheets of firms who purposely took on liabilities which they did not have to report. No one will lend money to anyone else (among large financial institutions) because these mystery positions are unknown. The person you lend to today could declare a massive writedown tomorrow and go bankrupt, leaving you with the bag.

So, the plan goes, the United States will purchase these bad assets so that lenders will not be afraid of hidden toxic assets on borrower's balance sheets. Frozen credit markets will thaw.

Okay......not a bad idea. But, if the end goal is freeing up credit and not bailing out individual firms, another way to do this would be to legislate a requirement that these off-the-books over the counter transactions would have to be revealed. Then, lenders would know who was exposed and who was safe. Credit would flow to those worthy of it, and those who took (massive) risks would be responsible for their own fate.

What is the end goal of the bailout? Restore credit markets? Bailout individual firms (AIG but not Lehman)? Protect retirement money in the market?

What is the most narrowly tailored method available to achieve the goal?

Bailout Bill

Catherine Rampell at the NYTimes liveblogging the House Debate on the Bailout Bill.